Baron Funds - valuewalk.com · the 2014 Baron Conference scheduled for November 7th at the...

“I am not sure at all we are in the samebusiness. I don’t know if we will useApple products in 25 years, but I am surewe will still be drinking Dom Pérignon.”1

Bernard Arnault. Chairman. LVMH MoëtHennessy – Louis Vuitton. New YorkTimes. October 4, 2014.

That was the response Bernard Arnaultgave to Apple’s Steve Jobs when severalyears ago Jobs reportedly asked Arnault “forsome advice about retailing.” Arnault, theprincipal owner of LVMH, is the wealthiestindividual in France. According to Forbes,Arnault has an estimated net worth greaterthan $29.5 billion. This wealth is largely theresult of Arnault’s successful efforts tobuild LVMH into the largest luxuryconglomerate in the world. Among thebrands LVMH owns is Moët & Chandon, theproducer of Dom Pérignon champagne.

Arnault created LVMH as a holdingcompany for “family businesses” that sharehis values of providing enduring, relevant,luxury products and services. Arnault, likemany owners of family businesses, usuallythinks in terms of generations, notquarters. Arnault’s vision about what makesa business, product or service endure isconsistent with the “Built to Last” theme ofthe 2014 Baron Conference scheduled forNovember 7th at the Metropolitan OperaHouse in New York City.

Just like Tom Pritzker, Elon Musk, KevinPlank and many other executives who

manage businesses in which we invest,Arnault invests in people, not only theirproducts and services. Just like we do.Further, Arnault’s interest in businesses’cultures and values has enabled LVMH to

retain many owners who sold their familybusinesses to LVMH as actively involvedmanagers. That is Warren Buffett’splaybook. That is why businesses owned byArnault … Buffett … and Baron Funds are“built to last.”

Few businesses many think are “built tolast” actually do. In 1958, the lifespan of aFortune 500 company was 61 years. It isnow 15 years. Less than half the “NiftyFifty” of the ‘60s and ‘70s remain. It is oftena failure of management’s vision to createconsistent values and culture that causesbusinesses to fail. Making sure productsand services are attractive and relevant …comes from the values and culture of abusiness.

TABLE OF CONTENTSLetter from Ron 1Letter from Linda 6Review and Outlook 12Baron Funds Performance 15Baron Asset Fund 20Baron Growth Fund 24Baron Small Cap Fund 28Baron Opportunity Fund 32Baron Partners Fund 36Baron Fifth Avenue Growth Fund 41Baron Focused Growth Fund 45Baron International Growth Fund 49Baron Real Estate Fund 53Baron Emerging Markets Fund 59Baron Energy and Resources Fund 63Baron Global Advantage Fund 68Baron Discovery Fund 72Portfolio Holdings 76

December 31, 2010 Letter from RonBaron Asset FundBaron Growth FundBaron Small Cap FundBaron Opportunity FundBaron Partners FundBaron Fifth Avenue Growth FundBaron Focused Growth FundBaron International Growth FundBaron Real Estate FundBaron Emerging Markets FundBaron Energy and Resources FundBaron Global Advantage FundBaron Discovery Fund

September 30, 2014

Baron Funds®

Quarterly Report

RONALD BARON

CEO AND CHIEF INVESTMENT OFFICER

1 Our analysts, Carl Icahn, and Tim Cook believe that Apple should be thought of as more than a device company. The Apple iCloudecosystem creates loyal customers who, once they purchase an Apple device, will likely continue to use Apple products and services. Ourteam, Icahn and Cook believe that Apple will be around in 25 years.

Attention to detail by managers trying tocreate the best possible products andservices for their customers is emblematicof a successful business culture. As a formerDirector of Enforcement at the Securitiesand Exchange Commission described theculture of a firm, “it comes from the top.”We agree.

When we attended the opening of WynnResorts Las Vegas in April 2005, we touredthe property with Sol Kerzner and Sol’sson, Butch. The Kerzners were thedevelopers/owners of the Atlantis resort inthe Bahamas. Sol told us that Steve Wynnwas quite upset because many of hisguests didn’t like a show in which Wynnhad invested $100 million. Sol told Stevenot to worry – the problems with theentertainment were small and could beeasily fixed. Butch turned to his dad. “Youhave got to be kidding!!! You told Steve notto worry about a show that cost $100million that his guests didn’t like? Dad, youhad a total meltdown after we opened theAtlantis when in the middle of summer awaiter served butter outside that hadmelted!!!!”

Vail Resorts: Built to Last

Vail Resorts is a business in which we havebeen a shareholder since 1997. We thinkVail Resorts is “built to last.” To use BernardArnault’s touchstone, people will still beskiing in Vail in 25 years, just as they haveover the 48 years since the town wasincorporated in 1966. You could buildanother town like Vail. But you cannot buildanother Vail mountain. We thought Vail’sprior management was smart, but didn’tlike their strategy of using Vail’s lift ticketcash flow to invest in the hotels of otherresorts. Vail replaced that management in2006. Its new team, led by Rob Katz, hasbeen using the cash flow from its skimountains to invest in $15 million highspeed lifts, $10 million restaurants, moregrooming equipment, and $80 millionsummer mountain rides. We believe thelast investment could earn more than $75million per year in a few years.Management is also making an effort to

“regentrify” Vail Village by building … andthen selling … new hotel and condo beds.This is forcing neighboring hotels andcondos to upgrade their facilities or risklosing their customers to facilities thathave been renovated.

Katz also focused on season pass sales. Vailnow sells about 45% of its ski lift tickets inadvance, immunizing its business from“poor snowfall” seasons. Finally, Vail hasacquired several other mountain resorts,with the most important, Park City, at adistressed sale price. These additionalresorts have created a network that Vail canleverage to sell its season passes. SinceVail’s management has changed, we havetripled our investment in this business with,in our view, exceptional competitiveadvantages and strong growth prospects ...and with a stock that is cheaper thanhotels’ but that we think should be moreexpensive. We expect to at least double ourmoney again in the next five or six years …and, after that takes place, we believe Vailwill still be an unusually attractiveinvestment. This is all becausemanagement remains focused onimproving the customer experience andinvesting in their business. That’s what wemean about culture and values.

Manchester United: Built to Last

U.K. soccer team Manchester United is themost popular sports team in the world.More fans watch televised soccer matchesthan any other sporting event. That is whywe consider our investment in ManchesterUnited to be an investment in the mostpopular television program in the world.Twenty five years from now, we believehuge audiences will still be watching thisteam that has won more championshipsthan any other in its 138-year history.

Manchester United televises 38 of itsgames a year. On average, 47 million fanswatch each of those games! The NFL’sSuper Bowl is played once a year. In 2014,it had 115 million viewers. Accordingly, wethink Manchester United’s televised gamesare the equivalent of 16 Super Bowls a

year! Because fans like to watch sportingevents live with their attendantcommercials, not time shifted withcommercials eliminated, sports teams areunusually valuable media properties.Manchester United’s sustainablecompetitive advantage is its brand derivedfrom its storied history and huge fan base.Media and licensing opportunities providesignificant growth potential. Itsmanagement is investing its cash flow instar players and a new coach of championteams to win more championships andmake its franchise even more valuable.Manchester United’s investment in itsbusiness to benefit its fans at the expenseof its short-term profits demonstrates thevalues we think make this businessattractive.

Tesla Motors: Built to Last

“We are not currently showing all ourcards.” That was Chairman Elon Musk’smemorable comment on Tesla Motor’ssecond quarter 2014 earnings conferencecall. He then told investors that by the endof 2015, Tesla would be producing cars at arate of 100,000 per year. That translates to$10 billion in annual sales with potentialafter-tax profits of $2 billion, if Tesla werenot penalizing its profits in its bid to growfive times as large by 2020. Elon hinted atsomething more to come. He was true tohis word. On October 9th, he announcedthat four wheel drive and really cool newautonomous driving technology was beingadded to Tesla cars, making them evensafer than they already are.

We are a fan of Tesla’s business and of ElonMusk. One competitive advantage that wethink will make Tesla “built to last” and allof us likely Tesla customers in 25 years, isthat its competitors are being compelled tobuild and sell electric cars. They do notwant to build such cars. As a result, they aredeveloping electric expertise so slowly thatthe lead Tesla has built up through its fastgrowing staff of Silicon Valley engineersmay soon become nearly insurmountable.Car companies don’t want to build electriccars because their existing plants that

2

Letter from Ron

make engines, transmissions and drivetrains would become “stranded assets.”Their unions don’t want electric cars sincethey are simpler to manufacture than carswith internal combustion engines (ICE),which means fewer factory assemblyworkers. Dealers don’t want electric cars,either. Tesla bypasses franchised dealers tosell its cars directly to consumers.Franchised car dealers also make a lot moremoney servicing cars than selling new ones.Tesla cars need less service than ICE cars. Astandard ICE automobile has more than2,000 moving parts. Tesla cars have 18moving parts!

Tesla’s culture is far different from that ofother car companies. Tesla’s mission is tobuild the planet’s best AND safestautomobile. Tesla’s car also happens to bebest for the environment. The followingsays all we need to know about Tesla’sculture and why the best engineers inSilicon Valley want to work there. WhenTesla began to manufacture its cars, itsinspection process was not as strong as itneeded to be. Elon then conducted lineinspections personally until his fellowworkers understood exactly how he wantedthe process to work. Elon next moved hisdrafting table to the middle of themanufacturing floor to write software withhis engineers. That was to make sureeveryone knew how important the qualityof the product was to him. Our kind ofchairman, that is for sure. Our kind ofculture, in which every employee doeswhatever it takes to provide Teslacustomers with the best product possible.

One more thing. While many carcompanies doubt electric cars willultimately represent a large portion of newcar sales, BMW is not one of thosecompanies. Two of our research analystsrecently visited BMW’s headquarters inMunich, as well as its electric vehicle andcarbon fiber assembly plants in Leipzig,Germany, and its battery pack assemblyplant and research facility in Dingolfing,Germany. The BMW financial team believesa revolution in drive train is underway. Webelieve that BMW will likely phase out

internal combustion engines over the next10 years!

“September and October 2008 was theworst financial crisis in global history,including the Great Depression.” Of the13 “most important financialinstitutions in the United States, 12were at risk of failure within a period ofa week or two.” Ben Bernanke. FormerChairman, United States Federal ReserveBoard. August 22, 2014.

The above was testimony given by formerFederal Reserve Board Chairman BenBernanke in a $40 billion lawsuit by formerAIG Chairman Hank Greenberg against thefederal government. From our reading ofreports of the trial, Greenberg contendsthat AIG was “bailed out” under terms thatwere unfair because they were not asfavorable as those given to other similarlysituated financial institutions. The federalgovernment contends it had broaddiscretion granted by Congress to lend onterms it thought appropriate. When itprovided $184 billion of “bail out” aid and,in turn received a 92% stake in AIG, AIGhad a $15.4 billion market cap. It alsohappened to be insolvent. Not only wouldAIG not have survived if it hadn’t beenrescued, but if it had failed to meet itsobligations to bank counterparties, ourentire financial system could havecollapsed. According to Bernanke, AIG hadno other offers to “bail out” its business.

We believe the events of six years agocontinue to have a detrimental impact onour financial markets. This is because manyindividual and institutional investors whoexperienced great losses then remain afraidto invest in stocks today. While most of ushave expertise in the trade or profession wepractice, since anyone can easily buy or sellpublicly traded stocks, it may not seemthat expertise is required to investsuccessfully in the markets. However,ownership of intangibles like stocks and themethods by which they are valued areabstract and challenging for most tounderstand. Valuations become even moredifficult to understand when stock prices

are volatile and change dramatically withina day or even an hour based on newsreports. This is happening at the same timeas investors and computers try to runahead of each other to take advantage ofwhat they believe is their special expertisein interpreting and evaluating the impact ofthat news on share prices. We considersuch volatility to be “noise” and think thatwhat is important is whether you have aninvestment in a business and whether thatbusiness will become twice as valuable infour or five years.

Former Fed Chairman Ben Bernankeanswers Carl Icahn’s questions at dinner

At a recent dinner I attended, Bernankeanswered questions from about 25investors regarding events in the fall of2008 and their relevance today. The firstquestion posed to Bernanke was whetherwhat happened six years ago could happenagain. Bernanke compared the Panic of2008-09 to four other financial panics thathad occurred in the United States since1873. He differentiated it from past panicsthat were “runs on banks” and pointed outtheir analogies to the “sub-primecontagion” we recently experienced. Hethen explained that the Federal Reservehad since done a great deal of work toidentify systemic vulnerabilities and wouldbe proactive to prevent a recurrence ofwhat had taken place. Basel III regulations,he noted, required a bank that became “toobig to fail” to raise debt at holdingcompany levels that would be forced toconvert to equity were that bank to comeunder financial duress.

Bernanke was then asked for his reaction torecent market volatility. The formerChairman remarked that he thought it wasin the range of “normal.” He opined thatthe very low stock market volatility inrecent years meant “investors had becometoo comfortable extrapolating Fed policy,”which made that policy less effective.

When the discussion turned to interestrates, the former Chairman stated thatinterest rates are low everywhere, not just

3

September 30, 2014 Letter from Ron

in the United States. “Rates are determinedby markets, not by the Fed,” he remarked.“If the Fed were to raise the Fed funds ratein the short term, our economy wouldcrater. Then rates would quickly return tozero.” Carl Icahn then observed that lowinterest rates are causing higherunemployment. “Low cost money givesbusinesses the ability to take over otherbusinesses and fire their employees.”Bernanke responded, “Interest rates havebeen low since 2008, and we have createdeight million new jobs.” Carl seemedunconvinced. But since no one else in theroom was worth $25 billion and no oneelse was 6’6” tall, no one wanted to arguewith Carl and the conversation moved on.

When Bernanke was asked about Europe,he noted that ECB Chairman Mario Draghiwas “delicately and painfully trying to getpermission to buy the financial assets,” aprocess that Bernanke believes is necessaryfor that continent to rebound from anextended period of slow growth with littleto no inflation. He was not optimistic thatDraghi would be successful since Germanywas opposed to the ECB head’s efforts todo “the right thing.” If economic conditionsremain depressed in Europe, Bernanke said,it is likely that the United States economywill grow less than it would have otherwiseand rates would likely remain lower thanthey would have otherwise.

Another dinner guest, restaurateur TilmanFertitta, then observed that his hospitalitybusiness, which serves 60,000 people perday, was experiencing significant inflationand resultant margin pressures. “Food, laborand occupancy cost increases aresignificant,” Fertitta noted. Bernankeresponded that inflation was not visible inthe data he reviews. He suggested thatTilman speak to Carl who thought lowinterest rates were creating unemploymentand downward pressure on wages. “MaybeCarl can assist your staffing team,”Bernanke helpfully suggested.

Bernanke next observed that he wasdisappointed that Congress wasdysfunctional and had not done more to

boost the growth rate of our nation’seconomy. Bernanke believes that could beaccomplished by increasing infrastructurespending, addressing high health care costs,attempting to reform our tax code, andlegislating immigration reform.

Finally, before leaving the dinner Bernankeseemed to offer a somewhat more hopefulview of our nation’s prospects. He notedthat United States demographics werebetter than in most other nations as aresult of 1.5 million immigrants per year,that our higher education system was thebest in the world, that our high techindustry was the envy of the rest of theworld, and that venture capital and privateequity in our country had made significantcontributions to our nation’s economy. “Welive on a dangerous planet, though, in partthe result of terrorism threats. But we arethe best horse in the glue factory.”

Baron Investment Conference 2014.November 7, 2014. Metropolitan OperaHouse. New York City.

We hope you will be able to attend our23rd annual investment conference onNovember 7th. The conference is designedto allow you to meet and questionexecutives of businesses in which yourhard-earned savings have been invested. Itwill also give you an opportunity to meetand question our portfolio managers andanalysts, Linda and me, and our salesrepresentatives, about our investmentprocess, our portfolio investments, andany other topics on your mind ... noquestions are off limits. We hope you willthink of this day as a chance to “kick thetires” of your investments in Baron Funds.On Thursday evening before ourconference and the early part of thatFriday morning, we have programs forinstitutional investors, registeredinvestment advisers, independentfinancial advisers and consultants. Atthese programs, attendees will have achance to meet and speak one-on-onewith our analysts and portfolio managers.Our analysts and managers will beavailable throughout the rest of Friday to

answer any questions any of you mayhave.

Finally, the entertainment. At lunch. At theend of the day. As usual, we think it will bevery cool ... outstanding, as a matter offact.

Also, as usual, it will be at our expense, notyours. And as usual, it will be a surprise. No,we can’t tell you who it is. Only Linda andI know for sure. Linda because she signs thecontracts and the checks. Me because Ichoose the entertainers.

We hope we’ll see you on November 7th.For those of you who can’t attend, you willbe able to watch the live webcast on theBaron Funds website (except forentertainment, which we are contractuallyprevented from streaming). You can get asense of our meeting by watching CNBC’sSquawk Box that morning from 6 a.m. to8:30 a.m. EST. Becky Quick and I will beinterviewing several executives with whomBaron Funds has invested and with whomwe expect to make a lot more money ...although we obviously can’t promise that.Becky will also interview me on SquawkBox live from the conference that morning.

We like to say, “We invest in people.” Wehope when you attend our annualconferences, watch us on CNBC, or visit ourwebsite, you will gain a betterunderstanding of the businesses in whichwe invest, and the character and talent ofthe executives who run them as well as thepeople who work at our Firm.

Thank you for joining us as fellowshareholders in Baron Funds. We willcontinue to work hard to justify yourconfidence in us. See you in November.

espectfully,

Ronald BaronCEO and Chief Investment OfficerBaron FundsOctober 20, 2014

4

Letter from Ron

5

September 30, 2014 Letter from Ron

Investors should consider the investment objectives, risks, and charges and expenses of the investment carefully before investing. The prospectusand summary prospectuses contain this and other information about the Funds. You may obtain them from the Funds’ distributor, Baron Capital,Inc., by calling 1-800-99BARON or visiting www.BaronFunds.com. Please read them carefully before investing.

Investing in the stock market is always risky.

Portfolio holdings may change over time.Portfolio Holdings

As a Percentage of Net AssetsAs of September 30, 2014

BaronFifth Baron Baron

Baron Baron Baron Baron Baron Avenue Focused RealAsset Growth Small Cap Opportunity Partners Growth Growth EstateFund Fund Fund Fund Fund Fund Fund Fund

Manchester United plc –% 1.2% –% 1.9%* 3.8%* –% 4.3% –%Tesla Motors, Inc. – – – 2.0* 8.7* – 3.2 –Vail Resorts, Inc. 3.2 2.3 – – 3.6* – 6.1 –Wynn Resorts Ltd. 2.6 – 0.9 – – 4.0 – 2.4* % of Long Positions

Baron FundsNet Realized and Unrealized Gain ($ in millions)

As of September 30, 2014

BaronFifth Baron Baron

Baron Baron Baron Baron Baron Avenue Focused RealAsset Growth Small Cap Opportunity Partners Growth Growth EstateFund Fund Fund Fund Fund Fund Fund Fund

Manchester United plc $– $12.6 $– $(0.2) $(3.0) $– $0.3 $–Tesla Motors, Inc. – – – 5.0 22.3 – (0.2) –Vail Resorts, Inc. 21.5 119.3 – – 54.5 – 3.3 –**Wynn Resorts Ltd. 242.1 331.2 124.2 – 86.0 1.9 15.8 11.0** Less than $50,000

At September 30, 2014, Baron International Growth Fund, Baron Emerging Markets Fund, Baron Energy and Resources Fund, Baron GlobalAdvantage Fund and Baron Discovery Fund did not own any of the securities listed above.

The discussions of market trends and companies throughout this report are not intended as advice to any person regarding the advisability ofinvesting in any particular security. Some of our comments are based on current management expectations and are considered “forward-lookingstatements.” Actual future results, however, may prove to be different from our expectations. Our views are a reflection of our best judgment atthe time of the publication of this report and are subject to change any time based on market and other conditions, and we have no obligationto update them.

66

It’s football season and, once again, Peyton Manning is still playingfootball. As most everyone knows, Peyton was the five-time MVPquarterback of the Indianapolis Colts for 14 years, where he led them toeight division championships, two AFC championships, and one SuperBowl championship. Then he got older, injured, and needed surgery. TheColts brought in a new, young quarterback and released Peyton. He wassnapped up by the Denver Broncos, and we all know which team made itto the Super Bowl: it was not the Colts. The morale of this story is justbecause you experience a setback doesn’t mean you won’t continue tohave success.

It has been five years and seven months since the S&P 500 Index hit adreadful low of 666.79 (intra-day) in the midst of the full force of thefinancial crisis. This August, the index passed the 2,000 mark for the firsttime in history, three times above the low of the crisis, retreating slightly atthe end of September. Certainly, much has changed in the U.S. economicand business environment to trigger that impressive growth (a total returnof 191.53%, or 228.05% including dividends). And certainly today we livein a healthier economy with improving fundamentals, along with restoredconsumer and investor confidence.

The S&P 500 Index Has Tripled Since its March ’09 Low

Source: FactSet

Reading the news and listening to investors, it seems that to many, fiveyears and seven months of a strong market is too much of a good thing. Inrecent months there’s been a lot of commentary suggesting that stockshave appreciated “too much” for too long and are now overvalued. Punditshave exclaimed that the stock market has exhausted its growth potential,and that we are at the peak of the bull market and due for a correction.Others disagree, believing that the markets still have room toappreciate, supported by a not-too-hot/not-too-cold economy, even withthe much-anticipated rise in interest rates at some point in 2015.

Five years seven months and a 192% return is indeed an impressive run, butit is merely average when compared to historical bull markets. The tablebelow lists all bull markets since 1871 and ranks them by duration. Wedefine bull markets as those with at least a 20% increase that lasted sixmonths or more. The return magnitude of the current bull market is slightlyabove average and is sixth, as measured by duration. The current bull marketdoes not come close to two of the largest bull markets, both of which endedwith speculative stock bubbles: one the dot-com bubble, and the other theGreat Depression. These impressive runs also had short-term event-drivencorrections. The longest bull market experienced three of them, rangingfrom -33% to -19%: Black Monday in 1987, the Iraq war in the early 1990's,and the collapse of LTCM in 1997.

500

750

1,000

1,250

1,500

1,750

2,000

S&P 500 Index

Mar

-07

Sep-

07

Mar

-08

Sep-

08

Mar

-09

Sep-

09

Mar

-10

Sep-

10

Mar

-11

Sep-

11

Mar

-12

Sep-

12

Mar

-13

Sep-

13

Mar

-14

Sep-

14

3x

LINDA MARTINSON

CHAIRMAN, PRESIDENT AND COO

Letter from Linda

The Current Bull Market is Not the Longest or the Largest…Yet

Bull Markets Since 1871 Includes all increases in the S&P 500 Index of 20% or more that lasted at least 6 months

Data is monthly from 01/1871 to 12/1956, daily afterwards

Duration Duration Price Return Start End (months) Rank Return Rank

13-Aug-1982 27-Mar-2000 211.4 1 1387.85% 1

July 1949 12-Dec-1961 149.4 2 419.97% 2

September 1921 September 1929 97.0 3 385.27% 3

4-Oct-1974 28-Nov-1980 73.8 4 125.63% 9

September 1896 September 1902 73.0 5 132.28% 8

10-Mar-2009 30-Sep-2014 66.7 6 191.53% 4

24-Jul-2002 9-Oct-2007 62.5 7 96.21% 11

May 1942 May 1946 49.0 8 138.52% 6

July 1877 June 1881 48.0 9 141.03% 5

27-Jun-1962 9-Feb-1966 43.5 10 79.78% 12

November 1903 September 1906 35.0 11 60.22% 15

27-May-1970 11-Jan-1973 31.5 12 73.53% 13

February 1885 May 1887 28.0 13 39.15% 18

10-Oct-1966 29-Nov-1968 25.7 14 48.05% 16

December 1907 December 1909 25.0 15 64.80% 14

April 1935 February 1937 23.0 16 115.34% 10

January 1915 November 1916 23.0 16 38.91% 19

July 1932 February 1934 20.0 18 137.32% 7

January 1918 July 1919 19.0 19 39.85% 17

May 1938 November 1938 7.0 20 32.15% 20

AVERAGE 55.6 187.37%

Sources: Robert Shiller, Federal Reserve Bank of St. Louis, FactSet, Baron Capital.

We recognize that markets are cyclical and will likely correct or shift to abear market at some point. If stock prices increase for no apparent reasonand without adequate growth in earnings, sustainable profitability, orreturns, we would be concerned. We are not presently concerned.

77

Room for More Growth

We think the current bull market has more room to run, but we do notexpect the stellar 30%+ return from 2013 to repeat this year or next. Webelieve that conditions are in place to sustain attractive growth rates inthe companies in which we invest and attractive returns in their stockprices. In our view, current levels of widely-used valuation metrics supportour thesis. Valuations are at or moderately above their 100-year average,and there are plenty of good stocks at attractive prices to be found, in ouropinion.

When comparing current P/E multiples relative to historical averages,valuations for growth stocks, across all market caps, seem reasonable, andsome show material discounts. This is not the case for value stocks, asshown in the table below. In the small cap space especially, there is asignificant gap in the valuations between growth stocks and value stocks.As of September 30, 2014, large cap growth stocks were 15% cheaper thantheir 20-year average, and mid cap and small cap growth stocks were bothabout 10% cheaper. We consider these to be attractive discounts and anindication that there is room for additional appreciation in thesesegments.

Growth Stocks are Trading at a Higher Discount Compared toHistorical Averages

Current FY1 P/E Ratio /20-Yr Average FY1 P/E Ratio

as of 9/30/2014

Value Blend Growth

Large 14.6x / 13.9x 16.0x /16.6x 17.7x / 20.8x

Mid 15.9x / 14.1x 17.5x / 16.4x 19.4x / 21.5x

Small 15.2x / 14.3x 16.9x / 17.0x 18.8x / 20.8x

Current FY1 P/E as % of 20-Yr Average FY1 P/E

as of 9/30/2014e.g.: large cap growth stocks are 15% cheaper

than their historical average

Value Blend Growth

Large 105% 96% 85%

Mid 113% 107% 90%

Small 107% 100% 90%Source: Russell Indexes: 1000 Value, 1000, 1000 Growth, Mid Cap Value, Mid Cap, Mid Cap Growth, 2000 Value,2000, 2000 Growth

Current valuations also imply significant forward long-term returns,particularly for growth stocks. We looked at the historical relationshipbetween stock valuations and future returns and plotted the results inthe following charts. While this analysis is not proof of cause and effectbetween P/Es and future returns, it reveals a pattern that suggests sucha relationship – low valuations correspond to higher five-year futurereturns. We first did this exercise almost two years ago (see my letter forthe quarter ended December 31, 2012). While valuations are slightlyhigher and growth rates are slightly lower, the relationship remainsconsistent.

The result from this analysis suggests attractive stock returns over thenext five years, with growth stocks being in a stronger position. Atcurrent valuations, the analysis shows that the implied forward rate ofreturn for growth stocks is 11.7% over the next five years, while valuestocks’ implied rate is 8.5%, although there is no guarantee this will bethe case.

What we currently see are strong and improving company fundamentalsthat justify the recent multiple expansion, rather than a speculative stockprice bubble. The Q2 2014 earnings season hit a record high in S&P 500operating earnings per share, posting a 12.6% year-over-year growth and a130% increase over the past five years. Most of the companies we invest inalso posted strong results, the majority of which outperformed estimatesand beat historical results.

Historical Price Increases Have Been Supported by Strong Earnings

Source: FactSet. Earnings data as of 9/30/2014

We also see favorable economic conditions with positive trends. Recentdata shows the U.S. economy has improved significantly and should havegood momentum in the latter part of 2014 and into 2015. Jobs have beenadded, and unemployment has fallen to pre-recession levels. Housing startsand industrial capacity utilization, among other things, have been steadilyincreasing too. The federal budget deficit has also improved significantlysince the recession. We think that businesses will only benefit from theimproving economic environment, and that there is plenty of room forgrowth ahead of us.

Economic Conditions Have Been Positive

192%

S&P 500 IndexQ

1 ’0

9

Q4

’09

Q3

’10

Q2

’11

Q1

’12

Q4

’12

Q3

’13

Q2

’14

Mar

-09

Sep-

09

Mar

-10

Sep-

10

Mar

-11

Sep-

11

Mar

-12

Sep-

12

Mar

-13

Sep-

13

Mar

-14

Sep-

14

600

800

1000

1200

1400

1600

1800

2000

130%

S&P 500 Earnings per Share(quarterly operating)

$10

$15

$20

$25

$30

6%4%2%

-2%0%

-4%

-10%-8%-6%

Q3

2008

Q1

2010

Q1

2014

Q1

2012

120

100

80

40

60

20

0

Mar

-07

Sep-

08

Sep-

10

Sep-

12

Sep-

14

86.0

12%

10%

8%

4%

6%

2%

0%

Mar

-07

Sep-

08

Sep-

10

Sep-

12

Sep-

14

5.9%

1600140012001000

800

200600

2000

Mar

-07

Sep-

08

Sep-

10

Sep-

12

Sep-

14

956

85%

80%

75%

70%

65%

60%

Mar

-07

Sep-

08

Sep-

10

Sep-

12

Sep-

14

78.8%

0%

-4%

-2%

-6%

-8%

-10%

-12%

2006

2008

2010

2012

2014

Est

.

2016

Est

.

2018

Est

.20

19 E

st.

-3.7%

U.S. GDP Growth Rate U.S. Unemployment RateU.S. Consumer Confidence Index1985 = 100

U.S. Housing Starts

U.S. Federal BudgetSurplus/Deficit

% of GDPU.S. Capacity Utilization

Source: FactSet for historical data and The Conference Board for forecasts; Bureau of Labor Statistics; The Office ofManagement and Budget (http://www.whitehouse.gov/omb)

September 30, 2014 Letter from Linda

88

At Current Valuations, Growth Stocks Have Higher Long-term Upside Potential

Source: Russell Investment Group; Morningstar Direct Baron Capital

Historical Average FY1 P/E: 20.7x

11.3%

Current FY1 P/E: 17.8x

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

5x 10x 15x 20x 25x 30x 35x 40x 45x 50x 55x

Forw

ard

5Yr R

etur

n

FY1 P/E

Russell 3000 Growth IndexFY1 P/E and Total Return Over 5-year Annualized Periods

Quarterly, Q1 1992 to Q3 2014

Historical Average

FY1 P/E: 14.0x

8.2%

Current FY1 P/E: 14.4x -40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

5x 10x 15x 20x 25x 30x 35x 40x 45x 50x 55x

Forw

ard

5Yr

Ret

urn

FY1 P/E

Russell 3000 Value Index FY1 P/E and Total Return Over 5-year Annualized Periods

Quarterly, Q1 1992 to Q3 2014

Timing the Market Would be an Amateur’s Mistake That Canbe Very Costly

Investors appear to be anxious, as demonstrated by the negative year-to-date flows out of domestic equity mutual funds and ETFs. This may proveto be an over-reaction by investors, as well as a costly mistake.

Source: www.Cartoonstock.com

The Patriots lost 41-14 to the Chiefs in week four and had a 2-2 record. Theresult was a lot of noise about whether the team should bench 37-year oldTom Brady. Many were ready to have him hang up his cleats. Other factors,of course, could have been responsible for the slow start, such as theoffensive line or inexperienced receivers. An experienced coach like BillBelichick didn’t waiver in his support of his seasoned quarterback. Week fivesaw the Patriots face the Bengals, a team that entered the game 4-0. Brady

According to Byron Wein of Blackstone, market bubbles occur at 25-30times trailing twelve month earnings, which is far from the S&P 500 Index’scurrent 17 times 2014 earnings, likely even lower in 2015.

While we are optimistic about the long-term growth in the stock market,we are not delusional that it will come without hiccups. In fact, we wouldrather see some volatility on the way up, as it creates opportunities tobuy stocks on our radar or increase existing positions at more attractiveprices. The current bull market has given us a few such opportunities as ithas had a few periods with significant declines, which is shown in thechart below.

Temporary Corrections Have Not Hindered the Current BullMarket

Source: FactSet

Such temporary corrections are characteristic of most bull markets and areto be expected. Expectations notwithstanding, equity investors with a longinvestment horizon should not attempt to avoid them.

S&P 500 Index

600

800

1000

1200

1400

1600

1800

2000

-5.8%

-5.2%

-7.7%

-10.0%

-16.0%

-19.4%-8.1%

Jan-

09

May

-09

Sep-

09

Jan-

10

May

-10

Sep-

10

Jan-

11

May

-11

Sep-

11

Jan-

12

May

-12

Sep-

12

Jan-

13

May

-13

Jan-

14

May

-14

Sep-

13

Sep-

14

Letter from Linda

99

threw for 292 yards and beat the Bengals resoundingly, 43-17. Tom Brady isnot done yet – there are still more successes to be achieved in an alreadysuccessful career (in week five he became the sixth quarterback to haveover-50,000 career passing yards).

Over-reacting to short-term issues, trying to time the equity markets, orabandoning the equity markets entirely, should not, in our opinion, be partof an investor’s game plan. It certainly seems safer to put your money in abank account. Consider, however, what you earn from a one-year bank CD(around 1%) and factor in the consequences of inflation (currently around1.7%, as measured by the Consumer Price Index), and you are left with anegative return.

Following what everyone else does in the equity markets will often resultin selling after the market has gone down or buying after the market hasgone up. Instead, it forces investors to participate in the downside andkeeps them from participating on the upside, which is not a particularlysuccessful strategy.

Staying Invested in the Right Equity Portfolio Can be Beneficial

We are not in the business of forecasting economic or stock market trends,and we don’t attempt to predict where the market is heading near-term.While we remain optimistic about the near and long term prospects for themarket, we recognize that not every investor thinks the same way. Recentlythere has been selling pressure and a spike in volatility in the U.S. equitymarkets, driven by news of global economic slowdown, coupled withgeopolitical issues and Ebola . No matter if you are bullish or bearish, wethink it is wrong to try to time the market. Rather, we think you shouldchoose an equity portfolio that suits your current risk appetite. It is just amatter of picking the appropriate investment that will provide an inherentdefense against inflation. Sometimes the best defense beats the bestoffense (see, for example, the Steeler’s famous “Steel Curtain” defense).

At Baron we offer a broad range of equity portfolios that can suit a variety ofrisk tolerances. Some of our Funds are mostly invested in steadily-growing lowbeta stocks that offer protection in down markets. Our higher growth portfoliosoffer more upside potential and would be more suitable to a bullish investor.


Investor Anxiety Leads to Buy High/Sell Low Behavior

Stock Mutual Fund Flows vs. One-Year Forward Returns

Source: Baron Capital using Morningstar data

70%

$240

$210

$180

$150

$120

$90

$60

$30

$-

Estimated NegativeNet Flows preceded

stellar returns

Linda’sQ4 2011Letter

Record Estimated Positive NetFlows preceded negative returns

$(30)

$(60)

12-M

onth

Est

imat

ed N

et F

low

s ($

Bill

ion)

U.S. OE Equity Net Flows - 1Yr Cumulative

$(90)

$(120)

$(150)

80%

60%

50%

40%

30%

20%

10%

0%

One

-Yea

r Fo

rwar

d To

tal R

etur

n

S&P 500 TR - 1Yr Forward Return

-10%

-20%

-30%

-40%

-50%

Dec

-92

Dec

-93

Dec

-94

Dec

-95

Dec

-96

Dec

-97

Dec

-98

Dec

-99

Dec

-00

Dec

-01

Dec

-02

Dec

-03

Dec

-04

Dec

-05

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-13

Dec

-12

Dec

-11

We first used the chart above in my letter for the quarter endedDecember 31, 2011 and have updated it for this letter. Apparently someinvestors didn’t agree with the analysis, because, once again, investorshave tried to time the market, and, once again, have done it incorrectly.By June 30, 2012, one-year equity mutual fund cumulative net flowsreached their lowest levels since 1992, at negative $114 billion. Assumingthese investors stayed out of equity mutual funds for the next one year,they missed earning a 27.3% return, as measured by the returns of theS&P 500 Index. During this time period, most investors favored taxablebonds, which had single digit forward returns. If all the investors who leftthe equity markets put their money under their mattress, they wouldhave missed out on earning over $30 billion; and if they invested insteadin taxable bonds, they would have missed out on earning about $23billion. To put that in perspective, that money could pay for tuition, roomand board at Princeton for about 100,000 students for four years each; orbuy 10 NFL teams, the Clippers, and plenty of beer.

One common way of assessing how well a portfolio performs in down or upmarket cycles is by calculating the upside and downside capture ratios.Upside capture compares a portfolio’s performance against its benchmarkwhen the benchmark’s performance is positive, and downside capturecompares a portfolio’s performance against its benchmark when thebenchmark’s performance is negative.

Upside and downside capture combined can be indicative of how effectivelyportfolios have weathered the different stages of market cycles and can beindicative of the risk profile of a portfolio over time. Portfolios that invest infast growing companies with volatile earnings will likely outperform in upmarkets and underperform in down. Portfolios with companies that havemore predictable and steady earnings will likely perform well in downmarkets and not as well in hot markets. If the possibility of a high returnoutweighs your aversion to volatility (greater than 100), then a high growthportfolio would be appropriate. If mitigating loss during a down market is

10

Baron Funds Have Fared Better Than Their Peers Over the Past Two Market Cycles

Monthly Rolling Three-Year Capture Ratios — 15 Years through 9/30/2014

Periods Average Average Overall with % with Upside Downside Capture # of Upside > Upside >

Fund/Category Primary Benchmark Capture Capture Ratio1 Periods Downside Downside

Baron Small Cap Fund 83% 71% 1.18 146 118 81%

Baron Growth Fund Russell 2000 Growth Index 79% 64% 1.24 146 113 77%Morningstar US OE Small Growth 92% 92% 0.99 146 73 50%

Baron Focused Growth FundRussell 2500 Growth Index

92% 74% 1.25 146 106 73%Morningstar US OE Mid-Cap Growth 87% 91% 0.96 146 27 18%

Baron Asset Fund 89% 84% 1.06 146 81 55%Baron Partners Fund Russell Mid Cap Growth Index 110% 98% 1.12 146 94 64%Morningstar US OE Mid-Cap Growth 93% 101% 0.92 146 8 5%

Baron Opportunity FundRussell Mid Cap Growth Index

119% 110% 1.08 139 94 68%Morningstar US OE Mid-Cap Growth 94% 102% 0.92 139 6 4%

Baron Fifth Avenue Growth FundS&P 500 Index

101% 108% 0.93 90 19 21%Morningstar US OE Large Growth 103% 108% 0.96 90 40 44%

Baron International Growth FundMSCI IMI Growth Index

100% 89% 1.13 34 34 100%Lipper International Multi-Cap Growth 101% 94% 1.01 34 18 52%

Baron Real Estate Fund MSCI USA IMI Extended 119% 90% 1.31 22 22 100%Morningstar US OE Real Estate Real Estate Index 101% 100% 1.01 22 6 27%

Baron Emerging Markets FundMSCI EM IMI Growth Index

99% 71% 1.39 10 10 100%Morningstar US OE Diversified Emerging Mkts 94% 98% 0.96 10 0 0%

Source: Baron Capital using Morningstar data.

1Overall capture ratio is calculated by dividing the average upside capture ratio by the average downside capture ratio.

Baron Funds for a Variety of Risk Tolerances

Source: Baron Capital using Morningstar data based on average three-year rolling capture ratios over the fifteen years ending 9/30/2014. Capture ratios are against each Fund’s respective primary benchmark*Funds have less than a 15 year history.

60% 70% 80% 90% 100% 110% 120% 130% 140%60%

70%

80%

90%

100%

110%

120%

130%

140%

CONSERVATIVEPORTFOLIO

BALANCEDPORTFOLIO

WRONGPORTFOLIO

AGGRESSIVEPORTFOLIO

Baron Real EstateFund*

Baron EmergingMarkets Fund*

Baron Fifth AvenueGrowth Fund*

Baron Focused Growth Fund

Baron InternationalGrowth Fund*

Baron Growth Fund

Baron Small Cap Fund

Baron Partners Fund

Baron Asset Fund

Baron OpportunityFund*

Ups

ide

Cap

ture

Rat

io

Downside Capture Ratio

more important than achieving the highest return in a strong market, thena more conservative portfolio might be appropriate. The chart below showsthat there is a Baron Fund for almost any risk tolerance level.

The overall capture ratio measures, on average, how well a portfolio hasfared relative to its benchmark during entire cycles, including both up and

down markets. The table below shows that our portfolios, on average, havehad a capture ratio of greater than one over the past two full market cycles,which means they have outperformed their benchmarks more often thannot. The average funds in our portfolios’ respective peer categories have notperformed as successfully.

Letter from Linda

Sinc

e In

cept

ion

15-Y

ear

11

Past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate; an investor’s shares, whenredeemed, may be worth more or less than their original cost. The Adviser has reimbursed certain Fund expenses for Baron Opportunity, Fifth Avenue Growth,Focused Growth, International Growth, Real Estate, Emerging Markets, Energy and Resources, and Discovery Funds (by contract as long as BAMCO, Inc. is theadviser to the Fund) and all the Funds’ transfer agency expenses may be reduced by expense offsets from an unaffiliated transfer agent, without whichperformance would have been lower. Current performance may be lower or higher than the performance data quoted. For performance information current tothe most recent month end, visit www.BaronFunds.com or call 1-800-99BARON. Investors should consider the investment objectives, risks, and charges andexpenses of the investment carefully before investing. The prospectus and summary prospectuses contain this and other information about the Funds. You mayobtain them from the Funds’ distributor, Baron Capital, Inc., by calling 1-800-99BARON or visiting www.BaronFunds.com. Please read them carefully beforeinvesting.

Baron Asset Fund’s annualized returns as of September 30, 2014: 1-year, 13.57%; 5-years, 15.45%; 10-years, 9.58%. Annual expense ratio for the Retail Shares as of September 30, 2013 was 1.32%.Baron Growth Fund’s annualized returns as of September 30, 2014: 1-year, 5.11%; 5-years, 15.83%; 10-years, 9.20%. Annual expense ratio for the Retail Shares as of September 30, 2013 was 1.30%.Baron Small Cap Fund’s annualized returns as of September 30, 2014: 1-year, 6.52%; 5- years, 15.44%; 10-years, 9.47%. Annual expense ratio for the Retail Shares as of September 30, 2013 was 1.31%.Baron Opportunity Fund’s annualized returns as of September 30, 2014: 1-year, 2.87%; 5-years, 13.67%; 10-years, 10.26%. Annual expense ratio for the Retail Shares as of September 30, 2013 was1.37%. Baron Partners Fund’s annualized returns as of September 30, 2014: 1-year, 15.27%; 5-years, 18.56%; 10-years, 10.84%. Annual expense ratio for the Retail Shares as of December 31, 2013was 1.67% (comprised of operating expenses of 1.38% and interest expense of 0.29%). Baron Fifth Avenue Growth Fund’s annualized returns as of September 30, 2014: 1-year, 16.71%; 5-years, 14.43%;10-years, 7.54%. As of September 30, 2013, annual operating expense ratio for the Retail Shares was 1.47%, but the net annual expense ratio was 1.30% (net of the Adviser’s fee waivers). Baron FocusedGrowth Fund’s annualized returns as of September 30, 2014: 1-year, 4.44%; 5-years, 12.77%; 10-years, 10.35%. As of December 31, 2013, annual operating expense ratio for the Retail Shares was1.42%, but the net annual expense ratio was 1.35% (net of the Adviser’s fee waivers). Baron International Growth Fund’s annualized returns as of September 30, 2014: 1-year, 1.25%; 5-years, 9.46%;Since Inception (12/31/08), 13.90%. As of December 31, 2013, annual operating expense ratio for the Retail Shares was 1.74%, but the net annual expense ratio was 1.50% (net of the Adviser’s feewaivers). Baron Real Estate Fund’s annualized returns as of September 30, 2014: 1-year, 16.84%; 3-year, 31.30%; Since Inception (12/31/09), 20.90%. Annual expense ratio for the Retail Shares as ofDecember 31, 2013 was 1.35%. Baron Emerging Markets Fund’s annualized returns as of September 30, 2014: 1-year, 8.17%; 3-year, 13.29%; Since Inception (12/31/10), 5.11%. As of December 31,2013, annual operating expense ratio for the Retail Shares was 1.90%, but the net annual expense ratio was 1.50% (net of the Adviser’s fee waivers). Baron Energy and Resources Fund’s annualizedreturns as of September 30, 2014: 1-year, 15.59%; Since Inception (12/30/11), 10.21%. As of December 31, 2013, annual operating expense ratio for the Retail Shares was 2.25%, but the net annualexpense ratio was 1.35% (net of the Adviser’s fee waivers). Baron Global Advantage Fund’s annualized returns as of September 30, 2014: 1-year, 17.29%; Since Inception (4/30/12), 15.11%. As ofDecember 31, 2013, annual operating expense ratio for the Retail Shares was 5.51%, but the net annual expense ratio was 1.50% (net of the Adviser’s fee waivers). Baron Discovery Fund’s total returnas of September 30, 2014: 1-year and Since Inception (9/30/13), 16.80%. Estimated annual operating expense ratio for the Retail Shares is 3.25%, but the net annual expense ratio is 1.35% (net of theAdviser’s fee waivers).

The index performance shown is not fund performance; one cannot invest directly into an index.

Definitions (provided by BAMCO, Inc.): The S&P 500 Index measures the performance of 500 widely held large cap U.S. companies. The Russell 2000® Growth Index is an unmanaged index thatmeasures the performance of small-sized U.S. companies that are classified as growth. The Russell 2500™ Growth Index measures the performance of small to medium-sized companies that areclassified as growth. The Russell Midcap® Growth Index is an unmanaged index of those Russell Midcap medium-sized companies that are classified as growth companies. The Russell 1000® GrowthIndex is an unmanaged index that measures the performance of large-sized U.S. companies classified that are classified as growth. The MSCI ACWI ex USA IMI Growth Index Net USD is an unmanaged,free float-adjusted market capitalization weighted index. It measures the performance of large, mid, and small cap growth securities across developed and developing markets, excluding the U.S. TheMSCI USA IMI Extended Real Estate Index is a custom index calculated by MSCI for, and as requested by, BAMCO, Inc. The index includes real estate and real estate-related GICS classification securities.The MSCI EM (Emerging Markets) IMI Growth Index Net USD is a free float-adjusted market capitalization index designed to measure equity market performance of large, mid and small cap securitiesin the emerging markets. The MSCI EM IMI Growth Index Net screens for growth-style securities. The index returns reflect the reinvestment of dividends and other earnings, which positively impactperformance results. The Morningstar US OE Small Growth Category Average is not weighted and represents the straight average of annualized returns of each of the funds in the Small Growthcategory. The Morningstar US OE Mid-Cap Growth Average is not weighted and represents the straight average of annualized returns of each of the funds in the Mid-Cap Growth category. The LipperInternational Multi-Cap Growth Category Average is not weighted and represents the straight average of annualized returns of each of the funds in the category. The Morningstar US OE Real EstateCategory Average is not weighted and represents the straight average of annualized returns of each of the funds in the Real Estate category. The Morningstar US OE Diversified Emerging MktsAverage is not weighted and represents the straight average of annualized returns of each of the funds in the Diversified Emerging Mkts category. © 2014 Morningstar, Inc. All Rights Reserved. P/ERatio: the price earnings ratio is a valuation ratio of a company’s current stock price to its actual earnings per share. Upside Capture Ratio explains how well a fund performs in time periods wherethe benchmark’s returns are greater than zero. Downside Capture Ratio explains how well a fund performs in time periods where the benchmark’s returns are less than zero.

Invest in Baron Funds and Strategies

Our investment approach remains the same no matter how markets areperforming. We remain focused on company fundamentals when makinginvestment decisions. We invest for the long term in companies that webelieve have opportunities for significant growth, are run by exceptionalmanagement, have sustainable competitive advantages, and are pricedattractively. All investors – including us – underperform from time to time,but over time our overall capture ratios have mostly been superior. If youare an investor who is feeling skittish about an impending correction, westrongly believe that staying invested in Baron Funds with a long-termhorizon will serve you well.

Sincerely,

Linda S. MartinsonChairman, President and COOOctober 20, 2014


12

Review

“With so many global uncertainties, why aren’t stock pricesfalling?” Numerous advisors. Summer 2014.

That was the question investors posed to us most often during the thirdquarter. That is, until U.S. stock prices began to fall broadly in September.Which was when many executives of companies in which we have invested… and whose businesses are doing quite well … began to ask us why theirstocks had fallen so much.

Stocks of small growth companies significantly underperformed larger,mature, cyclical companies during the first six months of 2014 … andcontinued to underperform in the third quarter of 2014. Stocks of fastgrowing, small cap companies had significantly outperformed stocks oflarger companies in 2013. This recent underperformance has taken placeeven though smaller companies are growing faster than larger ones. Stocksof large companies are performing well because they have been reportingstrong growth in earnings per share despite modest revenue gains. This isbecause during the almost six-year-long, steady economic recovery in theU.S., most large companies focused on reducing operating expenses and notso much on increasing revenues. With increasing demand for their productsand services, larger companies have begun to achieve price increases,further boosting their profits. They have also improved earnings per shareby repurchasing their stock rather than investing profits to grow faster asmany smaller companies have done.

We believe that as a result of the disappointing stock price performanceand strong growth many small cap businesses have experienced year-to-date, these companies offer unusually attractive values. We think this is theanalogue to real estate, large caps and emerging markets stocks thatunderperformed in 2013 and have outperformed in 2014.

“It just goes to show ya. It’s always something. If it ain’t one thing, it’sanother.” Gilda Radner’s Roseanne Rosannadanna. Weekend Update.Saturday Night Live. 1978.

Negative news from around the globe dominated headlines in the thirdquarter. Anxiety over the spread of the Ebola virus created fears thatbusiness and tourist travel would soon fall. The conflict between Ukraineand Russia that culminated in a Malaysian plane being downed by a Russianmissile didn’t soothe what Erica Jong used to call “fear of flying.” Especiallysince it took place soon after a Malaysian passenger plane disappearedwithout a trace over the Indian Ocean. ISIS beheadings of combatant andnon-combatant hostages in Syria and Iraq terrorized not only citizens andarmies in those locales but also global travelers, who either sought moreinviting destinations or stayed home.

“Give peace a chance.” John Lennon. 1969.

That song was written by John Lennon … with a little help from his friendPaul McCartney … and released as a solo record in 1969. Lennon was thenstill a member of The Beatles. “Give peace a chance” became the anthem ofthe anti-war movement in our country in the 1970s. “Give peace a chance”has not been any easier to achieve than it was when Lennon first wrotethose lyrics 45 years ago. In Hong Kong, students took to the streets in pro-democracy demonstrations against the Chinese government. Investorsfound protests in a nation with the world’s second largest economy to beunsettling. In our global economy, unrest anywhere has the potential toaffect economic activity everywhere.

Military conflicts, student demonstrations and citizen uprisings were soprevalent during the past three months that Hamas’ missile attack on Israel

over the summer from tunnels in Gaza and Israel’s response seem likedistant memories. Anti-semitic rallies in France, Germany and the U.K. havenot faded from our memories, though, and seem to some reminiscent ofNazi gatherings in 1939. The only positive, we suppose, is Warren Buffett’sobservation that stocks generally rise during wartime since producingarmaments creates jobs and stimulates our economy!

“We are accountable to the European people for delivering pricestability, which today means lifting inflation from its excessively lowlevels; and we will do exactly that.” Mario Draghi. President, EuropeanCentral Bank. October 2014.

Southern Europe’s economic depression and the disagreement betweenGermany, which is seeking to prevent monetization of southern Europe’sindebtedness, and southern Europe, which is looking to escape depression,didn’t engender investor confidence either. Despite Mario Draghi’s efforts tolead his continent’s economies out of their malaise with his version ofQuantitative Easing, interest rates in Germany are negative six basis points!In a world where capital moves freely, interest rates on government debt inItaly were lower than in the United States! This, in our opinion, suggeststhat interest rates in our country will not increase significantly in the nearterm, because higher rates would further strengthen our currency and slowgrowth in America’s still highly leveraged economy. That would not behelpful to the competitiveness of U.S. businesses.

Finally, as if all that were not enough, on September 30th, The Wall StreetJournal published an article titled, “U.S. Takes Asteroid Threat Seriously.” Thepaper noted that nuclear warheads scheduled for disassembly early nextyear are being retained “pending evaluation of their use in planetarydefense against earthbound asteroids.”

The Death of Equities. BusinessWeek. August 13, 1979. Dow JonesIndustrial Average 880!

Trading volumes in U.S. securities markets in 2014 remain subdued due toinvestor disinterest. This is reminiscent of the summer of 1979 whentrading volumes in U.S. stocks were lackluster and bearish sentiment

RONALD BARON

CEO AND CHIEF INVESTMENT OFFICER

Review and Outlook

13

predominated five years after the 1973-74 bear market, which wasconsidered at that time the worst bear market of a generation. Volumes inthe summer and fall of 2014 are about half the shares traded in the yearsimmediately preceding the 2008-09 Financial Panic. Lack of investorinterest in equities persists despite widely available credit and historicallylow interest rates, which give businesses unusual opportunities to makesuccessful investments and should make stocks more valuable. Creditmarkets that were “frozen” six years ago are now “open.” One examplefollows. We could list many many more.

In late September, we visited the Los Angeles headquarters of Air Lease, aleading airplane lessor in which we have been a shareholder sinceApril 2011. “Ron, why has our stock fallen over 20% in the past month?”the four frustrated Air Lease executives with whom we met asked me. Theirquestion is especially relevant since Air Lease shares could be worth fourtimes as much in 10 years when their fleet will have increased by 2.5 times.That same question asked of us by Air Lease executives has become thequestion most frequently asked of us by the numerous executives who visitus and whom our analysts and managers visit every day.

Interest is a significant expense for Air Lease. Interest costs are significantlylower now than six years ago. A positive. For example, two weeks before ourvisit, Air Lease refinanced $1 billion debt. The company borrowed $500million for ten years at 4.25% and $500 million for three years at 2.125%.The three-year loan was ten times over-subscribed! The lenders wereprincipally investors in their stock! Another positive. Air Lease’s credit is nowso strong it borrows about 80% unsecured. Six years ago, they wereborrowing 20% unsecured. Another positive. Air Lease’s customers are doingwell and are trying to lease more planes at higher prices. With 379 planeson order over the next seven years, Air Lease has one of the largest securedpositions on plane manufacturers’ order books. That position has becomeeven more valuable than six years ago. Another positive. Due to exceptionaldemand for planes, airplane manufacturers have decided to increaseproduction. However, it will be several years before they can significantlyincrease production rates. Another positive. Finally, airline traffic, driven bygrowth in emerging markets, continues to double about every 15 years. The21,000 planes in the world fleet are aging and close to the age necessitatingreplacement. This should mean demand for 5,000 new planes in the nextdecade. Air Lease’s more than 200 planes are the youngest fleet on lease,and they have another 379 that they ordered at favorable prices and termsat the depths of the Great Recession.

We think Air Lease’s book value and business, which cannot be easilyreplicated, have the potential to become three to four times as valuable in8-10 years. That is when its fleet could reach more than 500 planes onlease. As a result, I am sure you can understand the frustration its seniorexecutives and the business’ largest shareholders must feel following itsshare price decline in the past month.

Outlook

“Never mind.” Gilda Radner’s Emily Litella. Weekend Update.Saturday Night Live. 1977.

Once again, paying homage to Gilda Radner, who all those years ago hadbeen one of my favorite entertainers, serves our purpose. This time we thinkGilda’s brilliant, comedic instincts are relevant to investor angst created bythe unsettling events we read about every day. These incidents remind meof that comedian’s elderly, hearing impaired character, Emily Litella. Gilda’sEmily reacted to the troubling events of her day with angry and confusededitorials on Saturday Night Live in the 1970s. Whether editorializing aboutsaving Soviet “jewelry,” “violins” on television, Presidential “erections,”making Puerto Rico a “steak” or the “deaf” penalty, Gilda always endedEmily’s dialogues with “Never mind”…after Chevy Chase explained in a loud

voice how Emily had misunderstood the issues. We are pretty sure the samewill be the case when investors recognize how little recent well-publicizedconcerns have impacted our economy. We think “it’s always something” willmorph into “never mind” as our businesses and economy continue to grow.

“The sun will come out tomorrow.” Annie.

In one quarterly business update after another, America’s corporationsreport their growth is accelerating to above trend. U.S. GDP is nowexperiencing greater than 3% real growth, higher than at any point inrecent years. This is helped somewhat by a rebound from first quarter 2014below trend growth that had been depressed by an unusually harsh winterthat made commerce quite difficult. However, nearly all businesses that wehave visited recently indicate their growth prospects are improving at anaccelerating pace.

Federal Reserve Chairman Janet Yellen and Vice Chairman Stanley Fischerhave stated that our economy no longer needs the support of significantasset purchases for our nation’s recovery from the Great Recession to beself-sustaining. We regard that as a positive. So is capital spending that isbeginning to increase significantly. Greater capital investment is necessaryto replace aging and now highly utilized plant and equipment. Newinvestment will also increase our production efficiency, boost GDP andcreate more jobs.

Domestic energy production has more than doubled in the past six years tomore than eight million barrels per day, while imports have fallen about40% to nine million barrels per day. This is the result of sharply increasedproduction from our nation’s enormous shale reserves. Along with increaseddomestic energy production comes lower gasoline prices that benefitconsumers, significantly more jobs due to a manufacturing renaissanceresulting from lower energy costs, less reliance on energy supplies frompolitically volatile Middle East nations, and a negative impact on theeconomies of several nations that are not U.S. allies and depend on highenergy prices.

Housing continues to provide significant growth opportunities for oureconomy. Housing starts have more than doubled from their unusuallydepressed levels five years ago. However, they still remain at less than onemillion starts per year, while inventories of homes for sale remain very low.Housing starts today are less than half the 2.5 million housing starts of1972, when the U.S. population was more than 100 million fewer than it isnow!

Berkshire Hathaway’s recent purchase of a large new car dealershipindicates that investor Warren Buffett is optimistic not only about thepossibility of Berkshire’s ability to “roll up” other auto dealers and providecar financing. He clearly also believes that a high level of new car purchasescan be sustained since the average age of cars on the road has reached 11.2years, and disposable household income is improving. When I became aninvestment analyst in 1970, the average age of cars in America was sevenyears!

U.S. corporations have not repaid much of their debt in the five yearsfollowing the 2008-09 Financial Crisis. Further, of late, they have beenincreasing their borrowings. Regardless, debt servicing expense as a percentof earnings has fallen about 35%. First, because interest rates are at thelowest level in the history of our nation. Second, because corporate earningshave increased about 30% during the period due to better expensemanagement, modest capital expenditure growth, stable labor costs andlower interest rates.

Unemployment in our country is declining as our businesses continue toadd 200,000 plus jobs per month. Unemployment fell below 5.9% inSeptember, down from more than 10% in 2009. In conjunction with our

September 30, 2014 Review and Outlook

14

Review and Outlook

improving economy and improving jobs picture, the federal government’sannual fiscal deficit has fallen from $1.4 trillion in 2009 to an estimated$400 billion in 2015!

Despite all the good news about our economy, we believe that globalpolitical uncertainties are the principal reason stock prices do not exceedtheir median levels of the past hundred years. U.S. equities are presentlyvalued at around 15.2X 2014 earnings. The normal range in which stockshave traded for most of the past 100 years is 10X to 20X earnings. Rarelyabove. Rarely below. Further, stock prices are inextricably linked to oureconomy. In September 2014, the Dow Jones Industrial Average topped

17,000. U.S. GDP is expected to reach $17 trillion this year. In 2007, theDow Jones Industrial Average was 14,000. The nation’s GDP was $14 trillion.In 1960, when Kennedy became president, the Dow Jones Industrial Averagewas 600. The nation’s GDP was $520 billion, less than the value of Appletoday! Our nation’s economy has grown at a compound annual rate of6.7% per year in nominal terms since 1960. Our stock market has grown atan annual rate of 6.4% per year. When annual dividends of approximately2% are added to stock appreciation, stock prices have approximatelydoubled every 10 years for the past 55 years. We see no reason that ournation’s economy and stock markets will not continue to achieve thesehistoric results over the long term.

Investors should consider the investment objectives, risks, and charges and expenses of the investment carefully before investing. The prospectuscontains this and other information about the Funds. You may obtain one from its distributor, Baron Capital, Inc., by calling 1-800-99BARON orvisiting www.BaronFunds.com. Please read it carefully before investing.

Investing in the stock market is always risky.

Portfolio holdings may change over time.

Portfolio holdings as a percentage of net assets as of September 30, 2014 for Air Lease Corp. are as follows: Baron Growth Fund (0.8%); BaronPartners Fund (4.4%*).

*% of Long Positions.Baron Funds

Net Realized and Unrealized Gain ($ in millions)As of September 30, 2014

Baron BaronBaron Baron Small Baron FocusedAsset Growth Cap Partners GrowthFund Fund Fund Fund Fund

Air Lease Corp. $(3.0) $14.3 $2.5 $(13.9) $(1.1)

The discussions of market trends and companies throughout this report are not intended as advice to any person regarding the advisability ofinvesting in any particular security. Some of our comments are based on current management expectations and are considered “forward-lookingstatements.” Actual future results, however, may prove to be different from our expectations. Our views are a reflection of our best judgment atthe time of the publication of this report and are subject to change any time based on market and other conditions, and we have no obligationto update them.

Baron Small Cap FundComparison of the change in value of $10,000 investment in Baron Small Cap Fund (Retail Shares)

in relation to the Russell 2000 Growth Index and the S&P 500 Index

Baron Asset FundComparison of the change in value of $10,000 investment in Baron Asset Fund (Retail Shares)

in relation to the Russell Midcap Growth Index and the S&P 500 Index

Baron Growth FundComparison of the change in value of $10,000 investment in Baron Growth Fund (Retail Shares)


1 The indexes are unmanaged. The Russell Midcap™ Growth Index measures the performance of medium-sized U.S. companies that are classified as growth and the S&P 500 Index of500 widely held large cap U.S. companies. The indexes and Baron Asset Fund are with dividends, which positively impact the performance results.

2 The indexes are unmanaged. The Russell 2000® Growth Index measures the performance of small-sized U.S. companies that are classified as growth and the S&P 500 Index of500 widely held large cap U.S. companies. The indexes and Baron Growth Fund are with dividends, which positively impact the performance results.

3 The indexes are unmanaged. The Russell 2000® Growth Index measures the performance of small-sized U.S. companies that are classified as growth and the S&P 500 Index of 500widely held large cap U.S. companies. The indexes and Baron Small Cap Fund are with dividends, which positively impact the performance results.

4 Past performance is not predictive of future performance. The performance data does not reflect the deduction of taxes that a shareholder would pay on Fund distributions orredemptions of Fund shares.

$0

$20,000$10,000

$30,000

$50,000$60,000$70,000$80,000$90,000

$40,000

$100,000

$200,000$190,000

$140,000$150,000$160,000$170,000$180,000

$130,000$120,000$110,000

$191,600

$134,107$121,150

Information Presented by Fiscal Year as of September 30 Baron Asset Fund1,4

S&P 500 Index1

Russell Midcap Growth Index1

6/87 9/90 9/92 9/94 9/98 9/00 9/04 9/06 9/08 9/10 9/149/88 9/029/96 9/12

$0

$30,000

$20,000

$10,000

$60,000

$50,000

$40,000

$50,026

$28,452

$22,867

Information Presented by Fiscal Year as of September 30 Baron Small Cap Fund3,4

S&P 500 Index3

Russell 2000 Growth Index3

9/97 9/99 9/01 9/03 9/05 9/149/07 9/09 9/11 9/13

$0

$50,000$40,000$30,000$20,000$10,000

$130,000$120,000

$100,000$110,000

$90,000

$60,000$70,000$80,000

$121,688

$62,397

$41,017

Information Presented by Fiscal Year as of September 30

Baron Growth Fund2,4

S&P 500 Index2


12/94 9/96 9/98 9/00 9/02 9/04 9/06 9/08 9/149/129/10

Baron Asset Fund’s annualized returns as of September 30, 2014: 1-year, 13.57%; 3-year, 21.65%; 5-year, 15.45%; 10-year, 9.58%; and Since Inception, 11.42%.

Baron Growth Fund’s annualized returns as of September 30, 2014: 1-year, 5.11%; 3-year, 20.76%; 5-year, 15.83%; 10-year, 9.20%; and Since Inception, 13.49%.

Baron Small Cap Fund’s annualized returns as of September 30, 2014: 1-year, 6.52%; 3-year, 20.90%; 5-year, 15.44%; 10-year, 9.47%; and Since Inception, 9.93%.

Baron Funds Performance

15

Baron Opportunity FundComparison of the change in value of $10,000 investment in Baron Opportunity Fund (Retail Shares)


$0

$14,000

$12,000

$10,000

$2,000

$4,000

$6,000

$8,000

$22,000

$20,000

$16,000

$18,000

$20,207

$16,204

$19,072

Information Presented by Fiscal Year as of September 30 Baron Opportunity Fund1,4

S&P 500 Index1


2/00 9/00 9/02 9/04 9/06 9/12 9/149/08 9/10

Baron Partners FundComparison of the change in value of $10,000 investment in Baron Partners Fund (Retail Shares)


$0

$50,000$40,000$30,000$20,000$10,000

$60,000$70,000$80,000$90,000

$100,000$110,000

$180,000$170,000

$150,000$160,000

$130,000$120,000

$140,000

$163,055

$79,047$76,318

Information Presented by Fiscal Year as of December 31and for the nine months ended September 30, 2014

Baron Partners Fund2,4,5

S&P 500 Index2


1/92 12/95 12/97 12/99 12/01 12/03 12/05 12/07 12/09 9/1412/1312/93 12/11

Baron Fifth Avenue Growth FundComparison of the change in value of $10,000 investment in Baron Fifth Avenue Growth Fund (Retail Shares)

in relation to the S&P 500 Index and the Russell 1000 Growth Index

$0

$15,000

$10,000

$5,000

$25,000

$20,000 $20,458$22,113$23,010

Information Presented by Fiscal Year as of September 30 Baron Fifth Avenue Growth Fund3,4


S&P 500 Index3

4/04 9/04 9/05 9/06 9/07 9/149/08 9/09 9/10 9/11 9/12 9/13

1 The indexes are unmanaged. The Russell Midcap™ Growth Index measures the performance of medium-sized U.S. companies that are classified as growth and the S&P 500 Index of 500 widelyheld large cap U.S. companies. The indexes and Baron Opportunity Fund are with dividends, which positively impact the performance results.

2 The indexes are unmanaged. The Russell Midcap™ Growth Index measures the performance of medium-sized U.S. companies that are classified as growth and the S&P 500 Index of 500 widelyheld large cap U.S. companies. The indexes and Baron Partners Fund are with dividends, which positively impact the performance results.

3 The indexes are unmanaged. The S&P 500 Index measures the performance of 500 widely held large cap U.S. companies and the Russell 1000® Growth Index of large-sized U.S. companies thatare classified as growth. The indexes and Baron Fifth Avenue Growth Fund are with dividends, which positively impact the performance results.

4 Past performance is not predictive of future performance. The performance data does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares.5 Reflects the actual fees and expenses that were charged when the Fund was a partnership. The predecessor partnership charged a 20% performance fee after reaching a certain performance

benchmark. If the annual returns for the Fund did not reflect the performance fees for the years the predecessor partnership charged a performance fee, returns would be higher. The Fund’sshareholders will not be charged a performance fee. The predecessor partnership’s performance is only for periods before the Fund’s registration statement was effective, which was April 30, 2003.During those periods, the predecessor partnership was not registered under the Investment Company Act of 1940 and was not subject to its requirements or the requirements of the InternalRevenue Code relating to registered investment companies, which, if it were, might have adversely affected its performance.

Baron Opportunity Fund’s annualized returns as of September 30, 2014: 1-year, 2.87%; 3-year, 16.21%; 5-year, 13.67%; 10-year, 10.26%; and Since Inception, 4.94%.

Baron Partners Fund’s annualized returns as of September 30, 2014: 1-year, 15.27%; 3-year, 27.04%; 5-year, 18.56%; 10-year, 10.84%; and Since Inception, 13.11%.

Baron Fifth Avenue Growth Fund’s annualized returns as of September 30, 2014: 1-year, 16.71%; 3-year, 23.29%; 5-year, 14.43%; 10-year, 7.54% and Since Inception, 7.11%.


16

Baron International Growth FundComparison of the change in value of $10,000 investment in Baron International Growth Fund (Retail Shares)

in relation to the MSCI ACWI ex USA IMI Growth Index and the MSCI ACWI ex USA Index

$0

$50,000

$40,000

$30,000

$20,000

$10,000

$80,000

$70,000

$60,000

$72,392

$41,352$36,217


Baron Focused Growth Fund1,4,5

S&P 500 Index1


5/96 12/97 12/99 12/01 12/03 12/05 12/07 12/09 9/1412/1312/11

$0

$15,000

$20,000

$10,000

$5,000

$25,000

$21,139

$18,274$18,781

12/08 6/09 12/09 9/146/1412/126/1212/116/10 6/11 6/13 12/1312/10

Baron International Growth Fund2,5

MSCI ACWI ex USA Index2

MSCI ACWI ex USA IMI Growth Index2


1 The indexes are unmanaged. The Russell 2500™ Growth Index measures the performance of small to medium-sized companies that are classified as growth and the S&P 500 Index of 500 widely held largecap U.S. companies. The indexes and Baron Focused Growth Fund are with dividends, which positively impact the performance results.

2 The MSCI ACWI ex USA indexes cited are unmanaged, free float-adjusted market capitalization weighted indexes reflected in US dollars. The MSCI ACWI ex USA IMI Growth Index Net USD measures the performance of large, mid and small cap growth securities across developed and emerging markets, excluding the United States. The MSCI ACWI ex USA Index Net USD measuresthe equity market performance of large and mid cap securities across developed and emerging markets, excluding the United States. The indexes and Baron International Growth Fund includereinvestment of dividends, net of foreign withholding taxes, which positively impact the performance results.

3 The MSCI USA IMI Extended Real Estate Index is a custom index calculated by MSCI for, and as requested by, BAMCO, Inc. The index includes real estate and real estate-related GICS classificationsecurities. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be furtherredistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, reviewed or produced by MSCI. The S&P 500 Index measures the performanceof 500 widely held large cap U.S. companies. The indexes and Baron Real Estate Fund are with dividends, which positively impact performance results.

4 Reflects the actual fees and expenses that were charged when the Fund was a partnership. The predecessor partnership charged a 15% performance fee through 2003 after reaching a certainperformance benchmark. If the annual returns for the Fund did not reflect the performance fees for the years the predecessor partnership charged a performance fee, the returns would be higher.The Fund’s shareholders will not be charged a performance fee. The predecessor partnership’s performance is only for the periods before the Fund’s registration statement was effective, which wasJune 30, 2008. During those periods, the predecessor partnership was not registered under the Investment Company Act of 1940 and was not subject to its requirements or the requirements ofthe Internal Revenue Code relating to registered investment companies, which, if it were, might have adversely affected its performance.

5 Past performance is not predictive of future performance. The performance data does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares.

Baron Focused Growth FundComparison of the change in value of $10,000 investment in Baron Focused Growth Fund (Retail Shares)


Baron Real Estate FundComparison of the change in value of $10,000 investment in Baron Real Estate Fund (Retail Shares)

in relation to the MSCI USA IMI Extended Real Estate Index and the S&P 500 Index

$0

$15,000

$10,000

$5,000

$30,000

$20,000

$25,000 $24,630

$19,479$19,550

12/09 9/146/1412/11 12/12 6/13 12/136/126/10 6/1112/10

Baron Real Estate Fund3,5

S&P 500 Index3

MSCI USA IMI Extended Real Estate Index3


Baron Focused Growth Fund’s annualized returns as of September 30, 2014: 1-year, 4.44%; 3-year, 17.56%; 5-year, 12.77%; 10-year, 10.35%; and Since Inception, 11.40%.

Baron International Growth Fund’s annualized returns as of September 30, 2014: 1-year, 1.25%; 3-year, 13.10%; 5-year, 9.46%; and Since Inception, 13.90%.

Baron Real Estate Fund’s annualized returns as of September 30, 2014: 1-year, 16.84%; 3-year, 31.30%; and Since Inception, 20.90%.

17


Baron Emerging Markets FundComparison of the change in value of $10,000 investment in Baron Emerging Markets Fund (Retail Shares)

in relation to the MSCI EM IMI Growth Index and the MSCI EM IMI Index

$0

$10,000

$5,000

$15,000

$12,056

$9,630$9,957

12/10 9/146/1412/11 12/12 12/136/136/126/11

Baron Emerging Markets Fund1,3

MSCI EM IMI Index1

MSCI EM IMI Growth Index1


Baron Emerging Markets Fund’s annualized returns as of September 30, 2014: 1-year, 8.17%; 3-year, 13.29%; and Since Inception, 5.11%.

18

Baron Energy and Resources FundComparison of the change in value of $10,000 investment in Baron Energy and Resources Fund (Retail Shares)

in relation to the S&P North American Natural Resources Sector Index and the S&P 500 Index

$0

$10,000

$5,000

$20,000

$15,000

$13,067$12,472

$16,639

12/11 9/146/143/139/12 12/12 3/146/13 9/13 12/136/123/12

Baron Energy and Resources Fund2,3

S&P 500 Index2

S&P North American Natural Resources Sector Index2


Baron Energy and Resources Fund’s annualized returns as of September 30, 2014: 1-year, 15.59%; and Since Inception, 10.21%.

1 The MSCI EM (Emerging Markets) indexes cited are unmanaged, free float-adjusted market capitalization weighted indexes reflected in US dollars. The MSCI EM (Emerging Markets) IMI GrowthIndex Net USD and the MSCI EM (Emerging Markets) IMI Index Net USD are designed to measure equity market performance of large, mid and small cap securities in the emerging markets. TheMSCI EM (Emerging Markets) IMI Growth Index Net USD screens for growth-style securities. The indexes and Baron Emerging Markets Fund include reinvestment of dividends, net of foreignwithholding taxes, which positively impact the performance results.

2 The S&P indexes cited are unmanaged. The S&P 500 North American Natural Resources Sector Index measures the performance of U.S.-traded natural resources-related stocks, including mining,energy, paper and forest products, and plantation owning companies. The S&P 500 Index measures the performance of 500 widely held large cap U.S. companies. The indexes and Baron Energyand Resources Fund are with dividends, which positively impact the performance results.



1 The MSCI ACWI indexes cited are unmanaged, free float-adjusted market capitalization weighted indexes reflected in US dollars. The MSCI ACWI Growth Index Net USD measures the equitymarket performance of large and mid cap growth securities across developed and emerging markets. The MSCI ACWI Index Net USD measures the equity market performance of large and midcap securities across developed and emerging markets. The indexes and the Baron Global Advantage Fund include reinvestment of dividends, net of foreign withholding taxes, which positivelyimpact the performance results.

2 The indexes are unmanaged. The Russell 2000® Growth Index measures the performance of small-sized U.S. companies that are classified as growth and the S&P 500 Index of 500 widely heldlarge cap U.S. companies. The indexes and Baron Discovery Fund are with dividends, which positively impact the performance results.


Baron Discovery FundComparison of the change in value of $10,000 investment in Baron Discovery Fund (Retail Shares)


$0

$10,000

$5,000

$20,000

$15,000

$11,973

$10,379$11,680

9/13 9/146/143/1412/13

Baron Discovery Fund2,3

S&P 500 Index2


Information Presented by Fiscal Year as of September 30

Baron Discovery Fund’s annualized returns as of September 30, 2014: 1-year and Since Inception, 16.80%.

Baron Global Advantage FundComparison of the change in value of $10,000 investment in Baron Global Advantage Fund (Retail Shares)

in relation to the MSCI ACWI Growth Index and the MSCI ACWI Index

$0

$10,000

$5,000

$20,000

$15,000 $14,051

$13,210$13,376

4/12 6/12 9/12 12/12 9/143/14 6/143/13 6/13 9/13 12/13

Baron Global Advantage Fund1,3

MSCI ACWI Index1

MSCI ACWI Growth Index1


Baron Global Advantage Fund’s annualized returns as of September 30, 2014: 1-year, 17.29%; and Since Inception, 15.11%.

19


Baron Asset Fund

20

Dear Baron Asset Fund Shareholder:

Performance

After reaching new highs in early September, most market indexescontracted sharply during the last two weeks of the quarter. The reasons forthe sell-off remain unclear. The Federal Reserve issued a mid-September statement that was more dovish than many expected andreiterated that it will not raise interest rates until a considerable time haspassed. Consumer confidence reached a seven-year high in August, leadingeconomic indicators remained healthy, and lower oil prices bode well forthe U.S. consumer. However, investors appeared to focus their concerns onthe pace of global economic growth and the possible implications forequity valuations. Within the equity markets, larger capitalization indexescontinued to perform better than mid capitalization indexes, which, in turn,surpassed smaller capitalization indexes. In fact, on a rolling nine-monthbasis, the year-to-date spread between the returns of large cap and smallcap stocks (as measured by the difference between the returns of theRussell 1000 Growth Index and the Russell 2000 Growth Index) was thelargest it has been since the year 2000.

This same divergence between larger cap and smaller cap stocks wasapparent in the universe of mid cap stocks. Within the Russell MidcapGrowth Index (the “Index”), the roughly 25% of stocks in the Index’s largestmarket cap quartile (stocks with market caps greater than $18.1 billion)outperformed stocks in the Index’s smallest market cap quartile (stockswith market caps below $6.8 billion) by approximately 400 basis pointsduring the quarter. This fact created a headwind for the Fund’s performanceduring the quarter. During the three-month period ended September 30,2014, Baron Asset Fund fell 1.47%, the Index fell 0.73%, and the S&P 500Index gained 1.13%. Although we are disappointed by the Fund’s negativereturn during the quarter, we are pleased that the Fund’s performancewithin the Morningstar category of Mid-Cap Growth Funds continued toimprove. As of September 30, 2014, the Fund’s performance placed it inthe 18th percentile* of this category during the past one-year period.

As discussed below, two of the Fund’s best-performing investments, VailResorts, Inc. and FleetCor Technologies, Inc., benefitted from attractiveacquisitions that they announced during the quarter. Several of the Fund’sInformation Technology (IT) sector investments also gained, generallyrecovering some portion of the losses they had suffered earlier in the year.These included social network LinkedIn Corp., software as a service (SaaS)provider Guidewire Software, Inc., and Internet domain registrar VeriSign,Inc. The Fund also participated in the successful IPO of Israeli software firmMobileye N.V. Falling commodity prices led to losses across our holdings

ANDREW PECK Retail Shares: BARAX

PORTFOLIO MANAGER Institutional Shares: BARIX

Performance listed in the above table is net of annual operating expenses.Annual expense ratio for the Retail Shares as of September 30, 2013 was1.32%. The performance data quoted represents past performance. Pastperformance is no guarantee of future results. The investment return andprincipal value of an investment will fluctuate; an investor’s shares, whenredeemed, may be worth more or less than their original cost. The Fund’stransfer agency expenses may be reduced by expense offsets from anunaffiliated transfer agent, without which performance would have beenlower. Current performance may be lower or higher than the performancedata quoted. For performance information current to the most recent monthend, visit www.BaronFunds.com or call 1-800-99BARON.

† The Fund’s historical performance was impacted by gains from IPOs and/or secondaryofferings. There is no guarantee that these results can be repeated or that the Fund’s level ofparticipation in IPOs and secondary offerings will be the same in the future.

1 The indexes are unmanaged. The Russell Midcap™ Growth Index measures the performanceof medium-sized U.S. companies that are classified as growth and the S&P 500 Index of 500widely held large cap U.S. companies. The indexes and the Fund are with dividends, whichpositively impact the performance results. Russell Investment Group is the source and ownerof the trademarks, service marks and copyrights related to the Russell Indexes. Russell is atrademark of Russell Investment Group.

2 The performance data in the table does not reflect the deduction of taxes that a shareholderwould pay on Fund distributions or redemption of Fund shares.

3 For the period June 30,1987 to September 30, 2014.4 Not annualized.

Table I.Performance (Retail Shares)†

Annualized for periods ended September 30, 2014

RussellBaron MidcapAsset Growth S&P 500

Fund1,2 Index1 Index1

Three Months4 (1.47)% (0.73)% 1.13%Nine Months4 2.67% 5.73% 8.34%One Year 13.57% 14.43% 19.73%Three Years 21.65% 22.74% 22.99%Five Years 15.45% 17.12% 15.70%Ten Years 9.58% 10.24% 8.11%Since Inception (June 12, 1987) 11.42% 10.00%3 9.57%

* The Morningstar US OE Mid-Cap Growth Category Average is notweighted and represents the straight average of annualized returns ofeach of the funds in the Category. The Fund’s Institutional Shareshave been included in the Category since 5/29/2009 and the Fund’sRetail Shares since 4/1/1999. As of 9/30/2014, the Categoryconsisted of 747, 582 and 425 funds, respectively, for the 1-, 5-, and10-year periods. The Morningstar percentile rankings are based on thetotal return, excluding sales charges, of all share classes of all fundswithin the Category.

September 30, 2014 Baron Asset Fund

21

in the Energy sector, including land driller Helmerich & Payne, Inc. andexploration and production firm Concho Resources, Inc., as well as in MRCGlobal Industrials, Inc., a distributor of pipes, valves and fittings to theenergy end-markets. The dollar rose considerably during the quarter, andthis weighed on the stock prices of companies with meaningful foreignexchange exposure, including Colfax Corp., The Priceline Group, Inc. andNielsen N.V.

Table II.Top contributors to performance for the quarter ended September 30, 2014

Year PercentAcquired Impact

Mobileye N.V. 2014 0.43%Vail Resorts, Inc. 1997 0.33SBA Communications Corp. 2007 0.25The Charles Schwab Corp. 1992 0.24FleetCor Technologies, Inc. 2012 0.24

Mobileye N.V. is an Israeli software and systems design leader for camera-based ADAS (advanced driver assistance systems) that completed a well-received Initial Public Offering during the quarter. We believe the companyhas the potential to revolutionize the way we all drive. Mobileye’stechnology prevents vehicle collisions by alerting drivers when their cars arein danger of encountering other cars or obstacles, and the company’ssolution has been embraced by many of the world’s largest carmanufacturers. We believe the company’s technology also offers the realpossibility for autonomous driving, i.e. “driverless cars,” to achieve wide-spread adoption.

Vail Resorts, Inc., the largest ski resort operator in the U.S., resolved itslitigation with the owners of the Park City Mountain Resort, resulting in anagreement to purchase that resort at a price that we believe to be quiteattractive. The purchase allows Vail to combine Park City with its CanyonsResort, thereby creating the largest ski resort in the U.S. We believe this willallow Vail both to recognize significant cost savings and also to attractadditional skiers to the joint properties. In addition, adding Park City to thecompany’s existing season pass offering should greatly enhance the appealof these season passes, which help insulate the company’s revenues fromthe vagaries of the winter snowfall.

SBA Communications Corp., which owns and operates cellular transmissiontowers, saw its shares rise after reporting strong quarterly results thatshowcased cash flow growth above consensus expectations. We have longbelieved that terms of SBA’s contracts with its wireless customers, coupledwith its commitment to invest in international markets (particularly inBrazil), will allow the company to grow faster than its domestic competitors.With all four major U.S. telecommunications companies investingsignificantly in 4G wireless networks, we believe that SBA should continueto experience strong cash flow growth for the foreseeable future.

Shares of brokerage firm The Charles Schwab Corp. increased during thequarter, as the company indicated at its biannual investor meeting that itexpects its 2014 earnings to approach the high end of its initial guidance.Management also indicated plans to return more cash to shareholdersthrough dividends and share buybacks. Schwab has continued to postimpressive asset-gathering metrics, and we continue to believe thatSchwab’s true earnings power is being obscured by the near-zero short terminterest rate environment. When rates eventually normalize, we believe thatSchwab’s earnings should increase meaningfully.

FleetCor Technologies, Inc. provides payment processing services tovehicle fleets around the world, and it manages private label credit cardprograms for many major oil companies. The company’s shares rose onnews of FleetCor’s acquisition of competitor Comdata, Inc. The acquisitionprovides FleetCor with greater scale in the domestic fuel card market, givesit an entrance into the attractive virtual card market, and is expected to besignificantly accretive to next year’s earnings. In addition, the companyreported solid quarterly results and raised its full-year earnings guidance.

Table III.Top detractors from performance for the quarter ended September 30, 2014


Colfax Corp. 2012 –0.60%IDEXX Laboratories, Inc. 2006 –0.45Illumina, Inc. 2012 –0.29Wynn Resorts Ltd. 2001 –0.25Helmerich & Payne, Inc. 2006 –0.23

Shares of industrial machinery company Colfax Corp. fell in the wake ofweaker-than-expected quarterly results. Strong margins in its weldingsegment were offset by operational missteps in its legacy fluid handlingbusiness combined with the negative impact of a weak macro environment.In addition, the strengthening U.S. dollar during the quarter caused concernabout the foreign exchange impact on its international operations. Colfaxrecently announced a new president for its fluid handling business, and weexpect this business to get back on track soon. We believe that Colfax willcontinue to use its proven business strategy to improve operations atacquired companies, generating substantial shareholder value over time.

Shares of IDEXX Laboratories, Inc., the leader in veterinary diagnostics,declined off their recent all-time highs. IDEXX’s fundamentals continue toimprove, with organic growth in its core business reaching 10%. In July,management announced its intention to migrate its U.S. commercialoperations from a hybrid sales model (i.e., utilizing both a direct sales forceand third-party distributors) to a direct sales only model, which someinvestors used as an opportunity to take profits. We believe that this willprove to be a highly accretive change, as it will free up resources for IDEXXto grow the headcount of its field sales force by 40% while also enhancingmargins.

Illumina, Inc. is the leading provider of next generation DNA sequencinginstruments and consumables. We believe there was no specific reason forits shares’ decline during the quarter. The shares are up significantly over thepast year, driven by strong momentum following the announcement ofmultiple new product introductions. We believe Illumina has furtherdistanced itself from its competitors and holds a near-monopoly on DNAsequencing at a time when demand is accelerating, and our conviction inthe long-term investment thesis remains unchanged.

Wynn Resorts Ltd. operates casinos in Las Vegas and Macau. Shares fell asgrowth in Macau was slowed by the Chinese government’s crackdown oncorruption and its more stringent visa restrictions. In addition, the junketsthat bring many VIP rollers to Macau, loan them money, and settle theirdebts, are proving less willing to extend generous credit terms as it hasbecome harder to collect debts. Despite these setbacks, we believe that asWynn’s new flagship Macau casino is completed and the area’sinfrastructure improves, Wynn will continue to grow its business in thismarket.

Baron Asset Fund

22

Helmerich & Payne, Inc. is the leading land drilling contractor in the U.S.Helmerich shares fell in the quarter despite the fact that rising demand forits new rigs spurred clients to continue to add to the company’s recordbacklog of new rig contracts. The company’s fiscal third quarter earningswere a bit below expectations, which contributed to the stock weakness inthe stock, but it appears that most of the weakness was related to concernsthat lower oil prices would short-circuit the upturn in U.S. drilling.

Portfolio Structure

At September 30, 2014, Baron Asset Fund held 64 positions. The Fund’s 10largest holdings represented 32.7% of assets, and the 20 largestrepresented 54.0% of assets. The Fund’s largest weighting was theConsumer Discretionary sector at 22.4% of assets. This sector includes theFund’s investments in retailers, hotels and resorts, gaming and leisurecompanies and broadcasters. The Fund held 18.6% of its assets in theIndustrials sector, which includes investments in manufacturers, distributorsand information services firms. The Fund also had significant weightings inInformation Technology at 18.5% of assets and Health Care at 16.5% ofassets.

Table IV.Top 10 holdings as of September 30, 2014

Market QuarterCap End

When Market PercentYear Acquired Cap Amount of Net

Acquired (billions) (billions) (millions) Assets

Gartner, Inc. 2007 $2.9 $ 6.5 $121.2 4.5%

IDEXX Laboratories, Inc. 2006 2.5 5.9 97.2 3.6

Illumina, Inc. 2012 5.3 22.9 91.0 3.4

SBA Communications Corp. 2007 3.8 14.3 88.7 3.3

Vail Resorts, Inc. 1997 0.2 3.1 86.8 3.2

FleetCor Technologies, Inc. 2012 2.9 11.8 85.3 3.2

The Charles Schwab Corp. 1992 1.0 38.3 82.3 3.1

Verisk Analytics, Inc. 2009 4.0 10.1 82.2 3.1

Arch Capital Group Ltd. 2003 0.9 7.4 72.5 2.7Mettler-Toledo

International, Inc. 2008 2.4 7.4 70.4 2.6

Recent Activity

During the past quarter, the Fund established four new positions and addedto two others. The Fund also sold two positions and reduced its holdings of22 others.

Table V.Top net purchases for the quarter ended September 30, 2014

Quarter End AmountMarket Cap Purchased

(billions) (millions)

West Pharmaceutical Services, Inc. $ 3.2 $26.2

TerraForm Power, Inc. 2.9 14.1

Mobileye N.V. 11.4 10.7

IDEX Corp. 5.8 8.3Towers Watson & Co. 7.0 8.0

We initiated a position in West Pharmaceutical Services, Inc., a leadingmanufacturer of components and systems for the packaging and delivery ofinjectable drugs. Most of the top selling drugs worldwide and the drugscurrently in development are injectable biologics. Many of these drugs areused to treat chronic, complex diseases, such as diabetes and cancer. Whenbiopharmaceutical companies submit a new drug application to the FDA,they have to show that the packaging materials were stable when incontact with the drug for a period of typically two years. The result is thatWest’s components, which include rubber vial stoppers, vial seals andsyringe plungers, become part of the regulatory approval process for newdrugs, which creates high switching costs and barriers to entry. West haslongstanding relationships with most of the major biopharmaceuticalcompanies and holds about 70% share worldwide in packagingcomponents. The top 35 injectable drugs all rely on components made byWest or its Japanese partner Daikyo Seiko.

We think West’s packaging business will benefit from a mix shift fromstandard products towards higher value products that carry higher pricesand gross margins. This mix shift will be driven by increased regulatoryrequirements and the overall growth of biologic drugs. West’s standardproducts are used for non-biologic drugs, whereas its high value productspackage biologics. High-value products include syringe plungers or vialstoppers that have been coated with a specialized material to ensure thebiologic drug maintains stability. Other high value products includepackaging components that have gone through specialized washing andinspection steps. West’s products represent a very small dollar amountrelative to the price of the injectable drug, and given West’s market leadingposition, West is able to raise its prices modestly every year.

The other part of West’s business consists of manufacturing drug deliverysystems, such as insulin pens and auto-injectors. With its Japanesepartner Daikyo, West is developing a novel resin material that is plasticand silicone-oil free and that is now being tested by biopharmacustomers as an alternative containment system to glass prefilledsyringes and vials. This material eliminates the potential forcontamination that could occur in a glass syringe or vial and has higherbreak resistance than glass, which improves manufacturing yields. West isalso developing a proprietary electronic patch injector for controlled,subcutaneous delivery of high volume and high viscosity drugs, a productwhich is under evaluation by several biopharmaceutical customers. Wethink these two proprietary products have the potential to becomemeaningful growth drivers for West’s business, resulting in acceleratingrevenue growth and margin expansion and the doubling of West’searnings over the next five years.

We entered a position in TerraForm Power, Inc. (TERP) during the quarter.TerraForm Power is a dividend growth oriented company formed to ownand operate contracted clean power generation assets acquired fromSunEdison (SUNE), its parent company, as well as affiliated third parties. Thecompany is a part of a new class of equity investments that have recentlybeen debuting in the market, commonly known as a “yieldcos.” Yieldcoshave similar investment properties to MLPs (master limited partnerships)and are comprised of long-lived assets contracted with creditworthycounterparties, stable cash flows, favorable tax attributes, and predictablegrowth driven by assets being “dropped down” by the parent company.

SunEdison was the third largest worldwide developer of solar energy in2013. The company is rapidly growing, and it expects its megawattscompleted to double over the next two years. TERP is its intended vehicle

September 30, 2014 Baron Asset Fund

23

Investors should consider the investment objectives, risks, and charges and expenses of the investment carefully before investing. The prospectus and summaryprospectus contains this and other information about the Funds. You may obtain them from its distributor, Baron Capital, Inc., by calling 1-800-99BARON orvisiting www.BaronFunds.com. Please read them carefully before investing.

The Adviser believes that there is more potential for capital appreciation in mid-sized companies, but there also may be more risk. Specific risks associatedwith investing in mid-sized companies include that the securities may be thinly traded and they may be more difficult to sell during market downturns. Priorto February 15, 2007, the Fund’s strategy was to invest primarily in small and mid-sized growth companies. Since then, the Fund’s investment strategy hasshifted to mid-sized companies. The Fund may not achieve its objectives. Portfolio holdings are subject to change. Current and future portfolio holdings aresubject to risk.

The discussions of the companies herein are not intended as advice to any person regarding the advisability of investing in any particular security. The views expressed in thisreport reflect those of the respective portfolio managers only through the end of the period stated in this report. The portfolio manager’s views are not intended asrecommendations or investment advice to any person reading this report and are subject to change at any time based on market and other conditions and Baron has noobligation to update them.

This report does not constitute an offer to sell or a solicitation of any offer to buy securities of Baron Asset Fund by anyone in any jurisdiction where it would be unlawful underthe laws of that jurisdiction to make such offer or solicitation.

to own the solar assets it develops. TERP’s lower cost of capital, due to itsstable cash flow stream, provides an attractive way for SUNE to fund itsrapid growth.

Given the rapid forecasted growth of solar energy (worldwide solar annualinstallations are expected to grow from 39 gigawatts in 2014 to 118gigawatts in 2020), we were excited to find a high quality company likeTERP that allows us to participate in this high-growth sector. TERP istargeting an annual payout of 85% of Cash Available for Distribution(CAFD) and a 15% compounded annual growth rate of CAFD over the nextthree years. We think that distribution growth could be much higher thanthis level because of SunEdison’s strong development capability and TERP’saccess to a large portfolio of developed assets through its “right of firstoffer” agreement with SUNE. Thus, we think that TERP provides us anattractive total return investment within the rapidly growing solar energysector.

Table VI.Top net sales for the quarter ended September 30, 2014

Amount Sold(millions)

Discovery Communications, Inc. $22.9

Norwegian Cruise Line Holdings Ltd. 15.6

The Priceline Group, Inc. 12.2

Tiffany & Co. 8.5AO World plc 7.9

We reduced our position in Discovery Communications, Inc., an operatorof cable television channels, including The Discovery Channel, AnimalPlanet, and The Learning Channel. After making an attractive return on ourinvestment over the past several years, we sold some shares on concernsthat looming consolidation among cable network operators will eventually

For more information about this Fundplease scan this QR code with any barcode reader on your mobile device.

lead to reduced economics for content providers, like Discovery. Wemodestly reduced our exposure to the travel sector, as we exited ourposition in Norwegian Cruise Line Holdings Ltd., a global cruise lineoperator, and reduced our holdings of The Priceline Group, Inc., an onlinetravel agency. We also took some profits in long-time holding Tiffany & Co.after the stock had had a strong run.

Outlook

Despite the recent market volatility, which has continued into October, wecontinue to believe that mid-sized growth stocks represent an attractiveinvestment opportunity. Even after the Index’s strong performance duringthe past few years, as of September 30th, the Index’s Price/Earnings ratioremained approximately 10% below its 20-year average. We believe theU.S. economy is among the world’s healthiest, and interest rates continueto remain quite low by historic standards. We believe that our portfolio ofwell-managed, competitively advantaged, fast growing companies willperform well in this environment.

Thank you for investing in Baron Asset Fund.

Our entire Firm and our research department, in particular, are committedto justifying your ongoing confidence and support. I remain a significantinvestor in the Fund alongside you.

Sincerely,

Andrew PeckPortfolio ManagerOctober 20, 2014

Baron Growth Fund

24

trends are improving. This is consistent with our view that the broader U.S.economy is strengthening, helped by lower interest rates, and evidenced byrobust auto sales, improving housing data, declining unemployment andabundant, low cost domestic energy. Finally, we believe stocks remainattractively valued, trading around 15.2X earnings, roughly in line with themarket’s 100-year median P/E multiple.

Baron Growth Fund does not change its investment approach becausecertain types of stocks are in or out of favor in the short term. We invest forthe long term in businesses with large growth opportunities, sustainablecompetitive advantages and talented, visionary management. Following theyear-to-date underperformance of small cap growth businesses, we believeBaron Growth Fund’s portfolio is unusually well-positioned and attractivelyvalued. The businesses in which Baron Growth Fund has invested havegrown significantly this year. Since the Fund’s shares have not, we believethe Fund is well positioned to soon again outperform.

Over the long term, the Fund has outperformed its benchmark by 608 basispoints per year on average since its inception on December 31, 1994. It hasalso outperformed the large cap S&P 500 Index by 378 basis points per yearover the same time frame. Since inception, Baron Growth Fund has earnedan average compound annual return of 13.49%. This compares to 7.41% forthe Russell 2000 Growth Index and 9.71% for the S&P 500 Index.

During the quarter, we took advantage of market volatility to add or increaseour positions in several new and existing investments that had fallen sharplyin price. Since the beginning of the year, Baron Growth Fund has investednearly $600 million in 11 new companies with average market caps of $1.7billion. These included Masonite International Corp., a low-costmanufacturer of premium residential doors andentryways, as well as two energy services companies,Badger Daylighting Ltd. and Atlas Energy, L.P. Badgeris a specialized provider of excavation services to the oiland gas industry that is benefiting from significantshale exploration throughout North America. Atlas is aleading natural gas pipeline operator in the Midwest.

Performance listed in the above table is net of annual operating expenses.Annual expense ratio for the Retail Shares as of September 30, 2013 was1.30%. The performance data quoted represents past performance. Pastperformance is no guarantee of future results. The investment return andprincipal value of an investment will fluctuate; an investor’s shares, whenredeemed, may be worth more or less than their original cost. The Fund’stransfer agency expenses may be reduced by expense offsets from anunaffiliated transfer agent, without which performance would have beenlower. Current performance may be lower or higher than the performancedata quoted. For performance information current to the most recent monthend, visit www.BaronFunds.com or call 1-800-99BARON.1 The indexes are unmanaged. The Russell 2000® Growth Index measures the performance of

small-sized U.S. companies that are classified as growth and the S&P 500 Index of 500 widelyheld large cap U.S. companies. The indexes and the Fund are with dividends, which positivelyimpact the performance results. Russell Investment Group is the source and owner of thetrademarks, service marks and copyrights related to the Russell Indexes. Russell is a trademarkof Russell Investment Group.


3 Not annualized.

Dear Baron Growth Fund Shareholder:

Performance

Baron Growth Fund declined 3.33% during the third quarter of 2014,outperforming the Russell 2000 Growth Index, the small cap benchmarkagainst which we compete, which fell 6.13%. By contrast, the broaderS&P 500 Index increased by 1.13% over the same period, illustrating thesignificant outperformance of large cap stocks over smaller companies duringthe quarter. Large cap stocks have outperformed small cap peers throughout2014 by more than 1200 basis points, an unusually large disparity.

We believe there are two reasons for this divergence. The first is a “rotation”of interest into larger companies whose stocks lagged in 2013 and thusappeared less expensive than faster growing, small businesses. Second, largecap stocks represent a perceived “flight to safety” that, we believe, reflectsinvestor fear during times of instability.

The third quarter was marked by a barrage of negative headlines thatcontributed to investor anxiety, from war in the Middle East to tensionsbetween Russia and Ukraine to ISIS to Hong Kong protests to, mostrecently, an Ebola panic. During these periods of inevitable volatility, westay focused on the fundamental prospects for our businesses. While we donot try to predict short-term “macro” developments or current events, webelieve conditions remain favorable for the U.S. economy and stocks. In ourfrequent meetings with management teams, we observe that business

Table I.Performance (Retail Shares)Annualized for periods ended September 30, 2014

RussellBaron 2000

Growth Growth S&P 500Fund1,2 Index1 Index1

Three Months3 (3.33)% (6.13)% 1.13%Nine Months3 (2.64)% (4.05)% 8.34%One Year 5.11% 3.79% 19.73%Three Years 20.76% 21.91% 22.99%Five Years 15.83% 15.51% 15.70%Ten Years 9.20% 9.03% 8.11%Fifteen Years 9.82% 5.69% 4.87%Since Inception (December 31, 1994) 13.49% 7.41% 9.71%

RONALD BARON Retail Shares: BGRFX

CEO AND PORTFOLIO MANAGER Institutional Shares: BGRIX

September 30, 2014 Baron Growth Fund

25

We also invested in Financial Engines, Inc. and ClubCorp Holdings, Inc.during the quarter, two companies that we have owned in other Fundspreviously and have gotten to know well. Financial Engines is a technology-enabled service provider that offers personalized investment managementand advice to small investors in 401(k) plans, while ClubCorp is the largestowner and consolidator of private golf and country clubs in the U.S.

Year-to-date, the Fund also added approximately $260 million to existingholdings, while reducing positions totaling approximately $600 million inholdings with average market caps of $5.8 billion. Those larger businesseshad been very successful investments and had been owned for several yearsby the Fund.

These transactions are illustrative of our strategy. Baron Growth Fundinvests in small cap businesses under $2.5 billion in size with significantcompetitive advantages and large addressable market opportunities. Wemonitor their progress closely as they become mid cap stocks. We sell themafter they’ve become larger, successful companies and reinvest the proceedsin small cap growth businesses.

A good example of this strategy during the quarter was our investment inConcur Technologies, Inc., a $7.2 billion company that was the subject ofa takeover by global software firm SAP. Baron Growth Fund has ownedConcur, a leading provider of travel and expense management software,since 2009, when the company had a market value of roughly $1.1 billion.We have since earned about six times our initial investment. Concur joinsCFR Pharmaceuticals SA, Windy City Investments Holdings, LLC(Nuveen Investments), Kerzner International Holdings Ltd. and TargaResources Corp. as other Baron Growth Fund investments that have beenthe subject of acquisitions in 2014.

We try to explain the reasons certain stocks outperformed orunderperformed during the period in the “Top Contributors” and “TopDetractors” sections that follows. In many instances, we regard gains andlosses in the short term as random. We continue to believe all the growthbusinesses in which we have invested could double in size within five years.Importantly, we believe these investments possess stronger fundamental andquality characteristics than the companies that comprise the benchmark.Baron Growth Fund’s investments consist primarily of companies with higherprofit margins, more favorable returns on capital, and much lower earningsvolatility than the securities in the benchmark against which we compete.We believe these characteristics should offer investors better returns overtime, although we obviously cannot guarantee that.

“The Long andWinding Road”

Bush Years “Here Comes“Yesterday” 2000-2008 the Sun”

Clinton Years 9/11; Iraq; Obama Years1992-2000 Afghanistan; 2008-2014

Internet Bubble Housing Bubble; Recovery “Any Time12/31/99 P/E 33x Financial Panic P/E 15.2x at All”

Annualized ReturnsInception Inception12/31/94 12/31/99 to 12/31/08 to 12/31/94

to 12/31/99 12/31/08 9/30/14 to 9/30/14

Baron Growth Fund 29.90% 2.46% 18.41% 13.49%

Russell 2000 Growth Index 18.99% –4.71% 18.51% 7.41%

S&P 500 Index 28.56% –3.60% 17.05% 9.71%


MarketCap Quarter

When End MarketYear Acquired Cap Total Percent

Acquired (billions) (billions) Return Impact

Under Armour, Inc. 2005 $1.0 $14.7 16.21% 0.50%Community Health

Systems, Inc. 2004 2.4 6.3 20.71 0.38Concur

Technologies, Inc. 2009 1.1 7.2 35.87 0.34Vail Resorts, Inc. 1997 0.2 3.1 12.41 0.23The Middleby Corp. 2011 1.6 5.0 6.54 0.19

Shares of athletic apparel company Under Armour, Inc. increased in thethird quarter. Under Armour continues to have brand momentum. Sales aregrowing faster than 30% in nearly all categories, and sales of higher pricedmerchandise and postponed inventory liquidations have boosted grossmargins. Operating expenses rose as the company invested for futuregrowth in women’s apparel, footwear, international, and direct-to-consumer selling. The company has diversified from a singleproduct/category into a global sports brand. (Michael Baron)

Community Health Systems, Inc. is one of the largest hospital operatorsin the U.S., with a focus on small and mid-sized markets in 29 states. Sharesrose on strong second quarter results, driven by higher utilization and animproved payor mix stemming from health care reform and the improvingeconomy. Management’s volume initiatives are taking hold. More stateswith large Community footprints are pursuing Medicaid expansion. Finally,the integration with HMA is going well, and we think synergies willultimately exceed initial guidance. (Susan Robbins)

Shares of Concur Technologies, Inc. increased in the third quarter. Concuris a leading provider of travel booking and expense management software.On September 18, SAP SE announced an agreement to acquire Concur for$129 per share, a 28% premium to the closing price on September 2, theday before Bloomberg reported that Concur was exploring a sale. The $8.3billion acquisition implied a valuation of roughly 9.7 times Concur’sestimated fiscal year 2015 revenue and confirmed our view that Concurwas a valuable strategic asset. (Neal Kaufman)


QuarterMarket End Market

Cap Cap or When Market Cap

Year Acquired When Sold Total PercentAcquired (billions) (billions) Return Impact

Colfax Corp. 2011 $1.0 $7.0 -23.57% -0.51%Financial Engines, Inc. 2010 0.7 1.8 -24.23 -0.29Benefitfocus, Inc. 2013 1.3 0.7 -41.72 -0.29CARBO Ceramics, Inc. 2009 1.5 1.6 -55.71 -0.29Generac Holdings, Inc. 2010 0.9 2.8 -16.82 -0.27

Shares of industrial machinery company Colfax Corp. fell in the wake ofweaker-than-expected second quarter results. Strong margins in weldingwere offset by operational missteps in the legacy fluid handling business

26

Baron Growth Fund

combined with a weak macro environment. Colfax recently announced anew president for the fluid handling business, and we expect this businessto get back on track soon. We believe that Colfax will continue to use itsproven business strategy to improve operations at acquired companies,generating substantial shareholder value over time. (Rebecca Ellin)

Shares of Financial Engines, Inc., a service provider to defined contributionplans and individual investors, fell in the third quarter. While the companycontinues to penetrate the market, investors have become concerned aboutprofitability and competition. Gross profit yield continues to graduallydecline as plan providers use their gatekeeper positions to receive a highershare incremental economics. Investors are also concerned that cheapertarget date funds could take market share. We retain conviction about thecompany’s unique product and significant market opportunity. (MichaelBaron)

Shares of Benefitfocus, Inc. fell in the third quarter, partly due to asecondary offering in July that increased the public float by more than 30%.Benefitfocus is the leading provider of cloud-based benefits software,offering an integrated suite of solutions to help customers more efficientlyshop, enroll, manage, and exchange benefits information. We thinkBenefitfocus serves an addressable market more than 100 times larger thanits current business, which should allow it to compound revenue at morethan 30% annually. (Neal Rosenberg)

RECENT PURCHASES

Table IV.Top net purchases for the quarter ended September 30, 2014


When Market Amount Year Acquired Cap Purchased

Acquired (billions) (billions) (millions)

Masonite International Corp. 2014 $1.7 $1.6 $8.3Badger Daylighting Ltd. 2014 1.3 0.9 7.5Financial Engines, Inc. 2010 0.7 1.8 6.5Atlas Energy, L.P. 2014 2.2 2.3 5.8ClubCorp Holdings, Inc. 2013 1.1 1.3 4.4

During the third quarter, we increased our investment in MasoniteInternational Corp. Masonite is a leading, vertically-integrated manufacturerof interior and exterior doors. In 2013, Masonite sold 32 million doors to over7,000 customers in 80 countries. Sales are split 58% U.S., 16% Canada, and26% rest of the world. Masonite has dominant market positions in its productcategories, particularly in North America, and is poised to benefit from animprovement in residential and non-residential construction activity off ofdepressed levels. Additionally, the door industry has consolidated recently forcertain product categories, improving Masonite’s ability to raise prices, eventhough capacity is underutilized. The management team is impressive and hasinculcated a culture of operational discipline and innovation. We believe thatEBITDA can triple as construction levels normalize and pricing firms. Accretiveautomation investments and acquisitions should be additive to growth.(David Kirshenbaum)

We increased our position in Badger Daylighting Ltd., a provider ofcustom-made trucks that use pressurized water and powerful vacuums toexcavate in areas with buried pipes and cables. These “hydrovac” trucks aremuch safer than mechanical equipment and more efficient than manualdigging. Hydrovac truck demand is growing rapidly as oil & gas companiesuse them to build new wells and pipelines and as utilities increasingly usethem to maintain underground infrastructure. Badger is meeting thisdemand by building more trucks and adding more service locations acrossthe U.S. and Canada. With over 900 trucks and 110 locations, Badger is byfar the largest provider of hydrovacs in North America. The company enjoysa cost advantage relative to peers by manufacturing its own trucks andmaximizing utilization across its large geographic footprint. Given thestrong tailwinds of capital investment by the energy and utility industries,along with increasing safety pressures around accessing and maintainingexisting infrastructure, demand for Badger’s services should continuegrowing nicely. (Josh Saltman)

The share price of Financial Engines, Inc., a service provider to definedcontribution plans and individual investors, has declined by approximately50% year-to-date. Although we thought its valuation was justified by itsgrowth prospects, lower profit yield in 2014 and investor rotation awayfrom less established businesses led to the drop in share value. We tookadvantage of its attractive stock price to add to the Fund’s investment andbelieve its long-term investment premise still holds. Financial Engines is thedominant player in a $5 trillion market, with roughly $900 billion in planassets under contract and $100 billion in assets under management.Significant potential exists to add to these amounts through increased salesto plan sponsors and improved marketing to plan participants andbroadening product offerings. Additionally, we believe the company shouldeventually be able to use its expertise to service the IRA and defined benefitmarket, each of which represents an additional $5 trillion in assets. Webelieve that Financial Engines’ essential advice offering and planconnectivity advantage will result in significant client growth and a highlyprofitable recurring revenue stream. (Michael Baron)

PORTFOLIO STRUCTURE AND STRATEGY

Baron Growth Fund owns 98 stocks. Its top 10 holdings compriseapproximately 27% of the Fund. We believe this diversified Fund offersinvestors potentially better than market returns with less volatility than themarket. The Fund’s “beta,” or sensitivity to market movements, is 0.77. Ourstrategy to accomplish this is to invest for the long term in a diversifiedportfolio of appropriately capitalized, well-managed, growing small capbusinesses at attractive prices. The Fund’s average portfolio turnover for thepast three years is 12%. This means the Fund has an average holding periodfor its investments of over eight years. This contrasts sharply with theaverage small cap mutual fund which typically “turns over” its portfolioevery eight months. We invest in companies with market capitalizations of$2.5 billion or less at the time of purchase that we believe have thepotential to double in size within four to five years. We believe that aportfolio of investments, diversified among several industries, all of whichare dependent upon different, non-correlated fundamentals, will likelyreduce portfolio volatility. In addition, many of the companies in which theFund invests have significant recurring revenue, which makes their earnings

September 30, 2014 Baron Growth Fund

27


The Adviser believes that there is more potential for capital appreciation in smaller companies, but there also may be more risk. Specific risks associated withinvesting in smaller companies include that the securities may be thinly traded and they may be more difficult to sell during market downturns. The Fundmay not achieve its objectives. Portfolio holdings are subject to change. Current and future portfolio holdings are subject to risk.The discussions of the companies herein are not intended as advice to any person regarding the advisability of investing in any particular security. The views expressed in this report reflect those of therespective portfolio managers only through the end of the period stated in this report. The portfolio manager’s views are not intended as recommendations or investment advice to any person readingthis report and are subject to change at any time based on market and other conditions and Baron has no obligation to update them.

This report does not constitute an offer to sell or a solicitation of any offer to buy securities of Baron Growth Fund by anyone in any jurisdiction where it would be unlawful under the laws of thatjurisdiction to make such offer or solicitation.

Beta: measures a fund’s sensitivity to market movements. The beta of the market (Russell 2000 Growth Index) is 1.00 by definition.

P/E: the price earnings ratio is a valuation ratio of a company’s current stock price to its actual earnings per share.

less volatile than the Russell 2000 Growth Index. We find all thesebusinesses through our dedicated research effort. Our holdings are well-managed businesses with significant barriers to competitive threats. Thesebarriers provide our companies with pricing power. Most of our companiesproduce significant cash flows, which are often reinvested in theirbusinesses to increase their revenues and margins over the long term. Webelieve the Fund has an opportunity to meet its objectives, although thereis no guarantee that it will do so.

Table V.Top 10 holdings as of September 30, 2014




Under Armour, Inc. 2005 $1.0 $14.7 $272.9 3.5%ITC Holdings Corp. 2005 0.8 5.5 237.8 3.1The Middleby Corp. 2011 1.6 5.0 224.7 2.9Arch Capital Group Ltd. 2002 0.4 7.4 216.1 2.8Gartner, Inc. 2007 2.3 6.5 207.6 2.7FactSet Research

Systems, Inc. 2006 2.5 5.1 194.4 2.5Genesee &

Wyoming, Inc. 2004 0.5 5.1 190.6 2.5Dick’s Sporting

Goods, Inc. 2004 1.4 5.3 179.9 2.3Vail Resorts, Inc. 1997 0.2 3.1 179.1 2.3Community Health

Systems, Inc. 2004 2.4 6.3 178.1 2.3

Thank you for investing in Baron Growth Fund.

Thank you for joining us as fellow shareholders in Baron Growth Fund. Webelieve the growth prospects for the businesses in which Baron GrowthFund has invested continue to be favorable.

We continue to work hard to justify your confidence and trust in ourstewardship of your family’s hard-earned savings. We will also continue toprovide you with information that I would like to have if our roles werereversed. This is so you will be able to make an informed judgment aboutwhether Baron Growth Fund remains an appropriate and attractiveinvestment for your family.

Respectfully,

Ronald BaronCEO and Portfolio ManagerOctober 20, 2014

For more information about this Fundplease scan this QR code with any bar code reader on your mobile device.


28


RussellBaron 2000

Small Cap Growth S&P 500 Fund1,2 Index1 Index1

Three Months3 (4.91)% (6.13)% 1.13%Nine Months3 (3.19)% (4.05)% 8.34%One Year 6.52% 3.79% 19.73%Three Years 20.90% 21.91% 22.99%Five Years 15.44% 15.51% 15.70%Ten Years 9.47% 9.03% 8.11%Since Inception (September 30, 1997) 9.93% 4.99% 6.34%

Performance listed in the above table is net of annual operating expenses.Annual expense ratio for the Retail Shares as of September 30, 2013 was1.31%. The performance data quoted represents past performance. Pastperformance is no guarantee of future results. The investment return andprincipal value of an investment will fluctuate; an investor’s shares, whenredeemed, may be worth more or less than their original cost. The Fund’stransfer agency expenses may be reduced by expense offsets from anunaffiliated transfer agent, without which performance would have beenlower. Current performance may be lower or higher than the performancedata quoted. For performance information current to the most recent monthend, visit www.BaronFunds.com or call 1-800-99BARON.1 The indexes are unmanaged. The Russell 2000® Growth Index measures the performance of

small-sized U.S. companies that are classified as growth and the S&P 500 Index of 500 widelyheld large cap U.S. companies. The indexes and the Fund are with dividends, which positivelyimpact the performance results. Russell Investment Group is the source and owner of thetrademarks, service marks and copyrights related to the Russell Indexes. Russell is a trademarkof Russell Investment Group.


3 Not annualized.

Dear Baron Small Cap Fund Shareholder:

Performance

Baron Small Cap Fund lost 4.91% in the quarter ended September 30, 2014and is down 3.19% year-to-date. The Fund outperformed the Russell 2000Growth Index in the quarter (down 6.13%) and so far for the year (down4.05%). The Fund is trailing the broader S&P 500 Index, as small stocks areunderperforming this year . . . more about this later.

The market for small stocks was very volatile for the quarter. Shares wereweak in July, rallied back almost to their highs in August, and declined againin September. The downdraft has continued in earnest in early October.

The U.S. economy rebounded in the second quarter, growing over 4% aftera dismal first quarter, which saw weather-affected declines of almost 3%.Consensus outlook for growth is solid for the remainder of the year. And,for the most part, earnings reports have been strong and expectations forcontinued growth are intact. Our companies’ managers are generallyoptimistic. Fundamentals are fine.

So, why the sell-off? And why are small stocks selling off more?

First, the Fed continues to taper and is nearing the end of its QE3 bond-buying program. Many attribute the gains in the market primarily to bepremised on this easy money policy that is now at an inflection point. The

market stumbled at the end of QE1 and QE2. Second, geopolitical tensionswere intense in the quarter, with unsettling conflicts between Russia andUkraine, Israel and Gaza, and ISIS and Syria/Iraq. By quarter’s end, some ofthe conflicts have settled down. However, nerve-wracking reports aboutEbola outbreaks in the States have been in the headlines, which are veryunsettling. Third, foreign economies – Europe, China and South America –have slowed noticeably. Coupled with the rise in the value of the U.S.dollar, this means earnings from abroad will be less than previouslyexpected. And fourth, and maybe the most important cause of the sell-off,the erratic behavior of the market has caused investors to take notice ofthe previously mentioned points and sell stocks, fearing the end of thefive-year bull market.

I believe small stocks have underperformed because they haveoutperformed for so long, because the gap in valuations between small andbig companies has widened (probably beyond what should be thepremium), and because the sell-off has caused a “flight to safety” whichfavors stocks of bigger, more secure companies.

For the quarter, our stocks generally outperformed their groups, meaningour stock selection helped our relative performance. However, we areoverweight the Consumer Discretionary sector and that group continued toact poorly. Also, Energy stocks were the weakest segment this quarter, asoil prices declined. We are overweight Energy, though, as explained before,over half of our energy exposure is in MLPs, which acted much better thanour service and exploration/production holdings. Our larger market capholdings (SBA Communications Corp., TransDigm Group, Inc., FleetCorTechnologies, Inc., Gartner, Inc.) were among our best performers. Havingsome of these more seasoned holdings was a good thing as small stockswere under pressure.

CLIFF GREENBERG Retail Shares: BSCFX

PORTFOLIO MANAGER Institutional Shares: BSFIX

September 30, 2014 Baron Small Cap Fund

29


PercentImpact

Mattress Firm Holding Corp. 0.31%SBA Communications Corp. 0.31TransDigm Group, Inc. 0.29ICON plc 0.24FleetCor Technologies, Inc. 0.18

Mattress Firm Holding Corp., the leading retailer of mattresses in theUnited States, rose 25.8% and was the top contributor to the Fund’sperformance. Shares rose when the company announced strong samestore sales and the acquisition of Sleep Train, the premier mattress retaileron the West Coast. Not only was the deal accretive, and we expectsignificant cost synergies and operational improvements, but itestablished the company as a national retailer, which will open upadditional opportunities to grow its store base and for other excitinginitiatives such as differentiated product offerings, national advertisingcampaigns and new store concepts.

Shares of SBA Communications Corp., the wireless tower operator, rose8.4% in the quarter after the company reported strong second quarterresults which surpassed expectations. The fundamentals of the U.S. towerindustry are very strong, with all four national wireless carriers activelydeploying 4G coverage to meet surging consumer demand. Same towerrevenue growth was double digits, driving a 30% increase in AFFO/share.The company announced two more deals to acquire towers in Brazil. Wefavor the disciplined expansion into international markets and believe itwill help the company continue to grow its cash flow at a high rate forthe foreseeable future.

TransDigm Group, Inc., the aircraft part manufacturer focused on sales tothe aftermarket, rose 10.2% in the quarter. Consumer aftermarket salesrose 15% in the quarter, which was a considerable acceleration, as theairline industry continues to get healthier and global miles flown increase.The company also announced a huge $25 per share special dividend in thesecond quarter. Since its IPO, the company has paid shareholders$67.50/share in special dividends, which matches our cost in purchasing ourstock over time. . . and we own $175 million of stock (with a $2 millionbasis). What a home run!

Icon plc is a leading CRO (contract research organization) providingoutsourced drug development to pharmaceutical and biotech companies.Shares rose 21.5% in the third quarter after the company reported strongearnings driven by significantly higher margins than expected. Icon hasbeen able to right its ship over the last few years and became a majorbeneficiary as drug companies outsource a bigger percentage of theirgrowing research efforts and favor leading CROs with specializedcapabilities. We think the company can grow double digits organically,supplement growth with niche acquisitions, continue to expand margins,and we believe the trading multiple of the stock can continue to expand.


PercentImpact

Financial Engines, Inc. -0.42%Lumber Liquidators Holdings, Inc. -0.33Del Frisco’s Restaurant Group, Inc. -0.32CARBO Ceramics, Inc. -0.30On Assignment, Inc. -0.29

Financial Engines, Inc., which offers investment advice and accountmanagement to small investors for their 401(k)s, fell 24.3% in the quarter andhas been weak for most of the year. We think results for the year have beenpretty much in line, though net new enrollments were a bit weak this lastquarter. We continue to admire the company’s unique positioning and expectcash flow to increase multiple-fold, as we have outlined in previous reports.However, the company’s stock traded at a very high valuation on near-termestimates coming into the year, so was vulnerable to perceived bad news. Thestock market has traded lower, so assets under management are suppressed,which is weighing on all the stocks in the money management sector.

Lumber Liquidators Holdings, Inc., the leading retailer of hardwood flooring,declined 24.5% in the second quarter after the company announced negativesame store sales and earnings below expectations. The company adoptedstringent new compliance requirements for its Asian suppliers, which resultedin major shortfalls in the availability of many important products in its stores.This has taken a chunk out of near-term sales and wrecked earnings for theyear. However, we believe the issues are temporary and product will be fullystocked and flowing by the end of the third quarter. We think the companywill be back on track thereafter and will resume upgrading its present storesand adding new stores so they can resume rapid earnings growth.

Del Frisco’s Restaurant Group, Inc., which operates high-end steakhousesunder three concepts, fell 30.6% in the quarter when they cut earningsexpectations for the year. The company experienced some delays inopening new units, had some sales shortfalls in three of their existing storesand is dealing with elevated beef prices. We think the issues are short term.We love the growth prospects and the development returns from this bestin class operator. We added to our position in the quarter.

CARBO Ceramics, Inc. sells proppants that are used in hydraulic fracking.The shares fell over 50% for the period held during the quarter after itbecame evident that one its main customers was switching to sand fromceramics and that the company was experiencing increased pricecompetition. We were surprised by the negative developments and sold ourstock as the thesis behind our investment was shot.

Portfolio Structure

As of September 30, 2014, the Fund has $5.25 billion under managementand was invested in 95 common equities. At the end of the quarter, thetop 10 positions represent 25.7% of the portfolio. The percentage invested


30

in our largest holdings is higher than normal because these have performedbetter on a relative basis year-to-date. Our top 10 holdings were actuallyup in the quarter, and are up year-to-date. Many are our long-term winnersand doing well again this year.


Quarter EndInvestment Percent

Year Value of NetAcquired (millions) Assets

SBA Communications Corp. 2004 $221.8 4.2%TransDigm Group, Inc. 2006 175.1 3.3Gartner, Inc. 2007 165.3 3.1FleetCor Technologies, Inc. 2010 135.0 2.6Waste Connections, Inc. 2009 121.3 2.3Brookdale Senior Living, Inc. 2005 119.1 2.3Berry Plastics Group, Inc. 2012 113.6 2.2Targa Resources Corp. 2010 102.1 1.9The Ultimate Software Group, Inc. 2008 99.1 1.9Bright Horizons Family Solutions, Inc. 2013 98.8 1.9

As is typical, the portfolio is overweight Consumer Discretionary,Telecommunication Services and Energy (though much of the Energy isMLPs) and underweight Health Care and Information Technology. Ourthree-year average turnover is low at 21.59%.

Recent Activity

As has been the case for most of the year, we weren’t terribly active in thequarter. We did purchase three new offerings and filled out a position in arecent spinout. We spent an equal amount of capital adding to existingpositions, each of which we bought when the stocks were under pressureand we deemed them particularly attractive.


Quarter End AmountYear Market Cap Purchased

Acquired (billions) (millions)

Knowles Corp. 2014 $2.5 $27.5HealthEquity, Inc. 2014 1.0 21.3Westlake Chemical Partners LP 2014 0.8 20.5Catalent, Inc. 2014 2.9 20.5MWI Veterinary Supply, Inc. 2014 1.9 19.3

Knowles Corp. is the largest supplier of microphones and speakers to mobiledevices (smartphones and tablets) and hearing aids. The company was spunout from Dover Corporation in February 2014. We like spinouts because wethink we can uncover relatively unknown companies that don’t yet have ashareholder base or research coverage, so we can attain a first moveradvantage before the company is discovered by others. Also, we find thatwhen divisions become stand-alone entities they often perform better sincethey can better allocate capital and resources and establish their own culture.

Knowles has over 60% market share in the secular growth market of MEMsmicrophones. Knowles has several competitive advantages: leadingtechnology, 500+ patents, R&D spending that dwarfs its competitors, andembedded positions with OEMs so that its products are spec’d into devices.The company has an enviable record with a strong historic revenue growth

and adjusted EBIDTA margin of over 25%. Earnings for the present year aredepressed since sales to certain smartphone providers have slowed(Blackberry, Nokia), and the company is spending to reconfigure itsmanufacturing footprint. We foresee high single digit revenue growth anda doubling of operating profit over the next three years. We purchased thestock at under 10 times our projected earnings estimate in 2016. Anotherleg of growth is possible beyond, as the company’s microphones start toencompass more intelligence and functionality.

We purchased stock in HealthEquity, Inc., which is a leading provider of anintegrated technology platform for Health Savings Accounts (“HSA”).HealthEquity helps employers provide access to HSAs for their employees, andenables employees to manage their own HSA. There is a strong secular trendfor companies to adopt high deductible health plans in response to risinghealthcare plans and the pending “Cadillac” tax. HSA accounts, which are verytax advantaged (like 401k accounts), are established for employees to permitthem to use the money that is set aside to pay for medical expenses. There are17 million HSA plan members today, HealthEquity serves about 1 million ofthem, and it is estimated that this will grow to 50 million by 2020.

We think HealthEquity is well positioned to capitalize on this trend andincrease their market share. Their differentiated technology platform integrateshealth plans, pharmacy benefit managers, employers and benefit providers inan all-encompassing, easy to use, ecosystem. Account owners can easilyenroll, receive, and pay claims from their HSAs, use transparency tools tounderstand the cost of services provided, and be prompted to save money onlower cost drugs or health care services. And they can easily manage/invest themoney in their accounts with assistance from HealthEquity if they would like.

HealthEquity gets paid account fees by employers to offer and manage theecosystem, gets custodial fees from HSA account owners, and card fees frominterchange for transactions done on their network. . . all of which now workout to about $80 per account per year. We believe the business model is veryscalable so margins will expand nicely over time; has high visibility since it getspaid for monthly recurring services, provided fees and membership retention is93%, and there are opportunities to deploy capital to make acquisitions ofservice providers on attractive terms. But what most excites us is the potentialfor significant revenue growth because of the powerful market drivers alreadyin place, and the potential to expand its footprint by continuing to addadditional health plans and employer partners and their existing footprint asHSAs become more widely adopted. We think the company can grow at a veryhigh rate and potentially earn well over $100 million in cash flow.


Quarter EndMarket Market Cap

Cap orWhen Market Cap Amount

Year Acquired When Sold SoldAcquired (billions) (billions) (millions)

Susser Holdings Corp. 2012 $0.7 $1.8 $48.5RealPage, Inc. 2010 0.7 1.2 40.2HeartWare

International, Inc. 2014 1.7 1.3 15.3Cognex Corp. 2011 1.4 3.5 15.0National CineMedia, Inc. 2008 1.1 0.9 14.6

During the quarter, the largest sale was of Susser Holdings Corp., which wasacquired by Energy Transfer at a nice premium. In addition to Susser, EmeritusCorp., a senior living provider, was acquired by Brookdale Senior Living,

September 30, 2014 Baron Small Cap Fund

31

another large and long-term holding of ours, in an all-stock deal. We kept theadditional Brookdale shares we received in the deal, as we are enthused by theprospects of the new company and its newfound scale and size in its industry.As mentioned earlier, Athlon Energy Inc. was also acquired.

We sold out of RealPage, Inc., disappointed with its revenue growth. Weexited our positions in CARBO Ceramics, Inc., Quicksilver, Inc. and MasimoCorporation, all on weakness, as each business failed to live up to ourexpectations. We were active in trimming many of our positions such asCognex Corp., Tesoro Logistics LP, Wynn Resorts Ltd., ACI Worldwide, Inc.and Platform Specialty Products Corp., all into strength. And scaled backour positions in Heartware International, Inc., National CineMedia, Inc.,and Lumber Liquidators Holdings, Inc. as each hit some special bumps.

Outlook

Volatility picked up significantly in early October and the market continuedto sell off. There have been huge moves down in interest rates and the priceof oil. Energy stocks and airline/travel equities (because of the Ebola scare)have been the weakest. Small stocks have continued to underperform.

Nothing in particular was the shock to cause the change in sentiment. Thereare heightened concerns of a slowdown in global growth, with the worstnews coming from Europe, and there is a clear slowdown in emergingmarkets. The U.S economy is healthy. The latest jobs report was actuallyvery strong, with the unemployment rate falling below 6%. However, thereare some warnings signs in the U.S., especially weak consumer spending andhousing. The dollar has strengthened, which is bad for earnings translationbut makes it difficult for foreign imports to compete, so is generallyconsidered positive. As is the decline in oil prices, which normally isapplauded because of its positive effect on consumer spending. Geopoliticaltensions are heightened, but have been for some time.

Volatility has made investors nervous and that nervousness has causedmore volatility. Everyone seems anxious. Anxiety is hard to underwrite. Wehave no idea where the market will trade near term, not that we normallymake market calls.

The positives in this intermediate-term outlook are that the U.S. economydoes not seem headed for recession; that inflation is tame, and even less ofa concern with global growth slowing and the dollar’s rise; that the Fed isacknowledging growth concerns and proclaiming to keep rates low for theforeseeable future; that valuations are higher than have been for a while,but still not extended beyond what is reasonable in historic context; andthat sentiment has swung to being very bearish.

The negatives are that the bull market has been long (66 months) andpronounced (up 200%) – however, I do agree that bull markets don’t die fromold age; that QE3 is ending and rates will rise from these levels overtime; andthough stocks seem the best alternative. . . that does not meant they can’t godown, since we have learned there is no such thing as a “safe stock”.

This year has been one of surprises. Interest rates have fallen from already lowlevels even as QE has tapered. Oil prices have declined, even though tensionsin the Middle East and Russia are high. Economies in Europe and emergingmarkets (China, South America) have rolled over. And though the U.S. economyis the strongest, the stocks that typically benefit most from domestic growth(U.S. small caps) have acted relatively poorly. We did not foresee the above, nordid many. That happens. We did not expect to make close to 40% returns lastyear. Ups and downs are to be expected, especially after three years of unusualcalm.

Though the market is nervous, when we get into these choppy periods, weneed to keep our heads. Even if I just went on (maybe too long) about themarket in general, that is just to give context. Our primary focus is on ourcompanies, our investments. Can they grow the earnings and economicvalue over the long term, as we project? How are their businesses affectedby the current economic environment? Are their managements makingright decisions and continuing to impress us? Do we believe that they willbe long-term winning businesses and stocks?

It’s not so easy to stay focused in markets like this, but it’s our job to do so.It requires discipline. Since we believe that our research and our long-termfundamental approach have provided shelter from the storm in the past, weturn again to them now and believe they will lead us to earn good returnsfor our investors over the long term.

Thanks, my fellow shareholders, for investing in the Fund.

Cliff GreenbergPortfolio ManagerOctober 20, 2014


The Adviser believes that there is more potential for capital appreciation in smaller companies, but there also may be more risk. Specific risks associated withinvesting in smaller companies include that the securities may be thinly traded and they may be more difficult to sell during market downturns. The Fundmay not achieve its objectives. Portfolio holdings are subject to change. Current and future portfolio holdings are subject to risk.

The discussions of the companies herein are not intended as advice to any person regarding the advisability of investing in any particular security. The views expressed in thisreport reflect those of the respective portfolio manager only through the end of the period stated in this report. The portfolio manager’s views are not intended asrecommendations or investment advice to any person reading this report and are subject to change at any time based on market and other conditions and Baron has noobligation to update them.

This report does not constitute an offer to sell or a solicitation of any offer to buy securities of Baron Small Cap Fund by anyone in any jurisdiction where it would be unlawfulunder the laws of that jurisdiction to make such offer or solicitation.


32

Baron Opportunity Fund

significant impact on the market this year, and the multiples investors arewilling to pay for higher growth businesses. This has hurt Fundperformance.

At the same time, with the clarity of 20/20 hindsight, we have to acknowledgethat we made some mistakes in the context of the market backdrop justdescribed. We have carefully analyzed the Fund’s historical performance – boththis year and further back – and are convinced the Fund’s strategy of focusingon big secular trends and innovation is sound and, when well executed, shouldyield superior long-term performance versus generalized market indexes. Weremain confident that the Baron investment philosophy and process, and ourtalented research team, provide differentiation versus the short-term tradingmindset that dominates Wall Street today. Our mistakes have been ones ofexecution. To employ a sports analogy (I played college hoops a quartercentury ago), our players possess the requisite skills and athleticism and ourplays work, but we didn’t make sharp enough cuts, we were late hitting theopen man and we missed shots we usually make. I have made enhancementsto my research and portfolio management processes to enforce even morerigor and discipline around executing our “playbook.” At bottom, we intend tobe laser-focused on investing in powerful, longer term secular trends and indifferentiated and special businesses – companies that we conclude havesignificant and durable competitive advantages and high-quality businessmodels. To provide a little more insight into what we mean by competitiveadvantages, here are some of the factors we consider:

• Proprietary technology (significantly better than its closestsubstitute)

• Proprietary data or information

• Network effects (product becomes better as more people use it)

• Economies of scale

• Branding

• Ownership or control of scarce or unique resources

• High switching costs

Performance listed in the above table is net of annual operating expenses.Annual expense ratio for the Retail Shares as of September 30, 2013 was 1.37%.The performance data quoted represents past performance. Past performanceis no guarantee of future results. The investment return and principal value of aninvestment will fluctuate; an investor’s shares, when redeemed, may be worthmore or less than their original cost. The Adviser has reimbursed certain Fundexpenses (by contract as long as BAMCO, Inc. is the adviser to the Fund) and theFund’s transfer agency expenses may be reduced by expense offsets from anunaffiliated transfer agent, without which performance would have been lower.Current performance may be lower or higher than the performance dataquoted. For performance information current to the most recent month-end,visit www.BaronFunds.com or call 1-800-99BARON.† The Fund’s historical performance was impacted by gains from IPOs and/or secondary

offerings. There is no guarantee that these results can be repeated or that the Fund’s level ofparticipation in IPOs and secondary offerings will be the same in the future.

1 The indexes are unmanaged. The Russell Midcap™ Growth Index measures the performanceof medium-sized U.S. companies that are classified as growth and the S&P 500 Index of 500widely held large cap U.S. companies. The indexes and the Fund are with dividends, whichpositively impact the performance results. Russell Investment Group is the source and ownerof the trademarks, service marks and copyrights related to the Russell Indexes. Russell is atrademark of Russell Investment Group.


3 Not annualized.

Dear Baron Opportunity Fund Shareholder:

Performance

Baron Opportunity Fund had a poor third quarter, as unfavorable marketconditions for the Fund’s strategy persist. For the quarter, the Fund wasdown 4.37%, trailing both the Russell Midcap Growth Index, which declined0.73%, and the large cap S&P 500 Index, which increased 1.13%.



RussellBaron Midcap

Opportunity Growth S&P 500Fund1,2 Index1 Index1

Three Months3 (4.37)% (0.73)% 1.13%Nine Months3 (5.05)% 5.73% 8.34%One Year 2.87% 14.43% 19.73%Three Years 16.21% 22.74% 22.99%Five Years 13.67% 17.12% 15.70%Ten Years 10.26% 10.24% 8.11%Since Inception (February 29, 2000) 4.94% 3.37% 4.53%

Review & Outlook

The market environment for the Baron Opportunity Fund – a strategyfocused on investing in higher growth, innovative businesses – remainsunfavorable. High growth and smaller cap stocks have significantly trailedtheir large cap, value and even GARP (growth at a reasonable price) peersthis year. The reasons include concerns about global economic growth(weakening economies in Europe and China), the end of QE3 (QE standsfor quantitative easing, the Federal Reserve’s bond buying program),uncertainty around when the Fed will begin to raise interest rates andgeopolitical events, such as the Ukraine conflict, the threat of ISIS and,most recently, the spread of the Ebola virus. None of these items haveanything to do with or will have a long-term impact on, the secular growthtrends we highlight or on the long-term drivers of business value for thecompanies in which we are invested. Nonetheless, they have had a

MICHAEL A. LIPPERT Retail Shares: BIOPX

PORTFOLIO MANAGER Institutional Shares: BIOIX

33

September 30, 2014 Baron Opportunity Fund

In terms of what we mean by high quality business models, we favorcompanies with:

• Large and expanding addressable market opportunities

• Recurring revenue

• High gross and incremental margins

• Low capital intensity or high and provable returns on capital

• Visionary and trustworthy management teams, with track records ofsuccess

As any student of the market knows, changes in market sentiment anddirection are almost impossible to predict. Today’s headwind becomestomorrow’s tailwind. Reversion to the mean is inescapable. I cannot predictwhen the market environment will do its next about-face and becomemore favorable for higher growth, innovative businesses. But it will. In themeantime, we intend to follow our playbook, which we continually hone, asdescribed above. We remain steadfast in our belief that the innovative,secular growth businesses in which we are invested have the potential todouble in size within four-to-five years, with many having the furtheropportunity to double again after that. And, long-term valuations are farmore attractive than they were earlier in the year.

Since its inception, the Fund’s consistent strategy has been to invest infast growing businesses that are innovating and disrupting theirindustries. We seek to identify secular growth themes across every sectorof the economy. These themes include DNA sequencing, electric vehicles,cloud computing, software delivered as a service, e-commerce, the mobileInternet, data-driven advertising, unconventional oil & gas resources,information delivered as a service, social media, digital media,cybersecurity, liquefied natural gas, etc. We base our investments withinthese themes on our own independent research. Based on our research, Iam confident the fundamentals of our companies are solid, and that thesecular themes in which we are investing are not just intact but aspowerful as ever. We remain confident that these industry themes willprovide the fuel for the next generation of growth for many key sectorsof the economy.


PercentImpact

Concur Technologies, Inc. 0.53%Mobileye N.V. 0.43Mellanox Technologies Ltd. 0.32Guidewire Software, Inc. 0.30Twitter, Inc. 0.29

Shares of Concur Technologies, Inc. increased sharply during the thirdquarter. Concur is a leading provider of travel booking and expensemanagement software. On September 18, SAP SE announced an agreementto acquire Concur for $129 per share, a 28% premium to the closing priceon September 2, the day before Bloomberg reported that Concur wasexploring a sale. The $8.3 billion acquisition implied a valuation of roughly9.7 times Concur’s estimated fiscal year 2015 revenue and confirmed ourview that Concur was a valuable strategic asset. (Neal Kaufman)

Mobileye N.V. is a software and systems design leader for camera-basedadvanced driver assistance systems (ADAS). The share price increased afterwe participated in Mobileye’s IPO in the quarter. We believe the companyhas the potential to become a multi-decade leader in the race toautonomous driving, a trend that we think will improve transportationsafety and efficiencies. (Gilad Shany)

Mellanox Technologies Ltd. supplies semiconductor-based systems forcomputing, storage and communications applications that connect serversto servers and servers to storage. Mellanox’s stock rose on reports of bettersecond quarter results and third quarer guidance, as the latest generation ofIntel chips spurred customer demand for high performance interconnectsystems. We believe we are still in the early innings of the Mellanox growthstory. (Gilad Shany)

Shares of Guidewire Software, Inc. increased during the third quarter,helped by wins at several major insurers. In our view, Guidewire is the goldstandard of Property & Casualty core systems vendors, as evidenced bynear-perfect retention rates, growing installed base, and acceleratingadoption of its complete product suite. We believe the company is in theearly innings of a core system replacement cycle, and is dramaticallyexpanding its addressable market through persistent innovation. (NealRosenberg)

Twitter, Inc. is the world’s largest real-time broadcaster of news,information and content with over 270 million monthly active users. Sharesof Twitter performed well in the quarter as investors saw signs of greaterconsumer engagement and improved monetization on the platform. Webelieve Twitter is in the early stages of its overall growth and has substantialrunway ahead of it. (Ashim Mehra)


PercentImpact

Benefitfocus, Inc. –1.22%CARBO Ceramics, Inc. –0.85Marchex, Inc. –0.59Acxiom Corp. –0.48Oasis Petroleum, Inc. –0.47

Shares of Benefitfocus, Inc. fell during the third quarter, partly due to asecondary offering in July that increased the public float by more than 30%and partly due to multiple compression across software-as-a-service stocks.Benefitfocus is the leading provider of cloud-based benefits software,offering an integrated suite of solutions to help customers more efficientlyshop, enroll, manage, and exchange benefits information. We thinkBenefitfocus serves an addressable market more than 100 times larger thanits current business, which should allow it to compound revenue at morethan 30% annually. (Neal Rosenberg)

CARBO Ceramics, Inc. is, principally, the leading provider of ceramicproppants that are used in the hydraulic fracturing process for oil and gaswells. CARBO shares fell sharply during the third quarter after one of its keyclients announced it was shifting its wells to sand from ceramics and itbecame clearer that this shift could be imitated by other clients. CARBO’srerouting of volumes away from this client has resulted in increased price

34


competition. We exited our position in CARBO as this transition and theresulting negative earnings effects became clearer. (Jamie Stone)

Marchex, Inc. is a mobile advertising technology company that deliversand analyzes customer phone calls to businesses. While we believe theMarchex technology holds promise, the company recently lost a substantialpiece of business from one of its largest customers, leading us to exit ourposition. (Ashim Mehra)

Acxiom Corp. is the leading provider of database marketing solutions andIT outsourcing services to large enterprise customers. Shares of Acxiomwere down in the quarter due to a slower customer ramp in the company’snew Audience Operating System (AOS) platform, and weaker revenueguidance on the company’s core database solutions business. We expectAOS growth to accelerate through the rest of the year, and a new salesinitiative to improve revenue in the core business as well. (Ashim Mehra)

Oasis Petroleum, Inc., an exploration and production company, is one ofthe largest players in the Williston Basin in North Dakota. Falling oil pricestook a heavy toll on Oasis and other producers in the third quarter. Inaddition, second quarter production came in at the low end of expectations.These two factors largely explain the sharp decline in Oasis share. Webelieve Oasis remains on track for several years of strong productiongrowth, and new well completion techniques appear to be improving wellproductivity and recovery rates. We believe this bodes well for long-termupside in stock price. (Jamie Stone)

Portfolio Structure

Baron Opportunity Fund had $440.6 million of assets under managementas of September 30, 2014. The Fund had investments in 56 securities. Thetop 10 positions accounted for 33.7% of the portfolio. The median marketcap of the Fund was $5.0 billion at the end of the quarter.


Quarter EndInvestment Quarter End Percent

Value Market Cap of Total(millions) (billions) Investments

Gartner, Inc. $21.2 $ 6.5 4.8%Illumina, Inc. 20.5 22.9 4.6Guidewire Software, Inc. 16.8 3.1 3.8Red Hat, Inc. 15.6 10.5 3.5SBA Communications Corp. 15.2 14.3 3.4Equinix, Inc. 13.8 11.3 3.1Verisk Analytics, Inc. 13.5 10.1 3.0Shutterstock, Inc. 11.7 2.5 2.6Just Eat plc 11.3 2.7 2.5CarMax, Inc. 10.6 10.2 2.4

As detailed above, we focus on investing the Fund’s assets in themes andindividual businesses that we believe will experience significant seculargrowth rates. As a result, the Fund’s sector weights are an output of ourprocess, not an input. Not surprisingly, most of our investments are in thoseindustry sectors more typically associated with growth. At quarter end,about 69% of the portfolio was invested in the Consumer Discretionary andInformation Technology sectors. We also have meaningful investmentsacross the Health Care, Industrials and Energy sectors. In thinking aboutdiversification, we pay little attention to sector weights as defined by GICS,instead focusing on the fundamental business drivers and end market

exposures for our investments.

Recent Activity




Alibaba Group Holding Ltd. $219.0 $6.8The Spectranetics Corporation 1.1 4.8Tesla Motors, Inc. 30.2 2.6Cornerstone OnDemand, Inc. 1.8 2.3HealthEquity, Inc. 1.0 2.3

During the quarter, we participated in the IPO of Alibaba Group HoldingLtd. and purchased additional shares in the aftermarket. Alibaba is theworld’s largest e-commerce company with dominant market share inChina. Its three main sites – TaoBao, Tmall, and Alibaba – provide millions ofmerchants with access to several hundred million consumers. Transactionson Alibaba’s sites totaled $248 billion last year, which was more than thatof Amazon and eBay combined. Alibaba’s competitive advantages includethe network effects around its dominant marketplace in China – morebuyers attract more sellers, more diverse items for sale attract more buyers– and its superior capital light business model – it links buyers and sellersbut owns no inventory, no warehouses, no distribution centers. Alibaba’sscale is another advantage. Last year, more than 50% of all domesticpackages shipped in China, a country of 1.3 billion people, resulted from atransaction on one of Alibaba’s sites. We believe Alibaba will continue tobenefit from the growth of China’s consumer economy, and that it hassignificant ex-China opportunities as well.

The Spectranetics Corporation develops, manufactures, markets, anddistributes technology for interventional cardiovascular therapy. TheCompany’s excimer laser system is used in applications such as coronaryangioplasty and the removal of the pacemaker leads. We think thecompany’s leadership in cardiovascular therapy, international marketexpansion and new products should enable it to grow 15-20% for severalyears.

Tesla Motors, Inc., founded and led by visionary entrepreneur Elon Musk, isthe leading pioneer and innovator in the electric drive vehicle space. Webelieve Tesla possesses vastly superior proprietary technology, includingspecially designed lithium-ion batteries, a high-efficiency AC inductionelectric motor, an advanced single-speed gearbox and customizedelectronics for engine management and battery power and safetymanagement. Tesla’s goal is not just to make the best electric cars in theworld – but to make the best car … period. Indeed, Tesla’s Model S (in itsvery first production year) was accorded the highest rating ever byConsumer Reports, a score of 99 out of 100. Tesla aims to furtherdifferentiate itself from competitors through its direct sales model and itsglobal network of Superchargers. We believe its pending Gigafactory willenable it to significantly lower the costs of an electric battery – to levels wethink will be difficult for competitors to match – paving the way for it tooffer a $35,000 mass market electric vehicle and providing it with the scaleto reach its end-of-the-decade target of producing and selling 500,000electric cars.

HealthEquity, Inc. is one of the largest dedicated Health Savings Account(“HSA”) custodians. The company offers HSAs combined with a technology

35

September 30, 2014 Baron Opportunity Fund

platform that serves as a single place for consumers to manage their healthcare savings and spending decisions. The company is the integrated HSAplatform for 20 of the 50 largest health plans (including many BlueCross/Blue Shield Plans) and more than 25,000 employer clients, includingAmerican Express and Google. We believe the company will benefit fromthe secular shift towards greater consumer responsibility for health carecosts, as employers are increasingly adopting High Deductible Health Plans(HDHPs) with HSAs because these plans give individuals incentives tospend less on health care. Moreover, the Affordable Care Act is expected toaccelerate adoption of HDHPs with HSAs. For consumers, the advantages ofHSAs are that: (i) contributions, interest and investment returns are nottaxed; (ii) funds used for qualified medical expenses are not taxed; (iii) HSAbalances roll over year after year; and (iv) individuals own their own HSA,even if they change jobs or retire.


Quarter End Market Cap or

Market Cap AmountWhen Sold Sold(billions) (millions)

DreamWorks Animation SKG, Inc. $1.7 $7.3Berry Plastics Group, Inc. 2.9 6.9Pacira Pharmaceuticals, Inc. 3.5 6.8Marchex, Inc. 0.2 5.3Financial Engines, Inc. 1.9 4.6

We sold DreamWorks Animation SKG, Inc. because the poor performanceof its feature films undercut our investment thesis around the company’sdiversification strategy into television, digital video and consumer products.

We sold Marchex, Inc. after the company announced that it had lost itslargest customer, creating uncertainty around the value of its products andits ability to grow in line with our projections.

We trimmed our position in Pacira Pharmaceuticals, Inc., after a largegain, when the company received an FDA inquiry concerning its marketingpractices. While the company continues to execute well, and while webelieve the opportunity for its Exparel product remains vast, the outcomeand duration of the FDA inquiry is very difficult to predict. We decided itwas prudent to own a smaller position.

We sold Berry Plastics Group, Inc. to fund other investments.

Thank you for your support and for trusting us with your assets. Welook forward to updating you in future letters.

Sincerely,

Michael A. LippertPortfolio ManagerOctober 20, 2014


The Adviser believes that there is more potential for capital appreciation in securities of high growth businesses benefiting from innovation throughdevelopment of pioneering, transformative or technologically advanced products or services, but there also is more risk. Companies propelled by innovation,including technological advances and new business models, may present the risk of rapid change and product obsolescence and their successes may bedifficult to predict for the long term. Securities issued by medium sized companies may be thinly traded and may be more difficult to sell during marketdownturns. The Fund may not achieve its objectives. Portfolio holdings are subject to change. Current and future portfolio holdings are subject to risk.


This report does not constitute an offer to sell or a solicitation of any offer to buy securities of Baron Opportunity Fund by anyone in any jurisdiction where it would be unlawfulunder the laws of that jurisdiction to make such offer or solicitation.


Baron Partners Fund

36

the S&P 500 Index on an annualized basis in all relevant periods other thanthis year since its conversion from a partnership to a mutual fund onApril 30, 2003, as well as over the last 3 years, 5 years, 10 years, 15 years,20 years, and since its inception on January 31, 1992. The businesses inwhich the Fund has invested have grown significantly this year. Since theFund’s shares have not, we believe the Fund is well positioned to soonagain outperform.

In the September quarter, large cap stocks generally outperformed bothmid cap and small cap stocks. The S&P 500 Index ended the quarter up1.13%, while the Russell Midcap Growth Index fell 0.73%, and theRussell 2000 Growth Index fell 6.13%. Our approach is to invest for thelong term in businesses with large market opportunities, sustainablecompetitive advantages and talented, visionary management teams. Wedo not try to predict short-term “macro” developments or shift ourinvestment approach because certain types of stocks are in or out offavor.

We took advantage of the decline in certain growth stocks by initiating oradding to positions in high quality businesses that we know well. Weinitiated positions in Manchester United plc, an English Premier Leagueprofessional sports team and a holding in several other Baron Funds, andMobileye N.V., a provider of automated driver assistance technologies.We added to positions in Tesla Motors, Inc., CoStar Group, Inc., TheCarlyle Group, Gaming and Leisure Properties, Inc., The MiddlebyCorp. and The Charles Schwab Corp. We summarize the investmenttheses for many of these companies in the Recent Portfolio Additionssection below.

The Fund’s investments within the Industrials, HealthCare, Energy, and Financials sectors were the largestdetractors from relative performance. 5.11% of theFund’s average gross assets produced double digitreturns and 27.10% advanced single digits, while67.79% declined. On average 32.21% of the Fund’sholdings outperformed the benchmark.

Performance listed in the above table is net of annual operating expenses.Annual expense ratio for the Retail Shares as of December 31, 2013 was1.67% (comprised of operating expenses of 1.38% and interest expense of0.29%). The performance data quoted represents past performance. Pastperformance is no guarantee of future results. The investment return andprincipal value of an investment will fluctuate; an investor’s shares, whenredeemed, may be worth more or less than their original cost. The Fund’stransfer agency expenses may be reduced by expenses offsets from anunaffiliated transfer agent, without which performance would have beenlower. Current performance may be lower or higher than the performancedata quoted. For performance information current to the most recent monthend, visit www.BaronFunds.com or call 1-800-99BARON.† The Fund’s historical performance was impacted by gains from IPOs and/or secondary


1 Reflects the actual fees and expenses that were charged when the Fund was a partnership. Thepredecessor partnership charged a 20% performance fee after reaching a certain performancebenchmark. If the annual returns for the Fund did not reflect the performance fees for theyears the predecessor partnership charged a performance fee, the returns would be higher. TheFund’s shareholders will not be charged a performance fee. The predecessor partnership’sperformance is only for periods before the Fund’s registration statement was effective, whichwas April 30, 2003. During those periods, the predecessor partnership was not registeredunder the Investment Company Act of 1940 and was not subject to its requirements or therequirements of the Internal Revenue Code relating to registered investment companies,which, if it were, might have adversely affected its performance.

2 The indexes are unmanaged. The Russell Midcap™ Growth Index measures the performanceof medium-sized U.S. companies that are classified as growth and the S&P 500 Index of 500widely held large cap U.S. companies. The Russell Midcap Growth Index, the S&P 500 Indexand the Fund are with dividends, which positively impact the performance results. RussellInvestment Group is the source and owner of the trademarks, service marks and copyrightsrelated to the Russell Indexes. Russell is a trademark of Russell Investment Group.


4 Not annualized.

Dear Baron Partners Fund Shareholder:

Performance

Baron Partners Fund declined 4.86% during the third quarter of 2014,underperforming the Russell Midcap Growth Index, the benchmark againstwhich we compare the performance of this Fund, by 413 basis points.Baron Partners Fund also underperformed the better known S&P 500Index, which measures the performance of large cap companies, by 599basis points in the period. Large cap value stocks generally outperformedmid-sized growth stocks in the period. Year-to-date through September 30,2014, the Fund underperformed its benchmark by 105 basis points and theS&P 500 Index by 366 basis points. Although the Fund has underperformedyear-to-date, the Fund has outperformed both its benchmark index and

RONALD BARON Retail Shares: BPTRX

CEO AND PORTFOLIO MANAGER Institutional Shares: BPTIX



RussellBaron Midcap

Partners Growth S&P 500Fund1,2,3 Index2 Index2

Three Months4 (4.86)% (0.73)% 1.13%Nine Months4 4.68% 5.73% 8.34%One Year 15.27% 14.43% 19.73%Three Years 27.04% 22.74% 22.99%Five Years 18.56% 17.12% 15.70%Ten Years 10.84% 10.24% 8.11%Since Conversion (April 30, 2003) 14.21% 11.84% 9.15%Fifteen Years 9.56% 6.94% 4.87%Twenty Years 12.18% 9.94% 9.59%Since Inception (January 31, 1992) 13.11% 9.55% 9.38%

September 30, 2014 Baron Partners Fund

37

We try to explain the reasons certain stocks outperformed orunderperformed during the period in the “Top Contributors” and “TopDetractors” sections. In many instances, we regard gains and losses in theshort term as random. We continue to believe all the businesses in whichwe have invested have the potential to double in size in four to five years.As a result, we believe stocks that have recently underperformed willachieve above average returns and contribute positively to the Fund’sperformance in coming quarters, although we cannot guarantee it.

"The Long andWinding Road" “Here Comes

Bush Years the Sun”“Yesterday” 2000-2008 Obama Years

Clinton Years 9/11; Iraq; 2008-20141992-2000 Afghanistan; Recovery

Internet Bubble Housing Bubble; 9/30/2014 “Any Time12/31/99 P/E 33x Financial Panic P/E 15.2x at All”

Annualized ReturnsInception Inception1/31/92 12/31/99 to 12/31/08 to 1/31/1992

to 12/31/99 12/31/2008 9/30/2014 to 9/30/14

Baron Partners Fund 22.45% 1.54% 20.04% 13.11%

Russell Midcap Growth Index 19.26% –4.69% 21.21% 9.55%

S&P 500 Index 20.21% –3.60% 17.05% 9.38%

Managing risk is a key part of our investment process. We manage risk froma company perspective by investing in businesses that are conservativelyfinanced with high barriers to entry and wide moats. Our proprietaryresearch regarding business’ long-term growth opportunities, competitiveadvantages, management teams and risks determines how much weallocate to individual securities. We invest in different industries that areaffected by different factors to attempt to achieve a portfolio ofinvestments with risks that are not correlated. This is part of our effort toreduce the volatility of a focused portfolio. Further, the underlyingbusinesses in which the Fund has invested historically have less volatileearnings than the its benchmark index.

We believe that the barrage of negative news from abroad was a largereason for the ongoing flight to safety, with investors continuing toreallocate assets out of smaller cap companies and into larger capcompanies and money market funds.

At the same time, geopolitical events are having little to no impact on the U.S.economy. Economic data continues to show broad signs of improvement, includinggains in housing prices, starts and existing sales; increased industrial production; strongauto sales; rising consumer confidence; and lower unemployment claims. Secondquarter earnings hit a record high in S&P500 operating earnings per share, with growthof 12.6% year over year and a 130% increase over the past five years. Interest ratesremain at historically low levels. Lower energy prices, a result of massive new domesticshale energy discoveries, are also having a positive effect on businesses (lower inputcosts) and consumers (lower gas and home heating prices).

Our outlook for stocks remains favorable. In our opinion, stocks remainattractively valued, trading at 15.2 times earnings, approximating their

median valuation for the past century, while business activity isaccelerating. Historically, stocks have provided protection against inflation,as well as better returns than other asset classes. We think that willcontinue to be the case, but we can’t guarantee it.


MarketCap Quarter

When End MarketYear Acquired Cap Total Percent


Mobileye N.V. 2014 $ 7.9 $11.4 87.65% 0.55%The Charles Schwab Corp. 1992 1.0 38.3 9.37 0.45Vail Resorts, Inc. 2008 1.6 3.1 12.41 0.44Edwards Lifesciences Corp. 2013 7.5 10.8 18.72 0.27Tesla Motors, Inc. 2014 21.9 30.2 1.19 0.11

Mobileye N.V. is a software and systems design leader for camera-basedadvanced driver assistance systems (ADAS). The share price increased afterwe participated in Mobileye’s IPO in the quarter. We believe the companyhas the potential to become a multi-decade leader in the race toautonomous driving, a trend that we believe will improve transportationsafety and efficiencies. (Gilad Shany)

Shares of brokerage firm The Charles Schwab Corp. increased in the thirdquarter. The company indicated at its biannual investor meeting thatearnings should approach the high end of initial guidance. Additionally, thecompany announced plans to return more cash to shareholders throughdividends and buybacks. We believe Schwab is well positioned from aregulatory standpoint and has less exposure to trading commissions thanits peers. It has been experiencing consistent and sustained growth inaccounts as brokers leave traditional wirehouses. (Michael Baron)

Shares of Vail Resorts, Inc., the largest ski resort operator in the U.S.,increased in the third quarter as the company resolved its litigation withthe owners of Park City and bought the resort from them at what webelieve is an attractive price. The resort gives Vail access to two adjacentresorts in Utah which, when combined, will make it the largest ski resort inthe U.S. The company believes that by adding Park City to its season pass,it should be able to increase sales, which should help to insulate it fromweather abnormalities. (David Baron)



When MarketYear Acquired Cap Total Percent


Air Lease Corp. 2014 $3.3 $3.3 –15.69% –0.92%Concho Resources, Inc. 2013 8.7 14.2 –13.22 –0.83Helmerich & Payne, Inc. 2006 2.6 10.6 –15.13 –0.67CarMax, Inc. 2011 6.1 10.2 –10.69 –0.60The Carlyle Group 2012 0.7 2.0 –9.81 –0.45

Baron Partners Fund

38

building a proprietary CRE database, which has grown to includeinformation on over four million properties and nine billion square feet oflistings. The company monetizes its data through subscriptions to analyticaltools that are deeply integrated into clients’ workflows. Ongoinginvestments in R&D and a doubling of the sales force should allow CoStarto sell an expanded array of tools to new and existing customers.Additionally, the acquisitions of LoopNet and Apartments.com extendCoStar’s reach into marketing services and multi-family lead generation,creating vast new opportunities and offering the company dramaticrevenue and cost synergies. Finally, the company’s high fixed cost basecreates significant operating leverage, which should help drive significantmargin expansion. (Neal Rosenberg)

The Carlyle Group, a leading alternative asset management firm, has beenunder pressure in the most recent quarter with the stock decliningapproximately 10%. We took advantage of the weak share price to add toour position. Carlyle manages approximately $200 billion for its clients indiverse strategies and numerous products. Its history of providing solid riskadjusted returns to its clients has enabled it to build sticky relationshipswith clients who invest in multiple funds. The current decline in its shareprice is the result of concerns regarding increased regulation and higherrates impacting fund performance. While these factors may affect thecompany in the near term, they do not alter the long term thesis that webelieve Carlyle Group can continue to broaden its product offering andmanage considerably more assets. Carlyle Group is a dominant firm in thealternative space, which is growing at twice the rate of traditionalmanagers. Additionally, we feel that Carlyle could grow faster than theindustry as limited partners (clients) consolidate their manager selection.While Carlyle’s earnings are more volatile than the earnings of traditionalasset management firms, the company’s diverse product lineup shouldbring some stability to its high margin profits. We believe Carlyle willcontinue to broaden its product offerings and expand its distributionchannels and can significantly increase its assets under management andearnings power over the next few years. (Michael Baron)

Investment Strategy

We invest for the long term in a non-diversified portfolio of competitivelyadvantaged, well-managed, growing businesses at what we think areattractive prices. Often, we have opportunities to purchase stocks ofbusinesses we have researched extensively and that we believe aremispriced or have fallen in price due to what we perceive to be temporaryissues. For example, as mentioned above, in the September quarter, theFund increased its investment in CoStar Group, Inc., a long-time holdingin the Fund as well as other Baron Funds. The stock declined due to abroader correction in high growth stocks and some company specificinvestor concerns. Early in the year, the company bought a multifamilymarketing business called Apartments.com, a business that investorsviewed as lower quality than CoStar’s core business and that investorsbelieved deserved a lower valuation. Investors were concerned thatApartments.com faced strong competition from Trulia and Zillow. Inaddition, a company called RealPage, Inc. made some negative commentsabout the health of the multifamily marketing end market that spookedinvestors. Finally, CoStar’s aggressive hiring in the core informationservices business led to short-term declines in productivity. We believe

Air Lease Corp. is an aircraft leasing company with a young, fuel-efficientfleet, addressing demand for replacement of older aircraft and more lift inemerging markets, namely Asia. It has strong growth and predictable cashflows, as evidenced by a 23% rise in sales and 42% rise in earnings-per-share in the second quarter. Deliveries are 100% booked through 2015 and50% placed for 2016. We believe the stock fell in the third quarter due moreto general market weakness than reported results, and that Air Lease is wellpositioned for a long “runway” of profitable growth. (David Goldsmith)

Concho Resources, Inc., is an exploration and production (E&P) companyfocused on the Permian Basin in West Texas. Shares fell in the third quarter,in line with the decline in oil prices. Concho remains on track to deliver onits “three by two” plan, designed to double production in three years. Evenat lower oil prices, we believe Concho has the wherewithal to deliver on theprogram. In addition, drilling results from Concho and other E&P companiesin the region are pointing to the potential for significantly more valuecreation from Concho’s resource base. (Jamie Stone)

Helmerich & Payne, Inc. is the leading land drilling contractor in the U.S.Shares fell in the quarter despite the fact that rising demand for its new rigsspurred clients to continue to add to the company’s record backlog of newrig contracts. The company’s fiscal third quarter earnings were a bit belowexpectations, which contributed to the stock weakness, but it appears thatmost of the weakness was related to concerns that lower oil prices wouldshort-circuit the upturn in U.S. drilling. (Jamie Stone)

Recent Portfolio Additions



When Market AmountYear Acquired Cap Purchased


Manchester United plc 2014 $2.8 $2.7 $86.8CoStar Group, Inc. 2005 0.7 5.0 67.1The Carlyle Group 2012 0.7 2.0 35.4Tesla Motors, Inc. 2014 21.9 30.2 32.1Mobileye N.V. 2014 7.9 11.4 12.3

Manchester United plc is an English Premier League professional sportsteam. The business had three principal segments: Commercial, Broadcastingand Matchday. The team has a global brand, with a proven history ofsuccess, having won 11 of the last 20 Premier League Titles. Soccer is nowthe second most popular sport among the 12-24 age group in the U.S., andManchester United is among the most popular soccer teams globally.Manchester United has over 500 million fans worldwide and is positionedto benefit from greater broadcast fees and higher sponsorship andmerchandising revenue over the next several years. The increase inbroadcast, licensing and merchandising related revenues should generatesubstantially more cash flow and drive greater value to shareholders overthe next several years. (Ashim Mehra)

The Fund opportunistically added to its position in CoStar Group, Inc., theleading provider of information and marketing services to the $50 trillioncommercial real estate (CRE) industry. The company has spent 25 years

September 30, 2014 Baron Partners Fund

39

investor concerns were overblown and the decline in the stock priceallowed us to add to our position at attractive prices. We also initiated aposition in Manchester United plc, a holding in other Baron Funds, whenthe stock declined due to disappointing results to start the season andwhen existing holders sold stock in a secondary offering. We also addedopportunistically to our positions in Tesla Motors, Inc. and The CarlyleGroup. We believe all are mid-sized, well-established, appropriatelycapitalized, growing companies, with strong positions in markets wherethere is stable demand for their products and services. The Fund may useleverage to invest in stable and well-capitalized growth companies, withthe goal of enhancing its investments’ returns.

Another common theme for Baron Partners Fund’s investments is one ofbusinesses investing for growth, often at the expense of short-term profits.These businesses are investing in order to become much larger, moreprofitable businesses in the future. Virtually all the businesses in which wehave invested are making such capital commitments. Verisk Analytics,Inc.’s startup investments in health care and real estate data services;CarMax, Inc.’s line of new stores coupled with efforts to grow sales inexisting stores; and Hyatt Hotels Corp.’s investment in hotel renovationsand improved guest services, as well as its ongoing expansion in Asia, arenoteworthy in this regard. As long-term investors who hold stocks for anaverage of about five years, we expect to benefit from these expenditures.In contrast, most other mid cap mutual funds are more trading oriented,turning over their entire portfolios on average every nine months. Sincethese funds, in general, will not care about or benefit from such long-term,strategic investments by businesses, they accord them little or no value,allowing us to take positions in these companies at prices we feel areespecially attractive.

Baron Partners Fund also has significant investments in growing “C”corporations like Vail Resorts, Inc., and ITC Holdings Corp., whose shareswe believe are undervalued when compared to similar businesses structuredas REITs or master limited partnerships. The Fund’s investments inalternative investment money manager The Carlyle Group, and financialintermediary The Charles Schwab Corp., are benefiting from strongperformance of equities since the financial panic, which had resulted inincreased investor interest in that asset class.

Portfolio Structure

The Fund’s non-diversified portfolio is currently invested in 26 businesses,principally mid cap companies. As of September 30, the weighted averagemarket capitalization of the Fund’s portfolio investments was $10.98billion compared with $12.98 billion for the benchmark. The Fundcurrently has significantly larger investments in Financials, Utilities,Consumer Discretionary and Energy sectors than the Russell MidcapGrowth Index. The Fund’s investments in Information Technology andHealth Care are weighted less than the index. The Fund does not haveinvestments in Materials, Telecommunication Services or ConsumerStaples. The Fund also has no investments in biotech businesses. Thosebusinesses performed strongly in 2013, often increasing in price50-100%. The Fund, to date, has avoided significant investments inbusinesses with volatile earnings or when it believes it is not apparentwhether or not a business will be successful. We are not attempting tomirror any index with the Fund’s portfolio.

We think the businesses in which the Fund has invested have the potentialto double in size within four to five years. We think because of the unusualcompetitive advantages of those businesses, it would take many years orcost a lot of money, and, therefore, not be economically feasible, for newentrants to compete against them. We think these barriers enable ourcompanies to generate strong returns on capital and provide them with theability to grow consistently over the long term.



When Market PercentYear Acquired Cap Amount of Total

Acquired (billions) (billions) (millions) Investments

Tesla Motors, Inc. 2014 $21.9 $30.2 $194.1 8.7%CoStar Group, Inc. 2005 0.7 5.0 163.3 7.3Hyatt Hotels Corp. 2009 4.2 9.3 151.3 6.8ITC Holdings Corp. 2005 0.8 5.5 146.1 6.6Arch Capital

Group Ltd. 2002 0.6 7.4 134.1 6.0The Charles

Schwab Corp. 1992 1.0 38.3 105.8 4.7The Carlyle Group 2012 0.7 2.0 101.3 4.5Concho Resources, Inc. 2013 8.7 14.2 100.3 4.5Air Lease Corp. 2014 3.3 3.3 97.7 4.4CarMax, Inc. 2011 6.1 10.2 92.9 4.2

Baron Partners Fund

40


The Adviser believes that there is more potential for capital appreciation using non-diversification and leverage, but there also is more risk. Specific risksassociated with non-diversification and leverage include increased volatility of the Fund’s returns and exposure of the Fund to greater loss in any given period.The Fund invests in companies of all sizes, including small and medium sized companies whose securities may be thinly traded and made difficult to sellduring market downturns. Leverage is the degree to which an investor or business is utilizing borrowed money. The Fund may not achieve its objectives.Portfolio holdings are subject to change. Current and future portfolio holdings are subject to risk.

The discussions of the companies herein is not intended as advice to any person regarding the advisability of investing in any particular security. The views expressed in thisreport reflect those of the respective portfolio managers only through the end of the period stated in this report. The portfolio manager’s views are not intended asrecommendations or investment advice to any person reading this report and are subject to change at any time based on market and other conditions and Baron has noobligation to update them.

This report does not constitute an offer to sell or a solicitation of any offer to buy securities of Baron Partners Fund by anyone in any jurisdiction where it would be unlawfulunder the laws of that jurisdiction to make such offer or solicitation.


For more information about this Fund please scan this QR code with any barcode reader on your mobile device.

Thank you for investing in Baron Partners Fund.

Thank you for joining us as fellow shareholders in Baron Partners Fund. Webelieve the growth prospects for the businesses in which Baron PartnersFund has invested are favorable and improving. Since, in our opinion, theshare prices of our businesses do not reflect their prospects, we believe theirstocks’ prospects remain attractive. Of course, there can be no guaranteethis will be the case.

We are continuing to work hard to justify your confidence and trust inour stewardship of your family’s hard-earned savings. We also remaindedicated to continuing to provide you with the information I would liketo have about your investments in Baron Partners Fund if our roles were

reversed. This is so you will be able to make an informed decision aboutwhether this Fund remains an appropriate investment for you and yourfamily.

Respectfully,


41

September 30, 2014 Baron Fifth Avenue Growth Fund

Performance listed in the table above is net of annual operating expenses.Annual operating expense ratio for the Retail Shares as of September 30,2013 was 1.47%, but the net annual expense ratio is 1.30% (net of theAdviser’s fee waivers). The performance data quoted represents pastperformance. Past performance is no guarantee of future results. Theinvestment return and principal value of an investment will fluctuate; aninvestor’s shares, when redeemed, may be worth more or less than theiroriginal cost. The Adviser has reimbursed certain Fund expenses (by contractas long as BAMCO, Inc. is the adviser to the Fund) and the Fund’s transferagency expenses may be reduced by expense offsets from an unaffiliatedtransfer agent, without which performance would have been lower. Currentperformance may be lower or higher than the performance data quoted. Forperformance information current to the most recent month-end, visitwww.BaronFunds.com or call 1-800-99BARON† The Fund’s historical performance was impacted by gains from IPOs and/or secondary


1 The indexes are unmanaged. The S&P 500 Index measures the performance of 500 widelyheld large cap U.S. companies and the Russell 1000® Growth Index of large-sized U.S.companies that are classified as growth. The indexes and the Fund are with dividends, whichpositively impact the performance results. Russell Investment Group is the source and ownerof the trademarks, service marks and copyrights related to the Russell Indexes. Russell is atrademark of Russell Investment Group.


3 Not annualized.


Baron Fifth RussellAvenue 1000Growth S&P 500 GrowthFund1,2 Index1 Index1

Three Months3 0.54% 1.13% 1.49%Nine Months3 4.60% 8.34% 7.89%One Year 16.71% 19.73% 19.15%Three Years 23.29% 22.99% 22.45%Five Years 14.43% 15.70% 16.50%Ten Years 7.54% 8.11% 8.94%Since Inception (April 30, 2004) 7.11% 7.92% 8.33%

and developing unique insights is what we try to do at Baron Funds. Whenthe Oracle of Omaha offers to share his opinion, we listen closely. Here iswhat Warren Buffett had to say on the subject in a CNBC interview onSquawk Box on October 3, 2014:

“I don’t know how to tell what the market is going to do, I do know how topick out reasonable businesses to own over a long period of time. And a lotof people do. Anybody who owned a cross section of American businessover the last 10 years, 20 years, 30 years, 40 years, 50 years, 60 years, hasdone fine. Now, if they think they can dance in and out, you know, and buyand sell stocks, I mean, they ought to head for Las Vegas. I mean, they can’tdo that. But what they can do, is determine that there are a number of solidAmerican businesses, a great number of them, and if you own a crosssection of them, and particularly if you buy them over time, you basicallycan’t lose. Since the third quarter of 2009, looking at our businesses, they’veimproved at a rather constant pace. Now, we heard talk about double dips.We heard talk about everything. They’ve never decelerated much, they’venever accelerated much. Now, autos are doing way better than average.Housing is doing worse than I would have anticipated. But if you look at theoverall, it’s been remarkably consistent. And the mood swings have beensubstantial, but it has been five years. But this was a recession like none we’dever had. I mean, this is a recession where everybody throughout thecountry just got plain scared. Now, we’ve had a lot of recessions when somepeople got worried or something like that and we knew we were in one. Butyou had – our baseline here was people wanting to put money under themattress. And that is a different sort of recession than, you know, we’ve had inmy lifetime. But we’re coming back!”1

Dear BARON FIFTH AVENUE GROWTH FUND SHAREHOLDER:

PERFORMANCE

For the quarter ended September 30, 2014, the S&P 500 and the Russell1000 Growth Indexes increased 1.1% and 1.5%, respectively, compared toa gain of 0.5% for the Baron Fifth Avenue Growth Fund. This quarter wasvery similar to the one ended in March, where a good earnings seasoncombined with solid economic data (steadily improving unemployment,low inflation, rising business and consumer confidence) led the markethigher until mid-September. Then signs emerged that Europe wasdeteriorating, the growth in emerging markets continued to slow (growthrecession they called it), crude oil WTI broke $90, and the outbreak of theEbola virus was no longer contained to West Africa. In a two week swoop,the market erased earlier gains with mid cap and small cap stocks gettinghit particularly hard. The decline persisted into early October, with theS&P 500 giving up all of its gains year-to-date and the Russell 2000 GrowthIndex sporting double digit declines. “Is this just a correction or is the bullmarket finally over? Is this the time to buy or is this the time to sell?” thetalking heads were asking anyone willing to offer an opinion, and of course,if there is one thing the investment community is never short of, it’sopinions. Separating the noise from valuable perspectives and looking for

ALEX UMANSKY Retail Shares: BFTHX

PORTFOLIO MANAGER Institutional Shares: BFTIX

1 Excerpt from a CNBC transcript of the interview with Warren Buffetton 10/03/2014. Emphasis ours. Thank you, Matt Weiss!

42

Baron Fifth Avenue Growth Fund

We agree. Conceptually, we find it more stressful when the market isrunning straight up than when the stock prices are coming down. As capitalallocators we are always looking for mispriced opportunities, which areeasier to find when stocks are on sale. Our conviction is always highestwhen we can buy at sizable discounts to the business’ intrinsic values andwe worry less about figuring out exactly when that dynamic might change.

Getting back to the quarter and the Fund, the largest positive contributionsto performance came from the Information Technology and Energy sectors,while Consumer Discretionary and Health Care were the largest detractors.All of the relative underperformance came from stock selection, which wasoffset somewhat by the positive (albeit unintended) effect of sectorallocation. The performance of our largest investments was mixed withFacebook and Apple posting solid gains, while Illumina, Monsanto,Priceline, and Wynn Resorts declined. Unlike 2012 and 2013, we have nothad any blow-ups or obvious investment mistakes, but we have not hadmany sizable winners either… yet.

During the quarter, we eliminated our midsize position in T. Rowe Price andcut CME Group and YUM! Brands. We also added to Priceline Group,Concho Resources and Amazon.com on weakness, and initiated asignificant position in Alibaba Group. More details below.


Quarter EndMarket Cap Percent

(billions) Impact

Facebook Inc. $204.5 1.00%Twitter, Inc. 31.9 0.45Apple, Inc. 603.3 0.43Mobileye N.V. 11.4 0.43Regeneron Pharmaceuticals, Inc. 36.4 0.39

Shares of Facebook Inc., the world’s largest social network were up 17% inthe third quarter, driven by improvements in consumer engagement andmobile monetization. We believe that Facebook is one of the primarybeneficiaries of a structural shift of advertising dollars to online from allother mediums. With 1.25 billion active monthly users, 950 million mobile,and 750 million daily active users, Facebook presents global advertiserswith a platform unlike any other. The company is still in the early stages ofscaling and building out its monetization structures and stands to benefitfrom expected improvements in the price of advertising on its platform. Wethink Facebook is continually expanding the size of its addressable marketby acquiring and investing in newer synergistic offerings, such as Instagram,WhatsApp, and Oculus VR.

As is frequently the case in this Fund (and we suspect in many othersinvested for the long term), a recent “significant” detractor makes anappearance among the top contributors. With over 275 million active usersTwitter, Inc. has become a key communication platform as major eventsunfold live, in real time, around the world. Shares of Twitter rose 26% in thequarter, as investors saw signs of greater consumer engagement andimproved monetization. We believe Twitter is in the early stages of itsoverall growth and has substantial runway ahead of it.

This is the second time this year we get to write about Apple, Inc. and bothon the plus side. Our patience in sticking with the sizable position and a 9%gain were good enough to land Apple on the contributor list in back to backquarters. We have long maintained that innovation takes time. Most of it isincremental. True breakthroughs are few and rare, but incrementalimprovements/inventions, while frequently unnoticed, happen all the time.The iPhone 6 is not a breakthrough, but few would argue that theimprovement since the original iPhone is not meaningful. Lines, both virtualand physical, were significantly longer than for any other iPhone launch inApple’s history, and 10 million devices were sold in the first weekend alone.Apple also introduced a payment system and a watch, which helped shiftinvestor sentiment around new product introductions and new categoriesin the post-Jobs era. It is too early to tell when, or even if, either productwill become relevant to the most valuable company on earth. Size doesmatter. Despite Carl Icahn’s eloquently articulated “growth” case, wecontinue to be suspicious of Apple’s long-term growth prospects. However,valuation remains undemanding and with 9% free cash flow yield, notmuch growth is required in our view.

We acquired a very small position in shares of Mobileye N.V. when thecompany went public during the quarter. Mobileye is a leading provider ofsoftware and systems design for camera-based advanced driver assistancesystems (ADAS). We believe the company has a significant lead in the raceto autonomous driving, a trend that will improve transportation safety andefficiencies. We are in the very early days of what we believe to be a multi-decade growth opportunity of significant size and scale. Unfortunately, thestock ripped from the first trade rising 114% in less than 2 months oftrading. We did not get a chance to buy additional shares, as the stocknever traded at a level necessary to satisfy our requirement for a marginof safety.

Shares of biopharmaceutical company Regeneron Pharmaceuticals, Inc.increased 28% during the quarter. Regeneron specializes in medicines forthe treatment of serious medical conditions, including Eylea for eyediseases and Alirocumab for cardiovascular diseases. Positive clinical datafor Alirocumab and early FDA approval for Eylea helped drive up share price.Investors viewed Regeneron’s purchase of a voucher that will shortenregulatory review of Alirocumab from 10 to six months as another positivedevelopment. We are impressed with the management’s track record andare intrigued by the company’s culture and process, which we think mayreduce the nature of the binary outcome risk that is typically present ininvestments in this area. That, and the long anticipated hire of biotechanalyst Josh Riegelhaupt, gave us the confidence to finally start committingsome capital to this area.



(billions) Impact

Las Vegas Sands Corp. $50.1 –0.56%Illumina, Inc. 22.9 –0.56Monsanto Co. 59.0 –0.42Wynn Resorts Ltd. 19.0 –0.41YUM! Brands, Inc. 31.6 –0.32

43

September 30, 2014 Baron Fifth Avenue Growth Fund

Shares of Las Vegas Sands Corp., which operates casinos in Las Vegas,Singapore and Macau, declined 18% during the quarter as China’scorruption crackdown and more stringent visa restrictions dampenedgrowth in Macau. In addition, the junkets which bring in VIP rollers, lendthem money, and settle their debts, are proving less willing to extendgenerous credit terms, as it has become harder to collect debts. Despitethese setbacks, we believe that as new supply comes online andinfrastructure improves, Las Vegas Sands will continue to grow in thisunderpenetrated market.

Shares of Illumina, Inc. declined 8% in the third quarter. Illumina is theleading provider of next generation DNA sequencing instruments andconsumables. There was no specific reason for the decline. The shares are upsignificantly over the past 12 and 24 months, driven by strong momentumfollowing the announcement of multiple new product introductions. Webelieve Illumina has further distanced itself from its competitors and holdsan effective monopoly on DNA sequencing at a time when demand isaccelerating, and our conviction in the long-term investment thesis remainsunchanged.

Shares of leading seed and traits company Monsanto Co. fell 9%, drivendown by weak grain prices, which has dampened investor enthusiasmacross the agricultural complex. Monsanto also issued lower-than-expected guidance following its biennial investor event in August.Monsanto is not immune to lower grain prices, but we continue to own thestock as we believe it is a highly cash generative franchise with dominantmarket share, high barriers to entry, and compelling long-term globalgrowth prospects.

Wynn Resorts Ltd. operates casinos in Las Vegas and Macau. Sharesdeclined 9% in the third quarter as China’s crackdown on corruption andmore stringent visa restrictions slowed growth in Macau. In addition, thejunkets which bring in VIP rollers, lend them money, and settle their debts,are proving less willing to extend generous credit terms as it has becomeharder to collect debts. Despite these setbacks, we believe that as newsupply comes online and infrastructure improves, Wynn will continue togrow its business in this underpenetrated market.

Shares of YUM! Brands, Inc., the parent company of fast food chains TacoBell, KFC, and Pizza Hut, fell 11% in the third quarter. on negative publicitysurrounding accounts of improper food handling practices by a former localsupplier in China, where the company generates about half its revenues. Weconsider this setback to be temporary and believe YUM! will continue togrow units and profits at a rapid pace in China and other emerging markets.Even so, we trimmed our position as these types of events have becomeless of one-time in nature causing us to increase the company’s cost ofcapital assumptions, which, in turn, raised the hurdle rate and made theshares less attractive.

Portfolio Structure

The portfolio is constructed on a bottom-up basis with the quality of ideasand conviction level having the highest roles in determining the size of eachindividual investment. Sector weights tend to be an outcome of theportfolio construction process and are not meant to indicate a positive or anegative “view.”

During the quarter, compared to the Russell 1000 Growth Index, the Fundwas overweight Information Technology and Consumer Discretionary, andunderweight Consumer Staples, Industrials, Energy and Health Care. Thishas remained unchanged.

The top 10 positions represented 48.4% of the Fund, the top 20 were74.7% and we exited the quarter with 34 holdings.


Quarter End Quarter EndMarket Investment

Cap Value Percent of(billions) (millions) Net Assets

Facebook Inc. $204.5 $7.2 6.6%Illumina, Inc. 22.9 7.0 6.4Google Inc. 394.0 6.5 5.9Apple, Inc. 603.3 5.6 5.1Amazon.com, Inc. 149.0 5.4 4.9The Priceline Group, Inc. 60.8 4.8 4.4Wynn Resorts Ltd. 19.0 4.3 4.0Monsanto Co. 59.0 4.3 3.9Alibaba Group Holding Ltd. 219.0 4.0 3.6Starbucks Corp. 56.7 3.9 3.6

Recent Activity




Alibaba Group Holding Ltd. $219.0 $3.9The Priceline Group, Inc. 60.8 0.6Concho Resources, Inc. 14.2 0.5Amazon.com, Inc. 149.0 0.5Alexion Pharmaceuticals, Inc. 32.8 0.4

We have written about our interest in Alibaba Group over the last twoyears. In fact, our excitement about Alibaba’s prospects was a significantfactor behind our investment in Softbank Corp. Alibaba made its longanticipated debut on September 19. We were able to acquire a smallposition at the IPO price of $68 per share. The stock opened for trading at$92.70, traded as high as $99.70 and closed at $93.89, up 38%. Ordinarily,we are reluctant to “chase” stocks and prefer to exercise restraint andpatience in building positions (Facebook and Twitter were good examples).This time we chose to make an exception. We committed 3.5% of theFund’s assets to this investment. Our thesis on Alibaba is that it is uniqueas the largest and most dominant e-commerce platform in China. With 280million active buyers (190 million mobile), we believe Alibaba is poised todisproportionately benefit from increased penetration of Internet, mobile,and e-commerce in China. With greater than 50% market share of all onlinetransactions, and an unparalleled eco-system around its platform, Alibababenefits from the network effect and enjoys significant economies of scale,which should allow the company to continue to grow fast (35-40% 3-5year CAGR) in a very profitable manner. We believe there is a very longrunway for growth with significant future monetization opportunities. The

44




The Fund invests primarily in large cap equity securities which are subject to price fluctuations in the stock market. The Fund may not achieve its objectives.Portfolio holdings are subject to change. Current and future portfolio holdings are subject to risk.


This report does not constitute an offer to sell or a solicitation of any offer to buy securities of Baron Fifth Avenue Growth Fund by anyone in any jurisdiction where it wouldbe unlawful under the laws of that jurisdiction to make such offer or solicitation.

IPO price of $68 represented > 50% discount to our estimate of Alibaba’sintrinsic value. Based on our current projections, we believe Alibaba couldbe worth $275-$300 five years in the future.


Quarter EndMarket Cap or


T. Rowe Price Group, Inc. $21.6 $1.8CME Group, Inc. 26.9 1.0Arista Networks, Inc. 4.6 0.5YUM! Brands, Inc. 31.6 0.4

We made a medium size investment in the shares of T. Rowe Price Groupin the 2nd quarter of last year on the thesis that improved performance inT. Rowe’s mutual funds was likely going to lead to improved institutionalflows. We did not get enough conviction to make it a core holding andexited with a mid to high single digit return to make room for Alibaba.

Outlook

While we expect the markets to remain volatile, we remain constructive onthe overall environment. Over the last 50 years, despite the doubling of thepopulation, average global income per capita has tripled, life expectancy hasrisen by a third, and child mortality is down 70%. Literacy rates are upmeaningfully, and average IQs are considerably higher, even after adjustingfor inflation and better nutrition. People are healthier, smarter, and moreprosperous than they have ever been. All predictions of doom haverepeatedly proved wrong. Despite disasters and reverses, quality of life andmaterial wealth and prosperity have continued to increase everywhere inthe world (although, not equally distributed), and we think that’s unlikely tochange.

Our goal remains to maximize long-term returns without taking significantrisks of permanent loss of capital.

Thank you for investing in the Baron Fifth Avenue Growth Fund.

Sincerely,

Alex Umansky,Portfolio ManagerOctober 20, 2014

September 30, 2014 Baron Focused Growth Fund

45

with lower debt-to-earnings ratios performed better than firms withgreater leverage.

We believe the domestic economy is improving. Falling energy pricesreduce the burden on consumers and reduce transportation anddistribution costs for businesses. Unemployment continues to decline.Vehicle purchases are improving. Continued growth seems likely. Housingstarts have rebounded to only 850,000 while the long term average hasbeen 1.5 million, and the peak in 2006 was 2.1 million.

We took advantage of weaker stock prices to add to positions in CoStarGroup, Inc. and The Carlyle Group. Shares of CoStar, an information andmarketing services provider to the multifamily and commercial real estateindustry, fell, largely due to questions surrounding the health of themultifamily market end market, competitive concerns, and declines inproductivity in its core information services business due to aggressivehiring. We believe CoStar will successfully to integrate its recent acquisition,Apartments.com, with its existing data set to create a competitivelyadvantaged asset with significantly more listings than its nearestcompetitor. We are also confident that productivity will recover as newhires gain experience. Carlyle’s weak performance in the quarter wasattributable to investor fears surrounding the possibility of increasedregulation and higher financing costs that could impact its funds’performance. We believe the company’s diversifying product set and strongclient relationships should yield increased assets over the coming years andset it apart from its competitors.

We also invested in two companies held in other Baron portfolios at whatwe believe are attractive prices due to the market turmoil. Theseimportant investments include Tesla Motors, Inc. and Financial Engines,Inc. We participated in the initial public offering ofMobileye N.V., a developer of automated driverassistance technologies. We believe that Mobileye hasa significant lead in R&D investments through itsvision-based systems, and is well-positioned to takeadvantage of what we believe will be a revolution inautonomous driving.

Performance listed in the above table is net of annual operating expenses.As of the last fiscal year ended December 31, 2013, annual operatingexpense ratio for the Retail Shares was 1.42%, but the net annual expenseratio was 1.35% (net of the Adviser’s fee waivers). The performance dataquoted represents past performance. Past performance is no guarantee offuture results. The investment return and principal value of an investment willfluctuate; an investor’s shares, when redeemed, may be worth more or lessthan their original cost. The Adviser has reimbursed certain Fund expenses (bycontract as long as BAMCO, Inc. is the adviser to the Fund) for and the Fund’stransfer agency expenses may be reduced by expense offsets from anunaffiliated transfer agent, without which performance would have beenlower. Current performance may be lower or higher than the performancedata quoted. For performance information current to the most recent monthend, visit www.BaronFunds.com or call 1-800-99BARON.† The Fund’s historical performance was impacted by gains from IPOs and/or secondary


1 Reflects the actual fees and expenses that were charged when the Fund was a partnership. Thepredecessor partnership charged a 15% performance fee through 2003 after reaching acertain performance benchmark. If the annual returns for the Fund did not reflect theperformance fees for the years the predecessor partnership charged a performance fee, thereturns would be higher. The Fund’s shareholders will not be charged a performance fee. Theperformance is only for the periods before the Fund’s registration statement was effective,which was June 30, 2008. During those periods, the predecessor partnership was notregistered under the Investment Company Act of 1940 and was not subject to itsrequirements or the requirements of the Internal Revenue Code relating to registeredinvestment companies, which, if it were, might have adversely affected its performance.

2 The indexes are unmanaged. The Russell 2500™ Growth Index measures the performance ofsmall to medium-sized companies that are classified as growth and the S&P 500 Index of 500widely held large cap U.S. companies. The indexes and the Fund are with dividends, whichpositively impact the performance results. Russell Investment Group is the source and ownerof the trademarks, service marks and copyrights related to the Russell Indexes. Russell is atrademark of Russell Investment Group.

3 The performance data does not reflect the deduction of taxes that a shareholder would payon Fund distributions or redemption of Fund shares.

4 Not annualized.

Dear Baron Focused Growth Fund Shareholder:

Performance

Baron Focused Growth Fund performed in line with its benchmark in thethird quarter of 2014. The Fund decreased in value by 4.19% while the midcap Russell 2500 Growth Index fell 4.21%. The large cap S&P 500 Indexgained 1.13%. Year-to-date, large cap businesses have continued tooutperform small cap and mid cap growth companies.

Geopolitical turmoil plagued equity markets during the quarter. In additionto the backdrop of war, the Ebola crisis, student protests in Hong Kong, theslowdown in China, and the end of domestic fiscal easing all acted ascatalysts for the market’s downturn during the period. Many investorsapparently sold smaller and mid-sized growth companies to invest in“safer” larger firms, which, as a result, outperformed. Portfolio companies



Baron RussellFocused 2500Growth Growth S&P 500Fund1,2,3 Index2 Index2

Three Months4 (4.19)% (4.21)% 1.13 %Nine Months4 (2.06)% (0.41)% 8.34 %One Year 4.44% 8.05% 19.73 %Three Years 17.56% 22.68% 22.99 %Five Years 12.77% 16.85% 15.70 %Ten Years 10.35% 10.10% 8.11 %Fifteen Years 8.57% 7.16% 4.87 %Since Inception (May 31, 1996) 11.40% 7.27% 8.05 %

RONALD BARON

CHIEF INVESTMENT OFFICER AND PORTFOLIO MANAGER

RONALD BARON Retail shares: BFGFX

CEO AND PORTFOLIO MANAGER Institutional Shares: BFGIX


46

We are disappointed in the relative performance of Baron Focused GrowthFund for the past six years, and especially during the last 12 months, whenmid-sized companies so dramatically underperformed larger companies.Since the businesses in which Baron Focused Growth Fund has investedhave grown much more rapidly than those on the S&P 500 Index, webelieve it is likely this underperformance will end soon.

“The Long andWinding Road” “Here Comes

Bush Years the Sun”“Yesterday” 2000-2008 Obama Years

Clinton Years 9/11; Iraq; 2008-20141992-2000 Afghanistan; Recovery

Internet Bubble Housing Bubble; 9/30/14 “Any Time12/31/99 P/E 33x Financial Panic P/E 15.2x at All”

Annualized ReturnsInception

Inception 5/31/96 12/31/99 12/31/08 5/31/96to 12/31/99 to 12/31/08 to 9/30/14 to 9/30/14

Baron Focused 27.87% 2.72% 16.07% 11.40%Growth Fund

Russell 2500 17.60% –3.99% 20.51% 7.27%Growth Index

S&P 500 Index 26.58% –3.60% 17.05% 8.05%


Market Quarter Cap End

When Market Year Acquired Cap Total Percent


Concur Technologies, Inc. 2014 $4.6 $7.2 35.88% 0.74%

Vail Resorts, Inc. 2013 2.3 3.1 12.41 0.64Mobileye N.V. 2014 7.9 11.4 114.36 0.44Choice Hotels

International, Inc. 2010 1.9 3.0 10.38 0.37Guidewire Software,

Inc. 2013 2.7 3.1 9.05 0.21

Shares of Concur Technologies, Inc. increased in the third quarter. Concuris a leading provider of travel booking and expense management software.On September 18, SAP SE announced an agreement to acquire Concur for$129 per share, a 28% premium to the closing price on September 2, theday before Bloomberg reported that Concur was exploring a sale. The $8.3billion acquisition implied a valuation of roughly 9.7 times Concur’sestimated fiscal year 2015 revenue and confirmed our view that Concur isa valuable strategic asset. (Neal Kaufman)

Shares of Vail Resorts, Inc., the largest ski resort operator in the U.S.,increased in the third quarter after the company resolved its litigation withthe owners of Park City and bought the resort from them at what webelieve is an attractive price. The resort gives Vail access to two adjacent

resorts in Utah which, when combined, will make it the largest ski resort inthe U.S. The company believes that by adding Park City to its season pass,it should be able to increase sales, which would help insulate it fromweather abnormalities. (David Baron)

Mobileye N.V. is a software and systems design leader for camera-basedadvanced driver assistance systems (ADAS). The share price increased afterwe participated in Mobileye’s IPO in the quarter. We believe the companyhas the potential to become a multi-decade leader in the race toautonomous driving, a trend that we believe will improve transportationsafety and efficiencies.


QuarterMarket End Market

Cap Cap orWhen Market Cap

Year Acquired When Sold Total PercentAcquired (billions) (billions) Return Impact

Colfax Corp. 2012 $2.4 $7.0 –23.57% –1.76%Benefitfocus, Inc. 2013 0.6 0.7 –41.74 –1.05Helmerich &

Payne, Inc. 2007 3.7 10.6 –15.11 –0.64AO World plc 2014 2.0 0.8 –24.53 –0.56Genesee &

Wyoming, Inc. 2007 1.1 5.1 –9.22 –0.48

Shares of industrial machinery company Colfax Corp. fell in the wake ofweaker-than-expected second quarter results. Strong margins in weldingwere offset by operational missteps in the legacy fluid handling businesscombined with a weak macro environment. Colfax recently announced anew president for the fluid handling business, and we expect this businessto get back on track soon. We believe that Colfax will continue to use itsproven business strategy to improve operations at acquired companies,generating substantial shareholder value over time. (Rebecca Ellin)

Shares of Benefitfocus, Inc. fell in the third quarter, partly due to asecondary offering in July that increased the public float by more than 30%.Benefitfocus is the leading provider of cloud-based benefits software,offering an integrated suite of solutions to help customers more efficientlyshop, enroll, manage, and exchange benefits information. We thinkBenefitfocus serves an addressable market more than 100 times larger thanits current business, which should allow it to compound revenue at morethan 30% annually. (Neal Rosenberg)

Helmerich & Payne, Inc. is the leading land drilling contractor in the U.S.Shares fell in the quarter despite the fact that rising demand for its new rigsspurred clients to continue to add to the company’s record backlog of newrig contracts. The company’s fiscal third quarter earnings were a bit belowexpectations, which contributed to the stock weakness, but it appears thatmost of the weakness was related to concerns that lower oil prices wouldshort-circuit the upturn in U.S. drilling. (Jamie Stone)

September 30, 2014 Baron Focused Growth Fund

47

Recent Purchases



When Market AmountYear Acquired Cap Purchased


Tesla Motors, Inc. 2014 $31.2 $30.2 $6.3CoStar Group, Inc. 2014 6.2 5.0 3.7Financial Engines, Inc. 2014 1.8 1.8 3.5The Carlyle Group 2012 0.9 2.0 0.8Mobileye N.V. 2014 7.9 11.4 0.8

During the quarter we purchased shares in Tesla Motors, Inc. The paceof innovation at Tesla is head spinning and the progress being madetowards the goal of revolutionizing the auto industry is impressive.Recently, Tesla announced an all-wheel-drive (AWD) model with twoelectric motors. Tesla’s model D has a longer range due to its dual motorperformance optimization! In addition, Tesla announced initialAutonomous Driving capabilities and the potential for the car to serve asa valet for its driver. For those of you who used to watch DavidHasselhoff in “Knight Rider,” it must bring a smile to your face. Teslacontinues to delight customers and out-innovate its competition. (Gilad Shany)

The Fund opportunistically added to its position in CoStar Group, Inc., theleading provider of information and marketing services to the $50 trillioncommercial real estate (CRE) industry. The company has spent 25 yearsbuilding a proprietary CRE database, which has grown to includeinformation on over four million properties and nine billion square feet oflistings. The company monetizes its data through subscriptions to analyticaltools that are deeply integrated into clients’ workflows. Ongoinginvestments in R&D and a doubling of the sales force should allow CoStarto sell an expanded array of tools to new and existing customers.Additionally, the acquisitions of LoopNet and Apartments.com extendCoStar’s reach into marketing services and multi-family lead generation,creating vast new opportunities and offering the company dramaticrevenue and cost synergies. Finally, the company’s high fixed cost basecreates significant operating leverage, which should help drive significantmargin expansion. (Neal Rosenberg)

The share price of Financial Engines, Inc., a service provider to definedcontribution plans and individual investors, has declined byapproximately 50% year-to-date. The valuation had been justified by itsstrong growth prospects. However, lower profit yield in 2014 andinvestor rotation away from smaller growth businesses led to the drop inshare value. Baron Focused Growth Fund took advantage of theattractive stock price to initiate a position. We believe the long-terminvestment premise still holds. The company is the dominant player in a$5 trillion market, with roughly $900 billion in plan assets under contractand $100 billion in assets under management. Significant potentialexists to add to these amounts through increased sales to plan sponsors,improved marketing to plan participants, and broadened productofferings. Additionally, we think the company should eventually be able

to use its expertise to service the IRA and defined benefit markets, eachof which represents an additional $5 trillion in assets. We believe thatFinancial Engines’ essential advice offering and plan connectivityadvantage will result in significant client growth and highly profitablerecurring revenue streams. (Michael Baron)

Portfolio Structure

The objective of Baron Focused Growth Fund is to double its value pershare within five years. Of course, the Fund may not achieve this objective.Our strategy to accomplish this goal is to invest for the long term in afocused portfolio of appropriately capitalized, well-managed, small andmid cap businesses at attractive prices. We attempt to create a portfolio ofless than 30 securities diversified by GICS sectors that will beapproximately 80% as volatile as the market. These businesses areidentified by our proprietary research.

We think the businesses in which Baron Focused Growth Fund has investedhave the potential to double in size within approximately five years anddouble again over the subsequent five years. We think these well-managedbusinesses have sustainable competitive advantages and strong, long-termgrowth opportunities. Considering current stock price valuations, we believewe have the opportunity to meet our performance goals during the nextdecade, although there is no guarantee that we will do so.

As of September 30, 2014, Baron Focused Growth Fund held 29investments. The median market capitalization of those small and mid-sizedgrowth companies was $5.13 billion. Compared to its benchmark, theFund’s investments have higher profitability (as exhibited through greateroperating margin, EBITDA margin and net margin). They also exhibit betterinternal returns (higher return on invested capital, return on equity andreturn on assets). And, they are more conservatively financed (lower debt tomarket capitalization ratio) and more consistent (lower standard deviationof earnings growth and lower beta). We find these metrics important inlimiting risk for a focused portfolio.

Interestingly, the Fund’s holdings lag on a free cash flow margin (cash flowfrom operations minus capital expenditures). This metric is often cited ascrucial for today’s investors who value a company’s ability to return cash toshareholders through dividends and/or buybacks. While not trying todiminish the importance of cash generation, we often prefer companiesthat reinvest in their business for future growth. We think of ourselves aslong-term owners of businesses that we believe can double in value overthe next four to five years. Without reinvesting in their businesses, thesecompanies stand little chance of fulfilling their ambitious growth plans.Examples include Hyatt Hotels Corp., which is investing approximately$300 million annually to improve its properties and attain increased rates;Manchester United plc, which has increased its capital spendingassociated with player acquisitions to improve its on-field product; andTesla Motors, Inc., which is focusing its capital spend on more thandoubling its production capacity and building a plant for battery packagingand cell manufacturing. While these investments result in lower free cashflow margin today, we believe they are positioning the companies for futuregrowth. We believe that investing in companies with strong financialpositions that are improving their products to attack large opportunitiesgives the Fund the best chance to achieve its long-term return goals.

For more information about this Fundplease scan this QR code with any bar code reader on your mobile device


The Adviser believes that there is more potential for capital appreciation in small and medium-sized companies and using non-diversification, but there alsomay be more risk. Specific risks associated with non-diversification include increased volatility of the Fund’s returns and exposure of the Fund to greater riskof loss in any given period. Securities of small and medium-sized companies may be thinly traded and they may be more difficult to sell during marketdownturns. The Fund may not achieve its objectives. Portfolio holdings are subject to change. Current and future holdings are subject to risk.The discussions of the companies herein are not intended as advice to any person regarding the advisability of investing in any particular security. The views expressed in thisreport reflect those of the respective portfolio managers only through the end of the period stated in this report. The portfolio manager’s views are not intended asrecommendations or investment advice to any person reading this report and are subject to change at any time based on market and other conditions and Baron has noobligation to update them.

This report does not constitute an offer to sell or a solicitation of any offer to buy securities of Baron Focused Growth Fund by anyone in any jurisdiction where it would beunlawful under the laws of that jurisdiction to make such offer or solicitation.

Beta: measures a fund’s sensitivity to market movements. The beta of the market (Russell 2500 Growth Index) is 1.00 by definition.






Hyatt Hotels Corp. 2009 $4.2 $9.3 $14.5 7.5%Vail Resorts, Inc. 2013 2.3 3.1 11.8 6.1Colfax Corp. 2012 2.4 7.0 11.4 5.9CoStar Group, Inc. 2014 6.2 5.0 10.3 5.4Pinnacle

Entertainment, Inc. 2013 1.1 1.5 9.2 4.8FactSet Research

Systems, Inc. 2008 2.5 5.1 9.1 4.7Genesee &

Wyoming, Inc. 2007 1.1 5.1 8.6 4.5ITC Holdings Corp. 2008 2.2 5.5 8.6 4.4Manchester United plc 2012 2.1 2.7 8.2 4.3Choice Hotels

International, Inc. 2010 1.9 3.0 7.8 4.1

Thank you for investing in Baron Focused Growth Fund.

We are continuing to work hard to justify your confidence and trust in ourstewardship of your family’s hard-earned savings. We are also continuingto try to provide you with information I would like to have if our roleswere reversed. This is so you can make an informed judgment aboutwhether Baron Focused Growth Fund remains an appropriate investmentfor your family.

Respectfully,


48


49

September 30, 2014 Baron International Growth Fund

MICHAEL KASS Retail Shares: BIGFX

PORTFOLIO MANAGER Institutional Shares: BINIX

Dear Baron International Growth Fund Shareholder:

Performance

The Baron International Growth Fund (the “Fund”) retreated 6.88%, whileits principal benchmark index, the MSCI ACWI ex USA IMI Growth Index,declined 5.08% for the third quarter of 2014. Global equities pulled back aseconomic momentum slowed in key economies across the Eurozone andChina, while in the U.S., continued strength ushered in concerns of an earlierthan expected Fed tightening. On the positive side, the major geopoliticalhotspots began to stabilize, though overall tensions remain elevated. Whilethe global liquidity environment appears stable and accommodative, givenopposing forces playing out among the major developed central banks,recent developments and divergences within the capital markets suggestwe may have entered a period of higher volatility. On a very high level, wewould submit that the leading global central banks have been waging amulti-year offensive against deflation, and deleveraging, and while the U.S.appears largely successful, political and demographic complexities in Europeand Japan, together with financial constraints in China, suggest the globalbalance is less clear, and that it may be premature to declare victory. Fromour perspective, diverse and challenging global conditions reinforce the



MSCI Baron ACWI ex

International USA IMI MSCI Growth Growth ACWI ex Fund1,2 Index1 USA Index1

Three Months3 (6.88)% (5.08)% (5.27)%Nine Months3 (1.85)% (0.32)% 0.00%One Year 1.25% 4.30% 4.77%Three Years 13.10% 11.81% 11.79%Five Years 9.46% 7.01% 6.03%Since Inception (December 31, 2008) 13.90% 11.58% 11.05%

Performance listed in the above table is net of annual operating expenses.As of the last fiscal year ended December 31, 2013, annual operatingexpense ratio for the Retail Shares was 1.74%, but the net annual expenseratio was 1.50% (net of the Adviser’s fee waivers). The performance dataquoted represents past performance. Past performance is no guarantee offuture results. The investment return and principal value of an investment willfluctuate; an investor’s shares, when redeemed, may be worth more or lessthan their original cost. The Adviser has reimbursed certain Fund expenses (bycontract as long as BAMCO, Inc. is the adviser to the Fund) and the Fund’stransfer agency expenses may be reduced by expense offsets from anunaffiliated transfer agent, without which performance would have beenlower. Current performance may be lower or higher than the performancedata quoted. For performance information current to the most recentmonth-end, visit www.BaronFunds.com or call 1-800-99BARON.† The Fund’s historical performance was impacted by gains from IPOs and/or secondary


1 The MSCI ACWI ex USA indexes cited are unmanaged, free float-adjusted marketcapitalization weighted indexes. The MSCI ACWI ex USA IMI Growth Index Net USD measuresthe equity market performance of large, mid and small cap growth securities across developedand emerging markets, excluding the United States. The MSCI ACWI ex USA Index Net USDmeasures the equity market performance of large and mid cap securities across developedand emerging markets, excluding the United States. The indexes and Baron InternationalGrowth Fund include reinvestment of dividends, net of foreign withholding taxes, whichpositively impact the performance results.


3 Not annualized.

advantage of an active, bottom-up investment approach. We remainenthusiastic regarding the long-term prospects for international andemerging market equities, and particularly for the companies in which wehave invested. Further, we believe the trend towards market-friendly reformin many key markets will continue, notwithstanding various signs ofresistance and backtracking in recent months. We believe such setbacks areto be expected, as the road to economic and political reform often requiresa “two steps forward, one step back” progression. Most importantly, wereiterate that the Fund’s results over the longer-term period since inceptionsuggest that our investment discipline, focused on higher quality, capital-efficient growth companies driven by strong and entrepreneurialmanagement teams, is well-suited to capitalize on the extraordinarychange and opportunity which characterizes our markets.

While we view our third quarter absolute and relative performance asdisappointing, we believe that all-cap and high-quality growth strategies ingeneral underperformed during the quarter. Further, we believe ourperformance was reasonable when compared to a more direct peer group.Our underperformance during the quarter was largely driven by poor stockselection effect in the Health Care and Consumer Discretionary sectors.Within Health Care, two long-held and successful investments, EurofinsScientific SE and Grifols SA, suffered retracements as earnings momentumappeared to be slowing in the near term. Within Consumer Discretionary,we would characterize the weakness as largely stock-specific, as DENNetworks Ltd. retreated subsequent to the Indian communicationsregulator announcing a temporary delay in Phase III and IV digitizationimplementation; AO World plc, one of our mobile broadband, eCommerceand Internet holdings, declined in sympathy with the U.K.consumer/housing sector; and Steinhoff InternationalHoldings Ltd. peaked and retreated on anannouncement detailing its anticipated European listing.On the positive side, relative outperformance in theInformation Technology sector helped offset the above;Mellanox Technologies Ltd. reacted positively to signs

50

Baron International Growth Fund

of an upturn in spending driven by an Intel product cycle and a recovery inhigh-performance computing spending; Ingenico SA continued to gain onstrong results and momentum in global payment infrastructuredevelopment; and Just Eat plc rebounded strongly from previous quarterlosses on signs that business remained solid and that competitive concernswere over exaggerated.


PercentImpact

Mobileye N.V. 0.43%Mellanox Technologies Ltd. 0.34Ingenico SA 0.29Domino’s Pizza Enterprises Ltd. 0.18PATRIZIA Immobilien AG 0.16

Mobileye N.V. is a software and systems design leader for camera-basedadvanced driver assistance systems (ADAS). The share price increased afterwe participated in Mobileye’s IPO in the quarter. We believe the companyhas the potential to become a multi-decade leader in the race toautonomous driving, a trend that we believe will improve transportationsafety and efficiencies. (Gilad Shany)

Mellanox Technologies Ltd. supplies semiconductor-based systems forcomputing, storage and communications applications that connect serversto servers and servers to storage. Mellanox’s stock rose on reports of bettersecond quarter results and third quarter guidance, as the latest generationof Intel chips spurred customer demand for high performance interconnectsystems. We believe we are still in the early innings of the Mellanox growthstory. (Gilad Shany)

French firm Ingenico SA manufactures point-of-sale (POS) paymentterminals and provides secure electronic payment services. The stock rose inthe third quarter as revenue growth and margin expansion beat expectations.POS terminal sales are growing rapidly due to (i) a merchant refresh cycle inthe U.S. driven by the adoption of a more secure payment technology calledEMV; (ii) rapid growth in emerging markets; and (iii) market share gains. Inaddition, margins have expanded due to strong operational execution andsuccessful integration of recent acquisitions. (Josh Saltman)

Shares of Domino’s Pizza Enterprises Ltd. rose in the third quarter, andhave now climbed by roughly 60% year-to-date. The largest masterfranchiser of the Domino’s Pizza brand, the company has deliveredexceptional performance in its home market of Australia/New Zealand anda solid turnaround in its newer, European market. Most exciting is its newestmarket, Japan, where it has been delivering exceptionally positive results and,as a result, increasing the company’s earnings guidance. (Kyuhey August)

Shares of PATRIZIA Immobilien AG rose in the third quarter, driven by theannouncement of a large real estate investment in the UK and thedisclosure of a significant acquisition pipeline. PATRIZIA is a leading Germanreal estate owner and asset manager that operates throughout Europe. Weremain excited about our investment in PATRIZIA, as the companycontinues its transformation from a real estate owner to an asset lightproperty manager. (David Kirshenbaum)


PercentImpact

RIB Software AG –0.75%Grifols SA –0.48DEN Networks Ltd. –0.48AO World plc –0.40Eurofins Scientific SE –0.38

Germany-based RIB Software AG is the leading provider of efficiencysoftware for the construction industry, combining the power of 3-Dmodeling and enterprise resource planning (ERP) business managementsolutions. RIB’s flagship software is quickly becoming the new standard inconstruction and its shares have more than tripled since their trough in2011. We believe the decline in the third quarter represents quarterlyvolatility inherent in businesses that depend on the timing of contract wins,and is not indicative of the vast potential of RIB Software. (Kyuhey August)

Shares of plasma products company Grifols SA declined in the thirdquarter, after the company reported a weak second quarter. We think itsproduct line faced unusual circumstances, and Grifols is expensinginvestments for the long run through its integration of the Novartisdiagnostics acquisition. We retain conviction in the quality and growth ofthe plasma industry, and particularly in Grifols’ immunoglobulin product,which cannot be replicated. We believe Grifols has key competitiveadvantages and is executing its growth plan effectively. (AaronWasserman)

Shares of Indian cable TV provider DEN Networks Ltd. declined in thethird quarter, as the deadline for pan-India digitization was pushed backby two years. DEN is also experiencing near-term challenges in collectingits fair share of subscription revenue from local cable operators. Thecompany is well positioned to benefit from the ongoing digitization ofcable systems as mandated by the Government of India. We retainconviction in DEN due to the expected multifold increase in subscriptionrevenue/earnings post-digitization.

AO World plc is the leading online seller of major domestic appliances inthe U.K., with a 10% market share. Shares fell in the third quarter due tocontractions in valuations for the online sector in the UK over the pastseveral months. We think AO’s unique supply chain and customizedsoftware give it a strong competitive advantage, and we believe it can beseveral times larger over the next few years as it expands into new productcategories and continental Europe. It took its first step overseas with itsSeptember 30 launch of a website in Germany. (Ashim Mehra)

Eurofins Scientific SE provides analytical testing services to clients in thefood, pharmaceutical, and environmental industries. Shares of Eurofins fellin the third quarter on second quarter reports of a modest slowdown inorganic revenue growth. We believe the company’s growth prospectsremain strong, driven by increased regulation related to food safety and theenvironment, as well as the outsourcing of non-core activities bypharmaceutical companies. (Neal Kaufman)

51

September 30, 2014 Baron International Growth Fund

Portfolio Structure

Table IV.Top 10 holdings as of September 30, 2014 - Developed Countries

Percent ofNet Assets

RIB Software AG 3.0%Constellation Software, Inc. 2.5SoftBank Corp. 2.5Check Point Software Technologies Ltd. 2.4Agilent Technologies, Inc. 2.3Ingenico SA 2.2Eurofins Scientific SE 2.2FANUC Corp. 2.2Grifols SA 2.0Symrise AG 2.0

Table V.Top five holdings as of September 30, 2014 - Developing Countries


Kroton Educacional SA 3.1%Smiles SA 1.7Steinhoff International Holdings Ltd. 1.4Tencent Holdings Ltd. 1.3GOL Linhas Aéreas Inteligentes SA 1.2

Exposure by Country: At the end of the third quarter of 2014, the Fund wasinvested 73.5% in developed countries and 23.5% in developing countries,with the remaining 3.0% in cash. The Fund seeks to maintain broaddiversification by country at all times. A detailed review of the Fund’s holdingsby country is available at the back of this Baron Funds Quarterly Report.

Table VI.Percentage of securities in developed markets as of September 30, 2014


Japan 12.9%Germany 11.6United Kingdom 10.9United States 5.5Canada 5.5Israel 5.2France 4.4Norway 4.1Switzerland 3.2Australia 2.9Spain 2.7Hong Kong 2.1Ireland 1.5Sweden 1.0

Table VII.Percentage of securities in developing markets as of September 30, 2014


Brazil 8.4%China 5.6India 3.9Indonesia 2.8South Africa 1.4Korea 0.9Russia 0.5

The Fund may invest in companies of any market capitalization, and westrive to maintain broad diversification by market cap. As of September 30,2014, the Fund’s median market cap was $6.9 billion, and, we were investedapproximately 48.3% in large/giant cap companies, 37.9% in mid capcompanies, and 10.8% in small cap companies, as defined by Morningstar,with the remainder in cash.

Recent Activity

During the quarter, we made only modest revisions to our holdings. Withinour Mobile Broadband, eCommerce and Internet theme, we initiatedpositions in Alibaba Group Holding Ltd. and WeMade EntertainmentCo., Ltd. in place of our previous holdings in Sina Corporation, 21VianetGroup, Inc. and Kakaku.com, Inc., where we perceived a deterioration inthe balance of risk and opportunity. Alibaba is the leading eCommerceplatform in the world in Gross Merchandise Value terms. We are attractedto the company’s dominant market position in China and highly profitablebusiness model that leverages the network/platform effect as well thirdparty logistics and distribution. In addition, by avoiding exposure tomerchandise inventory and real estate, Alibaba has virtually eliminated themost capital-intensive elements of traditional retail commerce. China itselfis a world leader in online penetration of total retail sales, as offline retail inChina in general is less developed and sophisticated, particularly in the tier2 and 3 cities representing significant longer-term potential for Alibaba.WeMade is a leading Korean mobile and Internet game developer, with anadditional material investment in Daum-Kakao, a leading search, socialnetwork and mobile gaming platform in Korea. We believe WeMade’s stakein Daum-Kakao is worth nearly half the company’s current market valueand growing, and that synergies amongst the two companies likely exist.Further, we are optimistic regarding recent and upcoming new productlaunches from WeMade’s development team.

Outlook

The third quarter of 2014 witnessed a reversal of second quarter trends:equities retraced a large portion of previous gains, key economiesincluding China and broader Europe shifted into a slowdown, politicalreform momentum slipped, while, on the bright side, the geopoliticalenvironment largely stabilized. On the liquidity front, the status quoprevailed; the U.S. Federal Reserve inched closer to the final tranche of

scheduled QE, while the ECB and Bank of Tokyo continue to conditionmarket participants for an escalation – perhaps as an offset to the wind-down in the U.S. In our second quarter letter, we questioned whether thecomplacency grounded in record low sovereign bond yields wasfundamentally based, and whether prevailing low measures of volatilitywere sustainable given what appeared rising levels of risk-taking andleverage in many markets. We are, therefore, not surprised by the recentturn of events and rise in market volatility to more normalized levels, andfurther suspect such conditions are likely to continue. Increasing volatilityis consistent with a maturing bull market in equities.

We often suggest that our intermediate and long-term enthusiasm forparticular international and emerging markets is rooted in the potentialfor, and progress in executing, market-friendly and productivity-enhancingreforms. Over the past year, we have suggested that reform momentumacross multiple countries was a key catalyst for the improving performancein such equities. Of course, markets are forward looking, so the recentpause in momentum has likewise driven a mean reverting pullback.Unwelcome developments during the third quarter include: in Japan,intermittent resistance to Prime Minister Abe’s “Third Arrow” reforms; inEurope, ongoing discourse and uncertainty regarding fiscal and monetaryflexibility, given the conflicting positions of Germany and the peripheralcountries; in China, as the primary trend of an economic slowdownprevailed over targeted easing, authorities began to debate the merits ofan aggressive reform agenda; in Brazil, as the first-round election dateneared, the market-unfriendly incumbent Dilma Rousseff effectivelyescalated a negative campaign, leveraging her visibility, political largesseand dominance of advertising exposure to overcome a deficit in the pollsand recapture the favorite position; Indonesia’s newly elected and reform-driven President “Joko” was challenged by an aggressive parliamentaryblock, which voted to amend electoral procedures (a shift from direct localelections to a system of appointment by the political elite), a clear sign ofcontempt for Joko’s reform agenda; and in India, Modi’s pace of reformappears potentially distracted in the short term by a recent Supreme Courtruling overturning as unlawful the prior award of coal blocks, potentiallycompounding the country’s economically limiting power shortage. To alarge degree, we consider such reactionary developments as a part of the

“two steps forward, one step back” progression, and we remain optimisticparticularly regarding the long-term potential of the companies in whichwe are invested.

In the short term, we observe several divergences suggesting to us that wehave likely entered a period of higher volatility, and that the recentcorrection in international and emerging market equities may have furtherto go. Key divergences we are monitoring include generally rising creditspreads over sovereign yields, the recent weakness in commodity pricesrelative to equities, the strength in sovereign bonds relative to equities, andsimilarly, the recent strength in EM sovereign bonds relative to underlyingcurrencies. All of this suggests to us a potential change in liquidity and riskconditions in such markets. On the plus side, we continue to observe solidcapital flows into the principal EM and international fixed income markets,and we will carefully follow future developments here.

Most importantly, we remain of the view that that the ongoing shift inopportunity, resources and capital towards those companies most capableof driving sorely needed economic efficiency and productivity is not only along-term phenomenon, but also a primary driver of value creation. Webelieve this trend underlies the Fund’s solid performance to date, as weinvest nearly exclusively in what we believe to be value creatingentrepreneurs, running attractive businesses grounded in intellectual capitaland competitive advantage.

Thank you for investing in the Baron International Growth Fund.

Sincerely,

Michael KassPortfolio ManagerOctober 20, 2014


Non-U.S. investments may involve additional risks to those inherent in U.S. investments, including exchange-rate fluctuations, political or economic instability,the imposition of exchange controls, expropriation, limited disclosure and illiquid markets. This may result in greater share price volatility. Specific risksassociated with investing in small and medium-sized companies include that the securities may be thinly traded and they may be more difficult to sell duringmarket downturns. The Fund may not achieve its objectives. Portfolio holdings are subject to change. Current and future portfolio holdings are subject to risk.


This report does not constitute an offer to sell or a solicitation of any offer to buy securities of Baron International Growth Fund by anyone in any jurisdiction where it wouldbe unlawful under the laws of that jurisdiction to make such offer or solicitation.



52

53

September 30, 2014 Baron Real Estate Fund

Dear Baron Real Estate Fund Shareholder:

Through the first nine months of 2014, the Baron Real Estate Fund (the“Fund”) generated a 6.65% return, slightly underperforming its primarybenchmark, the MSCI USA IMI Extended Real Estate Index (the “MSCI RealEstate Index”), which gained 7.07%, and the S&P 500 Index, which gained8.34%. In the most recent third quarter, the Fund declined 2.47%, the MSCIReal Estate Index decreased 1.13%, and the S&P 500 Index increased 1.13%.

Since its inception on December 31, 2009, the Fund has generated anaverage annual return of 20.90%, outpacing the average annual returns ofboth the MSCI Real Estate Index, 15.07%, and the S&P 500 Index, 15.16%.Complete performance results can be viewed below in Table I.

As we write this third quarter letter for the period ending September 30,2014, it feels somewhat dated in comparison to the more recentdevelopments in the first few weeks of October.

So what has occurred more recently? Bad news is outweighing good news,and stocks are correcting. Concerns about anemic growth in Europe andJapan, slowing growth in China, falling oil prices, the spread of Ebola, and

Performance listed in the above table is net of annual operating expenses.Annual expense ratio for the Retail Shares as of December 31, 2013 was1.35%. The performance data quoted represents past performance. Pastperformance is no guarantee of future results. The investment return andprincipal value of an investment will fluctuate; an investor’s shares, whenredeemed, may be worth more or less than their original cost. The Adviser hasreimbursed certain Fund expenses (by contract as long as BAMCO, Inc. is theadviser to the Fund) and the Fund’s transfer agency expenses may be reducedby expense offsets from an unaffiliated transfer agent, without whichperformance would have been lower. Current performance may be lower orhigher than the performance data quoted. For performance informationcurrent to the most recent month end, visit www.BaronFunds.com or call1-800-99BARON.1 The indexes are unmanaged. The MSCI USA IMI Extended Real Estate Index is a custom index

calculated by MSCI for, and as requested by, BAMCO, Inc. The index includes real estate andreal estate-related GICS classification securities. MSCI makes no express or implied warrantiesor representations and shall have no liability whatsoever with respect to any MSCI datacontained herein. The MSCI data may not be further redistributed or used as a basis for otherindexes or any securities or financial products. This report is not approved, reviewed orproduced by MSCI. The S&P 500 Index measures the performance of 500 widely held largecap U.S. companies. The indexes and the Fund include reinvestment of interest, capital gainsand dividends, which positively impact the performance results.


3 Not annualized.

the growing threat from ISIS in the Middle East have been overshadowinggenerally strong U.S. economic and corporate results. In reaction to theaforementioned, the S&P 500 Index has corrected approximately 7% sinceits peak in September.

So, where is the market headed? Is the glass half empty or half full? Thoughfurther economic and other factors may affect the stock market in the nearterm, we continue to maintain that the prospects for the equity market, realestate-related securities, and the Fund remain promising. Please see the“Outlook” section at the end of this letter for our perspective on thebroader market, and the outlook for real estate-related securities and theFund.


Quarter EndMarket Cap or Market When Sold Percent(billions) Impact

Home Depot, Inc. $123.5 0.50%Wyndham Worldwide Corp. 10.2 0.28Emeritus Corp. 1.6 0.26Starwood Hotels & Resorts Worldwide, Inc. 15.9 0.21Lowe’s Companies, Inc. 52.2 0.19

In the most recent quarter, Home Depot, Inc.’s shares appreciated 13.9%following the company’s release of strong financial results. During thisperiod, earnings per share increased 23% year-over-year and the companyrepurchased $2.25 billion of its shares. Their management team continuesto execute superbly in an otherwise lacklusterenvironment for housing sales activity and consumerspending. We remain optimistic about the company’slong-term prospects. In our opinion, Home Depot is“best-in-class” with several competitive advantages,including scale, distribution efficiencies, great

JEFFREY KOLITCH Retail Shares: BREFX

PORTFOLIO MANAGER Institutional Shares: BREIX

Performance


MSCI Baron USA IMIReal Extended

Estate Real Estate S&P 500Fund1,2 Index1 Index1

Three Months3 (2.47)% (1.13)% 1.13%Nine Months3 6.65% 7.07% 8.34%One Year 16.84% 12.93% 19.73%Three Years 31.30% 22.76% 22.99%Since Inception

(December 31, 2009) (Annualized) 20.90% 15.07% 15.16%Since Inception

(December 31, 2009) (Cumulative)3 146.30% 94.79% 95.50%

54

Baron Real Estate Fund

management, interconnected retail through its stores and the Internet,excellent customer service, and a rock-solid balance sheet. At current prices,the shares trade at 17 times our estimate of 2015 earnings, which weexpect will grow approximately 20%. In the next few years, we believe thecompany is well positioned to benefit from an improvement in home sales,as well as repair and remodel activity.

Since the inception of the Fund in 2009, no company in our real estateuniverse has been more consistent, in our opinion, with the communicationand delivery of its earnings growth and cash flow allocation to dividends,stock repurchases, debt repayment, and acquisitions than WyndhamWorldwide Corp. We first began acquiring shares in Wyndham WorldwideCorp., a leading franchisor of hotels and provider of vacation rentals andtimeshare ownership, more than four years ago at approximately$27/share. Since then, the shares have appreciated to a recent high of morethan $80/share. We believe we could double our investment, once again, inthe next four to five years, and that the company can generate 15-20%annual earnings per share growth and $750 million of annual free cash flow(7.5% free cash flow yield). In our opinion, the shares are reasonably valuedat 16 times estimated 2015 earnings per share and 9 times cash flow.

In July, Brookdale Senior Living, Inc. completed its $3 billion acquisition ofEmeritus Corp. The combined company transforms Brookdale into the onlynational full-spectrum senior living company in the U.S., with over 1,100communities in 46 states, covering 80% of the U.S. population. As thenumber one senior living company, Brookdale is now three times the size ofthe next largest provider. We are very optimistic about the combinedcompany’s long-term prospects. Please see the commentary following“Table III” in this letter for our more complete perspective on BrookdaleSenior Living.

We remain optimistic about the prospects for Starwood Hotels & ResortsWorldwide, Inc. Starwood is a leading hotel company, primarily in theluxury and upscale hotel segments. Its brands include the St. Regis,Sheraton, Westin, W, Luxury Collection, Le Meridien, Four Points, Aloft,and Element. In August, the company announced its approval of a new$1.1 billion share repurchase authorization, which expanded its totalauthorization to $1.5 billion or approximately 10% of its current marketcapitalization. Management’s announcement of its share repurchase and itsplan to return cash to its shareholders is a positive signaling of compellingvalue in the company.

In addition to its share repurchases, we believe Starwood will continue tobenefit from strong lodging conditions, growth from its developmentpipeline, and asset sales. Business conditions remain strong as corporategroup demand, as well as transient business and leisure demand, hasaccelerated, perhaps due to improved business confidence and economicconditions. Future growth should be supported by its 105,000 roomdevelopment pipeline, which equates to a 30% expansion of its currentroom count of approximately 347,000 rooms. Finally, we believe futureasset sales should provide additional upside for the shares. Managementhas stated that it intends to sell $3 billion of its assets by the end of 2016.Starwood is approximately $500 million into this program. Further cashmay be returned to shareholders through dividends, as the companyexecutes on this goal.



(billions) Impact

Brookdale Senior Living, Inc. $ 5.9 –0.58%Las Vegas Sands Corp. 50.1 –0.49Capital Senior Living Corp. 0.6 –0.39Builders FirstSource, Inc. 0.5 –0.31Wynn Resorts Ltd. 19.0 –0.27

Following a 23% increase in its share price in the first six months of 2014,the shares of Brookdale Senior Living, Inc. declined modestly(approximately 3%) in the most recent quarter. During the most recentquarter, Brookdale Senior Living, Inc. and Emeritus Corporation announcedthe completion of their merger, creating the first national senior livingsolutions company.

We are bullish about the prospects for the newly combinedBrookdale/Emeritus. This transformational merger creates a unique seniorhousing real estate company with several competitive advantages andopportunities for growth that, in our view, should generate further shareprice appreciation for the combined company.

A) Industry Leader: The merger creates the largest and most comprehensiveowner-operator of senior housing in the U.S., with a presence in 330markets in 46 states, consisting of 1,150 properties, and 111,000 units.The combined company is three times larger than its next largestcompetitor, and has a number one market share in 18 of the top 31markets in the U.S. The combined company offers a broad,comprehensive product mix, including independent living, assistedliving, memory care, and skilled nursing.

B) Significant Growth Opportunities: There are significant newopportunities to grow revenues. According to management, 6.5 millionpeople aged 80 years and older live within 10 miles of aBrookdale/Emeritus community. This deep and largely untappeddemand pool, and the company’s focus on national branding via its salesforce, television commercials, and the Internet should help to driverental rate and occupancy growth for several years. Favorabledemographic trends (the senior population is estimated to grow threetimes faster than the base population and people are living longer), newproducts and services, and an eventual improvement in the housingmarket should also support revenue growth.

C) Cost Synergies: Management believes that there are significantopportunities to lower expenses given the company’s larger scale.

D) Consolidation Potential: We believe the newly combined company, withan estimated U.S. market share of 10%, has an enhanced ability toacquire other senior housing operators by utilizing its potentially lowercost of capital than many of its peers.

E) Embedded Real Estate Value: There is the opportunity for managementto unlock the value of the combined company’s owned real estate (54%of total cash flow), valued alone at approximately $35 per share versusa current price of only $31 per share for the entire company. In thefuture, management could sell non-core real estate. It could also unlock

55


additional value by perhaps converting to a REIT structure, which coulddrive down its cost of capital and increase access to capital.

F) Earnings Growth and Share Price Upside: We believe the companymay grow earnings to approximately $3.75-$4.00 per share in thenext three to five years. In our opinion, as the largest and premier seniorhousing real estate company, Brookdale/Emeritus’ shares mayultimately trade at approximately 14 times future earnings of$3.75-4.00 per share, resulting in a stock price of $53-$56 versus acurrent price of $31 per share.

The shares of Las Vegas Sands Corp. and Wynn Resorts Ltd. have notperformed well in 2014 due to a significant slowdown in Macau driven byChina’s anti-corruption campaign, tightened visa restrictions, and theimpact of a slower economic environment in Asia. Though we recentlypared our holdings, we believe the long-term business prospects and shareappreciation potential for both companies remain compelling.

We believe several factors bode well for both companies. In Macau,according to some recent news reports, it appears that the Chinesegovernment may be modifying a portion of its anti-corruption campaign. Iftrue, we believe this may lead to restored and increased business activity inthe next few months for both Las Vegas Sands and Wynn Resorts. Macauoffers attractive long-term supply and demand dynamics. In fact, Macaucomputes as under-supplied with its hotels compared to Las Vegas. A recentGoldman Sachs research report estimates that even after the anticipatedgrowth in room supply for the region through 2017, Macau is expected toattract nearly 3.5 times more visitors per room than Las Vegas. Thecompletion of a new bridge from Hong Kong to Macau in 2016, and plansfor increased ferry and airport capacity, should result in a marked increasein visitation from mainland China to Macau. Additionally, Las Vegas Sandsand Wynn Resorts Ltd. may both be awarded gaming licenses following theapproval of gaming legislation in Japan and Korea. We think that bothcompanies may have increased their share buyback programs in the mostrecent quarter, and may also increase their dividends.

We believe the valuations of both companies have again becomecompelling. The shares of Las Vegas Sands, for example, now trade at slightlymore than 10 times estimated 2015 cash flow comparing favorably to itsfive-year average of 13.8 times cash flow. The shares of Wynn Resorts alsoappear compelling, especially when we account for the 2016 anticipatedopening of the new Wynn Palace in Cotai.

Although the shares of Capital Senior Living Corp. have appreciatedconsiderably since we first began acquiring stock in 2010 at $5 per share(today the shares are around $22), we have been disappointed with thecompany’s recent quarters’ financial results. Revenues have disappointed(caused by discounting at underperforming locations, higher attrition, andbad weather early in 2014), costs have been running ahead of plan, and therepositioning of senior living units from independent care to assisted livingcare has been delayed. We remain shareholders because we believe theshares are attractively valued and the company has the opportunity togenerate strong growth if it improves its execution. Perhaps the recent hireof a new CFO will aid financial planning and forecasting, and better fieldmanagement should improve revenues and costs. With improved execution,the long-term potential remains compelling.

Capital Senior Living continues to benefit by acquiring “mom and pop”senior housing operators (one to five properties) that fall below the radarsof the larger senior housing companies and REITs. Its recent acquisitions

have been both accretive to earnings and have also generated significantcash flow growth. The company anticipates acquiring $150 million of seniorhousing facilities for the year ending 2014, which should add approximately$0.20 per share (a 15% increase) annually versus the company’s $1.35 pershare that was earned in 2013. Additional growth should be generated byredeploying the company’s assets to a more profitable, higher level of care(from independent living to assisted living). For example, Capital SeniorLiving’s current plan to convert 360 senior housing units should result in atleast $0.20 per share of additional earnings growth. We believe thecompany should also continue to benefit from increases in rent andoccupancy and by refinancing debt at a lower cost of capital. We believe theshares have the potential to generate mid-teen annual returns the next fewyears as its cash flow should grow by at least 20% annually in 2014 and2015, and are supported by our estimate of its owned-real estate value(approximately 50% of cash flow) of $20 per share versus a current shareprice of only $22 per share. We will continue to monitor the companyclosely.

The shares of many housing-related companies such as BuildersFirstSource, Inc., a manufacturer and distributor of building products tohomebuilders, have been under pressure in 2014. Several factors havecontributed to a slowdown in housing construction and sales activity, suchas the unusually harsh winter, higher home prices, tight mortgage creditavailability, a short supply of available lots, and construction bottlenecksdue to labor shortages. We also suspect that the lingering effects of thesevere economic downturn are delaying housing construction activity andtemporarily lowering home ownership, as young adults are living at homelonger, getting married later, and having children at a later age.

We believe housing construction activity is near a cyclical bottom and willimprove as employment and wage growth accelerate. In the U.S., onaverage since 1959, one million new single family homes have been builtper year, yet, we are currently building only approximately 575,000 single-family homes! In our opinion, Builders FirstSource is well positioned to growrevenues and earnings as U.S. residential construction activity picks up.When single family construction activity increases to its long-term averageof one million homes, we believe the company could generateapproximately $1.00 per share of earnings, which could equate to a $10 pershare stock price or an almost doubling from the current stock price of$5.50 per share.

Portfolio Structure

In the most recent quarter ended September 30, the percentage of netassets allocated to any individual real estate category remained relativelythe same as in the previous quarter.

Among the 11 real estate categories in our portfolio, our five largest are:

1. Hotel & Leisure (23.5% of the Fund): The Fund’s investments in thiscategory include Starwood Hotels & Resorts Worldwide, Inc., HyattHotels Corp., Wyndham Worldwide Corp., Sunstone Hotel Investors,Inc., LaSalle Hotel Properties, Strategic Hotels & Resorts, Inc. andExtended Stay America, Inc. We believe our hotel & leisure companyinvestments remain well positioned amid expectations of solid demand,low supply forecasts, and reasonable current stock valuations. In ouropinion, as economic growth improves, hotels should perform quite wellas a result of higher occupancy and their opportunity to increase nightlyrates, both resulting in strong cash flow growth.

56


2. Building Products/Services (13.2% of the Fund): We have continuedto invest in several residential-related real estate companies that webelieve will benefit from a multi-year recovery in housing. Within theresidential real estate category, we favor building product/servicecompanies such as Home Depot, Inc., Lowe’s Companies, Inc.,Mohawk Industries, Inc. and CaesarStone Sdot-Yam Ltd. becausethey typically benefit both from an increase in new and existing homesales and the acceleration in spending for home repair and remodeling.

3. Senior Housing Operators (12.3% of the Fund): We remain optimisticabout the outlook for senior housing operators Brookdale SeniorLiving, Inc. (especially following its recently closed merger withEmeritus Corp.) and Capital Senior Living Corp. We believe thesecompanies should benefit in the next few years from multiple tailwindsincluding:

a. favorable demographic trends (the rapidly increasing agingpopulation resulting in accelerated demand);

b. a cyclical recovery (lower unemployment accompanied byimprovement in the housing market); and

c. further industry consolidation through mergers andacquisitions.

4. REITs (11.1% of the Fund): REITs continue to perform well due togenerally solid business fundamentals, historically low interest rates, andstrong investor demand for dividend yield securities.

5. Real Estate Service Companies (9.9% of the Fund): We believe ourinvestments in real estate services companies, such as CBRE Group, Inc.,Jones Lang LaSalle, Inc. and Kennedy-Wilson Holdings, Inc., offerstrong open-ended growth potential at attractive valuations.

The Fund’s real estate-related categories as of September 30, 2014 are asfollows:

Table IV.Fund investments in real estate categories as of September 30, 2014


Hotel & Leisure1 23.5%

Building Products/Services 13.2%

Senior Housing Operators 12.3%

REITs2 11.1%

Real Estate Service Companies 9.9%

Casinos & Gaming Operators 6.1%

Homebuilders & Land Developers 5.6%

Real Estate Operating Companies 4.8%

Tower Operators3 4.8%

Data Centers4 3.1%Infrastructure-Related 2.8%

97.2%Cash and Cash Equivalents 2.8%

100.0%

1 Includes 4.0% from hotel REITs LaSalle Hotel Properties, Strategic Hotels &Resorts, Inc. and Sunstone Hotel Investors, Inc.

2 Total would be 15.1% if included hotel REITS.3 Total would be 6.2% if included tower REIT American Tower Corp.4 Total would be 4.7% if included data center REIT CyrusOne, Inc.

At September 30, the Fund maintained 50 positions. Our 10 largestholdings comprised 43.3% of the Fund, with an average position size of4.3%, and our 20 largest holdings accounted for 63.3% of the Fund, with anaverage position size of 3.2%.

Recent Activity




D.R. Horton, Inc. $ 7.5 $24.0Equinix, Inc. 11.3 17.0Mohawk Industries, Inc. 9.8 14.9Toll Brothers, Inc. 5.5 10.9Hyatt Hotels Corp. 9.3 5.6

We acquired shares in D.R. Horton, Inc., one of the largest publichomebuilders in the U.S., following a 20 percent correction in its stock priceduring the third quarter due to concerns over a slowdown in thehomebuilding market. The company operates in 27 states, offers a broadproduct offering, concentrated among entry-level and first move-up buyers.We believe we acquired the shares at a reasonable valuation –approximately 1.5 times tangible book value versus a range of 1.5-2.1 timestangible book value druing the last twelve months.

In our opinion, the company is one of the best-positioned builders for theeventual recovery in the homebuilding market. Management is activelypreparing for the return of the first-time buyer through its land acquisitionsand product development. It is emphasizing its “Express Product” whichcarries an average home price of $156,000, and is meant to effectivelycompete with the existing re-sale home market in order to capture theentry level buyer. We believe the company’s decision to focus on this pricepoint will generate significant opportunities relative to its peers. Sales ofthe “Express Product,” representing 7% of orders in the most recent quarter,could grow to approximately 25% of orders in the next year. More broadly,we believe the current slowdown in the housing market is only a pause in amulti-year recovery, and that, over the next several years, single familyhousing construction will grow from its current run-rate of approximately575,000 homes to one million, which is in line with its average activity levelover the last 55 years. We believe D.R. Horton will be well positioned for thiseventual growth opportunity.

We have continued to acquire shares of Equinix, Inc., an owner andoperator of data centers, at what we believe are attractive prices. Thecompany owns and operates hard-to-replicate network-dense data centerassets where supply is less of an issue than for more commodity-like datacenter real estate. The company continues to benefit from several “demanddrivers,” including the increased utilization of the Internet, growth of digitalphotographs/videos, increased consumption of data on mobile devices, andincreased corporate information technology outsourcing. Equinix hasannounced plans to convert to a REIT by early 2015. We believe the shareswould respond positively because despite its superior growth and, in ouropinion, superior business model, Equinix currently trades at a discountedvaluation multiple relative to its REIT data center peers. We believe there isa path to 50% upside in the shares in the next three years.

In the most recent quarter, the Fund purchased additional shares ofMohawk Industries, Inc., the world’s largest flooring manufacturer and the

57


largest supplier and distributor of flooring in the United States with a 22%market share. We believe Mohawk is an exceptionally well-run companythat is poised to benefit from the eventual recovery in the housing andcommercial construction markets. We believe that Mohawk has severalcompetitive advantages. CEO Jeff Loberbaum, and family have been in theflooring business since the 1950s and own approximately 14% of thecompany. Management’s experience has resulted in a highly efficientoperation (strong free cash flow generation) and a relatively clean balancesheet (net debt to ebitda of 2.3 times, and an average interest rate on itsdebt of only 3.46%). Mohawk operates in a duopolistic industry (Mohawkas #1, and #2 competitor, Shaw, control approximately 43% of U.S.flooring). This has historically allowed for timely price increases. Mohawk isa leader in all three of its business segments: (i) carpet (40% of its sales) –#2 with a 26% market share, (ii) ceramic (40% of sales) - #1 with a 42%market share, with next closest competitor at 5% market share, and(iii) laminate & wood (20% of sales) – leading market share. We believeMohawk has an opportunity to continue to gain market share because mostof its competitors are not as well-capitalized (management has beenacquisitive in the past). Management has assembled a major distributionnetwork (300 distribution points, 1,500 sales representatives, 600 trucks)without committing capital to buy/own retail stores. Most of its retailcustomers buy the bulk of their flooring products from Mohawk in returnfor Mohawk providing marketing, sales training, software, etc. In the nextfew years, Mohawk should continue to grow through acquisitions, productinnovations, international expansion, and a cyclical recovery in the U.S.housing and commercial real estate market. At approximately 13 times2015 estimated earnings, we believe the shares are attractively valued andcould generate mid-teen annual returns in the next few years.




Essent Group Ltd. $ 1.9 $9.5RealPage, Inc. 1.3 9.5Tanger Factory Outlet Centers, Inc. 3.1 5.2Las Vegas Sands Corp. 50.1 3.3CoStar Group, Inc. 4.5 2.3

Essent Group Ltd. is a well-run mortgage insurance company that, in ourview, is well positioned to benefit from an eventual cyclical recovery inhousing and from the secular shift from public mortgage insurance toprivate mortgage insurance. Although we are optimistic about the long-term prospects for the company, we decided to trim our position in themost recent quarter due to the lackluster environment in the homebuildingmarket. We may increase our investment at a later date.

We exited our investment in RealPage, Inc. following a series of earningsdisappointments. The Fund made a mistake with this investment.

We recently trimmed our investment in Tanger Factory Outlet Centers, Inc.,and reallocated the capital to higher conviction ideas.

Following strong share price performance the last few years and a recentslowdown in its Macau business, we chose to trim the Fund’s position in LasVegas Sands Corp. We remain optimistic about the long-term prospectsfor the company and may choose to increase our investment at a later date.

Outlook

During this turbulent time, we are reminded of a comment from legendaryinvestor Warren Buffett on buying stocks. In the past, he has said, “A simplerule dictates my buying: Be fearful when others are greedy and greedy whenothers are fearful. Fear is now widespread.”

Though we are mindful that there are a number of economic and politicaluncertainties, both foreign and domestic, that may continue to weigh onthe market, we remain optimistic about the longer-term prospects for theequity market and the Fund.

Why?

We believe favorable tailwinds such as an improving U.S. economy,continuing low inflation accompanied by historically low interest rates,ultimately will translate into higher stock prices.

In our opinion, most stock valuations are reasonable and in some cases,cheap. The S&P 500 Index, for example, is trading at approximately 15 times2015 estimated earnings per share, a valuation level that we believe is fairespecially in the context of very low interest rates.

In the real estate sector, many of our commercial and residential-relatedinvestments are valued at attractive levels relative to their history and ourassessment of future growth prospects. For example, the Fund’s hotelinvestments, Starwood Hotels & Resorts Worldwide, Inc. and HyattHotels Corp., are trading at approximately 11 times estimated 2015 cashflow while many comparable hotels are selling for approximately 13-14times cash flow. This month, Hilton Hotels announced the sale of theWaldorf Astoria New York hotel to a Chinese Insurance Company for closeto $2 billion dollars or 32 times cash flow! Leading commercial real estateservice firms, Jones Lang LaSalle, Inc. and CBRE Group, Inc., are trading atdiscounts to the overall stock market despite their superior growthprospects. At 14-15 times estimated 2015 earnings per share, these stocksare also trading at discounts to their historical average valuation multiplesof 16-17 times earnings per share. Our investments in senior housing realestate companies, Brookdale Senior Living, Inc. and Capital Senior LivingCorp., are now valued at meaningful discounts to our estimate of net assetvalue. Even many REITs, which had been expensive, have become morereasonably valued.

The factors that have supported our positive outlook for real estate-relatedstocks in the last few years remain in place. Commercial real estate businessfundamentals have generally stabilized and, in many cases, have begun toimprove. Although residential real estate remains cyclically soft, we believepent-up demand and historically low mortgage rates bode well for housing.In the commercial sector, investor interest in real estate is high – privateequity, sovereign wealth, and other deep pockets of demand. Low interestrates and modestly improving capital availability provide an attractivebackdrop. Valuations in many real estate categories are attractive. Further,at this time, we do not detect major warning signs such as a broadacceleration in construction activity, a spike in interest rates, dramaticallyreduced lending and underwriting standards, or a weakening U.S. economy.

We are pleased with the Fund’s holdings. We believe we have assembled agroup of quality companies that are attractively priced with good growthprospects, led by great management teams.

58


Table VII.Top 10 holdings as of September 30, 2014

Quarter EndMarket Investment

Cap Value Percent of(billions) (millions) Net Assets

Brookdale Senior Living, Inc. $ 5.9 $134.7 9.1%Starwood Hotels & Resorts

Worldwide, Inc. 15.9 78.4 5.3Home Depot, Inc. 123.5 63.9 4.3Wyndham Worldwide Corp. 10.2 62.8 4.2Hyatt Hotels Corp. 9.3 60.0 4.0Jones Lang LaSalle, Inc. 5.7 52.2 3.5CBRE Group, Inc. 9.9 51.9 3.5Capital Senior Living Corp. 0.6 47.3 3.2Equinix, Inc. 11.3 46.6 3.1Mohawk Industries, Inc. 9.8 46.1 3.1

I remain a major shareholder of the Fund alongside you. Thank you for yourcontinued support. We look forward to reporting to you at the end of 2014,which will mark the fifth anniversary of the Fund.

Sincerely,

Jeffrey KolitchPortfolio ManagerOctober 20, 2014



Baron Real Estate Fund is non-diversified, which means it may invest a greater percentage of its assets in fewer issues, and which increases the volatility of itsreturns and exposes it to potentially greater losses in a given period. In addition to general market conditions, the value of the Fund will be affected by the strengthof the real estate markets. Factors that could affect the value of the Fund’s holdings include the following: overbuilding and increased competition; increases inproperty taxes and operating expenses; declines in the value of real estate; lack of availability of equity and debt financing to refinance maturing debt; vacanciesdue to economic conditions and tenant bankruptcies; losses due to costs resulting from environmental contamination and its related cleanup; changes in interestrates; changes in zoning laws, casualty or condemnation losses; variations in rental income; changes in neighborhood values; and functional obsolescence and appealof properties to tenants. The Fund may not achieve its objectives. Portfolio holdings are subject to change. Current and future portfolio holdings are subject to risk.

Discussions of the companies herein are not intended as advice to any person regarding the advisability of investing in any particular security. The views expressed in this reportreflect those of the respective portfolio managers only through the end of the period stated in this report. The portfolio manager’s views are not intended as recommendationsor investment advice to any person reading this report and are subject to change at any time based on market and other conditions and Baron has no obligation to updatethem.

This report does not constitute an offer to sell or a solicitation of any offer to buy securities of Baron Real Estate Fund by anyone in any jurisdiction where it would be unlawfulunder the laws of that jurisdiction to make such offer or solicitation.

59

September 30, 2014 Baron Emerging Markets Fund

Dear Baron Emerging Markets Fund Shareholder:

Performance

The Baron Emerging Markets Fund (the “Fund”) retreated 4.80%, while itsprincipal benchmark index, the MSCI EM IMI Growth Index, declined 3.26%for the third quarter of 2014. Global equities pulled back modestly aseconomic momentum slowed in key economies from the Eurozone toChina, while in the U.S., continued strength ushered in concerns of an earlierthan expected Fed tightening. On the positive side, the major geopoliticalhotspots began to stabilize, though overall tensions remain elevated. Whilethe global liquidity environment appears stable and accommodative, givenopposing forces playing out among the major developed central banks,recent developments and divergences within the capital markets suggestwe may have entered a period of higher volatility. On a very high level, wewould submit that the leading global central banks have been waging amulti-year offensive against deflation and deleveraging, and while the U.S.appears largely successful, political and demographic complexities in Europeand Japan, together with financial constraints in China, suggest the globalbalance is less clear, and that it may be premature to declare victory. Fromour perspective, diverse and challenging global conditions reinforce theadvantage of an active, bottom-up investment approach. We remain

enthusiastic regarding the long-term prospects for emerging marketequities, and particularly for the companies in which we have invested.Further, we believe the trend towards market-friendly reform in many keymarkets will continue, notwithstanding various signs of resistance andbacktracking in recent months. We believe such setbacks are to be expected,as the road to economic and political reform often requires a “two stepsforward, one step back” progression. Most importantly, we reiterate that theFund’s results during a challenging period for emerging market returnssuggest that our investment discipline, focused on higher quality, capital-efficient growth companies driven by strong and entrepreneurialmanagement teams, is particularly well-suited to capitalize on theextraordinary change and opportunity that we currently see in our markets.

While our third quarter absolute and relative performance was uninspiring,we also recognize that our discipline cannot outperform in allenvironments. In general, we believe that all-cap and high-quality growthstrategies underperformed during the most recent quarter, though we dobelieve our performance was satisfactory when compared to a more directpeer group. Our underperformance relative to the benchmark indexesduring the quarter was driven by poor stock selection effect in theConsumer Discretionary and Consumer Staples sectors. Within ConsumerDiscretionary, our India digital media investments retreated as the regulatorannounced a temporary delay in Phase III and IV implementation, while ourBrazil postsecondary education holdings consolidated previous gains largelydue to uncertainty triggered by upcoming elections. Finally, our Macaugaming investments also retreated in response to the short-term slowdownin visitation and increased competitive intensity. The principal driver ofrelative weakness in the Consumer Staples sector was a weak pricingenvironment and a transition towards onlinedistribution in the infant nutrition market, whichcaused a cut in earnings expectations for bothBiostime International Holdings Ltd. and YashiliInternational Holdings Ltd. On the positive side,relative outperformance in the Health Care sector helped



Baron MSCI Emerging EM IMI MSCI Markets Growth EM IMI Fund1,2 Index1 Index1

Three Months3 (4.80)% (3.26)% (3.22)%Nine Months3 3.21% 3.05% 3.05%One Year 8.17% 6.01% 4.87%Three Years 13.29% 9.01% 7.49%Since Inception

(December 31, 2010) 5.11% (0.11)% (1.00)%

Performance listed in the above table is net of annual operating expenses.As of the last fiscal year ended December 31, 2013, the annual operatingexpense ratio for the Retail Shares was 1.90% but the net annual expenseratio was 1.50% (net of the Adviser’s fee waivers). The performance dataquoted represents past performance. Past performance is no guarantee offuture results. The investment return and principal value of an investment willfluctuate; an investor’s shares, when redeemed, may be worth more or lessthan their original cost. The Adviser has reimbursed certain Fund expenses (bycontract as long as BAMCO, Inc. is the adviser to the Fund) and the Fund’stransfer agency expenses may be reduced by expense offsets from anunaffiliated transfer agent, without which performance would have beenlower. Current performance may be lower or higher than the performancedata quoted. For performance information current to the most recent monthend, visit www.BaronFunds.com or call 1-800-99BARON.† The Fund’s historical performance was impacted by gains from IPOs and/or secondary


1 The MSCI EM (Emerging Markets) IMI indexes cited are unmanaged, free float adjusted marketcapitalization weighted indexes reflected in U.S. dollars. The MSCI EM (Emerging Markets) IMIGrowth Index Net USD and the MSCI EM (Emerging Markets) IMI Index Net USD are designedto measure equity market performance of large, mid and small cap securities in the emergingmarkets. The MSCI EM (Emerging Markets) IMI Growth Index Net USD screens for growth-stylesecurities. The indexes and Baron Emerging Markets Fund include reinvestment of dividends,net of foreign withholding taxes, which positively impact the performance results.


3 Not annualized.

MICHAEL KASS Retail Shares: BEXFX

PORTFOLIO MANAGER Institutional Shares: BEXIX

60

Baron Emerging Markets Fund

offset the above, where our concentration in several leading Indian genericpharmaceutical companies, including Divi’s Laboratories Ltd., Lupin Ltd.and Torrent Pharmaceuticals Ltd., all delivered strong double-digit gains.From a country perspective, our near-absence of exposure in Russia andoverweight position in the Philippines both contributed noticeably toreturns, while weakness in Brazil, largely due to election expectations, andin China, as economic momentum retreated, resulted in a drag on relativeperformance.


PercentImpact

Divi’s Laboratories Ltd. 0.38%Lupin Ltd. 0.34Amara Raja Batteries Ltd. 0.32Torrent Pharmaceuticals Ltd. 0.30TAL Education Group 0.29

Shares of Indian pharmaceutical company Divi’s Laboratories Ltd. rose inthe third quarter on news of its receipt of U.S. FDA approval for itsmanufacturing facilities. Divi’s is a leading manufacturer of complex activepharmaceutical ingredients and also provides customized researchoutsourcing services to global pharmaceutical players. With its highprofitability and long-term relationships with major pharma clients, webelieve Divi’s is now well positioned to sustain mid-to-high teens earningsgrowth for the next three-to-five years. (Anuj Aggarwal)

Shares of Lupin Ltd. rose in the third quarter, driven by strong financial resultsand increased investor appetite for high quality emerging market health carestocks. As a leading Indian generics pharmaceutical player, the company isexperiencing substantial growth in the U.S. as branded drugs continue to gooff-patent. We believe Lupin is well positioned to generate double digitearnings growth for the next three-to-five years. (Anuj Aggarwal)

Shares of India battery company Amara Raja Batteries Ltd. increased in thequarter, on the strength of solid second quarter results that showed that thecompany is continuing to gain market share in the aftermarket segment. Webelieve Amara Raja has done an excellent job building a distribution networkto compete with its main competitor, and its increasing market share andslowly rising prices evidence this fact. (Aaron Wasserman)

Shares of Torrent Pharmaceuticals Ltd. rose in the third quarter, driven byabove-consensus financial performance and a broad re-rating on Indian midcap pharmaceutical stocks. As a fast growing Indian genericspharmaceutical player, the company is experiencing substantial growth inthe U.S. as branded drugs continue to go off-patent. Torrent is alsogenerating strong growth in domestic markets. Given its growing U.S.product pipeline and healthy cash flow generation, we think Torrent is well-positioned for growth over the next several years. (Anuj Aggarwal)

Shares of leading Chinese tutoring services provider TAL Education Grouprose significantly in the third quarter. Performance was driven by strongreported results, with 45% revenue growth and improved gross margins ona favorable mix-shift towards small classes. The company also expandedinto three new cities, bringing its physical presence to 19 cities. Given itsstrong reputation in math and science, high barriers to entry, and strongmargin and cash flow characteristics, we think TAL is well positioned forsolid growth over the coming years. (Catherine Chen)


PercentImpact

Biostime International Holdings Ltd. –0.57%HIWIN Technologies Corp. –0.41DEN Networks Ltd. –0.38Steinhoff International Holdings Ltd. –0.36Multiplus SA –0.35

Shares of Chinese infant formula company Biostime InternationalHoldings Ltd. declined in the third quarter due to below-consensusearnings results. The emergence of e-commerce as a competitive saleschannel is allowing new entrants to gain market share through onlinepromotions. Biostime’s deep distribution networks, which had provided akey competitive advantage, are eroding, and it is still in the early stagesof formulating its online strategy. We trimmed our position owing toreduced earning visibility amidst intensifying competition. (AnujAggarwal)

Shares of HIWIN Technologies Corp., a Taiwanese manufacturer offactory automation equipment, fell in the third quarter. The companyreported earnings below expectations due to higher-than-expectedoperating expenses and the share price corrected despite solid long-termtrends. We remain investors in HIWIN due its exposure to industrialautomation, which has favorable long-term trends. We believe HIWIN’sproduct portfolio and entrance into robotics position it to capitalize ongrowing industry demand. (Rebecca Ellin)

Shares of Indian cable TV provider DEN Networks Ltd. declined in the thirdquarter, as the deadline for pan-India digitization was pushed back by twoyears. DEN is also experiencing near-term challenges in collecting its fairshare of subscription revenue from local cable operators. The company iswell positioned to benefit from the ongoing digitization of cable systems asmandated by the Government of India. We retain conviction in DEN due tothe expected multifold increase in subscription revenue/earnings post-digitization. (Anuj Aggarwal)

Shares of leading European furniture retailer Steinhoff InternationalHoldings Ltd. declined in the third quarter. Steinhoff is planning to dual-list on the Frankfurt Stock Exchange and was required to raise roughly $1.6billion of equity capital to satisfy all listing procedures. The potentialearnings dilution from the equity raise caused the stock to decline. Weretain conviction, given what we believe to be Steinhoff’s excellentmanagement team and its ability to benefit from accelerating industryconsolidation. (Anuj Aggarwal)

Multiplus SA is the largest loyalty program provider in Brazil and partner toTAM, Brazil’s leading domestic airline. During the quarter, the companyreported weak points issuance, offset by better margins. Unfortunately, themarket placed greater emphasis on the issuance disappointment, puttingpressure on Multiplus shares. We continue to believe that Multiplus canbenefit from the growth in air transport in Brazil as well as the ongoingrecovery from its strategic changes in 2013. (Kyuhey August)

61

September 30, 2014 Baron Emerging Markets Fund

Portfolio Structure



Kroton Educacional SA 3.1%Divi’s Laboratories Ltd. 2.3Haitong Securities Co., Ltd. 2.0Smiles SA 2.0Torrent Pharmaceuticals Ltd. 1.9Aspen Pharmacare Holdings Ltd. 1.8Opera Software ASA 1.8Fomento Económico Mexicano, S.A.B. de C.V. 1.8Tower Bersama Infrastructure Tbk PT 1.7Amara Raja Batteries Ltd. 1.7

Exposure by Country

Table V.Percentage of securities by country as of September 30, 2014


India 16.2%China 15.8Brazil 13.1Taiwan 7.8Korea 6.1Indonesia 5.4South Africa 5.3Philippines 4.9Hong Kong 3.5Mexico 2.9Thailand 1.9Norway 1.8Singapore 1.2Chile 1.1United Arab Emirates 0.5United Kingdom 0.5Russia 0.5Canada 0.3

Exposure by Market Cap: The Fund may invest in companies of any marketcapitalization, and we have generally been broadly diversified across large,mid and smaller cap companies, as we believe developing world companiesof all sizes often exhibit attractive growth potential. At the end of the thirdquarter of 2014, the Fund’s median market cap was $3.57 billion, and wewere invested approximately 56.8% in large/giant cap companies, 26.5% inmid cap companies and 5.5% in small cap companies as defined byMorningstar, with the remainder in cash.

Recent Activity

During the third quarter, our most significant change in positioning was thesubstitution of a new concentration in China State Owned Enterprises(SOEs) in favor of previous holdings in the China Internet sector, where we

perceived a deteriorating balance of risk and opportunity. While we doinvest nearly exclusively in private sector companies globally, recentdevelopments in China suggest to us that for the first time since theinception of the Fund, this area of the market deserves our attention andresources. We believe that the pressure to drive economic efficiency, andthe coincident introduction of greater private and foreign competition topreviously protected companies and sectors is now catalyzing changeworthy of investment even within the SOE sector. We remain committed toour discipline, but we are intrigued by several SOE companies alreadyengaged in various forms of restructuring, asset rationalization, introductionof private investment, and improving corporate governance andmanagement incentives. We have initiated modest positions in SinopharmGroup Co., Ltd., China Unicom (Hong Kong) Ltd., and China Petroleumand Chemical Corporation (“Sinopec”), and suspect such investmentscan become a part of a broader theme going forward. In addition, during thequarter, we also established positions in Alibaba Group Holding Ltd., theleading eCommerce platform in China, Infraestructura Energetica NovaS.A.B. de C.V., our first Mexican reform investment, and Mr Price Group Ltd., a unique and attractive South African retail enterprise.

Outlook

The third quarter of 2014 witnessed a reversal of second quarter trends:equities retraced a large portion of previous gains, key economies includingChina and broader Europe shifted into a slowdown, political reformmomentum slipped, while, on the bright side, the geopolitical environmentlargely stabilized. On the liquidity front, the status quo prevailed; the U.S.Federal Reserve inched closer to the final tranche of scheduled QE, whilethe ECB and Bank of Tokyo continued to condition market participants foran escalation – perhaps as an offset to the wind-down in the U.S. In oursecond quarter letter, we questioned whether the complacency grounded inrecord low sovereign bond yields was fundamentally based, and whetherprevailing low measures of volatility were sustainable given what appearedrising levels of risk-taking and leverage in many markets. We are, therefore,not surprised by the recent turn of events and rise in market volatility to morenormalized levels, and further suspect such conditions are likely to continue.Increasing volatility is consistent with a maturing bull market in equities.

We often suggest that our intermediate and long-term enthusiasm foremerging markets is rooted in the potential for, and progress in executing,market-friendly and productivity-enhancing reforms. Over the past year, wehave suggested that reform momentum across multiple countries was a keycatalyst for the improving performance in emerging market equities. Ofcourse, markets are forward looking, so the recent pause in momentum haslikewise driven a mean-reverting pullback. Unwelcome developmentsduring the third quarter include: in China, as the primary trend of aneconomic slowdown prevailed over targeted easing, authorities began todebate the merits of an aggressive reform agenda; in Brazil, as the first-round election date neared, the market-unfriendly incumbent DilmaRousseff effectively escalated a negative campaign, leveraging her visibility,political largesse and dominance of advertising exposure to overcome adeficit in the polls and recapture the favorite position; Indonesia’s newlyelected and reform-driven President “Joko” was challenged by an aggressiveparliamentary block, which voted to amend electoral procedures (a shiftfrom direct local elections to a system of appointment by the politicalelite), a clear sign of contempt for Joko’s reform agenda; and in India, Modi’space of reform appears potentially distracted in the short term by a recent

62


Supreme Court ruling overturning as unlawful the prior award of coalblocks, potentially compounding the country’s economically limiting powershortage. To a large degree, we consider such reactionary developments asa part of the “two steps forward, one step back” nature of progress inemerging market economies, and we remain optimistic regarding theirlong-term potential and, particularly, the outlook for the companies inwhich we are invested.

In the short term, we observe several divergences suggesting to us that wehave likely entered a period of higher volatility, and that the recentcorrection in international and emerging market equities may have furtherto go. Key divergences we are monitoring include the recent weakness incommodity prices relative to equities, the strength in sovereign bondsrelative to equities, and similarly, the recent strength in EM sovereignbonds relative to underlying currencies. All of this suggests to us apotential change in liquidity and risk conditions in such markets. On theplus side, we continue to observe solid capital flows into the EM andinternational fixed income markets, and we will carefully follow futuredevelopments here.

Most importantly, we remain of the view that that the ongoing shift inopportunity, resources and capital towards those companies most capableof driving sorely needed economic efficiency and productivity is not only along-term phenomenon, but also a primary driver of developing world valuecreation. We believe this trend underlies the Fund’s strong performance todate, as we invest nearly exclusively in what we believe are value creatingentrepreneurs, running attractive businesses grounded in intellectual capitaland competitive advantage.

Thank you for investing in the Baron Emerging Markets Fund.

Sincerely,

Michael KassPortfolio ManagerOctober 20, 2014


In addition to the general stock market risk that securities may fluctuate in value, investments in developing countries may have increased risks due to agreater possibility of: settlement delays; currency and capital controls; interest rate sensitivity; corruption and crime; exchange rate volatility; and inflationor deflation. The Fund invests in companies of all sizes, including small and medium sized companies whose securities may be thinly traded and more difficultto sell during market downturns. The Fund may not achieve its objectives. Portfolio holdings are subject to change. Current and future portfolio holdings aresubject to risk.


This report does not constitute an offer to sell or a solicitation of any offer to buy securities of Baron Emerging Markets Fund by anyone in any jurisdiction where it would beunlawful under the laws of that jurisdiction to make such offer or solicitation.


September 30, 2014 Baron Energy and Resources Fund

63

Dear Baron Energy And Resources Fund Shareholder:

Performance

As can clearly be seen in the performance snapshot in Table I below, thethird quarter was a very challenging one for our Fund and for the Energyand Natural Resource segments of the overall market. The Fund posted an8.87% decline for the quarter, leaving our shareholders with a year-to-dategain of 10.22%. While we are clearly not happy with the decline in valueduring the quarter, the fact of the matter is that the last three months havebeen a very challenging period for energy and resource stocks, and we arenot immune to the market forces that drove the shares down during thequarter. It is little consolation, but we do take some solace from the factthat our Fund outperformed its principal benchmark (S&P North AmericanNatural Resources Sector Index) by 116 basis points in the third quarter,and, more importantly, continues to track well ahead (547 basis points) ofthat benchmark on a year-to-date basis.

The performance over the past year has placed the Fund’s Retail andInstitutional Class shares in the top 8% and the top 9%, respectively, of theU.S. Open-Ended Equity Energy Category as tracked by Morningstar.* Inaddition, the performance of the Fund’s Retail and Institutional Class sharesis within the top 3% and 4% respectively, of the Global Natural Resources

Funds Classification as tracked by Lipper* for its trailing one-yearperformance.

The biggest challenges our Fund faced in the quarter were the growingconcerns about global economic growth and the impact that this washaving on oil demand and potentially on corporate earnings, along with asharp decline in the price of oil and, to a lesser extent, natural gas. The oilprice decline is mostly attributable to diminishing demand growthexpectations due to economic malaise in the Eurozone, Japan and a furtherslowdown in China, coupled with rising global production driven by theongoing rise in U.S. oil production, and the somewhat unexpected sharprebound in Libyan oil production. As a result, oil prices fell sharply during thequarter by 13% (West Texas Intermediate crude oil - WTI) to 16% (Brent)and that decline has continued into the beginning of the fourth quarter. Onthe domestic natural gas front, prices have been buffeted by weakersummer demand due to weather in the U.S. being almost 19% cooler thannormal from June through September and by continued shale relatedgrowth in U.S. gas production.

In the past, we have written about the fact that our investment strategy inthe Energy sector and for the Fund as a whole is not predicated on havinga robust or particularly bullish view on the price of oil and natural gas. Infact, we have been of the view that both prices would be non-inflationaryover the next several years and would range between $80/bbl.-$105/bbl forWTI and $3.00/MMBtu-$5.00/MMBtu for natural gas. The price action overthe past year has been quite consistent with that view and nothing that wesee in the supply/demand fundamentals for oil or natural gas has reallyaltered our opinion. In light of this view, we have focused our investmentstrategy on finding and investing in growth companies within the Energysector that we believe can create shareholder value in a price neutralenvironment, and we stress test our investments under avariety of forward price scenarios.

Over the period of time since the inception of the Fundat the end of 2011, our strategy has proven to have alow correlation to both the price of oil and the price ofnatural gas with an R-Squared for oil of 27.8% and

Table I.Performance (Retail Shares)1


S&P North Baron American

Energy and Natural Resources Resources S&P 500

Fund1,2 Sector Index1 Index1

Three Months3 (8.87)% (10.03)% 1.13%Nine Months3 10.22% 4.75% 8.34%One Year 15.59% 10.27% 19.73%Since Inception (December 30, 2011) 10.21% 8.36% 20.34%

Performance listed in the above table is net of annual operating expenses.As of the last fiscal year ended December 31, 2013, annual operatingexpense ratio for the Retail Shares was 2.25%, but the net annual expenseratio was 1.35% (net of the Adviser’s fee waivers). The performance dataquoted represents past performance. Past performance is no guarantee offuture results. The investment return and principal value of an investment willfluctuate; an investor’s shares, when redeemed, may be worth more or lessthan their original cost. The Adviser has reimbursed certain Fund expenses (bycontract as long as BAMCO, Inc. is the adviser to the Fund) and the Fund’stransfer agency expenses may be reduced by expense offsets from anunaffiliated transfer agent, without which performance would have beenlower. Current performance may be lower or higher than the performancedata quoted. For performance information current to the most recent monthend, visit www.BaronFunds.com or call 1-800-99BARON.† The Fund’s historical performance was impacted by gains from IPOs and/or secondary


* Institutional share class and Retail share class both ranked in the top 8% and 9%, respectivelyin the Morningstar US OE Equity Energy Category (out of 92 funds), for the one-year periodended September 30, 2014. The Institutional and Retail share class ranked in the top 3% and4% in the Lipper Global Natural Resources Fund Category (out of 149 funds), for the one yearperiod ended September 30, 2014. These rankings are based on total returns.

1 The indexes are unmanaged. The S&P North American Natural Resources Sector Indexmeasures the performance of U.S.-traded natural resources related stocks and the S&P 500Index of 500 widely held large cap U.S. companies. The indexes and the Fund are withdividends, which positively impact the performance results.

2 The performance data in the table does not reflect the deduction of taxes that a shareholderwould pay on Fund distributions or redemptions of Fund shares.

3 Not annualized.

JAMES STONE Retail Shares: BENFX

PORTFOLIO MANAGER Institutional Shares: BENIX

Baron Energy and Resources Fund

64

0.4% for natural gas during this time. That does not mean that duringperiods of rapid change in commodity prices that our investments won’tbe affected by those rapid moves, as has been the case in recent months,but we believe that over time, company fundamentals of growth, risk andreturn will determine shareholder value much more so than the price ofthe commodities. While our dataset is still somewhat limited by the factthat we only have 11 quarters of data to use for this analysis, the resultsdo support our view over the long term. Since inception, our Retail shareclass has increased in value by 30.7% and our Institutional share class by31.5%, while the price of WTI has fallen by 7.7% and the price of Brent isdown 11.8%.

A more granular look at the Fund’s performance during the third quarterindicates that our Energy and Industrials’ components were the biggestdetractors from performance as our Energy holdings generated a returnof -7.8% and our Industrial holdings generated a return of -20.47%.Furthermore, our Industrials returns were negatively skewed by one stock inparticular that primarily supplies chemicals for oil well drilling andcompletion activity and could easily be thought of as an Energy company.Furthermore, our positions in Information Technology, which are really ourinvestments in renewable energy, also generated a strong negative returnduring the quarter, but given the size of these positions, the impact on theoverall portfolio was not that significant compared to the other two sectors.On the positive side, much of our relative outperformance in the quarter isattributable to our exposure to the midstream/shipping companies and inparticular to our Master Limited Partnership and publicly traded generalpartnership companies in this area. Our weighting to this sub-sector ofEnergy averaged 23.5% in the quarter and generated a small positivereturn, which helped to offset some of the losses in other parts of theportfolio. We believe that exposure to the midstream has been a keycontributor to our relative performance for the past two years and has alsohelped with our risk management. Lastly, we purposely let our cash positiondrift higher throughout the quarter, as we deemed it appropriate in thismacro environment to be a bit more conservative and wait for values toemerge from the correction in share prices.

Overall, the performance of our Fund was disappointing in the quarter and,as oil prices have continued to fall in the early part of the fourth quarter,we are still facing these same negative headwinds. However, it is instructiveto note that share price volatility has been a constant in the Energy sectorfor at least 20 years and the current correction in share prices across theindustry is pretty consistent with historical norms. We have analyzed datafor the S&P Energy Index going back to 1994 and during this period of timethere have been 37 instances when the Index has risen or fallen by 10% ormore and, over this time, the average decline from peak to trough has been16.6%, whereas the average gain trough to peak has been 28.2%. Since thepeak in June, the Index is down about 14% (10/9/14), which, as noted,makes this correction a pretty normal one and should set up for a very goodbuying opportunity in the sector.



Athlon Energy Inc. 2013 0.64%Tallgrass Energy Partners, LP 2013 0.45Rose Rock Midstream, L.P. 2012 0.28Western Refining Logistics, LP 2013 0.18Golar LNG Ltd. 2012 0.17

Athlon Energy Inc. is an independent exploration and production companyfocused on the Midland sub-basin in the greater Permian Basin in WestTexas. The company went public in August 2013 and has done an excellentjob of operating its existing assets, transitioning into a top flight horizontaldriller, de-risking its acreage, and acting as an opportunistic acquirer ofcomplimentary assets. At quarter-end, Athlon agreed to be acquired byEncana Inc. for $58.50 per share, generating a nearly three-fold return fromits IPO price.

Tallgrass Energy Partners, LP is a master limited partnership formed in2013 to acquire, develop, and operate midstream energy assets. During thequarter, Tallgrass closed on its first equity stake in the Pony Express pipeline,helping lift the share price. The pipeline represents a two-year growthopportunity for Tallgrass. We believe the value of additional assets thatTallgrass is positioned to acquire from its parent company is significant andcontributes to an attractive growth trajectory over time.

RoseRock Midstream, L.P. is a master limited partnership formed bySemGroup Corporation to acquire, develop, and operate its midstreamenergy assets. The stock rose on the strength of better-than-expected second quarter results, including revenue that was up 80% on a year-over-year basis. We think RoseRock will see significant cash flow growthfollowing its acquisition of the White Cliffs pipeline. Organic projects andthe potential to acquire two more pipelines are emerging as opportunitiesto extend growth.

Western Refining Logistics, LP is a master limited partnership formed byWestern Refining Corporation in 2011 to acquire, develop, and operatemidstream energy assets. Share price rose after the company announced anagreement to acquire its parent company’s wholesale business in thesouthwest. Western Refining continues to execute on its growth strategy,combining organic growth projects with acquisitions of midstream assets.We expect a consistent growth rate for the next three or more years tocarry share price higher.

It was a busy quarter for Golar LNG Ltd. The long-term sponsor of thisindependent owner and operator of carriers and storage and regasificationunits of liquified natural gas left the company and sold his shares. In hisstead, the vice chairman bought $300 million of stock and Sir FrankChapman joined as chairman. These events all helped boost share price in the third quarter. We believe that Golar will continue to benefit from theincreasing global demand for gas, as well as its position as a leadingcompany in its industry with a visionary and active management.



CARBO Ceramics, Inc. 2012 -1.30%Oasis Petroleum, Inc. 2012 -0.84Flotek Industries, Inc. 2013 -0.64Civeo Corp. 2014 -0.50Concho Resources, Inc. 2012 -0.49

CARBO Ceramics, Inc., is, principally, the leading provider of ceramicproppants that are used in the hydraulic fracturing process for oil and gaswells. CARBO shares fell sharply in the third quarter after one of its keyclients announced it was shifting its wells to sand from ceramics and itbecame clearer that this shift could be imitated by other clients. CARBO’srerouting of volumes away from this client has resulted in increased price


65

competition. We exited our position in CARBO as this transition and theresulting negative earnings effects became clearer.

Oasis Petroleum, Inc., an exploration and production company, is one of thelargest players in the Williston Basin in North Dakota. Falling oil prices tooka heavy toll on Oasis and other producers in the third quarter. In addition, second quarter production came in at the low end of expectations. Thesetwo factors largely explain the sharp decline in Oasis shares in the thirdquarter. We believe Oasis remains on track for several years of strongproduction growth, and new well completion techniques appear to beimproving well productivity and recovery rates. We believe this bodes wellfor long-term upside in stock price.

Flotek Industries, Inc. is a leading supplier of specialized chemicals to theoil & gas industry. Its proprietary citrus oil-based products are experiencingrapid growth related to the shale boom in the U.S. and Canada. Shares fellover concerns that the increasing use of massive quantities of sand in wellcompletions would mitigate usage of Flotek’s main product. Concerns overoil prices also pressured the shares. These fears appear unwarranted, asFlotek’s preliminary third quarter revenue figures reflect continued stronggrowth across the board.

Civeo Corp. is an oilfield and mining offsite accommodations provideroperating in Canada and Australia. The company was spun out of Oil StatesInternational, Inc. in May 2014. Shares fell sharply at the end of the quarterafter Civeo announced that it would not seek to convert to a REIT asexpected. Civeo also indicated that demand in Canada looked weaker thanexpected and that cash flows for 4Q14 and 2015 would be belowestimates. We sold our shares as the investment premise had changed andthe resulting valuation no longer fit with our objectives.

Concho Resources, Inc., is an exploration and production (E&P) companyfocused on the Permian Basin in West Texas. Shares fell in the third quarter,in line with the decline in oil prices. Concho remains on track to deliver onits “three by two” plan, designed to double production in three years. Evenat lower oil prices, we believe Concho has the wherewithal to deliver on theprogram. In addition, drilling results from Concho and other E&P companiesin the region are pointing to the potential for significantly more valuecreation from Concho’s resource base.

Portfolio Structure

The Fund continues to be most highly concentrated in companies that fitwithin our dominant themes around the long-term outlook the NorthAmerican energy renaissance, infrastructure development, and theequipment and technologies that are critical to resource capture anddevelopment. The Energy sector represented an average weighting of 77.4%during the quarter and that is down a bit from the second quarter. The shiftis mostly due to a combination of relative performance, a small increase inour exposure to Utilities (in the form of alternative energy “Yieldcos”), andan increase in our average cash position. Within Energy, we continue to havethe highest weightings in the Exploration & Production sub-sector, followedby Midstream/Shipping and Oil Services/Drilling. In the non-Energy portionof the portfolio, Industrials had an average weight in the quarter of 7.6%and Materials averaged 6.5%. Lastly, our cash position at the end of thequarter was 6.7%, which, as noted above, is higher than usual due to near-term concerns about the severity of the correction in the sector and ourwanting to have dry powder once this “correction” runs its course.

As a percentage of our holdings, our top 10 positions represented 34.5% ofthe Fund at the end of the quarter, which was slightly higher than the

33.1% at the end of the last quarter. The composition of the top 10 islargely unchanged with seven of the 10 stocks being the same as lastquarter and three new additions to the top 10: Athlon Energy Inc.,Tallgrass Energy Partners, LP and Parsley Energy, Inc.





Bonanza Creek Energy, Inc. 2013 $1.2 $2.3 $2.8 3.9%Atlas Energy, L.P. 2013 2.7 2.3 2.7 3.8Concho Resources, Inc. 2012 10.1 14.2 2.7 3.8Halliburton Co. 2012 31.4 54.9 2.7 3.7Athlon Energy Inc. 2013 1.8 5.7 2.5 3.5SM Energy Co. 2012 4.9 5.3 2.4 3.4Rose Rock Midstream, L.P. 2012 0.3 1.8 2.4 3.3Flotek Industries, Inc. 2013 1.2 1.4 2.2 3.1Tallgrass Energy Partners, LP 2013 0.5 2.2 2.2 3.1Parsley Energy, Inc. 2014 2.5 2.7 2.0 2.9

Recent Activity




Parsley Energy, Inc. $2.7 $1.0SM Energy Co. 5.3 0.8TerraForm Power, Inc. 2.9 0.7Athlon Energy Inc. 5.7 0.7Westlake Chemical Partners LP 0.8 0.6

Despite the challenging industry conditions that emerged throughout thecourse of the quarter, the Fund did experience solid inflows of new capitaland, while we allowed some of that cash to build up, we know that we arenot paid to manage cash. Therefore, we selectively put money to workduring the quarter across the Fund, but also with a heavier emphasis on ahandful of stocks as shown in Table V. In the second quarter, we participatedin the IPO of Parsley Energy, Inc., a Texas based Exploration & Productioncompany that has a strong acreage position and operations within theheart of the emerging Permian Basin horizontal oil play. We wrote about thecompany in last quarter’s shareholder letter, and we added to our Parsleyposition during the quarter as its shares traded back down toward its IPOprice and its valuation became more attractive relative to our long-termtarget. We also added to our position in another Permian basedindependent Exploration & Production company – Athlon Energy Inc. andthat incremental purchase certainly worked to our shareholders’ benefitwhen the company was acquired toward the end of the quarter for a nicepremium and a return of nearly three times our initial investment at thetime of its IPO in 2013. Athlon Energy is a terrific example of how ourinvestment philosophy of investing in people can pay off. We have knownthe CEO of Athlon for many years, as prior to forming Athlon, he had beenthe CFO of Encore Acquisition Co., another E&P company that he helpedbuild and sell and in which Baron Funds had been shareholders. Therefore,we jumped at the chance to participate in the Athlon IPO in 2013 and keptadding to our position as the company executed on its growth plan. The sale


66

of the company came earlier than we expected, but it nevertheless was afavorable outcome for the Fund.

We also bought two new IPOs during the quarter, TerraForm Power, Inc. andWestlake Chemical Partners LP. Terraform Power is a alternative energy“Yieldco” similar to Abengoa Yield plc, in which we invested last quarter.TerraForm was created by SunEdison, Inc. to own and operate renewablepower generating and transmission assets, principally solar assets, which havelong-term power purchasing agreements that should deliver stable cash flowsthat can be paid out to investors in the form of dividends. SunEdison is oneof fastest growing renewable power project development companies in theworld and has a large inventory of current generating assets and futuredevelopment projects. TerraForm can facilitate SunEdison’s growth byproviding a lower cost of capital funding source as it is likely to buy theseassets from SunEdison at valuations that allow TerraForm to generate stronggrowth in distributable cash flow per share. TerraForm and Abengoa Yield areinnovative and attractive business models that should help accelerate thegrowth of renewable energy in the power generation sector around the world.

Westlake Chemical Partners LP is an MLP formed by Westlake ChemicalCo. to own an initial 10% limited partner interest in the operating company(OpCo) that owns three ethylene manufacturing facilities on the Gulf Coastof the U.S. The OpCo has signed 12-year ethylene sales agreements withWestlake for 95% of the annual production capacity on a fixed margin perpound basis, after recovering all its costs including a maintenance capitalexpenditure reserve. Westlake already has plans to take advantage of theoverabundance of ethane (the primary feedstock for ethylene) that hasresulted from the shale gas boom by growing the capacity at the plants thatare owned by the OpCo in the next several years. Therefore, a combinationof organic growth in capacity and future drop-downs of additional interestsin the OpCo should enable the MLP to post strong and visible growth indistributable cash flow, which is a critical component in generating long-term shareholder value. We like the long-term competitive nature ofWestlake’s chemical business and the entrepreneurship of the company’smanagement team and believe the combination will help us to achieve ourinvestment goals for this company.

Table VI.Top net sales for the quarter ended June 30, 2014

AmountSold

(million)

CARBO Ceramics, Inc. $0.6Civeo Corp. 0.5Cobalt International Energy, Inc. 0.3Susser Petroleum Partners LP 0.3Opower, Inc. 0.2

For each of the five companies that make up our top sales for the quarter, wecompletely exited our position in these stocks. In the cases of CARBOCeramics, Inc. and Civeo Corp. we sold the stocks after each companysuffered a sharp price decline that was precipitated by reduced earningsguidance and material changes in either the growth outlook, our perceivedvaluation of the business, or both. CARBO Ceramics is a stock we have ownedsince inception and it has been a volatile and bumpy ride. The company hasexcellent products and lots of proprietary technology in its ceramic proppantproducts, which are used during the hydraulic fracturing process for horizontaland vertical wells. However, during the quarter, one of CARBO’s largest clientsindicated that it was shifting its operations away from using ceramics and

following other oil companies in trying a well completion technique thatinvolves pumping significantly larger quantities of sand at a lower cost andhoping to achieve similar levels of productivity. The combination of losing akey client, and a shift in industry trends toward this type of completion ishurting demand for CARBO’s products and prompting CARBO to engage insome price competition. In light of these events, our confidence in the futureearnings of the company was diminished to the point where it no longermade sense to be involved in the stock at this time.

Civeo Corp. is an oilfield accommodations provider with operations mostlyin Canada and Australia that was spun-out of Oil States International lastspring as part of that company’s year-long restructuring. Our investmentthesis for Civeo, which we and others had discussed with management overthe past two years, had been that after the completion of the spin-out, thecompany would subsequently seek to convert from a C-Corp structure to aREIT structure and become a pass-through entity that returned much of itscash flow to investors. Our analysis indicated that under such a structureand despite the fact that the company would be a corporate tax payer inboth Australia and Canada, it would still be able to significantly increasereturns to shareholders and as such would likely trade at a premiummultiple akin to other lodging and specialty REITs. In late September, thecompany surprised investors by concluding that the costs of converting toa REIT were significantly larger than anticipated and instead it would seekto reincorporate in Canada to avoid double taxation. At the same time, thecompany also indicated that the outlook for lodging demand in both of itsprincipal markets was materially worse than expected, particularly inCanada and that the outlook for cash flow was likely to be much lower thanour and Street estimates. While the shift to a Canadian corporation maymake the most sense from a financial perspective, it was immediately clearthat it would be negative from a valuation standpoint. This shift, combinedwith reduced cash flow expectations caused a near 50% decline in the shareprice almost immediately and led to our decision to sell, albeit too late.

In both of these situations, we clearly made errors in judgment and in ouranalysis of operations of the business, the competitive landscape, and in thecase of Civeo, an evaluation of the risk/reward related to its corporatestructure options. We believe that both situations have made us wiser, andbetter able to avoid making similar mistakes in the future.

During the quarter, we also sold our stakes in Cobalt International Energy,Inc. and Opower, Inc. Both stocks had become small stub positions in theFund over the course of time and, given the choice between stepping up ourposition in either company or selling the remaining stake, we opted for thelatter based on our assessment of risk and reward. We also finished selling ourstake in Susser Petroleum Partners LP, which we had started selling in thesecond quarter after the acquisition by Energy Transfer Partners L.P. ofSusser Inc., the general partner to Susser Petroleum Partners, drove the MLP’sshares to a valuation level consistent with our view of long-term fair value.

Outlook

Investing in the Energy sector in recent months has clearly been a challengeand that is reflected in our poor absolute performance last quarter. Thefourth quarter is off to a very poor start as well, as the selling related toconcerns about the oil price and increasingly the global economy has pickedup steam. However, a steep correction in share prices is unfortunatelysomething that we have become very used to in the past twenty years. Werecently analyzed the trading history of Energy stocks as represented by theS&P 500 Energy Index and other indices that track the prices for OilfieldService & Equipment and Exploration & Production stocks. What we have


67

and investment style to change. One of the easiest ways to characterize ourFund and our investment style is that we are focused on finding growth ina mature industry. This means that, while the overall growth rate of theEnergy business and other Resource related sectors may be GDP like orslower, we still believe that there are lots of companies capable of growingfaster and doing so for a lengthy period of time. We first try to identify thedrivers of differentiated growth, and then we identify, research and valuewhich companies are best positioned to benefit from these key drivers.

Over the past several years, our research has led us to focus mostly on theExploration & Production, Oilfield Equipment & Services, and the Storage &Transportation sub-industries within Energy, as we believe that thesebusinesses are best positioned to benefit from the key growth drivers of:

1. the development of unconventional oil & gas resources, such as shales;

2. the increasing service and capital intensity of the exploration &production process; and

3. the investment opportunities in the oil & gas transportation andprocessing infrastructure.

These have been our dominant investment themes for the past severalyears, and we do not expect them to change too much in the next severalyears. Energy has historically been a long-cycle business, and we believe weare still in the early innings of a long growth cycle based on thesethemes/drivers. As such, we think it pays to take a long-term approach, andbe a long-term investor in these businesses.

I am pleased to have had the opportunity to share my thoughts withyou in this letter. Thank you for having the confidence to join me ininvesting in Baron Energy and Resources Fund.

Sincerely,

James StonePortfolio ManagerOctober 20, 2014


The Fund is non-diversified, which means the volatility of the Fund’s returns may increase and expose the Fund to greater risk of loss in any given period.Energy companies can be affected by fluctuations in energy prices and supply and demand of energy fuels. Resources industries can be affected byinternational political and economic developments, the success of exploration projects, and meteorological events.


R-Squared: measures how closely a fund’s performance correlates to the performance of its benchmark index, and thus is a measurement of what portion of its performancecan be explained by the performance of the index. Values for R-Squared range from 0 to 100, where 0 indicates no correlation and 100 indicates perfect correlation.

This report does not constitute an offer to sell or a solicitation of any offer to buy securities of Baron Energy and Resources Fund by anyone in any jurisdiction where it wouldbe unlawful under the laws of that jurisdiction to make such offer or solicitation.


found is that for the broader S&P Energy Index, there have been 37instances since 1994 where the index has declined by greater than 10%without a 10% reversal from the low point of any downward move. Theaverage decline in those retreats has been 17% from peak to trough andthat is pretty consistent with the current pullback. For the Oil Service orE&P indices, the frequency of these greater than 10% corrections is morethan double but the magnitude of the corrections is pretty similar onaverage. It is also instructive to know that there are an equal number oftimes where the stocks go up 10% or more without a “correction” and theaverage gain during these bull runs is over 28%. So we have seen this moviemany times before and we do not believe now is the time to panic.

In addition to analyzing the bull and bear cycles of the Energy sectors, wealso have analyzed the price behavior in many of the stocks we cover to tryto understand the level of investor pessimism that is being priced into theshares. We have done this by running many of our company models atdistressed long-term oil and gas price assumptions by looking at varioustechnical factors that historically signal overbought or oversold conditions.Our models indicate that, even under very pessimistic long-term oil and gasprice assumptions, the fundamentals of many of the companies in the Fundare intact and current valuations are quite attractive. In addition, ouranalysis of trading conditions indicates that stocks are nearing historicallevels of oversold conditions for the past decade and in many instancesreflect a level of pessimism that was greater than that seen during theGreat Recession, and other periods of market stress in the past 10 years.

So the question is – what are we doing about this? As we noted earlier inthis letter, we have built up our cash position amidst this downturn to giveus dry powder to add to our positions at significantly improved valuations.We are scrubbing our models harder than ever to uncover value and futuregrowth potential and have started adding to positions in recent days. Timewill tell if this proves to be the right decision, but history and data areindicating that, barring a recurrence of a global recession or some othermajor macro event, this pullback is reaching extreme levels in terms ofduration, magnitude and selling pressure and that the risk/reward hasshifted considerably toward the reward side of the balance.

While the near-term decline in the price of oil has been painful, we believeit represents a shift in the near-term fundamentals of supply and demandand does not change our long-term outlook for supply, demand, price or theoverall Energy sector. As such, we do not expect our investment philosophy

68

Baron Global Advantage Fund

Dear Baron Global Advantage Shareholder:

Performance

The Baron Global Advantage Fund declined approximately 2% in the thirdquarter and is up 4% year-to-date, both roughly in-line with itsbenchmarks. We continue to maintain a healthy lead over the benchmarksover the last twelve months and since inception. While we wouldcharacterize the quarterly results as somewhat uneventful, we had anumber of sizable winners as well as portfolio holdings that got hitunusually hard. We did very well with investments in China, large cap U.S.,and in the Information Technology sector, with TAL Education Group,Baidu, Facebook, Mellanox Technologies, and Mobileye all posting atleast double digit gains and making meaningful contributions to quarterlyreturns. On the other hand, we gave up most of last quarter’s gains in Brazil,took it on the chin in Europe, and saw most of our small cap investmentsdecline precipitously with Coupons.com, Benefitfocus, AO World, Grifolsand Acxiom all posting substantial stock price declines.

We think this is a favorable environment for managers who are looking toinvest in businesses at substantial discounts to their intrinsic values. Wehave continued to find new ideas and our “pipeline” of compellinginvestment candidates is the largest it’s ever been. One place we will not befinding them any time soon is Russia.

Table I. Performance (Retail Shares)†


Baron MSCI Global ACWI MSCI

Advantage Growth ACWIFund1,2 Index1 Index1

Three Months3 (2.02)% (1.71)% (2.31)%Nine Months3 4.00% 3.60% 3.73%One Year 17.29% 11.32% 11.32%Since Inception (April 30 , 2012) 15.11% 12.21% 12.79%

Performance listed in the table above is net of annual operating expenses.Annual operating expense ratio for the Retail Shares as of December 31, 2013was 5.51%, but the net annual expense ratio is 1.50% (net of the Adviser’s feewaivers). The performance data quoted represents past performance. Pastperformance is no guarantee of future results. The investment return andprincipal value of an investment will fluctuate; an investor’s shares, whenredeemed, may be worth more or less than their original cost. The Adviser hasreimbursed certain Fund expenses (by contract as long as BAMCO, Inc. is theadviser to the Fund) and the Fund’s transfer agency expenses may be reduced byexpense offsets from an unaffiliated transfer agent, without which performancewould have been lower. Current performance may be lower or higher than theperformance data quoted. For performance information current to the mostrecent month-end, visit www.BaronFunds.com or call 1-800-99BARON† The Fund’s historical performance was impacted by gains from IPOs and/or secondary offerings.

There is no guarantee that these results can be repeated or that the Fund’s level of participationin IPOs and secondary offerings will be the same in the future.

1 The indexes are unmanaged. The MSCI ACWI indexes cited are unmanaged, free float-adjustedmarket capitalization weighted indexes reflected in US dollars. The MSCI ACWI Growth Index NetUSD measures the equity market performance of large and mid cap growth securities acrossdeveloped and emerging markets. The MSCI ACWI Index Net USD measures the equity marketperformance of large and mid cap securities across developed and emerging markets. The indexesand the Baron Global Advantage Fund include reinvestment of dividends, net of foreignwithholding taxes, which positively impact the performance results.


3 Not annualized.

We have generally been very bullish on the Emerging Markets, especiallyChina, India, and Indonesia. The emergence of the middle class has allowedthese countries to develop their own economic eco-systems. The emergingmarkets economies, in aggregate, did not suffer a down year in 2008 or2009 and the three countries mentioned above did not post even a singledown quarter! In many respects, the global financial crisis of ’08-’09 was awonderful stress test that the emerging economies passed with flyingcolors. These countries tend to have younger populations, high local savingsrates, and infrastructure needs that are new in nature (rather than rehabprojects like highways and airport renovations that last forever but do notreally lead to new efficiencies or opportunities). This being a global fund,looking for competitively advantaged companies that could also benefitfrom these beneficial long-term trends is always high on our priority list.

In the middle of September, I spent 10 days in Hong Kong and Macauvisiting companies and meeting with managements of companies that weown and that we are researching. During the visit, I got an opportunity toattend a dinner with Vladimir Pozner. The name may sound familiar becausehe recently was a correspondent for NBC Olympics’ late-night show withBob Costas during the Winter Games in Sochi, providing Americanaudiences with a Russian point of view. My interest in Mr. Pozner goes backmore than 25 years, when he co-hosted a series of “tele-bridges” oppositePhil Donahue. Those televised discussions between Soviet and Americanviewers (many of them students) were widely credited with usheringglastnost and perestroika into the consciousness of the Russian people andleft an unforgettable impression on a certain 16-year old boy hoping to oneday immigrate to the United States.

Pozner is fluent in seven languages. A recipient of numerous awards(including 3 Emmys), he currently hosts one of the most popular talk showson Russia’s largest network (state owned, of course) andis viewed by many in the West as Mr. Putin’s mouthpiece.Impressive intellect notwithstanding, few have managedto stay this relevant for this long even in the West, wherethings change and progress naturally, let alone in a placewhere regime changes (from Chernenko to Gorbachev,

ALEX UMANSKY Retail Shares: BGAFX

PORTFOLIO MANAGER Institutional Shares: BGAIX

68

69

September 30, 2014 Baron Global Advantage Fund

to Yeltsin, to Putin, to Medvedev, to Putin … alright, the last two don’tcount) typically cause wholesale substitutions. Rather than begrudgingMr. Pozner his political “flexibilities,” I thought it was more prudent to focuson his insights.

Russia today is still a Soviet country. Current leaders were born and bredunder the Soviet philosophy and Soviet doctrines. In its entire existence,Russia never had democracy. Gorbachev proved to be more visionary andmore courageous than anyone could have hoped for. Prior to “allowing” forGerman unification, Gorbachev received hard, written commitments (fromJames Baker and George H. W. Bush) that NATO would not expand eastward.Not even an inch. The final written agreement was signed between NATOand the Soviet Union. However, on December 26, 1991, the Soviet Unionceased to exist, and NATO felt their commitments were no longer binding.

Russians were weary of NATO’s expansion plans. But the turning point forRussian politics occurred on March 24, 1999, when the allies commencedair strikes on Serbia. Bitterly opposed to the bombings, the Russians werepowerless to do anything about it. NATO had never come to the defense ofany country. Russia sees NATO as purely an offensive force and views itsexpansion as one of the main threats to its national security.

Never mind the historical “brotherly” ties of Russia to Ukraine. Poznerlikened Ukraine’s bordering location to the South of Russia to that of Cubavis-à-vis the United States. Khrushchev understood that the U.S. was notgoing to tolerate Russian military presence this close to its borders. InPozner’s view, Russia will never allow NATO to be in Ukraine, nor will it everallow Ukraine to leave its sphere of influence. Interestingly, a professor ofpolitical science at the University of Chicago penned an article in the mostrecent issue of the Foreign Affairs magazine arguing that the West is toblame for the current crises in Ukraine because it supported NATO’senlargement and the EU’s expansion into Russia’s natural sphere ofinfluence.1 I wonder if the professor snuck into the same dinner…

We thought the economic sanctions, especially once joined by Germanyand the rest of the EU, would make Mr. Putin pause. With oil prices comingdown hard (almost 70% of all Russian export revenues come from oil &gas), inflation running above 8%, and prospects for economic growthevaporating, many observers expect Putin to soften his stance and seek aconstructive resolution. We are not among them. While we have alwayslimited the Fund’s exposure to Russia to below 4%, we no longer find itinvestable. And so, we eliminated positions in the shares of Yandex andQIWI, despite the fact that both appear to be trading at sizable discountsto their intrinsic values.

Table II. Top contributors to performance for the quarter ended September 30, 2014


(billions) Impact

TAL Education Group $ 2.8 0.99%Facebook Inc. 204.5 0.77Mellanox Technologies Ltd. 2.0 0.76Baidu, Inc. 76.5 0.46Mobileye N.V. 11.4 0.42

Shares of leading Chinese tutoring services provider TAL Education Grouprose 27% in the third quarter. Performance was driven by strong earnings, with45% revenue growth and improved gross margins on a favorable mix-shifttowards small classes. The company also expanded into three new cities,bringing its physical presence to 19 cities. The spending on private educationas a percent of GDP in China is considerably below that of the U.S. and otherwestern countries, while the competition for admission to top universities isequally fierce, if not more so. Given its strong reputation in math and science,high barriers to entry, and strong margin and cash flow characteristics, we thinkTAL Education is well positioned for solid growth over the next few years.

Shares of Facebook Inc., the world’s largest social network, were up 17% in thethird quarter, driven by improvements in consumer engagement and mobilemonetization. We believe that Facebook is one of the primary beneficiaries ofa structural shift of advertising dollars to online from all other mediums. With1.25 billion active monthly users, 950 million mobile, and 750 million dailyactive users, Facebook presents global advertisers with a platform unlike anyother. The company is still in the early stages of scaling and building out itsmonetization structures and stands to benefit from expected improvements inthe price of advertising on its platform. We think Facebook is continuallyexpanding the size of its addressable market by acquiring and investing innewer synergistic offerings such as Instagram, WhatsApp, and Oculus VR.

Mellanox Technologies Ltd. supplies semiconductor-based systems forcomputing, storage and communications applications that connect serversto servers and servers to storage. Mellanox’s stock rose 29% on reports ofbetter second quarter results and third quarter guidance, as the latestgeneration of Intel chips spurred customer demand for high performanceinterconnect systems. We believe we are still in the early innings of theMellanox growth story.

Shares of Baidu, Inc., China’s leading Internet search provider, rose 17% in the third quarter due to strong second quarter results, with outsized revenuegrowth of 59% year-over-year and lower-than-expected expense growth.Importantly, Baidu’s mobile monetization continues to improve, with mobilenow comprising 30% of revenues. We believe Baidu will remain a leadingInternet platform in China, with attractive growth prospects over the long term.

We acquired a very small position in shares of Mobileye N.V. when thecompany went public during the quarter. Mobileye is a leading provider ofsoftware and systems design for camera-based advanced driver assistancesystems. We believe the company has a significant lead in the race toautonomous driving, a trend that will improve transportation safety andefficiencies. We are in the very early days of what we believe to be a multi-decade growth opportunity of significant size and scale. Unfortunately, thestock ripped from the first trade rising 114% in less than two months oftrading. We did not get a chance to buy additional shares as the stock nevertraded at a level necessary to satisfy our requirement for a margin of safety.



(billions) Impact

Coupons.com Incorporated $0.9 –1.01%Benefitfocus, Inc. 0.7 –0.78AO World plc 1.3 –0.66Grifols SA 13.4 –0.59Acxiom Corp. 1.3 –0.46

1 John Mearsheimer, “Why the Ukraine Crisis is the West’s Fault,” Foreign Affairs,September/October 2014 issue. http://www.foreignaffairs.com/articles/141769/john-j-mearsheimer/why-the-ukraine-crisis-is-the-wests-fault).

70


Shares of Coupons.com Incorporated, a leading digital couponingplatform, declined 55% on news of disappointing second quarter results.Digital coupons represented less than 1% of total U.S. consumer packedgoods (CPG) coupon distribution volume in 2012, but accounted for almost7% of all U.S. CPG coupon redemptions. We believe that, as a market leader,Coupons.com has considerable room for expansion going forward.

Shares of Benefitfocus, Inc. fell 42% in the third quarter, partly due to asecondary offering in July that increased the public float by more than 30%.Benefitfocus is the leading provider of cloud-based benefits software,offering an integrated suite of solutions to help customers more efficientlyshop, enroll, manage, and exchange benefits information. We thinkBenefitfocus serves an addressable market more than 100 times larger thanits current business, which should allow it to compound revenue at morethan 30% annually for years to come.

AO World plc is the leading online seller of major domestic appliances inthe U.K., with a 10% market share. Shares fell 31% in the third quarter dueto contractions in valuations for the online sector in the UK over the pastseveral months. We think AO’s unique supply chain and customizedsoftware give it a strong competitive advantage, and we believe it can beseveral times larger over the next few years as it expands into new productcategories and continental Europe. It took its first step overseas with itsSeptember 30 launch of a website in Germany.

Shares of plasma products company Grifols SA declined 20% in the thirdquarter, after the company reported a weak second quarter, including one-time expenses in conjunction with the integration of its recently acquiredNovartis diagnostics unit, and incremental price competition in a smallcommoditized product line. We regard these developments as either one-off or regionally isolated events that do not impact Grifols’ competitiveadvantage derived from its vast plasma collection network, coupled withwhat we expect to be significant growth of the plasma industry.

Acxiom Corp. is the leading provider of database marketing solutions andIT outsourcing services to large enterprise customers. Shares of Acxiomwere down 24% in the quarter due to a slower customer ramp in thecompany’s new Audience Operating System (AOS) platform, and weakerrevenue guidance on the company’s core database solutions business. Weexpect AOS growth to accelerate through the rest of the year, and a newsales initiative to improve revenue in the core business as well.

Portfolio Structure

The portfolio is constructed on a bottom-up basis with the quality of ideasand conviction level having the highest roles in determining the size of eachindividual investment. Sector or country weights tend to be an outcome ofthe portfolio construction process and are not meant to indicate a positiveor a negative “view.”

During the quarter, compared to the MSCI ACWI Growth Index, the Fundwas overweight Information Technology, Telecommunication Services,Consumer Discretionary, and Energy and underweight Consumer Staples,Industrials, Financials, Materials and Health Care (or pretty mucheverything else).

The top 10 positions represented 41.9% of the Fund, the top 20 were68.3%. We exited the quarter with 40 holdings.

Table IV. Top 10 holdings as of September 30, 2014

Quarter End Quarter EndMarket Investment

Cap Value Percent of(billions) (thousands) Net Assets

Sarana Menara Nusantara Tbk PT $ 3.5 $384.9 5.1%Facebook Inc. 204.5 371.6 5.0Google, Inc. 394.0 367.2 4.9Amazon.com, Inc. 149.0 335.0 4.5TAL Education Group 2.8 331.6 4.4Just Eat plc 2.7 291.9 3.9SoftBank Corp. 84.6 291.4 3.9Illumina, Inc. 22.9 280.3 3.7Mellanox Technologies Ltd. 2.0 246.7 3.3Alibaba Group Holding Ltd. 219.0 238.5 3.2

Exposure by Country

Table V. Percentage of securities by country as of September 30, 2014


United States 39.5%China 12.9Indonesia 8.1United Kingdom 6.7Brazil 5.7Israel 4.1India 3.9Japan 3.9Canada 3.3Spain 2.3Netherlands 1.7Norway 1.0

Recent Activity

Table VI. Top net purchases for the quarter ended September 30, 2014


(billions) (thousands)

Alibaba Group Holding Ltd. $219.0 $231.0Amazon.com, Inc. 149.0 61.2Westlake Chemical Partners LP 0.8 58.5TerraForm Power, Inc. 2.9 56.8Mobileye N.V. 11.4 27.3

We have written about our interest in Alibaba Group over the last twoyears. In fact our excitement about Alibaba’s prospects was a significantfactor behind our investment in Softbank Corp. Alibaba made its longanticipated debut on September 19. We were able to acquire a smallposition at the IPO price of $68 per share. The stock opened for trading

at $92.70, traded as high as $99.70 and closed at $93.89, up 38%.Ordinarily, we are reluctant to “chase” stocks and prefer to exerciserestraint and patience in building positions (Facebook and Twitter weregood examples). This time we chose to make an exception. We committed3.5% of the Fund’s assets to this investment. Our thesis on Alibaba is thatit is unique as the largest and most dominant e-commerce platform inChina. With 280 million active buyers (190 million mobile), Alibaba ispoised to disproportionately benefit from increased penetration ofInternet, mobile, and e-commerce in China. With greater than 50%market share of all online transactions and an unparalleled eco-systemaround its platform, Alibaba benefits from the network effect and enjoyssignificant economies of scale, which should allow the company tocontinue to grow fast (35-40% three to five year CAGR) in a veryprofitable manner. We believe there is a very long runway for growth withsignificant future monetization opportunities. The IPO price of $68represented > 50% discount to our estimate of Alibaba’s intrinsic value.Based on our current projections, we believe Alibaba could be worth$275-$300 five years in the future.

Table VII. Top net sales for the quarter ended September 30, 2014


Market Cap AmountWhen Sold Sold(billions) (thousands)

Yandex N.V. $9.4 $91.3Pacira Pharmaceuticals, Inc. 3.5 90.1Qiwi plc 1.0 78.1Arista Networks, Inc. 4.6 70.0Youku Tudou, Inc. 3.7 12.8

Outlook

While we expect the markets to remain volatile, we remain constructive onthe overall environment. Over the last 50 years, despite the doubling of thepopulation, average global income per capita has tripled, life expectancy hasrisen by a third, and child mortality is down 70%. Literacy rates are upmeaningfully, and average IQs are considerably higher even after adjusting forinflation and better nutrition. People are healthier, smarter, and moreprosperous than they have ever been. All predictions of doom have repeatedlyproved wrong. Despite disasters and reverses, quality of life and materialwealth and prosperity have continued to increase everywhere in the world(although, not equally distributed), and we think that’s unlikely to change.

Our goal remains to maximize long-term returns without taking significantrisks of permanent loss of capital.

Thank you for investing in the Baron Global Advantage Fund.

Sincerely,

Alex UmanskyPortfolio ManagerOctober 20, 2014


Investors should consider the investment objectives, risks, and charges and expenses of the investment carefully before investing. The prospectus and summaryprospectus contains this and other information about the Funds. You may obtain them from its distributor, Baron Capital, Inc., by calling 1-800-99BARON or visitingwww.BaronFunds.com. Please read them carefully before investing.

Growth stocks can react differently to issuer, political, market and economic developments than the market as a whole. Non-U.S. investments may involveadditional risks to those inherent in U.S. investments, including exchange-rate fluctuations, political or economic instability, the imposition of exchange controls,expropriation, limited disclosure and illiquid markets, resulting in greater share price volatility. Securities of small and medium-sized companies may be thinly tradedand more difficult to sell.

The discussions of the companies herein are not intended as advice to any person regarding the advisability of investing in any particular security. The views expressed in this reportreflect those of the respective portfolio managers only through the end of the period stated in this report. The portfolio manager’s views are not intended as recommendations orinvestment advice to any person reading this report and are subject to change at any time based on market and other conditions and Baron has no obligation to update them.

This report does not constitute an offer to sell or a solicitation of any offer to buy securities of Baron Global Advantage Fund by anyone in any jurisdiction where it would be unlawfulunder the laws of that jurisdiction to make such offer or solicitation.

71

September 30, 2014 Baron Global Advantage Fund

Baron Discovery Fund

72

Dear Baron Discovery Fund Shareholder:

Performance

The third quarter of 2014 was a challenging one for both the Russell 2000Growth Index (down 6.13%) and for the Fund (down 9.60%). This comparesto the S&P 500 Index which posted a 1.13% gain in the quarter. While wewere disappointed with the performance in the quarter, we are happy withour performance over our first full year of investing. During our first twelvemonths, we posted a 16.80% gain which compared to the 3.79% gain ofthe Russell 2000 Growth Index.

Generally speaking, during the quarter, small cap stocks underperformedmid and large cap stocks and “smaller” small cap stocks (the sandbox inwhich many of the Fund’s investments tend to fall) underperformed “larger”small cap stocks. This is a reversal from what we saw in 2013 and early 2014and was deterioration from the market we experienced in the secondquarter of 2014. Unlike in the second quarter, where much of the focus wason when the Fed would raise rates and the potential impact on stocks fromsuch a move, today weakening conditions in both Europe and China andgeopolitical strife in the Middle East have investors worried about economicgrowth slowing globally. Despite the rapidly changing market environment,we have continued to stick to our game plan of investing in fast-growing,small companies with great management teams and long-termcompetitive advantages. During the quarter, our underperformance relative to the index was really

driven by three sectors: Information Technology, Financials (including ourREIT investments) and Materials. These were somewhat offset by relativeoutperformance in our Energy sector investments.

We continue to find exciting and fast growing companies. In addition,recent market volatility has allowed us to start buying some new ideas thathad previously been at valuations above what we perceived to be fair value,that but are now at valuations we find attractive. We also continue to spenda lot of time on the road visiting our companies and “kicking the tires.” Webelieve the best thing we can do as investors during periods of marketturbulence is to get out of our office and spend time in the field getting toknow our companies and their key people better. Our management teamscertainly appreciate it, and we think it is much more productive than staringat a computer screen.


PercentImpact

The Spectranetics Corporation 0.64%Intersect ENT, Inc. 0.59Pacira Pharmaceuticals, Inc. 0.57Farmer Bros. Co. 0.42Tallgrass Energy Partners, LP 0.27

Three of our best performing companies in the quarter were health carerelated, including The Spectranetics Corporation (our largest position),Intersect ENT, Inc. (an exciting medical device which came public thisquarter) and Pacira Pharmaceuticals, Inc. (which has been an incrediblysuccessful investment since the Fund’s inception). This reflects the acyclicalnature of health care stocks, as well as positivefundamentals at all of these companies. In addition tothe above health care companies, two of our non-healthcare companies performed well: Farmer Bros. Co. (anationwide coffee distributor) and Tallgrass EnergyPartners, LP (a fast growing midstream MLP).

Performance listed in the above table is net of annual operating expenses.Annual estimated expense ratio for the Retail Shares is 3.25%, but the netannual estimated expense ratio is 1.35% (net of the Adviser’s fee waivers).The performance data quoted represents past performance. Pastperformance is no guarantee of future results. The investment return andprincipal value of an investment will fluctuate; an investor’s shares, whenredeemed, may be worth more or less than their original cost. The Adviser hasreimbursed certain Fund expenses (by contract as long as BAMCO, Inc. is theadviser to the Fund) and the Fund’s transfer agency expenses may be reducedby expense offsets from an unaffiliated transfer agent, without whichperformance would have been lower. Current performance may be lower orhigher than the performance data quoted. For performance informationcurrent to the most recent month end, visit www.BaronFunds.com or call1-800-99BARON.† The Fund’s historical performance was impacted by gains from IPOs and/or secondary


1 The indexes are unmanaged. The Russell 2000® Growth Index measures the performance ofsmall-sized U.S. companies that are classified as growth and the S&P 500 Index of 500 widelyheld large cap U.S. companies. The indexes and the Fund are with dividends, which positivelyimpact the performance results. Russell Investment Group is the source and owner of thetrademarks, service marks and copyrights related to the Russell Indexes. Russell is a trademarkof Russell Investment Group.


3 Not annualized.


For period ended September 30, 2014

Baron Russell Discovery 2000 S&P 500

Fund1,2 Growth Index1 Index1

Three Months3 (9.60)% (6.13)% 1.13%Nine Months3 0.09% (4.05)% 8.34%One Year and Since Inception

(September 30, 2013) 16.80% 3.79% 19.73%

RANDY GWIRTZMAN AND LAIRD BIEGER Retail Shares: BDFFX

PORTFOLIO MANAGERS Institutional Shares: BDFIX

September 30, 2014 Baron Discovery Fund

73

The Spectranetics Corporation, a provider of medical devices foratherectomy (removal of arterial plaque in the legs and coronaries) and leadremoval (for heart regulating devices) was up in the quarter. As weexpected, management rebounded from a Q1 mis-step in sales execution,and the issuance of $230 million in convertible debt related to a strategicacquisition done in the quarter. And in July, the company received approvalof a major product initiation, which we believe can triple its current marketopportunity. We are very excited about the company’s prospects.

We initiated a position in Intersect ENT, Inc. when it came public in thequarter. Intersect has developed a novel device (called Propel) that isimplanted in patients that have chronic sinusitis. Propel received FDAapproval in 2011 and should do about $35 million in sales in 2014(growing very rapidly over the next five years). The device is bio-absorbable(in other words it gently breaks down on its own over time for easyremoval), and is coated with a steroid (which is the same drug used in apopular nasal spray). Since Propel is implanted directly into a patient’ssinuses, it helps to keep the sinuses open, and gets the steroid in exactlythe right place (sinus sprays typically only get a few percent of the drugwhere it needs to go, and oral steroids have significant negative sideeffects). Clinical studies run by the company have shown very positiveresults (Propel is very safe, with significant improvement in patientoutcomes versus prior methods of post-surgical care). The market forPropel (which is currently approved for post-surgical use) is now worthpotentially a half billion dollars. The market could be extended by anadditional billion dollars if a new Intersect device (Resolve) is approved fornon-surgical, in-office treatment of sinusitis. This could happen in late2017 or early 2018. Our conversations with otolaryngologists (ENT’s orear, nose and throat doctors) have given us confidence in both the productand the management of the company.

Pacira Pharmaceuticals, Inc., a specialty pharmaceutical company, was asolid performer in the quarter. Sales of its injectable, long-lasting painmedication EXPAREL continued to grow rapidly (up 195% in the secondquarter). Growth was due to more hospital adoption and usage in moresurgical procedures. Run rate sales of EXPAREL are now about $180million and the market could be worth billions. We see years of continuedgrowth ahead.

Farmer Brothers Co. is a roaster, packager and distributor of coffee andteas to restaurants, hotels and casinos, hospitals, convenience stores andfast food outlets. The company is undergoing a turn-around under new CEOMichael Keown. The company is in the third inning of this process but hascontinued to show progress in both increasing sales and improving profits.While the stock might be a little ahead of itself, given the 34% appreciationit achieved in the quarter, we still believe in the long-term prospects andare especially excited by management’s efforts to improve margins over thecoming years.

Tallgrass Energy Partners, LP owns and operates midstream energy assetsin North America. The company performed very well in the quarter as itcontinued to increase its distribution growth nicely and, at the same time,did a good job of expanding the growth pipeline of potential “drop down”assets. We expect the company’s parent to continue to drop downadditional assets into the MLP and for distribution growth to exceed 20%.We continue to be very positive on Tallgrass’s long-term prospects. Thecompany is a top 10 position.


PercentImpact

E2open, Inc. –1.24%eHealth, Inc. –1.04Foundation Medicine, Inc. –0.98Marchex, Inc. –0.91Revance Therapeutics, Inc. –0.89

Our top detractors were generally situations where companies reportedearnings that were below expectations. These included E2Open (lost threecustomers after they got acquired – we still believe the business willaccelerate going forward), eHealth and Marchex (which lost its largestcustomer in the quarter). We sold our eHealth and Marchex positions afterwe discovered risks that led us to question the long term theses on theinvestments.

E2Open, Inc., a provider of cloud-based software which helps some of theworld’s largest companies analyze and manage their complexmanufacturing supply chains, saw its share value decrease in the quarter. InSeptember, the company pre-released its quarterly earnings. While thequarter was good, E2Open took down full year guidance due to the loss ofthree customers. Importantly, none of these losses were due to the qualityof the solution or competitive threats. Rather, they were due to thecustomers being acquired. Although the lost revenue annualizes to around8% of the firm’s revenues, shares have sold off much more dramatically inthe wake of the announcement. Shares are so unloved that they sell at anenterprise value that is not much higher than the discounted value of its taxloss assets! This type of over-reaction sometimes happens in the world ofsmall cap stocks. In our opinion, the company has sufficient sources ofliquidity to bring it to positive recurring free cash flow. We continue tobelieve that EOPN’s solution is sticky, is valuable to customers, and isdifficult to replicate. It has a 96%+ customer renewal rate, and 80% of itsrevenues are recurring at 80% gross margins. We believe that revenues can,at a minimum, grow in the mid to high teens, with upside to 20% growthas its systems integrator sales channel kicks in. If, as we expect, thisbecomes apparent over the next couple of quarters, we believe we will beamply awarded.

eHealth,Inc., is an on-line health insurance broker. Expectations that theAffordable Care Act would increase health care plan enrollments translatedinto far fewer commissions to EHTH than we had modelled. In our opinion,a major new risk emerged during management’s discussion of secondquarter results. We saw that the influx of new insurers servicing stateexchanges significantly muddled commission reporting and thereby the keytransmission mechanism of EHTH’s recurring revenue stream. This newsystemic concern prompted our sale of the position in the quarter.

Foundation Medicine, Inc. is a medical diagnostic lab company thatspecializes in analyzing the most complex cancers (both solid block tumorand blood cancers). It uses next generation sequencers (NGS) andproprietary preparation and analytics methods to find genetic alterations(and other abnormalities) with incredibly high sensitivity and specificity (inother words it finds what it’s looking for nearly all of the time, with very fewfalse positives). It offers a rich analysis of over 300 of these abnormalitiesfor a price not too much higher than what is currently charged for a much


74

smaller “panel” of tests that typically covers a specific type of cancer(breast, lung, etc.). The advantage to FMI’s test is that with much broadercoverage it can in many instances, find “actionable” alterations (those thatcan be treated with an approved or experimental drug), which were notfound using the less sophisticated panels (and FMI has studies to back this).The company has an information technology platform that linkspharmaceutical companies (18 of which are its customers) with oncologists(trying to help their patients) and scientific research (from many sources).And a new version of its web-based software will allow clinicians tocommunicate with each other, further helping to democratize knowledgeabout fighting cancer. FMI can produce customized reports within 2 weeksthat succinctly summarize knowledge about available treatments – this canbe critical when a patient has severe cancer. Shares were down in thequarter due to increased competitive concerns, as well as existinguncertainty about reimbursement of the firm’s tests by Medicare. We spenta great deal of time in the quarter speaking to numerous experts andcompetitors in the industry, and it is our opinion that FMI will continue tobe the leader in the high end testing niche, which might have demand forup to 1 million tests in the US alone (a market worth over $3 billion).

Marchex, Inc. is a provider of internet advertising services that focus on the“click to call” advertising market. During the quarter, the company lost itsbiggest customer, Allstate Insurance, under circumstances that were notvery clear. While it is normal for customers to flex their ad budgets both upand down over time, it is unusual for a customer to pull its entire budgetand, in addition, to do so with almost no notice. The fact that this happenedbrought into question our original investment thesis and we decided to exitthe position as a result.

Revance Therapeutics, Inc., a company developing specialty pharmaceuticalproducts for the dermatology market, was a detractor in the quarter.During the quarter, the FDA released draft guidance on clinical endpointsfor botulinum toxin products for the treatment of upper facial lines thatcalled into question Revance’s phase 3 trial for RT001, its topical version ofAllergan’s competing Botox branded product. We believe that thecompany, which had previously settled this issue with the FDA through theFDA Formal Resolution Process after its phase 2 was completed, isperforming the study to the correct endpoints. The company is releasingthe phase 3 study data in early 2015, and if RT-001 meets its primary andsecondary endpoints, we believe the company will be able to moveforward with the approval process. This could lead to hundreds of millionsin sales of this drug.

Portfolio Structure

As of September 30, 2014, the Fund had $65.3 million under managementand was invested in 58 public stocks. At the end of the quarter, the top 10positions represented 28.8% of the Fund’s assets.

Our key sector weightings at the end of September 2014 were 24.7%Health Care (3.0% greater than the Russell 2000 Growth Index), 20.1%Information Technology (5.8% below the index), 13.0% ConsumerDiscretionary (2.2% lower than the index), and 10.5% Energy (5.8% greaterthan the index).

We continue to remain overweight Health Care where we continue to findfast growing companies with bright prospects. We reduced our Energyinvestments in the quarter as we felt there was risk to achieving our long-term earnings projections given recent declines in the price of oil.


Quarter EndInvestment Percent

Year Value of NetAcquired (millions) Assets

The Spectranetics Corporation 2013 $3.1 4.7%Flotek Industries, Inc. 2013 2.6 4.0BioScrip, Inc. 2013 1.9 3.0Tallgrass Energy Partners, LP 2013 1.8 2.8Foundation Medicine, Inc. 2013 1.8 2.7Fiesta Restaurant Group, Inc. 2014 1.7 2.6Strategic Hotels & Resorts, Inc. 2014 1.5 2.3Rose Rock Midstream, L.P. 2014 1.5 2.3Qualys, Inc. 2013 1.5 2.2ExamWorks Group, Inc. 2014 1.4 2.2

Our largest holdings continue to remain in a range of approximately2%-5% of assets. We remain mindful of maintaining adequatediversification while at the same time looking to profit from theinvestments in which we have the strongest conviction. Spectranetics andFlotek are both companies that are benefitting from distinct secular growthopportunities and both are stocks where we are excited by their long-termprospects.

During the quarter, three of our top 10 stocks underperformed ourbenchmark: Flotek, Bioscrip and Foundation Medicine. We used theweakness in the stocks to purchase more. The rest of the stocks wereoutperformers with Spectranetics and Tallgrass both up mid-teenspercentages in the quarter and Rose Rock up over 9%.

Recent Activity


Quarter End AmountYear Market Cap Purchased

Acquired (billions) (millions)

The Spectranetics Corporation 2013 $1.1 $1.6American Assets Trust, Inc. 2014 1.4 1.5ExamWorks Group, Inc. 2014 1.3 1.4Primoris Services Corp. 2014 1.4 1.4Flotek Industries, Inc. 2013 1.4 1.3

American Assets Trust, Inc. (AAT) was a new investment in the quarter.The company is a diversified REIT with a high quality, irreplaceable portfolioin high barrier to entry markets, such as San Francisco, San Diego andHawaii. AAT has 21 properties and one hotel, split among retail (48% ofcash flow), office (36%), hotel (9%) and multifamily (7%). The company hasa significant pipeline of new developments that are to come on line overthe next couple of years which, when combined with some rent andoccupancy growth, we believe will drive double digit organic cash flowgrowth for the next three years. The company trades at a meaningfuldiscount (~12% as we write this letter) to its net asset value (NAV) and thestock pays a 2.5% annual dividend. We expect the discount to NAV tonarrow over time and for NAV to continue to increase double digitsannually. We also believe the company will pursue acquisitions which couldbe accretive to NAV.

September 30, 2014 Baron Discovery Fund

75


The Adviser believes that there is more potential for capital appreciation in smaller companies, but there also may be more risk. Specific risks associated withinvesting in smaller companies include that the securities may be thinly traded and they may be more difficult to sell during market downturns. The Fundmay not achieve its objectives. Portfolio holdings are subject to change. Current and future portfolio holdings are subject to risk.

The discussions of the companies herein are not intended as advice to any person regarding the advisability of investing in any particular security. The views expressed in thisreport reflect those of the respective portfolio manager only through the end of the period stated in this report. The portfolio managers’ views are not intended asrecommendations or investment advice to any person reading this report and are subject to change at any time based on market and other conditions and Baron has noobligation to update them.

This report does not constitute an offer to sell or a solicitation of any offer to buy securities of Baron Discovery Fund by anyone in any jurisdiction where it would be unlawfulunder the laws of that jurisdiction to make such offer or solicitation.


ExamWorks Group, Inc. is a new addition to the portfolio. It is a businessservices company that enables insurers of all sizes to schedule and obtainindependent medical examiners (IMEs). IMEs are used to assess the health ofinsureds making claims (for example workers compensation claims or autoaccident injuries). The IME services market is worth an estimated $5 billionworldwide, and EXAM is the largest player with an estimated $750 million ofrevenues this year. EXAM is the leading provider in the U.S., and has significantpresence in the UK and Australia. It has national scale, high quality physicianpanels, sophisticated data repositories and scheduling systems, and meets allof the strict regulatory requirements to safeguard sensitive healthcareinformation. Because of its scale, EXAM is winning national “mandates”whereby large insurers consolidate all of their IME scheduling through EXAM.This has allowed it to steadily take business away from smaller competitors inthis otherwise fragmented industry, which has bolstered organic growth. Thecompany has grown organically in the high single digits and is also makingindustry acquisitions at accretive cash flow multiples. The larger acquisitions aredone, and, going forward, we expect tuck-in acquisitions to add an incremental3-5% revenue growth. EXAM has nice EBITDA margins, recurring revenue andgenerates real free cash flow. EBITDA margins are now about 17%, and we seethese increasing to 20% over the next few years. Combined with the revenuegrowth, we see cash flow growth in the mid-teens for years to come.

Primoris Services Corp. (PRIM), provides engineering and constructionservices to public utilities, petrochemical companies, energy companies andmunicipalities. The company will benefit from the ongoing improvement ofinfrastructure, specifically for natural gas pipeline construction. Existingpipeline infrastructure is insufficient to meet growing natural gas demand.New federal and state (CA specifically) rules for pipeline integrity shouldincrease demand for PRIM’s underground services business. The company’sbacklog is strong and we expect 2015 and 2016 project demand to drivehealthy revenue and profit growth. We also think the company’s stock ischeap today (after having run up in the second quarter) and that valuationmultiples can expand as investors get more comfortable with demandenvironment over the next couple of years.


Quarter EndMarket Market Cap

Cap orWhen Market Cap Amount

Year Acquired When Sold SoldAcquired (billions) (billions) (millions)

Pacira Pharmaceuticals, Inc. 2013 $1.7 $3.5 $1.1eHealth, Inc. 2014 1.0 0.4 0.6Tesco Corp. 2014 0.8 0.8 0.5ESCO Technologies, Inc. 2014 0.9 0.9 0.5Ted Baker plc 2013 1.3 0.7 0.5

We pared our position in Pacira Pharamceuticals, Inc. after it nearlydoubled from our initial investment price. We continue to own thecompany as we believe it will still see significant growth.

We sold Tesco Corp. in the quarter. The company underwent managementchanges during the quarter including replacing the long-time CEO. Weultimately did not have a good sense as to whether the managementchanges would be a positive or negative for the long-term businessprospects. As we have spoken about at length, ultimately when we make aninvestment we are investing in people so we wanted more conviction inorder to maintain our investment.

We sold Ted Baker plc, a retailer of men’s and women’s apparel andaccessories, during the quarter, as we became more concerned with theeconomic outlook in the UK and Europe and what impact that mighthave on Ted Baker’s sales and profits. Since then, we have seen continueddata that shows Europe is slowing, and we think that will weigh on TedBaker’s results.

Outlook

As we begin the fourth quarter, we are cautious about the overall marketenvironment, but we remain excited by the companies in the portfolio andtheir long-term prospects. We believe it is important for us to continue to“look through the windshield and not the rear view mirror.” We are focusedon longer-term opportunities of our companies and are less concerned withthe short-term volatility that many companies experience quarter toquarter. We are confident that over time our philosophy and process willlead to market beating returns.

Thank you for investing in the Fund.

Randy Gwirtzman & Laird BiegerPortfolio ManagersOctober 20, 2014

76

Baron Funds

Portfolio Market Capitalization (Unaudited)

Baron Asset Fund

Baron Asset Fund is a diversified fund that invests primarily in medium-sized growth companies. Baron Asset Fund defines a medium-sized growth companyas one having a market capitalization of $1.5 billion to $12 billion.

Equity % ofMarket Cap Net

Company (in millions) Assets



Capitalization above $12 billion

The Priceline Group, Inc. . . . . . . . . . . . . . . . . . . . . . . $60,765 2.4%The Charles Schwab Corp. . . . . . . . . . . . . . . . . . . . . . 38,306 3.1LinkedIn Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,540 1.4Discovery Communications, Inc. . . . . . . . . . . . . . . . 25,493 1.1Illumina, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,851 3.4T. Rowe Price Group, Inc. . . . . . . . . . . . . . . . . . . . . . . 20,623 1.0Cerner Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,317 0.6Wynn Resorts Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,960 2.6Nielsen N.V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,859 2.3Roper Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 14,634 1.5Ralph Lauren Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,487 1.5SBA Communications Corp. . . . . . . . . . . . . . . . . . . . 14,307 3.3Concho Resources, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 14,163 1.3Western Gas Equity Partners LP . . . . . . . . . . . . . . . . 13,340 0.4Fastenal Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,325 2.0Tiffany & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,452 1.3

29.2%

Capitalization $1.5 billion to $12 billion

FleetCor Technologies, Inc. . . . . . . . . . . . . . . . . . . . . $11,831 3.2%Mobileye N.V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,377 0.9Equinix, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,303 1.2Helmerich & Payne, Inc. . . . . . . . . . . . . . . . . . . . . . . 10,592 1.3Universal Health Services, Inc. . . . . . . . . . . . . . . . . . 10,398 1.5CarMax, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,183 1.3Verisk Analytics, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 10,137 3.1Stericycle, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,886 1.1Henry Schein, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,881 1.5CBRE Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,877 2.2Hyatt Hotels Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,299 2.3Pall Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,940 1.5Tractor Supply Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,469 1.2Airgas, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,247 0.7Westinghouse Air Brake Technologies Corporation 7,805 1.3

Capitalization $1.5 billion to $12 billion (Continued)

The Cooper Companies, Inc. . . . . . . . . . . . . . . . . . . . $7,520 1.5%Mettler-Toledo International, Inc. . . . . . . . . . . . . . . 7,399 2.6Arch Capital Group Ltd. . . . . . . . . . . . . . . . . . . . . . . . 7,393 2.7Quintiles Transnational Holdings, Inc. . . . . . . . . . . . 7,100 0.8Colfax Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,046 2.0Towers Watson & Co. . . . . . . . . . . . . . . . . . . . . . . . . . 6,986 1.2ANSYS, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,963 1.5Verisign, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,891 1.2First Republic Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,818 0.7Gartner, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,532 4.5Core Laboratories N.V. . . . . . . . . . . . . . . . . . . . . . . . . 6,501 1.0IDEXX Laboratories, Inc. . . . . . . . . . . . . . . . . . . . . . . . 5,923 3.6IDEX CORP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,795 0.3Dick's Sporting Goods, Inc. . . . . . . . . . . . . . . . . . . . . 5,320 1.3FactSet Research Systems, Inc. . . . . . . . . . . . . . . . . . 5,080 2.4The Middleby Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . 5,047 1.5Fossil Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,968 0.6Phillips 66 Partners LP . . . . . . . . . . . . . . . . . . . . . . . . 4,937 1.1Oil States International, Inc. . . . . . . . . . . . . . . . . . . . 3,348 0.3HomeAway, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,337 1.5West Pharmaceutical Services, Inc. . . . . . . . . . . . . . 3,167 1.0Vail Resorts, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,142 3.2Guidewire Software, Inc. . . . . . . . . . . . . . . . . . . . . . . 3,065 1.5United Natural Foods, Inc. . . . . . . . . . . . . . . . . . . . . 3,052 0.6Choice Hotels International, Inc. . . . . . . . . . . . . . . . 3,039 1.5TerraForm Power, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 2,915 0.5DeVry Education Group Inc. . . . . . . . . . . . . . . . . . . . 2,727 0.5Shutterstock, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,522 0.7MRC Global, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,379 1.0Alexander's, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,909 1.2Artisan Partners Asset Management Inc. . . . . . . . . 1,694 0.5

68.8%

Capitalization below $1.5 billion

AO World plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,283 0.1%

Baron Funds

77

Baron Growth Fund

Baron Growth Fund is a diversified fund that invests primarily in small-sized growth companies. Baron Growth Fund defines a small-sized growth companyas one having a market capitalization of under $2.5 billion.






Under Armour, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,738 3.5%Edwards Lifesciences Corp. . . . . . . . . . . . . . . . . . . . . 10,831 0.5Helmerich & Payne, Inc. . . . . . . . . . . . . . . . . . . . . . . 10,592 0.9

4.9%


Church & Dwight Co., Inc. . . . . . . . . . . . . . . . . . . . . . $9,378 1.4%IHS, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,535 0.6LKQ Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,048 1.1Mettler-Toledo International, Inc. . . . . . . . . . . . . . . 7,399 1.8Arch Capital Group Ltd. . . . . . . . . . . . . . . . . . . . . . . . 7,393 2.8Concur Technologies, Inc. . . . . . . . . . . . . . . . . . . . . . 7,238 1.3Colfax Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,046 1.7ANSYS, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,963 1.8Gartner, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,532 2.7Core Laboratories N.V. . . . . . . . . . . . . . . . . . . . . . . . . 6,501 1.1Community Health Systems, Inc. . . . . . . . . . . . . . . . 6,332 2.3IDEXX Laboratories, Inc. . . . . . . . . . . . . . . . . . . . . . . . 5,923 1.4Brookdale Senior Living, Inc. . . . . . . . . . . . . . . . . . . . 5,908 0.1Targa Resources Corp. . . . . . . . . . . . . . . . . . . . . . . . . . 5,741 2.1ITC Holdings Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,544 3.1MSCI, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,480 1.3MSC Industrial Direct Co., Inc. . . . . . . . . . . . . . . . . . 5,334 0.5Dick’s Sporting Goods, Inc. . . . . . . . . . . . . . . . . . . . . 5,320 2.3Alexandria Real Estate Equities, Inc. . . . . . . . . . . . . 5,292 0.7SM Energy Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,255 0.4Genesee & Wyoming, Inc. . . . . . . . . . . . . . . . . . . . . . 5,126 2.5FactSet Research Systems, Inc. . . . . . . . . . . . . . . . . . 5,080 2.5The Middleby Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . 5,047 2.9CoStar Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,024 2.0Panera Bread Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,404 0.9MPLX LP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,357 0.1Oasis Petroleum, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 4,229 0.1Copart, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,953 1.1American Campus Communities, Inc. . . . . . . . . . . . 3,825 0.3SS&C Technologies Holdings, Inc. . . . . . . . . . . . . . . 3,784 1.7Douglas Emmett, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 3,706 1.1Penske Automotive Group, Inc. . . . . . . . . . . . . . . . . 3,662 0.4LaSalle Hotel Properties . . . . . . . . . . . . . . . . . . . . . . 3,563 0.7Valmont Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . . 3,534 0.7Booz Allen Hamilton Holding Corp. . . . . . . . . . . . . . 3,522 1.2Gaming and Leisure Properties, Inc. . . . . . . . . . . . . 3,471 1.4TECHNE Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,462 1.1VCA Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,391 0.0TreeHouse Foods, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 3,387 1.9Air Lease Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,328 0.8Landstar System, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 3,226 0.4West Pharmaceutical Services, Inc. . . . . . . . . . . . . . 3,167 0.6FEI Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,165 0.6Vail Resorts, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,142 2.3Guidewire Software, Inc. . . . . . . . . . . . . . . . . . . . . . . 3,065 0.7United Natural Foods, Inc. . . . . . . . . . . . . . . . . . . . . 3,052 1.8


Choice Hotels International, Inc. . . . . . . . . . . . . . . . $3,039 2.0%Morningstar, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,037 1.0The Boston Beer Company, Inc. . . . . . . . . . . . . . . . . 2,893 0.6Generac Holdings, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 2,791 1.5Bright Horizons Family Solutions, Inc. . . . . . . . . . . . 2,777 1.2DeVry Education Group Inc. . . . . . . . . . . . . . . . . . . . 2,727 0.9Manchester United plc . . . . . . . . . . . . . . . . . . . . . . . 2,699 1.2MAXIMUS, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,689 1.5Primerica, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,618 1.7BRP, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,556 0.1Shutterstock, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,522 0.3

72.3%


Acadia Pharmaceuticals Inc. . . . . . . . . . . . . . . . . . . . $2,462 0.1%DreamWorks Animation SKG, Inc. . . . . . . . . . . . . . . 2,309 0.8Atlas Energy, L.P. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,284 0.9Oaktree Capital Group, LLC . . . . . . . . . . . . . . . . . . . 2,222 0.8Marriott Vacations Worldwide Corp. . . . . . . . . . . . . 2,119 1.2The Carlyle Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,039 0.8RSP Permian, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,976 0.4Alexander’s, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,909 0.7CaesarStone Sdot-Yam Ltd. . . . . . . . . . . . . . . . . . . . 1,802 1.1Financial Engines, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 1,771 1.0Cohen & Steers, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,721 1.1Diamond Resorts International, Inc. . . . . . . . . . . . . 1,719 0.1The Advisory Board Company . . . . . . . . . . . . . . . . . . 1,691 0.3Masonite International Corp. . . . . . . . . . . . . . . . . . . 1,644 1.0Advent Software, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 1,627 0.9Nord Anglia Education Inc. . . . . . . . . . . . . . . . . . . . . 1,613 0.5Lumber Liquidators Holdings, Inc. . . . . . . . . . . . . . . 1,555 0.9Pinnacle Entertainment, Inc. . . . . . . . . . . . . . . . . . . . 1,500 0.9SEACOR Holdings, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 1,483 0.4Neogen Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,459 0.2Pegasystems, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,458 0.6American Assets Trust, Inc. . . . . . . . . . . . . . . . . . . . . 1,405 0.3AO World plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,283 0.6ClubCorp Holdings, Inc. . . . . . . . . . . . . . . . . . . . . . . . 1,278 0.1Castlight Health Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 1,160 0.1Trex Company, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,106 0.7Bottomline Technologies (de), Inc. . . . . . . . . . . . . . . 1,090 0.4Interval Leisure Group, Inc. . . . . . . . . . . . . . . . . . . . . 1,088 0.6The Container Store Group, Inc. . . . . . . . . . . . . . . . . 1,044 0.2Badger Daylighting Ltd. . . . . . . . . . . . . . . . . . . . . . . . 923 0.7Penn National Gaming, Inc. . . . . . . . . . . . . . . . . . . . 882 0.6Iridium Communications Inc. . . . . . . . . . . . . . . . . . . 824 1.1IPC The Hospitalist Co., Inc. . . . . . . . . . . . . . . . . . . . 770 0.1Benefitfocus, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 686 0.4Whistler Blackcomb Holdings, Inc. . . . . . . . . . . . . . 625 0.3Mistras Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 584 0.1Agrinos AS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 0.0

21.0%

78

Baron Funds


Baron Small Cap Fund is a diversified fund that invests primarily in small-sized growth companies. Baron Small Cap Fund defines a small-sized growthcompany as one having a market capitalization of under $2.5 billion.






Wynn Resorts Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,960 0.9%Liberty Media Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . 16,147 1.6SBA Communications Corp. . . . . . . . . . . . . . . . . . . . 14,307 4.2FleetCor Technologies, Inc. . . . . . . . . . . . . . . . . . . . . 11,831 2.6Equinix, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,303 1.6

10.9%


CBRE Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,877 0.8%SL Green Realty Corp. . . . . . . . . . . . . . . . . . . . . . . . . 9,813 0.7TransDigm Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 9,679 3.3Mettler-Toledo International, Inc. . . . . . . . . . . . . . . 7,399 1.2Gartner, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,532 3.1Core Laboratories N.V. . . . . . . . . . . . . . . . . . . . . . . . . 6,501 1.1Waste Connections, Inc. . . . . . . . . . . . . . . . . . . . . . . 6,022 2.3IDEXX Laboratories, Inc. . . . . . . . . . . . . . . . . . . . . . . . 5,923 1.5Brookdale Senior Living, Inc. . . . . . . . . . . . . . . . . . . . 5,908 2.3Targa Resources Corp. . . . . . . . . . . . . . . . . . . . . . . . . . 5,741 1.9Athlon Energy Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,667 0.3ITC Holdings Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,544 0.5Genesee & Wyoming, Inc. . . . . . . . . . . . . . . . . . . . . . 5,126 1.5The Madison Square Garden Co. . . . . . . . . . . . . . . . 5,104 1.6Acuity Brands, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,087 1.8Fossil Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,968 1.2Phillips 66 Partners LP . . . . . . . . . . . . . . . . . . . . . . . . 4,937 1.0Nordson Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,800 1.1Covance, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,449 0.4Graco, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,385 0.5WEX Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,276 1.4Oasis Petroleum, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 4,229 0.3Tesoro Logistics LP . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,043 0.3The Ultimate Software Group, Inc. . . . . . . . . . . . . . 3,999 1.9LaSalle Hotel Properties . . . . . . . . . . . . . . . . . . . . . . 3,563 1.0ICON plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,525 1.5Sarana Menara Nusantara Tbk PT . . . . . . . . . . . . . . 3,517 1.0Cognex Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,493 1.1Gaming and Leisure Properties, Inc. . . . . . . . . . . . . 3,471 1.6Platform Specialty Products Corp. . . . . . . . . . . . . . . 3,435 1.0HomeAway, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,337 1.5Clean Harbors, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,270 1.1FEI Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,165 1.2Cepheid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,091 0.6Guidewire Software, Inc. . . . . . . . . . . . . . . . . . . . . . . 3,065 1.3United Natural Foods, Inc. . . . . . . . . . . . . . . . . . . . . 3,052 1.7DexCom, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,018 1.0Abengoa Yield plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,979 0.2Berry Plastics Group, Inc. . . . . . . . . . . . . . . . . . . . . . . 2,966 2.2Catalent Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,937 0.5Rexnord Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,884 1.4Forum Energy Technologies, Inc. . . . . . . . . . . . . . . . 2,873 0.9Bright Horizons Family Solutions, Inc. . . . . . . . . . . . 2,777 1.9


GrubHub Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,742 0.2%Valero Energy Partners LP . . . . . . . . . . . . . . . . . . . . . 2,570 0.6

55.5%


Knowles Corporation . . . . . . . . . . . . . . . . . . . . . . . . . $2,466 0.6%Bonanza Creek Energy, Inc. . . . . . . . . . . . . . . . . . . . . 2,348 0.7The Cheesecake Factory, Inc. . . . . . . . . . . . . . . . . . . 2,254 1.3DigitalGlobe, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,153 1.2ACI Worldwide, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,140 1.4Mattress Firm Holding Corp. . . . . . . . . . . . . . . . . . . . 2,053 1.6MWI Veterinary Supply, Inc. . . . . . . . . . . . . . . . . . . . 1,908 0.8Essent Group Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,853 0.7Moelis & Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,850 0.5Iconix Brand Group, Inc. . . . . . . . . . . . . . . . . . . . . . . 1,774 1.4Financial Engines, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 1,771 1.4Artisan Partners Asset Management Inc. . . . . . . . . 1,694 0.7The Advisory Board Company . . . . . . . . . . . . . . . . . . 1,691 0.6Franklin Electric Co., Inc. . . . . . . . . . . . . . . . . . . . . . . 1,652 0.2Advent Software, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 1,627 1.3Nord Anglia Education Inc. . . . . . . . . . . . . . . . . . . . . 1,613 0.8Chesapeake Lodging Trust . . . . . . . . . . . . . . . . . . . . . 1,600 0.8Western Refining Logistics, LP . . . . . . . . . . . . . . . . . 1,589 0.7SunCoke Energy, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 1,556 0.4Lumber Liquidators Holdings, Inc. . . . . . . . . . . . . . . 1,555 0.9Coherent, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,531 0.8On Assignment, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,463 1.1Scorpio Tankers Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,431 0.8Flotek Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 1,406 0.8Tumi Holdings, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,381 0.8Globe Specialty Metals, Inc. . . . . . . . . . . . . . . . . . . . 1,342 1.4Heartware International, Inc. . . . . . . . . . . . . . . . . . . 1,320 0.5Acxiom Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,277 0.4comScore, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,244 0.6Vince Holding Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,111 0.1SunCoke Energy Partners, LP . . . . . . . . . . . . . . . . . . . 1,099 0.4Interface, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,073 0.4The Container Store Group, Inc. . . . . . . . . . . . . . . . . 1,044 0.8BJ’s Restaurants, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 1,013 0.6HealthEquity, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,002 0.4National CineMedia, Inc. . . . . . . . . . . . . . . . . . . . . . . 883 0.2Penn National Gaming, Inc. . . . . . . . . . . . . . . . . . . . 882 0.6PBF Logistics LP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 805 0.4Westlake Chemical Partners LP . . . . . . . . . . . . . . . . 785 0.4Del Frisco’s Restaurant Group, Inc. . . . . . . . . . . . . . 451 0.8SFX Entertainment, Inc. . . . . . . . . . . . . . . . . . . . . . . . 448 0.4The KEYW Holding Corp. . . . . . . . . . . . . . . . . . . . . . . 416 0.4The Chefs’ Warehouse, Inc. . . . . . . . . . . . . . . . . . . . . 408 0.6Rally Software Development Corp. . . . . . . . . . . . . . 303 0.5Fairway Group Holdings Corp. . . . . . . . . . . . . . . . . . 163 0.1Viggle, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 0.0

32.3%

Baron Funds

79


Baron Opportunity Fund is a diversified fund that invests primarily in high-growth mid-sized businesses benefitting from innovation through developmentof pioneering, transformative or technologically advanced products and services. Baron Opportunity Fund invests at least 65% of its assets in equitysecurities of companies with market capitalization between $1 billion and $15 billion at the time of purchase.

Equity % ofMarket Cap Total

Company (in millions) Investments




Alibaba Group Holding Ltd. . . . . . . . . . . . . . . . . . . . $219,016 1.6%Facebook Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204,529 2.1The Priceline Group, Inc. . . . . . . . . . . . . . . . . . . . . . . 60,765 1.8Twitter, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,884 1.6Tesla Motors, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,245 2.0Netflix, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,112 1.6LinkedIn Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,540 1.4Discovery Communications, Inc. . . . . . . . . . . . . . . . 25,493 1.3Illumina, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,851 4.6Liberty Media Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . 16,147 2.2Workday, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,329 1.3

21.5%

Capitalization $1 billion to $15 billion

Under Armour, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,738 1.1%SBA Communications Corp. . . . . . . . . . . . . . . . . . . . 14,307 3.4Concho Resources, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 14,163 2.0Mobileye N.V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,377 0.9Equinix, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,303 3.1Red Hat, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,546 3.5CarMax, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,183 2.4Verisk Analytics, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 10,137 3.0IHS, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,535 1.4Concur Technologies, Inc. . . . . . . . . . . . . . . . . . . . . . 7,238 1.9ANSYS, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,963 2.2Gartner, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,532 4.8Golar LNG Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,194 1.3The Middleby Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . 5,047 1.8CoStar Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,024 2.1athenahealth, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 1.5Pandora Media, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 4,989 1.1

Capitalization $1 billion to $15 billion (Continued)

Fossil Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,968 1.0%Zillow, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,679 1.0Oasis Petroleum, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 4,229 1.4Pacira Pharmaceuticals, Inc. . . . . . . . . . . . . . . . . . . . 3,479 1.0HomeAway, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,337 1.7Restoration Hardware Holdings, Inc. . . . . . . . . . . . . 3,142 1.4Cepheid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,091 1.4Guidewire Software, Inc. . . . . . . . . . . . . . . . . . . . . . . 3,065 3.8Liberty Ventures Group . . . . . . . . . . . . . . . . . . . . . . . 2,802 1.4Just Eat plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,715 2.5Manchester United plc . . . . . . . . . . . . . . . . . . . . . . . 2,699 1.9Shutterstock, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,522 2.6Liberty Tripadvisor Holdings Inc. . . . . . . . . . . . . . . . 2,502 1.3Medidata Solutions, Inc. . . . . . . . . . . . . . . . . . . . . . . 2,393 1.5DigitalGlobe, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,153 1.8Mellanox Technologies Ltd. . . . . . . . . . . . . . . . . . . . . 2,017 1.5Cornerston OnDemand, Inc. . . . . . . . . . . . . . . . . . . . 1,837 0.5CaesarStone Sdot-Yam Ltd. . . . . . . . . . . . . . . . . . . . 1,802 1.7Flotek Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 1,406 1.3AO World plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,283 1.0Acxiom Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,277 1.5comScore, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,244 1.5Castlight Health Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 1,160 0.7The Spectranetics Corporation . . . . . . . . . . . . . . . . . 1,112 1.0HealthEquity, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,002 0.5

74.4%

Capitalization below $1 billion

Qualys, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $878 1.4%Xoom Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . 838 1.0Benefitfocus, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 686 1.7

4.1%

80

Baron Funds


Baron Fifth Avenue Growth Fund is a diversified fund that invests primarily in large-sized growth companies. Baron Fifth Avenue Growth Fund defines a large-sized growth company as one having a market capitalization of over $10 billion.






Apple, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $603,278 5.1%Google, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393,956 5.9Alibaba Group Holding Ltd. . . . . . . . . . . . . . . . . . . . 219,016 3.6Facebook Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204,529 6.6Amazon.com, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,979 4.9Visa, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132,959 3.6MasterCard, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,597 3.1SoftBank Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,558 2.4Biogen Idec, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,119 2.0The Priceline Group, Inc. . . . . . . . . . . . . . . . . . . . . . . 60,765 4.4Monsanto Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,022 3.9Starbucks Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,686 3.6Costco Wholesale Corp. . . . . . . . . . . . . . . . . . . . . . . . 54,927 1.3Las Vegas Sands Corp. . . . . . . . . . . . . . . . . . . . . . . . . 50,100 2.6ASML Holding N.V. . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,155 2.6VMware, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,362 2.0Regeneron Pharmaceuticals, Inc. . . . . . . . . . . . . . . . 36,436 1.7Alexion Pharmaceuticals, Inc. . . . . . . . . . . . . . . . . . . 32,802 1.5Twitter, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,884 2.2

Capitalization above $10 billion (Continued)

YUM! Brands, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $31,646 2.0%Brookfield Asset Management, Inc. . . . . . . . . . . . . . 28,162 2.7CME Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,867 2.1LinkedIn Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,540 1.2Illumina, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,851 6.4Wynn Resorts Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,960 4.0Liberty Media Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . 16,147 2.0Ralph Lauren Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,487 2.2Concho Resources, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 14,163 2.2Fastenal Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,325 1.7Mobileye N.V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,377 0.8Equinix, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,303 2.7Red Hat, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,546 2.2Verisk Analytics, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 10,137 1.9

97.1%

Capitalization below $10 billion

FireEye, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,552 0.1%






The Charles Schwab Corp. . . . . . . . . . . . . . . . . . . . . . $38,306 4.7%Tesla Motors, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,245 8.7Discovery Communications, Inc. . . . . . . . . . . . . . . . 25,493 1.4Illumina, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,851 2.1Concho Resources, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 14,163 4.5Fastenal Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,325 3.6Mobileye N.V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,377 1.0Edwards Lifesciences Corp. . . . . . . . . . . . . . . . . . . . . 10,831 0.7Helmerich & Payne, Inc. . . . . . . . . . . . . . . . . . . . . . . 10,592 3.1CarMax, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,183 4.2Verisk Analytics, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 10,137 4.1

38.1%


Hyatt Hotels Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,299 6.8%Arch Capital Group Ltd. . . . . . . . . . . . . . . . . . . . . . . . 7,393 6.0


Gartner, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,532 2.1%IDEXX Laboratories, Inc. . . . . . . . . . . . . . . . . . . . . . . . 5,923 2.8ITC Holdings Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,544 6.6Dick's Sporting Goods, Inc. . . . . . . . . . . . . . . . . . . . . 5,320 4.1FactSet Research Systems, Inc. . . . . . . . . . . . . . . . . . 5,080 3.7The Middleby Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . 5,047 1.0CoStar Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,024 7.3Gaming and Leisure Properties, Inc. . . . . . . . . . . . . 3,471 3.1Air Lease Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,328 4.4Vail Resorts, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,142 3.6Manchester United plc . . . . . . . . . . . . . . . . . . . . . . . 2,699 3.8

55.3%


The Carlyle Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,039 4.5%

Baron Partners Fund

Baron Partners Fund is a non-diversified fund that invests primarily in U.S. companies of any size with significant growth potential.

Baron Funds

81


Baron Focused Growth Fund is a non-diversified fund that invests primarily in small- and medium-sized growth companies. Baron Focused Growth Funddefines a small-sized growth company as one having a market capitalization of under $2.5 billion and a medium-sized growth company as one having amarket capitaliation of $2.5 billion to $10 billion.






Tesla Motors, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30,245 3.2%Fastenal Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,325 2.8Mobileye N.V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,377 0.8Helmerich & Payne, Inc. . . . . . . . . . . . . . . . . . . . . . . 10,592 3.1CarMax, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,183 3.7Verisk Analytics, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 10,137 2.8

16.4%


Church & Dwight Co., Inc. . . . . . . . . . . . . . . . . . . . . . $9,378 1.8%Hyatt Hotels Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,299 7.5Airgas, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,247 2.0Arch Capital Group Ltd. . . . . . . . . . . . . . . . . . . . . . . . 7,393 2.8Concur Technologies, Inc. . . . . . . . . . . . . . . . . . . . . . 7,238 0.4Colfax Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,046 5.9ITC Holdings Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,544 4.4Dick’s Sporting Goods, Inc. . . . . . . . . . . . . . . . . . . . . 5,320 3.5Genesee & Wyoming, Inc. . . . . . . . . . . . . . . . . . . . . . 5,126 4.5


FactSet Research Systems, Inc. . . . . . . . . . . . . . . . . . $5,080 4.7%CoStar Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,024 5.4TreeHouse Foods, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 3,387 2.5Vail Resorts, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,142 6.1Guidewire Software, Inc. . . . . . . . . . . . . . . . . . . . . . . 3,065 2.3Choice Hotels International, Inc. . . . . . . . . . . . . . . . 3,039 4.1Manchester United plc . . . . . . . . . . . . . . . . . . . . . . . 2,699 4.3BRP, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,556 2.1

64.3%


The Carlyle Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,039 3.6%CaesarStone Sdot-Yam Ltd. . . . . . . . . . . . . . . . . . . . 1,802 2.8Financial Engines, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 1,771 1.8Pinnacle Entertainment, Inc. . . . . . . . . . . . . . . . . . . . 1,500 4.8Iridium Communications Inc. . . . . . . . . . . . . . . . . . . 824 3.9Benefitfocus, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 686 1.4

18.3%

82

Baron Funds


Baron International Growth Fund is a diversified fund that invests in non-U.S companies with significant growth potential. Investments may be made acrossall market capitalizations. The Fund invests principally in companies of developed countries and may invest up to 30% in companies of developing countries.Baron International Growth Fund defines a small-sized growth company as one having a market capitalization of under $2.5 billion and a medium-sizedgrowth company as one having a market capitalization of $2.5 billion to $10 billion.






Alibaba Group Holding Ltd. . . . . . . . . . . . . . . . . . . . $219,016 1.1%Tencent Holdings, Ltd. . . . . . . . . . . . . . . . . . . . . . . . . 139,285 1.3Inditex SA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,111 0.6SoftBank Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,558 2.5Suncor Energy Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,968 1.6Compagnie Financière Richemont SA . . . . . . . . . . . 47,123 1.1FANUC Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,272 2.2Deutsche Post AG . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,701 1.7DNB ASA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,498 0.9Mitsui Fudosan Co. Ltd. . . . . . . . . . . . . . . . . . . . . . . . 30,301 1.5Syngenta AG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,450 0.9Bridgestone Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,838 1.3Larsen & Toubro Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . 21,917 1.1Agilent Technologies, Inc. . . . . . . . . . . . . . . . . . . . . . 19,004 2.3Wynn Macau Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,527 1.1Sumitomo Mitsui Trust Holdings, Inc. . . . . . . . . . . . 16,123 1.0Crescent Point Energy Corp. . . . . . . . . . . . . . . . . . . . 15,971 1.4Haitong Securities Co., Ltd. . . . . . . . . . . . . . . . . . . . . 15,908 1.1Experian plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,785 1.0Ryanair Holdings plc . . . . . . . . . . . . . . . . . . . . . . . . . . 15,625 1.5Rakuten, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,912 1.4Axis Bank Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,428 1.2Daiwa Securities Group, Inc. . . . . . . . . . . . . . . . . . . . 13,767 0.8Grifols SA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,386 2.0Check Point Software Technologies Ltd. . . . . . . . . . 13,210 2.4Brambles Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,067 1.3Steinhoff International Holdings Ltd. . . . . . . . . . . . 11,791 1.4Mobileye N.V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,377 0.9Kroton Educacional SA . . . . . . . . . . . . . . . . . . . . . . . . 10,156 3.1Julius Baer Group Ltd. . . . . . . . . . . . . . . . . . . . . . . . . 10,045 1.2

42.9%


easyJet plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,155 1.3%Yandex N.V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,933 0.5ProSiebenSat.1 Media AG . . . . . . . . . . . . . . . . . . . . . 8,703 1.2Brenntag AG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,557 1.1Arch Capital Group Ltd. . . . . . . . . . . . . . . . . . . . . . . . 7,393 1.3Sony Financial Holdings, Inc. . . . . . . . . . . . . . . . . . . 6,929 0.9Symrise AG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,895 2.0Intertek Group plc . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,856 1.0


Core Laboratories N.V. . . . . . . . . . . . . . . . . . . . . . . . . $6,501 0.7%Ingenico SA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,724 2.2Constellation Software, Inc. . . . . . . . . . . . . . . . . . . . 5,326 2.5Lundin Petroleum AB . . . . . . . . . . . . . . . . . . . . . . . . . 5,264 1.0Fuchs Petrolub SE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,217 0.8Inchcape plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,732 1.2Croda International PLC . . . . . . . . . . . . . . . . . . . . . . 4,519 0.7Eurofins Scientific SE . . . . . . . . . . . . . . . . . . . . . . . . . 3,919 2.2PT Matahari Department Store Tbk . . . . . . . . . . . . . 3,885 1.1Sarana Menara Nusantara Tbk PT . . . . . . . . . . . . . . 3,517 0.7Cetip SA - Mercados Organizados . . . . . . . . . . . . . . 3,240 1.2Tower Bersama Infrastructure Tbk PT . . . . . . . . . . . 3,149 1.0Seadrill Partners, LLC . . . . . . . . . . . . . . . . . . . . . . . . . 2,864 1.3Premier Oil plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,795 1.2Just Eat plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,715 1.7Sanrio Co. Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,582 1.3

30.1%


TOTVS SA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,486 1.2%Sun TV Network Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . 2,158 0.4Mellanox Technologies Ltd. . . . . . . . . . . . . . . . . . . . . 2,017 1.9Opera Software ASA . . . . . . . . . . . . . . . . . . . . . . . . . . 2,005 1.9Domino’s Pizza Enterprises Ltd. . . . . . . . . . . . . . . . . 1,973 1.6Smiles SA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,940 1.7Biostime International Holdings Ltd. . . . . . . . . . . . . 1,884 0.2Luk Fook Holdings (International) Ltd. . . . . . . . . . . 1,711 1.0Domino’s Pizza Group plc . . . . . . . . . . . . . . . . . . . . . 1,523 1.5GOL Linhas Aéreas Inteligentes SA . . . . . . . . . . . . . 1,362 1.2AO World plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,283 1.1Perfect World Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . 975 0.8PATRIZIA Immobilien AG . . . . . . . . . . . . . . . . . . . . . . 928 1.8Hathway Cable & Datacom Ltd . . . . . . . . . . . . . . . . 761 0.5Kingdee International Software Group Co. Ltd. . . . 760 1.1WeMade Entertainment Co., Ltd. . . . . . . . . . . . . . . . 717 0.9RIB Software AG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 592 3.0Nomad Holdings Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . 552 1.4DEN Networks Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . 425 0.8

24.0%

Baron Funds

83


Baron Real Estate Fund is a non-diversified fund that invests primarily in equity securities of U.S. and non-U.S. real estate and real estate-related companiesof any size.






Home Depot, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $123,475 4.3%Lowe’s Companies, Inc. . . . . . . . . . . . . . . . . . . . . . . . 52,238 2.1Simon Property Group, Inc. . . . . . . . . . . . . . . . . . . . . 51,096 1.2Las Vegas Sands Corp. . . . . . . . . . . . . . . . . . . . . . . . . 50,100 2.0American Tower Corp. . . . . . . . . . . . . . . . . . . . . . . . . 37,091 1.4Brookfield Asset Management, Inc. . . . . . . . . . . . . . 28,162 1.3Wynn Resorts Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,960 2.4Vornado Realty Trust . . . . . . . . . . . . . . . . . . . . . . . . . 18,759 1.0Starwood Hotels & Resorts Worldwide, Inc. . . . . . 15,853 5.3SBA Communications Corp. . . . . . . . . . . . . . . . . . . . 14,307 2.0Equinix, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,303 3.1Wyndham Worldwide Corp. . . . . . . . . . . . . . . . . . . . 10,171 4.2

30.3%


CBRE Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,877 3.5%Mohawk Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . . 9,820 3.1SL Green Realty Corp. . . . . . . . . . . . . . . . . . . . . . . . . 9,813 0.6Hyatt Hotels Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,299 4.0D.R. Horton, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,479 1.6Norwegian Cruise Line Holdings, Ltd. . . . . . . . . . . . 7,319 1.7Howard Hughes Corp. . . . . . . . . . . . . . . . . . . . . . . . . 5,946 1.2Brookdale Senior Living, Inc. . . . . . . . . . . . . . . . . . . . 5,908 9.1Brookfield Infrastructure Partners L.P. . . . . . . . . . . . 5,712 1.3Jones Lang LaSalle, Inc. . . . . . . . . . . . . . . . . . . . . . . . 5,662 3.5Toll Brothers, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,544 1.0ITC Holdings Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,544 0.9Alexandria Real Estate Equities, Inc. . . . . . . . . . . . . 5,292 0.8Extended Stay America, Inc. . . . . . . . . . . . . . . . . . . . 4,860 1.4


Forest City Enterprises, Inc. . . . . . . . . . . . . . . . . . . . . $3,936 1.4%American Campus Communities, Inc. . . . . . . . . . . . 3,825 0.9Owens Corning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,733 1.0Douglas Emmett, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 3,706 1.0LaSalle Hotel Properties . . . . . . . . . . . . . . . . . . . . . . 3,563 1.0Sarana Menara Nusantara Tbk PT . . . . . . . . . . . . . . 3,517 1.3Tower Bersama Infrastructure Tbk PT . . . . . . . . . . . 3,149 1.5Tanger Factory Outlet Centers, Inc. . . . . . . . . . . . . . 3,137 0.6Strategic Hotels & Resorts, Inc. . . . . . . . . . . . . . . . . 2,882 1.5Sunstone Hotel Investors, Inc. . . . . . . . . . . . . . . . . . 2,839 1.5

45.4%


Kennedy-Wilson Holdings, Inc. . . . . . . . . . . . . . . . . . $2,275 2.1%Brookfield Residential Properties Inc. . . . . . . . . . . . 2,228 1.8Golar LNG Partners L.P. . . . . . . . . . . . . . . . . . . . . . . . 2,172 0.6Marriott Vacations Worldwide Corp. . . . . . . . . . . . . 2,119 0.8Essent Group Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,853 0.8CaesarStone Sdot-Yam Ltd. . . . . . . . . . . . . . . . . . . . 1,802 1.7Kennedy Wilson Europe Real Estate PLC . . . . . . . . 1,774 2.1Diamond Resorts International, Inc. . . . . . . . . . . . . 1,719 2.1Blackstone Mortgage Trust, Inc. . . . . . . . . . . . . . . . . 1,545 1.3Pinnacle Entertainment, Inc. . . . . . . . . . . . . . . . . . . . 1,500 1.7Education Realty Trust, Inc. . . . . . . . . . . . . . . . . . . . . 1,435 0.7CyrusOne Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 929 1.6Capital Senior Living Corp. . . . . . . . . . . . . . . . . . . . . 617 3.2Builders FirstSource, Inc. . . . . . . . . . . . . . . . . . . . . . . 535 1.0

21.5%

84

Baron Funds


Alibaba Group Holding Ltd. . . . . . . . . . . . . . . . . . . . $219,016 1.4%Samsung Electronics Co., Ltd. . . . . . . . . . . . . . . . . . . 163,736 1.1Tencent Holdings, Ltd. . . . . . . . . . . . . . . . . . . . . . . . . 139,285 1.4Taiwan Semiconductor Manufacturing Company Ltd. 104,651 1.5China Petroleum & Chemical Corporation . . . . . . . 101,161 1.0China Unicom (Hong Kong) Ltd. . . . . . . . . . . . . . . . 35,717 0.9Fomento Económico Mexicano, S.A.B. de C.V. . . . . 32,938 1.8MediaTek Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,266 1.3Larsen & Toubro Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . 21,917 1.2Bank Rakyat Indonesia (Persero) Tbk PT . . . . . . . . . 21,106 1.4KIA Motors Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,552 1.0Wynn Macau Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,527 0.9Haitong Securities Co., Ltd. . . . . . . . . . . . . . . . . . . . . 15,908 2.0Axis Bank Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,428 1.3Aspen Pharmacare Holdings Ltd. . . . . . . . . . . . . . . . 13,610 1.8Bangkok Bank Public Co. Ltd. . . . . . . . . . . . . . . . . . . 12,009 1.1Steinhoff International Holdings Ltd. . . . . . . . . . . . 11,791 1.6Ayala Land, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,051 1.4Global Logistic Properties Ltd. . . . . . . . . . . . . . . . . . 10,280 1.2Kroton Educacional SA . . . . . . . . . . . . . . . . . . . . . . . . 10,156 3.1Lupin Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,145 1.5

29.9%


Sinopharm Group Co. Ltd. . . . . . . . . . . . . . . . . . . . . . $9,394 1.0%Universal Robina Corp. . . . . . . . . . . . . . . . . . . . . . . . . 9,090 1.5Yandex N.V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,933 0.5Bidvest Group Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,391 1.1China Mengniu Dairy Co. Ltd. . . . . . . . . . . . . . . . . . . 8,071 1.1BDO Unibank, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,824 0.9Sihuan Pharmaceutical Holdings Group Ltd. . . . . . 7,768 1.0Infraestructura Energetica Nova S.A.B. de C.V. . . . 7,043 1.1Sociedad Química y Minera de Chile SA . . . . . . . . 6,967 1.1Far EasTone Telecommunications Co., Ltd. . . . . . . . 6,245 1.1Mr Price Group Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . 5,056 0.8Zee Entertainment Enterprises Ltd. . . . . . . . . . . . . . 4,885 1.1M. Dias Branco SA . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,525 1.2Shandong Weigao Group Medical Polymer Co. Ltd. 4,428 0.8PT Matahari Department Store Tbk . . . . . . . . . . . . . 3,885 1.5Divi’s Laboratories Ltd. . . . . . . . . . . . . . . . . . . . . . . . . 3,869 2.3Melco International Development Ltd. . . . . . . . . . . 3,614 0.6


Sarana Menara Nusantara Tbk PT . . . . . . . . . . . . . . $3,517 0.8%Estácio Participações SA . . . . . . . . . . . . . . . . . . . . . . 3,278 0.8Cetip SA - Mercados Organizados . . . . . . . . . . . . . . 3,240 1.6Tower Bersama Infrastructure Tbk PT . . . . . . . . . . . 3,149 1.7Novatek Microelectronics Corp. . . . . . . . . . . . . . . . . 3,011 1.3Metro Pacific Investments Corp. . . . . . . . . . . . . . . . 2,844 1.1TAL Education Group . . . . . . . . . . . . . . . . . . . . . . . . . 2,756 1.5WuXi PharmaTech (Cayman) Inc. . . . . . . . . . . . . . . 2,505 0.6

28.1%


TOTVS SA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,486 1.3%Grand Korea Leisure Co., Ltd. . . . . . . . . . . . . . . . . . . 2,430 1.2Torrent Pharmaceuticals Ltd. . . . . . . . . . . . . . . . . . . 2,388 1.9HIWIN Technologies Corp. . . . . . . . . . . . . . . . . . . . . 2,338 1.3Sun TV Network Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . 2,158 0.9Crompton Greaves Ltd. . . . . . . . . . . . . . . . . . . . . . . . 2,041 1.1Opera Software ASA . . . . . . . . . . . . . . . . . . . . . . . . . . 2,005 1.8Multiplus SA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,956 1.0Smiles SA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,940 2.0Biostime International Holdings Ltd. . . . . . . . . . . . . 1,884 1.1CJ O Shopping Co. Ltd. . . . . . . . . . . . . . . . . . . . . . . . 1,877 1.2Luk Fook Holdings (International) Ltd. . . . . . . . . . . 1,711 1.0Amara Raja Batteries Ltd. . . . . . . . . . . . . . . . . . . . . . 1,655 1.7Man Wah Holdings Ltd. . . . . . . . . . . . . . . . . . . . . . . . 1,401 0.9Africa Oil Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,372 0.3GOL Linhas Aéreas Inteligentes SA . . . . . . . . . . . . . 1,362 1.4Ginko International Co. LTD . . . . . . . . . . . . . . . . . . . 1,249 1.2Linx SA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 978 0.8Perfect World Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . 975 1.0Yashili International Holdings Ltd. . . . . . . . . . . . . . . 967 0.2Dish TV India Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 929 0.8L.P.N. Development PCL . . . . . . . . . . . . . . . . . . . . . . 910 0.7Hathway Cable & Datacom Ltd . . . . . . . . . . . . . . . . 761 0.5Kingdee International Software Group Co. Ltd. . . . 760 0.9WeMade Entertainment Co., Ltd. . . . . . . . . . . . . . . . 717 1.6PVR Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 467 1.3DEN Networks Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . 425 0.6Lekoil, Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400 0.5SHUAA Capital psc . . . . . . . . . . . . . . . . . . . . . . . . . . . 339 0.6

30.8%


Baron Emerging Markets Fund is a diversified fund that invests primarily in non-U.S. companies of all sizes with significant growth potential. The majority ofinvestments are in companies domiciled in developing nations and the Fund may invest up to 20% in companies in developed market countries and inFrontier Countries.





Baron Funds

85


Baron Energy and Resources Fund is a non-diversified fund that invests primarily in equity securities of U.S. and non-U.S. energy and resources companiesand related companies of any size.






Halliburton Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $54,868 3.7%EOG Resources, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 54,209 1.2Anadarko Petroleum Corporation . . . . . . . . . . . . . . . 51,325 1.4Freeport-McMoRan Copper & Gold, Inc. . . . . . . . . 33,925 0.6National Oilwell Varco, Inc. . . . . . . . . . . . . . . . . . . . . 32,741 0.7Noble Energy, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,728 1.3Marathon Petroleum Corp. . . . . . . . . . . . . . . . . . . . . 23,989 1.4Antero Resources Corporation . . . . . . . . . . . . . . . . . 14,384 1.5Concho Resources, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 14,163 3.8Cabot Oil & Gas Corp. . . . . . . . . . . . . . . . . . . . . . . . . 13,641 1.1Western Gas Equity Partners LP . . . . . . . . . . . . . . . . 13,340 0.9Helmerich & Payne, Inc. . . . . . . . . . . . . . . . . . . . . . . 10,592 1.6

19.2%


Flowserve Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,647 1.0%Western Gas Partners, LP . . . . . . . . . . . . . . . . . . . . . 9,111 0.9Core Laboratories N.V. . . . . . . . . . . . . . . . . . . . . . . . . 6,501 1.7Golar LNG Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,194 1.8Targa Resources Corp. . . . . . . . . . . . . . . . . . . . . . . . . . 5,741 1.7Athlon Energy Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,667 3.5SM Energy Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,255 3.4Superior Energy Services, Inc. . . . . . . . . . . . . . . . . . . 5,084 2.7SunEdison, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,077 1.7Phillips 66 Partners LP . . . . . . . . . . . . . . . . . . . . . . . . 4,937 1.1Gulfport Energy Corp. . . . . . . . . . . . . . . . . . . . . . . . . 4,566 2.6Oasis Petroleum, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 4,229 2.6Tesoro Logistics LP . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,043 1.1Kodiak Oil & Gas Corp. . . . . . . . . . . . . . . . . . . . . . . . 3,627 1.2Oil States International, Inc. . . . . . . . . . . . . . . . . . . . 3,348 1.2


Abengoa Yield plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,979 0.5%TerraForm Power, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 2,915 1.0Forum Energy Technologies, Inc. . . . . . . . . . . . . . . . 2,873 2.4Seadrill Partners, LLC . . . . . . . . . . . . . . . . . . . . . . . . . 2,864 0.5Parsley Energy, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,689 2.9Valero Energy Partners LP . . . . . . . . . . . . . . . . . . . . . 2,570 1.0

36.5%


MRC Global, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,379 1.2%Bonanza Creek Energy, Inc. . . . . . . . . . . . . . . . . . . . . 2,348 3.9Atlas Energy, L.P. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,284 3.8Tallgrass Energy Partners, LP . . . . . . . . . . . . . . . . . . . 2,217 3.1RSP Permian, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,976 2.3Chart Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 1,863 1.4Rose Rock Midstream, L.P. . . . . . . . . . . . . . . . . . . . . . 1,787 3.3Polypore International, Inc. . . . . . . . . . . . . . . . . . . . . 1,747 0.4Western Refining Logistics, LP . . . . . . . . . . . . . . . . . 1,589 2.8SunCoke Energy, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 1,556 1.0Scorpio Tankers Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,431 1.3Flotek Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 1,406 3.1Primoris Services Corp. . . . . . . . . . . . . . . . . . . . . . . . . 1,386 1.4SunCoke Energy Partners, LP . . . . . . . . . . . . . . . . . . . 1,099 0.9Badger Daylighting Ltd. . . . . . . . . . . . . . . . . . . . . . . . 923 0.9PBF Logistics LP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 805 1.7Tesco Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 796 2.4Westlake Chemical Partners LP . . . . . . . . . . . . . . . . 785 1.0RigNet, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 713 0.9Lekoil, Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400 0.8

37.6%

86

Baron Funds


Baron Global Advantage Fund is a diversified fund that invests mainly in growth companies of all sizes located throughout the world, primarily in establishedand emerging markets companies, with capitalizations within the range of companies included in the MSCI ACWI Growth Index Net.






Google, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $393,956 4.9%Alibaba Group Holding Ltd. . . . . . . . . . . . . . . . . . . . 219,016 3.2Facebook Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204,529 5.0Amazon.com, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,979 4.5SoftBank Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,558 3.9Baidu, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,514 3.0The Priceline Group, Inc. . . . . . . . . . . . . . . . . . . . . . . 60,765 3.0Monsanto Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,022 1.0ASML Holding N.V. . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,155 1.7ICICI Bank Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,408 1.8Brookfield Asset Management, Inc. . . . . . . . . . . . . . 28,162 1.2Illumina, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,851 3.7ARM Holdings plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,648 1.4Grifols SA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,386 2.2Mobileye N.V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,377 0.8

41.3%


Constellation Software, Inc. . . . . . . . . . . . . . . . . . . . $5,326 2.0%Youku Tudou, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,732 0.8Sarana Menara Nusantara Tbk PT . . . . . . . . . . . . . . 3,517 5.1Pacira Pharmaceuticals, Inc. . . . . . . . . . . . . . . . . . . . 3,479 1.5Qunar Cayman Islands Ltd. . . . . . . . . . . . . . . . . . . . . 3,278 1.5Cetip SA - Mercados Organizados . . . . . . . . . . . . . . 3,240 3.0


Tower Bersama Infrastructure Tbk PT . . . . . . . . . . . $3,149 3.0%TerraForm Power, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 2,915 0.8Seadrill Partners, LLC . . . . . . . . . . . . . . . . . . . . . . . . . 2,864 1.0TAL Education Group . . . . . . . . . . . . . . . . . . . . . . . . . 2,756 4.4Just Eat plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,715 3.9

27.0%


Medidata Solutions, Inc. . . . . . . . . . . . . . . . . . . . . . . $2,393 2.0%Atlas Energy, L.P. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,284 3.1Tallgrass Energy Partners, LP . . . . . . . . . . . . . . . . . . . 2,217 2.4Mellanox Technologies Ltd. . . . . . . . . . . . . . . . . . . . . 2,017 3.3Smiles SA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,940 2.7Just Dial Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,853 1.2AO World plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,283 1.4Acxiom Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,277 1.5MakeMyTrip Limited . . . . . . . . . . . . . . . . . . . . . . . . . . 1,160 1.0Coupons.com Incorporated . . . . . . . . . . . . . . . . . . . . 928 0.8Xoom Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . 838 1.8PBF Logistics LP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 805 1.7Westlake Chemical Partners LP . . . . . . . . . . . . . . . . 785 0.8Benefitfocus, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 686 1.1

24.8%

Baron Funds

87


Baron Discovery Fund invests primarily in equity securities in the form of common stock of small sized growth companies with market capitalizations of lessthan $1.5 billion at the time of purchase selected for their capital appreciation potential.





Capitalization above $1.5 billion

Pacira Pharmaceuticals, Inc. . . . . . . . . . . . . . . . . . . . $3,479 1.0%Strategic Hotels & Resorts, Inc. . . . . . . . . . . . . . . . . 2,882 2.3Parsley Energy, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,689 0.6Tallgrass Energy Partners, LP . . . . . . . . . . . . . . . . . . . 2,217 2.8Mattress Firm Holding Corp. . . . . . . . . . . . . . . . . . . . 2,053 1.1RSP Permian, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,976 0.5CaesarStone Sdot-Yam Ltd. . . . . . . . . . . . . . . . . . . . 1,802 1.5Rose Rock Midstream, L.P. . . . . . . . . . . . . . . . . . . . . . 1,787 2.3Polypore International, Inc. . . . . . . . . . . . . . . . . . . . . 1,747 1.9Churchill Downs Incorporated . . . . . . . . . . . . . . . . . 1,693 1.8Power Integrations, Inc. . . . . . . . . . . . . . . . . . . . . . . . 1,623 1.7Chesapeake Lodging Trust . . . . . . . . . . . . . . . . . . . . . 1,600 2.0Western Refining Logistics, LP . . . . . . . . . . . . . . . . . 1,589 1.0Envestnet, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,537 1.9Coherent, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,531 1.8

24.2%


Flotek Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . $1,406 4.0%American Assets Trust, Inc. . . . . . . . . . . . . . . . . . . . . 1,405 2.1Primoris Services Corp. . . . . . . . . . . . . . . . . . . . . . . . . 1,386 2.1Tumi Holdings, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,381 1.7Fiesta Restaurant Group, Inc. . . . . . . . . . . . . . . . . . . 1,331 2.6Barracuda Networks, Inc. . . . . . . . . . . . . . . . . . . . . . . 1,321 2.0ExamWorks Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . 1,287 2.2AO World plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,283 1.0comScore, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,244 1.7Masimo Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . 1,166 0.5The Spectranetics Corporation . . . . . . . . . . . . . . . . . 1,112 4.7The Container Store Group, Inc. . . . . . . . . . . . . . . . . 1,044 1.0The Descartes Systems Group Inc. . . . . . . . . . . . . . 1,040 0.5

Capitalization below $1.5 billion (Continued)

HealthEquity, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,002 1.1%Qualys, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 878 2.2Ascent Capital Group, Inc. . . . . . . . . . . . . . . . . . . . . . 831 2.0Iridium Communications Inc. . . . . . . . . . . . . . . . . . . 824 1.0PBF Logistics LP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 805 1.9Westlake Chemical Partners LP . . . . . . . . . . . . . . . . 785 1.6TherapeuticsMD, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 723 2.1RigNet, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 713 1.5Novadaq Technologies Inc. . . . . . . . . . . . . . . . . . . . . 704 0.9Benefitfocus, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 686 1.5Capital Senior Living Corp. . . . . . . . . . . . . . . . . . . . . 617 0.5Park-Ohio Holdings Corp. . . . . . . . . . . . . . . . . . . . . . 599 0.8Zoe’s Kitchen, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 593 0.5Foundation Medicine, Inc. . . . . . . . . . . . . . . . . . . . . . 536 2.7Varonis Systems, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 517 1.9Aerie Pharmaceuticals, Inc. . . . . . . . . . . . . . . . . . . . . 494 0.5Farmer Bros. Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 481 1.6BioScrip, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 474 3.0Revance Therapeutics, Inc. . . . . . . . . . . . . . . . . . . . . . 454 1.3Del Frisco’s Restaurant Group, Inc. . . . . . . . . . . . . . 451 1.3Amber Road, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 438 1.8The KEYW Holding Corp. . . . . . . . . . . . . . . . . . . . . . . 416 1.4PDF Solutions, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 389 1.2Esperion Therapeutics, Inc. . . . . . . . . . . . . . . . . . . . . 378 0.9Inogen, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376 1.6Intersect ENT, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 362 1.8E2open, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271 1.8Inventure Foods, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 253 1.7ARC Group Worldwide, Inc. . . . . . . . . . . . . . . . . . . . . 233 0.6Regional Management Corp. . . . . . . . . . . . . . . . . . . . 228 1.0

69.8%

Baron Funds

88

Baron Asset Fund — PORTFOLIO HOLDINGS

September 30, 2014 (Unaudited)Shares Cost Value Shares Cost Value

Common Stocks (98.08%)

Consumer Discretionary (22.42%)Apparel, Accessories &

Luxury Goods (2.08%)175,000 Fossil Group, Inc.1 $ 13,482,048 $ 16,432,500240,000 Ralph Lauren Corp. 4,311,799 39,535,200

17,793,847 55,967,700

Automotive Retail (1.30%)750,000 CarMax, Inc.1 14,772,082 34,837,500

Broadcasting (1.11%)375,000 Discovery Communications,

Inc., Cl A1 4,026,159 14,175,000422,000 Discovery Communications,

Inc., Series C1 4,476,524 15,732,160

8,502,683 29,907,160

Casinos & Gaming (2.61%)375,000 Wynn Resorts Ltd. 0 70,155,000

Education Services (0.52%)325,000 DeVry Education Group, Inc. 546,016 13,913,250

Hotels, Resorts & Cruise Lines (3.85%)

800,000 Choice Hotels International, Inc. 3,577,372 41,600,0001,025,000 Hyatt Hotels Corp., Cl A1 30,808,659 62,033,000

34,386,031 103,633,000

Internet Retail (3.88%)500,000 AO World plc (United Kingdom)1,2 2,372,126 1,523,881

1,100,000 HomeAway, Inc.1 29,291,514 39,050,00055,000 The Priceline Group, Inc.1 8,865,734 63,721,900

40,529,374 104,295,781

Leisure Facilities (3.22%)1,000,000 Vail Resorts, Inc. 19,491,424 86,760,000

Specialty Stores (3.85%)825,000 Dick’s Sporting Goods, Inc. 25,648,808 36,201,000365,000 Tiffany & Co. 11,296,007 35,153,150525,000 Tractor Supply Co. 17,256,750 32,292,750

54,201,565 103,646,900

Total Consumer Discretionary 190,223,022 603,116,291

Consumer Staples (0.63%)Food Distributors (0.63%)

275,000 United Natural Foods, Inc.1 14,611,785 16,901,500

Energy (5.45%)Oil & Gas Drilling (1.31%)

360,000 Helmerich & Payne, Inc. 10,192,188 35,233,200

Oil & Gas Equipment & Services (1.35%)

185,000 Core Laboratories N.V.2 12,671,507 27,074,750150,000 Oil States International, Inc.1 5,850,283 9,285,000

18,521,790 36,359,750

Oil & Gas Exploration & Production (1.28%)

274,500 Concho Resources, Inc.1 12,981,350 34,419,555

Oil & Gas Storage & Transportation (1.51%)

450,000 Phillips 66 Partners LP 12,772,374 30,037,500174,934 Western Gas Equity Partners LP 3,848,548 10,660,478

16,620,922 40,697,978

Total Energy 58,316,250 146,710,483

Common Stocks (continued)

Financials (11.37%)Asset Management & Custody

Banks (1.43%)250,000 Artisan Partners Asset

Management, Inc., Cl A $ 15,500,000 $ 13,012,500325,000 T. Rowe Price Group, Inc. 7,848,785 25,480,000

23,348,785 38,492,500

Investment Banking & Brokerage (3.06%)

2,800,000 The Charles Schwab Corp. 3,023,977 82,292,000

Office REITs (1.24%)89,500 Alexander’s, Inc.4 4,271,765 33,464,945

Property & Casualty Insurance (2.70%)

1,325,000 Arch Capital Group Ltd.1,2 14,427,862 72,504,000

Real Estate Services (2.21%)2,000,000 CBRE Group, Inc., Cl A1 26,527,399 59,480,000

Regional Banks (0.73%)400,000 First Republic Bank 10,477,932 19,752,000

Total Financials 82,077,720 305,985,445

Health Care (16.53%)Health Care Distributors (1.51%)

350,000 Henry Schein, Inc.1 9,382,832 40,764,500

Health Care Equipment (3.61%)825,000 IDEXX Laboratories, Inc.1 33,055,763 97,209,750

Health Care Facilities (1.46%)375,000 Universal Health Services, Inc., Cl B 23,304,910 39,187,500

Health Care Supplies (2.53%)265,000 The Cooper Companies, Inc. 34,262,522 41,273,750600,000 West Pharmaceutical Services, Inc. 26,179,186 26,856,000

60,441,708 68,129,750

Health Care Technology (0.59%)265,000 Cerner Corp.1 5,777,893 15,786,050

Life Sciences Tools & Services (6.83%)

555,000 Illumina, Inc.1 24,225,443 90,975,600275,000 Mettler-Toledo International, Inc.1 17,214,470 70,435,750400,000 Quintiles Transnational

Holdings, Inc.1 18,309,703 22,312,000

59,749,616 183,723,350

Total Health Care 191,712,722 444,800,900

Industrials (18.62%)Construction Machinery &

Heavy Trucks (1.28%)425,000 Westinghouse Air Brake

Technologies Corporation 28,502,302 34,442,000

Environmental & Facilities Services (1.08%)

250,000 Stericycle, Inc.1 7,016,768 29,140,000

Human Resource & Employment Services (1.20%)

325,000 Towers Watson & Co., Cl A 35,475,007 32,337,500

89

Baron Funds


Industrials (continued)Industrial Conglomerates (1.47%)

270,000 Roper Industries, Inc. $ 22,869,631 $ 39,498,300

Industrial Machinery (5.27%)950,000 Colfax Corp.1 30,771,922 54,121,500112,000 IDEX Corp. 8,263,616 8,105,440450,000 The Middleby Corp.1 23,539,575 39,658,500475,000 Pall Corp. 31,354,374 39,757,500

93,929,487 141,642,940

Research & Consulting Services (5.32%)

1,375,000 Nielsen N.V.2 33,985,885 60,953,7501,350,000 Verisk Analytics, Inc., Cl A1 34,838,769 82,201,500

68,824,654 143,155,250

Trading Companies & Distributors (3.00%)

1,175,000 Fastenal Co. 21,409,223 52,757,5001,200,000 MRC Global, Inc.1 28,777,893 27,984,000

50,187,116 80,741,500

Total Industrials 306,804,965 500,957,490

Information Technology (18.50%)Application Software (6.31%)

550,000 ANSYS, Inc.1 14,771,000 41,618,500525,000 FactSet Research Systems, Inc. 28,837,256 63,803,250935,000 Guidewire Software, Inc.1 43,250,976 41,457,900426,812 Mobileye N.V.1,2 10,670,300 22,872,855

97,529,532 169,752,505

Data Processing & Outsourced Services (3.17%)

600,000 FleetCor Technologies, Inc.1 21,892,482 85,272,000

Internet Software & Services (3.29%)

175,000 LinkedIn Corp., Cl A1 9,912,287 36,363,250267,500 Shutterstock, Inc.1 17,386,686 19,094,150600,000 Verisign, Inc.1 27,498,021 33,072,000

54,796,994 88,529,400

IT Consulting & Other Services (5.73%)

155,000 Equinix, Inc.1,4 10,768,505 32,934,4001,650,000 Gartner, Inc.1 36,183,876 121,225,500

46,952,381 154,159,900

Total Information Technology 221,171,389 497,713,805


Materials (0.72%)Industrial Gases (0.72%)

175,000 Airgas, Inc. $ 11,449,835 $ 19,363,750

Telecommunication Services (3.30%)Wireless Telecommunication

Services (3.30%)800,000 SBA Communications Corp., Cl A1 23,758,066 88,720,000

Utilities (0.54%)Renewable Electricity (0.54%)

501,980 TerraForm Power, Inc., Cl A1 14,078,326 14,487,143

TOTAL COMMON STOCKS 1,114,204,080 2,638,756,807

Private Equity Investments (1.59%)

Financials (1.59%)Asset Management & Custody

Banks (1.59%)7,056,223 Windy City

Investments Holdings, L.L.C.1,3,4 34,581,904 42,901,834

Principal Amount

Short Term Investments (0.18%)$4,724,574 Repurchase Agreement with Fixed

Income Clearing Corp., dated 9/30/2014, 0.00% due 10/1/2014; Proceeds at maturity – $4,724,574; (Fully collateralized by $4,820,000 U.S. Treasury Note, 2.125% due 6/30/2021; Market value – $4,820,000) 4,724,574 4,724,574

TOTAL INVESTMENTS (99.85%) $1,153,510,558 $2,686,383,215

CASH AND OTHER ASSETS LESS LIABILITIES (0.15%) 3,911,154

NET ASSETS $2,690,294,369

RETAIL SHARES (Equivalent to $63.75 per share based on 31,381,751 shares outstanding) $2,000,486,489

INSTITUTIONAL SHARES (Equivalent to $64.87 per share based on 10,634,393 shares outstanding) $ 689,807,880

% Represents percentage of net assets.1 Non-income producing securities.2 Foreign corporation.3 At September 30, 2014, the market value of restricted and fair valued securities

amounted to $42,901,834 or 1.59% of net assets. This security is not deemedliquid.

4 The Adviser has reclassified/classified certain securities in or out of this sub-industry. Such reclassifications/classifications are not supported by S&P or MSCI.

Baron Asset Fund — PORTFOLIO HOLDINGS (Continued)

September 30, 2014 (Unaudited)Shares Cost ValueShares Cost Value

90

Baron Funds

Baron Growth Fund — PORTFOLIO HOLDINGS




Luxury Goods (3.51%)3,950,000 Under Armour, Inc., Cl A1 $ 31,205,806 $ 272,945,000

Automotive Retail (0.39%)750,000 Penske Automotive Group, Inc. 13,032,059 30,442,500

Casinos & Gaming (1.50%)3,870,620 Penn National Gaming, Inc.1 33,038,240 43,389,6502,900,000 Pinnacle Entertainment, Inc.1 47,133,881 72,761,000

80,172,121 116,150,650

Distributors (1.08%)3,150,000 LKQ Corp.1 18,206,418 83,758,500

Education Services (2.67%)2,257,170 Bright Horizons Family

Solutions, Inc.1 74,787,601 94,936,5701,700,000 DeVry Education Group, Inc. 24,625,717 72,777,0002,346,098 Nord Anglia Education Inc.1,2 44,911,032 39,883,666

144,324,350 207,597,236

Home Improvement Retail (0.87%)

1,180,000 Lumber Liquidators Holdings, Inc.1 27,982,185 67,708,400


3,007,500 Choice Hotels International, Inc.4 73,061,456 156,390,000271,739 Diamond Resorts

International, Inc.1 3,804,346 6,184,7802,638,652 Interval Leisure Group, Inc. 49,668,667 50,266,3201,450,000 Marriott Vacations

Worldwide Corp.1 78,402,844 91,944,500

204,937,313 304,785,600

Internet Retail (0.61%)15,425,000 AO World plc (United Kingdom)1,2 75,665,968 47,011,734

Leisure Facilities (2.69%)386,111 ClubCorp Holdings, Inc. 6,820,605 7,656,581

2,064,800 Vail Resorts, Inc.4 59,870,980 179,142,0481,358,700 Whistler Blackcomb Holdings,

Inc. (Canada)2 15,542,103 22,322,497

82,233,688 209,121,126

Leisure Products (0.08%)300,000 BRP, Inc. (Canada)1,2 6,242,137 6,479,754

Movies & Entertainment (1.96%)2,300,000 DreamWorks Animation

SKG, Inc., Cl A1 62,895,758 62,721,0005,422,299 Manchester United plc, Cl A1,2 76,721,822 89,359,487

139,617,580 152,080,487

Publishing (1.03%)1,175,000 Morningstar, Inc. 25,213,450 79,782,500

Restaurants (0.94%)450,000 Panera Bread Co., Cl A1 15,602,751 73,224,000

Specialty Stores (2.54%)800,000 The Container Store Group, Inc.1 26,176,648 17,416,000

4,100,000 Dick’s Sporting Goods, Inc. 69,383,822 179,908,000

95,560,470 197,324,000

Total Consumer Discretionary 959,996,296 1,848,411,487


Consumer Staples (5.60%)Brewers (0.58%)

201,400 The Boston Beer Co., Inc., Cl A1 $ 29,104,380 $ 44,662,464

Food Distributors (1.81%)2,290,237 United Natural Foods, Inc.1 98,857,949 140,757,966

Household Products (1.35%)1,500,000 Church & Dwight Co., Inc. 27,340,827 105,240,000

Packaged Foods & Meats (1.86%)

1,800,000 TreeHouse Foods, Inc.1 85,049,691 144,900,000

Total Consumer Staples 240,352,847 435,560,430



Oil & Gas Equipment & Services (1.46%)

575,000 Core Laboratories N.V.2 13,267,301 84,151,250390,625 SEACOR Holdings, Inc.1 11,947,768 29,218,750

25,215,069 113,370,000


247,191 Oasis Petroleum, Inc.1 3,460,674 10,335,0561,350,000 RSP Permian, Inc.1 28,134,457 34,506,000

400,000 SM Energy Co. 13,315,693 31,200,000

44,910,824 76,041,056


1,562,103 Atlas Energy, L.P. 68,036,843 68,732,53270,000 MPLX LP 1,540,000 4,125,800

1,200,000 Targa Resources Corp. 36,086,844 163,404,000

105,663,687 236,262,332

Total Energy 192,550,475 499,075,888

Financials (14.62%)Asset Management &

Custody Banks (3.64%)1,994,899 The Carlyle Group 43,767,989 60,764,6242,175,000 Cohen & Steers, Inc. 57,433,262 83,607,0002,204,712 Financial Engines, Inc. 63,157,081 75,434,2211,230,195 Oaktree Capital Group, LLC 53,958,848 62,862,964

218,317,180 282,668,809

Diversified REITs (0.30%)712,000 American Assets Trust, Inc. 13,782,555 23,474,640

Hotel & Resort REITs (0.73%)1,650,000 LaSalle Hotel Properties 38,657,293 56,496,000

Life & Health Insurance (1.68%)2,700,000 Primerica, Inc. 65,591,464 130,194,000

Office REITs (1.77%)135,000 Alexander’s, Inc.5 28,435,048 50,477,850

3,400,000 Douglas Emmett, Inc. 42,596,064 87,278,000

71,031,112 137,755,850


3,950,000 Arch Capital Group Ltd.1,2 38,581,866 216,144,000

Shares Cost Value Shares Cost Value

Baron Growth Fund — PORTFOLIO HOLDINGS (Continued)

September 30, 2014 (Unaudited)


Financials (continued)Residential REITs (0.29%)

625,000 American Campus Communities, Inc. $ 15,885,634 $ 22,781,250

Specialized Finance (1.30%)2,150,000 MSCI, Inc.1 42,521,078 101,093,000

Specialized REITs (2.13%)775,000 Alexandria Real Estate

Equities, Inc.5 29,095,131 57,156,2503,496,074 Gaming and Leisure

Properties, Inc. 89,454,329 108,028,687

118,549,460 165,184,937

Total Financials 622,917,642 1,135,792,486

Health Care (8.37%)Biotechnology (0.14%)

450,000 Acadia Pharmaceuticals, Inc.1 10,327,523 11,142,000

Health Care Equipment (1.89%)400,000 Edwards Lifesciences Corp.1 5,349,910 40,860,000900,000 IDEXX Laboratories, Inc.1 28,558,026 106,047,000

33,907,936 146,907,000

Health Care Facilities (2.43%)275,000 Brookdale Senior Living, Inc.1 5,469,421 8,860,500

3,250,000 Community Health Systems, Inc.1 59,187,483 178,067,50050,000 VCA, Inc.1 894,350 1,966,500

65,551,254 188,894,500

Health Care Services (0.09%)150,000 IPC The Hospitalist Co., Inc.1 3,121,418 6,718,500

Health Care Supplies (0.81%)365,038 Neogen Corp.1 8,075,677 14,419,001

1,077,686 West Pharmaceutical Services, Inc. 37,684,652 48,237,225

45,760,329 62,656,226

Health Care Technology (0.14%)828,286 Castlight Health, Inc., Cl B1 4,999,998 10,718,021


550,000 Mettler-Toledo International, Inc.1 27,486,940 140,871,500880,943 TECHNE Corp. 46,631,249 82,412,218

74,118,189 223,283,718


Industrials (15.51%)Building Products (1.74%)

1,398,500 Masonite International Corp.1,2 78,148,438 77,448,9301,670,000 Trex Co., Inc.1,4 62,696,594 57,731,900

140,845,032 135,180,830

Construction & Engineering (0.68%)

2,125,000 Badger Daylighting Ltd. (Canada)2,4 74,719,832 52,975,579

Diversified Support Services (1.14%)

2,825,000 Copart, Inc.1 33,749,595 88,464,875


Industrials (continued)Electrical Components &

Equipment (1.46%)2,800,000 Generac Holdings, Inc.1 $ 13,836,546 $ 113,512,000

Industrial Machinery (5.28%)2,315,480 Colfax Corp.1 53,608,386 131,912,8952,550,000 The Middleby Corp.1 74,456,718 224,731,500

400,000 Valmont Industries, Inc. 32,589,034 53,972,000

160,654,138 410,616,395

Railroads (2.45%)2,000,000 Genesee & Wyoming, Inc., Cl A1 32,221,169 190,620,000


434,047 The Advisory Board Co.1 22,334,765 20,222,250375,000 IHS, Inc., Cl A1 15,320,116 46,946,250315,000 Mistras Group, Inc.1 3,927,500 6,426,000

41,582,381 73,594,500


2,000,000 Air Lease Corp. 47,523,424 65,000,000485,000 MSC Industrial Direct

Co., Inc., Cl A 17,282,737 41,448,100

64,806,161 106,448,100

Trucking (0.44%)475,000 Landstar System, Inc. 11,073,375 34,290,250

Total Industrials 573,488,229 1,205,702,529


2,109,430 Advent Software, Inc. 30,369,321 66,573,6111,850,000 ANSYS, Inc.1 44,326,673 139,989,5001,000,000 Bottomline

Technologies (de), Inc.1 27,500,934 27,590,000825,000 Concur Technologies, Inc.1 18,214,873 104,626,500

1,600,000 FactSet Research Systems, Inc. 80,624,740 194,448,0001,173,796 Guidewire Software, Inc.1 37,834,851 52,046,1152,639,211 Pegasystems, Inc. 40,047,948 50,435,3223,087,713 SS&C Technologies

Holdings, Inc.1 52,369,848 135,519,723

331,289,188 771,228,771


3,000,000 MAXIMUS, Inc. 57,528,621 120,390,000

Electronic Equipment & Instruments (0.63%)

650,000 FEI Company 24,367,636 49,023,000


1,260,965 Benefitfocus, Inc.1 57,123,279 33,970,397999,653 CoStar Group, Inc.1 44,116,616 155,486,028350,000 Shutterstock, Inc.1 23,390,762 24,983,000

124,630,657 214,439,425IT Consulting & Other

Services (3.82%)3,825,000 Booz Allen Hamilton

Holding Corp. 48,391,210 89,505,0002,825,000 Gartner, Inc.1 45,240,023 207,552,750

93,631,233 297,057,750

Total Information Technology 631,447,335 1,452,138,946

91

Baron Funds

92

Baron Funds

Baron Growth Fund — PORTFOLIO HOLDINGS (Continued)



Materials (1.15%)Construction Materials (1.15%)

1,725,000 CaesarStone Sdot Yam Ltd.1,2 $ 31,551,799 $ 89,148,000

Telecommunication Services (0.85%)Alternative Carriers (0.85%)

7,493,437 Iridium Communications Inc.1,4 45,709,971 66,316,917

Utilities (3.06%)Electric Utilities (3.06%)

6,675,000 ITC Holdings Corp. 68,680,650 237,830,250


Preferred Stocks (0.18%)


41,074 Iridium Communications Inc., Series B, 6.75%4 10,268,500 13,989,394



Custody Banks (0.19%)2,375,173 Windy City Investments

Holdings, L.L.C.1,3,5 8,630,998 14,441,055

Rights (0.00%)

Materials (0.00%)Fertilizers & Agricultural

Chemicals (0.00%)393,349 Agrinos AS (Mexico)

Exp 7/15/20151,2,3 0 9,184

Short Term Investments (1.48%)

Repurchase Agreement (1.48%)$114,786,433 Repurchase Agreement

with Fixed Income Clearing Corp., dated 9/30/2014, 0.00% due 10/1/2014; Proceeds at maturity – $114,786,433; (Fully collateralized by $118,870,000 U.S. Treasury Note, 0.625% due 9/30/2017; Market value – $117,086,950) $ 114,786,433 $ 114,786,433

TOTAL INVESTMENTS (99.91%) $3,738,167,822 7,763,522,964


NET ASSETS $7,770,636,637

RETAIL SHARES (Equivalent to $70.46 per share based on 57,847,669 shares

outstanding) $4,076,139,936

INSTITUTIONAL SHARES (Equivalent to $71.33 per share based on 51,795,804 shares outstanding) $3,694,496,701

% Represents percentage of net assets.1 Non-income producing securities.2 Foreign corporation.3 At September 30, 2014, the market value of restricted and fair valued

securities amounted to $14,450,239 or 0.19% of net assets. None of thesesecurities are deemed liquid.

4 An “Affiliated” investment may include any company in which the Fund owns5% or more of its outstanding shares.

5 The Adviser has reclassified/classified certain securities in or out of this sub-industry. Such reclassifications/classifications are not supported by S&P orMSCI.

Shares Cost Value Principal Amount Cost Value

9393

Baron Funds


Baron Small Cap Fund — PORTFOLIO HOLDINGS

SEPTEMBER 30, 2014 (Unaudited)


Consumer Discretionary (18.94%)Advertising (0.21%)

750,000 National CineMedia, Inc. $ 7,580,159 $ 10,882,500

Apparel, Accessories & Luxury Goods (3.45%)

650,000 Fossil Group, Inc.1 15,294,653 61,035,0002,000,000 Iconix Brand Group, Inc.1 29,279,689 73,880,0002,000,000 Tumi Holdings, Inc.1 40,068,737 40,700,000

175,000 Vince Holding Corp.1 3,500,000 5,295,500

88,143,079 180,910,500

Broadcasting (1.61%)600,000 Liberty Media Corp., Cl A1 2,409,940 28,308,000

1,200,000 Liberty Media Corp., Cl C1 4,728,063 56,388,000

7,138,003 84,696,000

Casinos & Gaming (1.53%)3,000,000 Penn National Gaming, Inc.1 17,926,778 33,630,000

250,000 Wynn Resorts Ltd. 635,920 46,770,000

18,562,698 80,400,000

Education Services (2.69%)2,347,847 Bright Horizons Family

Solutions, Inc.1 80,059,684 98,750,4452,500,000 Nord Anglia Education Inc.1,2 43,906,142 42,500,000

123,965,826 141,250,445


800,000 Lumber Liquidators Holdings, Inc.1 16,184,259 45,904,000

Homefurnishing Retail (1.60%)1,400,000 Mattress Firm Holding Corp.1 35,360,733 84,084,000

Internet Retail (1.52%)2,250,000 HomeAway, Inc.1 54,558,103 79,875,000

Movies & Entertainment (1.93%)1,250,000 The Madison Square

Garden Co., Cl A1 31,872,245 82,650,0003,750,000 SFX Entertainment, Inc.1 26,066,093 18,825,000

57,938,338 101,475,000

Restaurants (2.75%)950,000 BJ’s Restaurants, Inc.1 34,185,457 34,190,500

1,500,000 The Cheesecake Factory, Inc. 34,778,285 68,250,0002,200,000 Del Frisco’s Restaurant

Group, Inc.1,4 45,703,147 42,108,000

114,666,889 144,548,500

Specialty Stores (0.77%)1,850,000 The Container Store Group, Inc.1 60,559,626 40,274,500


Consumer Staples (2.39%)Food Distributors (2.32%)

2,000,000 The Chefs’ Warehouse, Inc.1,4 32,011,792 32,520,0001,450,000 United Natural Foods, Inc.1 62,683,145 89,117,000

94,694,937 121,637,000

Food Retail (0.07%)1,000,000 Fairway Group Holdings Corp.1 15,538,462 3,740,000



Energy (8.93%)Oil & Gas Equipment &

Services (1.99%)400,000 Core Laboratories N.V.2 $ 15,025,706 $ 58,540,000

1,500,000 Forum Energy Technologies, Inc.1 30,924,862 45,915,000

45,950,568 104,455,000


250,000 Athlon Energy Inc.1 5,065,711 14,557,500650,000 Bonanza Creek Energy, Inc.1 21,498,889 36,985,000400,000 Oasis Petroleum, Inc.1 5,600,000 16,724,000

32,164,600 68,266,500


800,000 PBF Logistics LP4 20,465,744 20,256,000750,000 Phillips 66 Partners LP 20,967,947 50,062,500

5,000,000 Scorpio Tankers Inc.2 42,287,905 41,550,000750,000 Targa Resources Corp. 17,965,719 102,127,500225,000 Tesoro Logistics LP 9,382,500 15,923,250700,000 Valero Energy Partners LP 18,277,032 31,241,000

1,000,000 Western Refining Logistics, LP 23,110,967 34,820,000

152,457,814 295,980,250

Total Energy 230,572,982 468,701,750


Custody Banks (2.14%)750,000 Artisan Partners Asset

Management, Inc., Cl A 28,955,338 39,037,5002,150,000 Financial Engines, Inc. 48,440,910 73,562,250

77,396,248 112,599,750

Hotel & Resort REITs (1.81%)1,500,000 Chesapeake Lodging Trust 25,744,737 43,725,0001,500,000 LaSalle Hotel Properties 34,882,419 51,360,000

60,627,156 95,085,000


700,000 Moelis & Co., Cl A 17,573,577 23,905,000

Office REITs (0.68%)350,000 SL Green Realty Corp. 7,505,834 35,462,000

Real Estate Services (0.85%)1,500,000 CBRE Group, Inc., Cl A1 7,261,912 44,610,000

Specialized REITs (1.62%)2,750,000 Gaming and Leisure

Properties, Inc. 54,474,530 84,975,000

Thrifts & Mortgage Finance (0.71%)

1,750,000 Essent Group, Ltd.1,2 36,314,929 37,467,500



750,000 Cepheid1 24,504,439 33,022,500

Health Care Distributors (0.82%)288,997 MWI Veterinary Supply, Inc.1 40,722,450 42,887,155

94

Baron Funds

94

Baron Small Cap Fund — PORTFOLIO HOLDINGS (Continued)

SEPTEMBER 30, 2014 (Unaudited)Shares Cost Value Shares Cost Value


Health Care (continued)Health Care Equipment (2.92%)

1,250,000 DexCom, Inc.1 $ 17,100,777 $ 49,987,500314,672 HeartWare International, Inc.1 30,953,155 24,427,987670,922 IDEXX Laboratories, Inc.1 21,699,129 79,054,739

69,753,061 153,470,226

Health Care Facilities (2.27%)3,697,500 Brookdale Senior Living, Inc.1 72,282,888 119,133,450


300,000 Covance, Inc.1 10,515,514 23,610,0001,350,000 ICON plc1,2 43,388,030 77,260,500

250,000 Mettler-Toledo International, Inc.1 14,245,819 64,032,500

68,149,363 164,903,000

Managed Health Care (0.42%)1,214,887 HealthEquity, Inc.1 21,337,494 22,244,581

Pharmaceuticals (0.48%)1,000,000 Catalent, Inc.1 20,462,087 25,030,000


Industrials (17.03%)Aerospace & Defense (4.97%)

2,250,000 DigitalGlobe, Inc.1 66,689,631 64,125,0001,950,000 The KEYW Holding Corp.1,4 20,680,495 21,586,500

950,000 TransDigm Group, Inc.1 2,279,326 175,113,500

89,649,452 260,825,000

Electrical Components & Equipment (2.08%)

825,000 Acuity Brands, Inc. 44,094,137 97,110,750350,000 Franklin Electric Co., Inc. 13,080,427 12,159,000

57,174,564 109,269,750

Environmental & Facilities Services (3.39%)

1,050,000 Clean Harbors, Inc.1 26,906,827 56,616,0002,500,000 Waste Connections, Inc. 44,418,371 121,300,000

71,325,198 177,916,000

Human Resource & Employment Services (1.12%)

2,200,000 On Assignment, Inc.1 57,561,580 59,070,000

Industrial Machinery (2.93%)350,000 Graco, Inc. 7,828,497 25,543,000750,000 Nordson Corp. 22,985,460 57,052,500

2,500,000 Rexnord Corp.1 47,210,825 71,125,000

78,024,782 153,720,500

Office Services & Supplies (0.45%)

1,451,700 Interface, Inc. 19,551,250 23,430,438

Railroads (1.45%)800,000 Genesee & Wyoming, Inc., Cl A1 21,723,581 76,248,000


725,000 The Advisory Board Co.1 37,252,738 33,777,750




4,000,000 ACI Worldwide, Inc.1 $ 49,698,528 $ 75,040,0002,150,000 Advent Software, Inc. 32,757,573 67,854,0001,500,000 Guidewire Software, Inc.1 40,880,643 66,510,000

700,000 The Ultimate Software Group, Inc.1 17,611,027 99,057,000

140,947,771 308,461,000


950,000 FleetCor Technologies, Inc.1 23,597,570 135,014,000650,000 WEX Inc.1 30,423,456 71,708,000

54,021,026 206,722,000

Electronic Components (0.63%)1,250,000 Knowles Corp.1 36,529,755 33,125,000


1,400,000 Cognex Corp.1 22,631,628 56,378,000708,767 Coherent, Inc.1 34,030,133 43,497,031850,000 FEI Company 33,259,652 64,107,000

89,921,413 163,982,031


850,000 comScore, Inc.1 27,834,214 30,948,500300,000 GrubHub, Inc.1 7,800,000 10,272,000

35,634,214 41,220,500

IT Consulting & Other Services (5.16%)

1,250,000 Acxiom Corp.1 28,143,704 20,687,500400,000 Equinix, Inc.1,5 23,435,720 84,992,000

2,250,000 Gartner, Inc.1 41,942,703 165,307,500

93,522,127 270,987,000

Systems Software (0.53%)2,300,000 Rally Software Development

Corp.1,4 51,687,216 27,623,000

Total Information Technology 502,263,522 1,052,120,531

Materials (6.48%)Commodity Chemicals (0.41%)

750,000 Westlake Chemical Partners LP1 20,498,030 21,750,000

Diversified Metals & Mining (1.38%)

4,000,000 Globe Specialty Metals, Inc.4 46,608,066 72,760,000

Metal & Glass Containers (2.16%)4,500,000 Berry Plastics Group, Inc.1 75,853,854 113,580,000

Specialty Chemicals (1.72%)1,536,702 Flotek Industries, Inc.1 31,308,937 40,061,8212,000,000 Platform Specialty Products Corp.1 32,710,834 50,040,000

64,019,771 90,101,821

Steel (0.81%)1,000,000 SunCoke Energy, Inc.1 16,688,469 22,450,000

675,000 SunCoke Energy Partners LP 16,008,489 19,865,250

32,696,958 42,315,250

Total Materials 239,676,679 340,507,071

9595

Baron Funds

Shares Cost Value

Baron Small Cap Fund — PORTFOLIO HOLDINGS (Continued)

SEPTEMBER 30, 2014 (Unaudited)Principal Amount Cost Value



Services (5.20%)148,323,290 Sarana Menara Nusantara

Tbk PT (Indonesia)1,2 $ 30,976,387 $ 51,124,9752,000,000 SBA Communications

Corp., Cl A1 10,934,506 221,800,000

Total Telecommunication Services 41,910,893 272,924,975


675,000 ITC Holdings Corp. 9,427,959 24,050,250

Renewable Electricity (0.24%)363,937 Abengoa Yield plc1,2 10,554,173 12,948,879

Total Utilities 19,982,132 36,999,129


Warrants (0.00%)

Information Technology (0.00%)Internet Software &

Services (0.00%)6,818 Viggle, Inc. Warrants,

Non-Callable Exp 4/27/20151,3 0 0

Short Term Investments (1.27%)

Repurchase Agreement (1.27%)$66,444,603 Repurchase Agreement with

Fixed Income Clearing Corp., dated 9/30/2014, 0.00% due 10/1/2014; Proceeds at maturity – $66,444,603; (Fully collateralized by $67,775,000 U.S. Treasury Note, 2.125% due 6/30/2021; Market value – $67,775,000) $ 66,444,603 $ 66,444,603



NET ASSETS $5,250,220,369


INSTITUTIONAL SHARES (Equivalent to $34.16 per share based on 60,224,681 shares outstanding) $2,057,389,636


amounted to $0 or 0.00% of net assets. This security is not deemed liquid.4 An “Affiliated” investment may include any company in which the Fund owns 5%

or more of its outstanding shares.5 The Adviser has reclassified/classified certain securities in or out of this sub-

industry. Such reclassifications/classifications are not supported by S&P or MSCI.

Baron Funds

96

Baron Opportunity Fund — PORTFOLIO HOLDINGS




Luxury Goods (2.12%)49,000 Fossil Group, Inc.1 $ 3,881,007 $ 4,601,10068,500 Under Armour, Inc., Cl A1 1,729,304 4,733,350

5,610,311 9,334,450

Automobile Manufacturers (2.04%)37,000 Tesla Motors, Inc.1 7,579,282 8,979,160


Broadcasting (3.63%)161,000 Discovery Communications, Inc.,

Series C1 2,928,767 6,002,08071,000 Liberty Media Corp., Cl A1 1,624,557 3,349,780

142,000 Liberty Media Corp., Cl C1 3,187,220 6,672,580

7,740,544 16,024,440

Homefurnishing Retail (1.41%)78,000 Restoration Hardware Holdings, Inc.1 4,697,026 6,204,900

Internet Retail (8.93%)1,475,000 AO World plc (United Kingdom)1,2 6,997,726 4,495,449

218,222 HomeAway, Inc.1 5,909,118 7,746,881164,500 Liberty TripAdvisor Holdings, Inc., Cl A1 5,109,549 5,576,550164,500 Liberty Ventures Group, Series A1 5,065,775 6,244,420

16,000 Netflix, Inc.1 4,093,783 7,218,8806,950 The Priceline Group, Inc.1 1,120,974 8,052,131

28,296,925 39,334,311

Movies & Entertainment (1.89%)504,740 Manchester United plc, Cl A1,2 8,493,720 8,318,115


Energy (4.72%)Oil & Gas Exploration &

Production (3.43%)71,000 Concho Resources, Inc.1 7,054,056 8,902,690

148,881 Oasis Petroleum, Inc.1 3,555,959 6,224,715

10,610,015 15,127,405


85,700 Golar LNG Ltd.2 2,888,582 5,690,480

Total Energy 13,498,597 20,817,885


138,500 Cepheid1 4,763,108 6,098,155

Health Care Supplies (1.01%)167,500 The Spectranetics Corporation1 4,807,065 4,450,475

Health Care Technology (3.80%)50,500 Athenahealth, Inc.1 7,058,357 6,650,345

248,486 Castlight Health, Inc., Cl B1 1,500,001 3,215,409155,500 Medidata Solutions, Inc.1 7,993,260 6,887,095

16,551,618 16,752,849


125,115 Illumina, Inc.1 5,960,026 20,508,851


Health Care (continued)Managed Health Care (0.54%)

129,454 HealthEquity, Inc.1 $ 2,314,994 $ 2,370,302

Pharmaceuticals (1.02%)46,500 Pacira Pharmaceuticals, Inc.1 2,917,501 4,506,780



275,046 DigitalGlobe, Inc.1 7,908,913 7,838,811

Industrial Machinery (1.79%)89,500 The Middleby Corp.1 5,152,328 7,887,635


50,700 IHS, Inc., Cl A1 4,746,027 6,347,133222,000 Verisk Analytics, Inc., Cl A1 11,277,858 13,517,580

16,023,885 19,864,713



127,150 ANSYS, Inc.1 4,076,156 9,621,44065,500 Concur Technologies, Inc.1 5,779,935 8,306,710

378,500 Guidewire Software, Inc.1 11,655,881 16,782,69072,905 Mobileye N.V.1,2 1,822,625 3,906,97971,500 Workday, Inc., Cl A1 5,872,396 5,898,750

29,206,993 44,516,569


80,956 Alibaba Group Holding Ltd., ADR1,2 6,826,113 7,192,941286,714 Benefitfocus, Inc.1 13,376,296 7,724,075185,000 comScore, Inc.1 5,863,111 6,735,850

63,000 Cornerstone OnDemand, Inc.1 2,325,087 2,167,83061,000 CoStar Group, Inc.1 3,170,159 9,487,940

116,500 Facebook Inc., Cl A1 7,914,777 9,208,1602,366,182 Just Eat plc (United Kingdom)1,2 10,174,849 11,316,012

29,000 LinkedIn Corp., Cl A1 5,372,914 6,025,910201,500 Pandora Media, Inc.1 4,870,305 4,868,240164,492 Shutterstock, Inc.1 7,396,725 11,741,439139,000 Twitter, Inc.1 5,486,404 7,169,620201,000 Xoom Corp.1 5,039,480 4,411,950

38,000 Zillow, Inc., Cl A1 2,693,395 4,407,620

80,509,615 92,457,587

IT Consulting & Other Services (9.46%)400,575 Acxiom Corp.1 6,628,095 6,629,516

65,000 Equinix, Inc.1,3 4,215,661 13,811,200289,144 Gartner, Inc.1 7,006,185 21,243,410

17,849,941 41,684,126

Semiconductors (1.54%)151,500 Mellanox Technologies Ltd.1,2 6,416,650 6,797,805

Systems Software (4.92%)229,000 Qualys, Inc.1 4,782,892 6,091,400277,500 Red Hat, Inc.1 14,461,717 15,581,625

19,244,609 21,673,025


97

Baron Funds



145,569 CaesarStone Sdot-Yam Ltd.1,2 $ 4,814,479 $ 7,523,006

Specialty Chemicals (1.26%)214,000 Flotek Industries, Inc.1 6,032,088 5,578,980

Total Materials 10,846,567 13,101,986

Baron Opportunity Fund — PORTFOLIO HOLDINGS (Continued)




Services (3.45%)137,000 SBA Communications Corp., Cl A1 $ 1,706,613 $ 15,193,300

TOTAL INVESTMENTS (101.08%) $315,023,656 445,324,017

LIABILITIES LESS CASH AND OTHER ASSETS (-1.08%) (4,768,512)

NET ASSETS $440,555,505

RETAIL SHARES (Equivalent to $18.61 per share based on 17,801,842 shares outstanding) $331,220,990

INSTITUTIONAL SHARES (Equivalent to $18.89 per share based on 5,787,882 shares outstanding) $109,334,515

% Represents percentage of net assets.1 Non-income producing securities.2 Foreign corporation.3 The Adviser has reclassified/classified certain securities in or out of this sub-

industry. Such reclassifications/classifications are not supported by S&P or MSCI.ADR American Depositary Receipt.

9898

Baron Funds

Baron Partners Fund — PORTFOLIO HOLDINGS



Consumer Discretionary (39.93%)Automobile Manufacturers (10.70%)

800,000 Tesla Motors, Inc.1 $ 171,881,321 $ 194,144,000

Automotive Retail (5.12%)2,000,000 CarMax, Inc.1 69,489,756 92,900,000

Broadcasting (1.65%)400,000 Discovery

Communications, Inc., Cl A1 4,415,713 15,120,000400,000 Discovery

Communications, Inc., Cl C1 4,339,942 14,912,000

8,755,655 30,032,000

Hotels, Resorts & Cruise Lines (8.34%)2,500,000 Hyatt Hotels Corp., Cl A1 67,148,542 151,300,000

Leisure Facilities (4.43%)925,800 Vail Resorts, Inc. 27,801,851 80,322,408

Movies & Entertainment (4.61%)5,082,348 Manchester United plc, Cl A1,2 86,803,929 83,757,095

Specialty Stores (5.08%)2,100,000 Dick’s Sporting Goods, Inc. 58,896,964 92,148,000





800,000 Concho Resources, Inc.1 66,533,353 100,312,000

Total Energy 90,638,118 168,821,000


Custody Banks (5.58%)3,325,000 The Carlyle Group 88,969,023 101,279,500


3,600,000 The Charles Schwab Corp. 43,979,939 105,804,000

Property & Casualty Insurance (7.39%)2,450,000 Arch Capital Group Ltd.1,2 33,071,318 134,064,000

Specialized REITs (3.79%)2,225,000 Gaming and Leisure Properties, Inc. 72,902,128 68,752,500


Health Care (6.85%)Health Care Equipment (4.26%)

150,000 Edwards Lifesciences Corp.1 10,009,100 15,322,500525,000 IDEXX Laboratories, Inc.1 45,812,786 61,860,750

55,821,886 77,183,250

Life Sciences Tools & Services (2.59%)287,000 Illumina, Inc.1 15,671,895 47,045,040


Industrials (16.09%)Industrial Machinery (1.22%)

251,687 The Middleby Corp.1 19,491,302 22,181,175


1,500,000 Verisk Analytics, Inc., Cl A1 40,826,578 91,335,000


Industrials (continued)Trading Companies & Distributors (9.84%)

3,004,866 Air Lease Corp. $ 101,578,986 $ 97,658,1451,800,000 Fastenal Co. 31,516,561 80,820,000

133,095,547 178,478,145



685,000 FactSet Research Systems, Inc. 39,877,102 83,248,050425,000 Mobileye N.V.1,2 12,339,087 22,775,750

52,216,189 106,023,800

Internet Software & Services (9.00%)1,050,000 CoStar Group, Inc.1 105,112,240 163,317,000

IT Consulting & Other Services (2.63%)649,000 Gartner, Inc.1 41,264,138 47,682,030



4,100,000 ITC Holdings Corp. 41,833,832 146,083,000




Custody Banks (2.54%)7,579,130 Windy City Investments

Holdings, L.L.C.1,3,4 41,134,888 46,081,111

Principal Amount

Short Term Investments (0.02%)$302,481 Repurchase Agreement with

Fixed Income Clearing Corp., dated 9/30/2014, 0.00% due 10/1/2014; Proceeds at maturity – $302,481; (Fully collateralized by $310,000 U.S. Treasury Note, 2.125% due 6/30/2021; Market value – $310,000) 302,481 302,481



NET ASSETS $1,814,624,226




amounted to $46,081,111 or 2.54% of net assets. This security is not deemedliquid.

4 The Adviser has reclassified/classified certain securities in or out of this sub-industry. Such reclassifications/classifications are not supported by S&P or MSCI.

999999

Baron Funds

Baron Fifth Avenue Growth Fund — PORTFOLIO HOLDINGS



Consumer Discretionary (25.64%)Apparel, Accessories & Luxury

Goods (2.20%)14,613 Ralph Lauren Corp. $ 2,327,673 $ 2,407,199

Broadcasting (2.00%)15,441 Liberty Media Corp., Cl A1 284,347 728,50630,882 Liberty Media Corp., Cl C1 557,861 1,451,145

842,208 2,179,651

Casinos & Gaming (6.51%)44,622 Las Vegas Sands Corp. 2,424,979 2,775,93523,175 Wynn Resorts Ltd. 2,745,410 4,335,579

5,170,389 7,111,514

Internet Retail (9.34%)16,660 Amazon.com, Inc.1 3,731,084 5,371,850

4,168 The Priceline Group, Inc.1 2,747,754 4,828,962

6,478,838 10,200,812

Restaurants (5.59%)51,782 Starbucks Corp. 3,152,385 3,907,47030,502 YUM! Brands, Inc. 1,761,594 2,195,534

4,913,979 6,103,004


Consumer Staples (1.34%)Hypermarkets & Super Centers (1.34%)

11,648 Costco Wholesale Corp. 835,362 1,459,727

Energy (2.14%)Oil & Gas Exploration &

Production (2.14%)18,648 Concho Resources, Inc.1 2,077,154 2,338,273

Financials (4.80%)Diversified Real Estate Activities (2.73%)

66,252 Brookfield Asset Management, Inc., Cl A2 2,102,678 2,978,690

Specialized Finance (2.07%)28,350 CME Group, Inc. 1,414,435 2,266,724



9,967 Alexion Pharmaceuticals, Inc.1 1,448,767 1,652,7286,454 Biogen Idec, Inc.1 1,936,104 2,135,0485,235 Regeneron Pharmaceuticals, Inc.1 1,551,542 1,887,322

4,936,413 5,675,098

Life Sciences Tools & Services (6.41%)42,692 Illumina, Inc.1 1,663,348 6,998,073


Industrials (3.52%)Research & Consulting Services (1.87%)

33,526 Verisk Analytics, Inc., Cl A1 1,392,842 2,041,398

Trading Companies & Distributors (1.65%)40,286 Fastenal Co. 1,188,272 1,808,842



16,306 Mobileye N.V.1,2 407,650 873,838


Information Technology (continued)Data Processing & Outsourced

Services (6.70%)46,400 MasterCard, Inc., Cl A $ 1,803,993 $ 3,429,88818,230 Visa, Inc., Cl A 1,816,915 3,889,735

3,620,908 7,319,623

Internet Software & Services (19.57%)44,636 Alibaba Group Holding Ltd., ADR1,2 3,880,563 3,965,90991,363 Facebook Inc., Cl A1 2,333,912 7,221,331

5,019 Google, Inc., Cl A1 1,256,798 2,953,2306,118 Google, Inc., Cl C1 1,865,800 3,532,2886,126 LinkedIn Corp., Cl A1 507,226 1,272,922

47,123 Twitter, Inc.1 1,481,695 2,430,604

11,325,994 21,376,284

IT Consulting & Other Services (2.70%)13,883 Equinix, Inc.1,3 1,591,750 2,949,860

Semiconductor Equipment (2.64%)29,187 ASML Holding N.V.2 1,960,743 2,884,259

Systems Software (4.25%)3,460 FireEye, Inc.1 69,200 105,738

42,692 Red Hat, Inc.1 2,166,568 2,397,15622,749 VMware, Inc., Cl A1 2,184,136 2,134,766

4,419,904 4,637,660

Technology Hardware, Storage & Peripherals (5.13%)

55,573 Apple, Inc. 2,186,665 5,598,980


Materials (3.94%)Fertilizers & Agricultural Chemicals (3.94%)

38,220 Monsanto Co. 3,345,354 4,300,132

Telecommunication Services (2.44%)Wireless Telecommunication Services (2.44%)

38,000 SoftBank Corp. (Japan)2 2,955,676 2,664,071

TOTAL COMMON STOCKS 67,158,235 106,173,712

Principal Amount




CASH AND OTHER ASSETS LESS LIABILITIES (0.04%) 42,821

NET ASSETS $109,223,898

RETAIL SHARES (Equivalent to $16.83 per share based on 3,161,956 shares outstanding) $ 53,222,589



industry. Such reclassifications/classifications are not supported by S&P or MSCI.ADR American Depositary Receipt.

100100

Baron Funds

Baron Focused Growth Fund — PORTFOLIO HOLDINGS



Consumer Discretionary (39.13%)Automobile Manufacturers (3.14%)

25,000 Tesla Motors, Inc.1 $ 6,296,784 $ 6,067,000


Casinos & Gaming (4.75%)365,509 Pinnacle Entertainment, Inc.1 7,129,578 9,170,621


150,000 Choice Hotels International, Inc. 5,080,139 7,800,000240,000 Hyatt Hotels Corp., Cl A1 7,807,007 14,524,800

12,887,146 22,324,800

Leisure Facilities (6.13%)136,230 Vail Resorts, Inc. 8,272,836 11,819,314

Leisure Products (2.07%)185,000 BRP, Inc. (Canada)1,2 4,626,395 3,995,848

Movies & Entertainment (4.27%)500,000 Manchester United plc, Cl A1,2 7,906,006 8,240,000

Specialty Stores (3.47%)152,500 Dick’s Sporting Goods, Inc. 4,219,565 6,691,700


Consumer Staples (4.32%)Household Products (1.82%)

50,000 Church & Dwight Co., Inc. 1,274,171 3,508,000

Packaged Foods & Meats (2.50%)60,000 TreeHouse Foods, Inc.1 4,162,837 4,830,000





Custody Banks (5.37%)225,000 The Carlyle Group 5,547,079 6,853,500102,595 Financial Engines, Inc. 3,512,265 3,510,288

9,059,344 10,363,788


100,000 Arch Capital Group Ltd.1,2 1,800,056 5,472,000


Industrials (15.98%)Industrial Machinery (5.90%)

200,000 Colfax Corp.1 6,735,985 11,394,000

Railroads (4.45%)90,000 Genesee & Wyoming, Inc., Cl A1 2,791,608 8,577,900


90,000 Verisk Analytics, Inc., Cl A1 2,549,137 5,480,100


120,000 Fastenal Co. 3,138,161 5,388,000




6,500 Concur Technologies, Inc.1 $ 520,021 $ 824,33075,000 FactSet Research Systems, Inc. 5,828,282 9,114,750

101,870 Guidewire Software, Inc.1 4,816,692 4,516,91630,161 Mobileye N.V.1,2 754,025 1,616,328

11,919,020 16,072,324

Internet Software & Services (6.76%)100,000 Benefitfocus, Inc.1 2,740,461 2,694,000

66,500 CoStar Group, Inc.1 12,236,395 10,343,410

14,976,856 13,037,410



105,000 CaesarStone Sdot-Yam Ltd.1,2 4,611,409 5,426,400

Industrial Gases (2.01%)35,000 Airgas, Inc. 2,176,188 3,872,750

Total Materials 6,787,597 9,299,150






22,300 Iridium Communications Inc., Series B, 6.75% 5,814,082 7,595,157



NET ASSETS $192,967,192



% Represents percentage of net assets.1 Non-income producing securities.2 Foreign corporation.

101101

Baron Funds


Baron International Growth Fund — PORTFOLIO HOLDINGS



Australia (2.95%)105,000 Brambles Ltd. $ 913,020 $ 875,200

45,869 Domino’s Pizza Enterprises Ltd. 337,258 1,053,413

Total Australia 1,250,278 1,928,613

Brazil (8.40%)63,051 Cetip SA - Mercados Organizados 745,750 780,490

165,300 GOL Linhas Aéras Inteligentes SA, ADR1 947,465 795,093322,072 Kroton Educacional SA 822,255 2,023,682

70,000 Smiles SA 876,904 1,109,59152,000 TOTVS SA 343,786 790,914

Total Brazil 3,736,160 5,499,770

Canada (5.51%)6,600 Constellation Software, Inc. 965,153 1,658,854

25,000 Crescent Point Energy Corp. 1,063,397 902,27329,000 Suncor Energy, Inc. 1,048,283 1,048,350

Total Canada 3,076,833 3,609,477

China (5.62%)7,800 Alibaba Group Holding Ltd., ADR1 634,636 693,030

51,171 Biostime International Holdings Ltd. 247,483 160,139474,971 Haitong Securities Co., Ltd., Cl H 700,465 732,809

2,500,000 Kingdee International Software Group Co. Ltd.1 340,555 737,297

25,500 Perfect World Co. Ltd., ADR 551,840 502,09557,500 Tencent Holdings Ltd. 101,016 853,816

Total China 2,575,995 3,679,186

France (4.36%)5,500 Eurofins Scientific SE 333,103 1,424,090

14,000 Ingenico SA 224,422 1,430,177

Total France 557,525 2,854,267

Germany (11.65%)15,000 Brenntag AG 773,786 737,17935,000 Deutsche Post AG 702,081 1,122,41014,000 Fuchs Petrolub SE 567,653 508,99785,426 PATRIZIA Immobilien AG1 445,649 1,145,87020,000 ProSiebenSat.1 Media AG 946,205 796,985

145,000 RIB Software AG 1,180,019 1,986,17825,000 Symrise AG 313,128 1,331,571

Total Germany 4,928,521 7,629,190

Hong Kong (2.09%)225,000 Luk Fook Holdings International Ltd. 693,588 653,425225,400 Wynn Macau Ltd. 296,122 716,998

Total Hong Kong 989,710 1,370,423

India (3.95%)125,000 Axis Bank Ltd. 581,281 764,451210,000 DEN Networks Ltd.1 546,278 501,198

72,067 Hathway Cable and Datacom Ltd.1 210,644 339,97330,000 Larsen & Toubro Ltd. 613,894 708,34750,000 Sun TV Network Ltd. 357,194 273,761

Total India 2,309,291 2,587,730

Indonesia (2.79%)557,473 Matahari Department Store Tbk PT 692,346 742,306

1,250,000 Sarana Menara Nusantara Tbk PT1 260,297 430,8581,000,000 Tower Bersama Infrastructure Tbk PT 369,228 656,545

Total Indonesia 1,321,871 1,829,709

Ireland (1.47%)17,000 Ryanair Holdings plc, ADR1 412,174 959,310

Israel (5.16%)23,000 Check Point Software Technologies Ltd.1 1,142,649 1,592,52027,000 Mellanox Technologies Ltd.1 1,041,113 1,211,49010,754 Mobileye N.V.1 268,850 576,307

Total Israel 2,452,612 3,380,317


Japan (12.86%)25,000 Bridgestone Corp. $ 480,797 $ 825,62170,000 Daiwa Securities Group, Inc. 679,306 554,575

7,800 FANUC Corp. 708,043 1,408,87232,000 Mitsui Fudosan Co. Ltd. 614,419 980,20580,000 Rakuten, Inc. 1,090,392 921,26730,000 Sanrio Co. Ltd. 919,148 869,84323,500 SoftBank Corp. 794,072 1,647,51835,000 Sony Financial Holdings, Inc. 541,056 566,127

155,000 Sumitomo Mitsui Trust Holdings, Inc. 709,054 645,156

Total Japan 6,536,287 8,419,184

Korea, Republic of (0.89%)14,000 WeMade Entertainment Co., Ltd.1 610,448 583,748

Norway (4.06%)30,000 DNB ASA 473,763 561,73488,200 Opera Software ASA 739,346 1,234,84827,624 Seadrill Partners, LLC 607,728 861,592

Total Norway 1,820,837 2,658,174

Russian Federation (0.51%)12,000 Yandex N.V., Cl A1 315,512 333,540

South Africa (1.41%)193,000 Steinhoff International Holdings Ltd. 875,945 925,079

Spain (2.67%)38,000 Grifols SA, ADR 749,115 1,334,94015,000 Inditex SA 442,569 414,438

Total Spain 1,191,684 1,749,378

Sweden (1.03%)40,000 Lundin Petroleum AB1 635,786 676,829

Switzerland (3.17%)8,500 Compagnie Financière Richemont SA 154,435 697,575

18,067 Julius Baer Group Ltd. 424,785 810,9059,000 Syngenta AG, ADR 408,858 570,330

Total Switzerland 988,078 2,078,810

United Kingdom (10.86%)244,738 AO World plc1 1,111,318 745,903

14,000 Croda International plc 568,133 465,951110,000 Domino’s Pizza Group plc 996,579 1,012,895

38,000 easyJet plc 858,775 876,62140,000 Experian plc 242,809 637,76075,000 Inchcape plc 639,289 783,01616,000 Intertek Group plc 274,140 679,846

230,028 Just Eat plc1 984,807 1,100,084150,000 Premier Oil plc 745,852 809,764

Total United Kingdom 6,421,702 7,111,840

United States (5.49%)26,000 Agilent Technologies, Inc. 710,610 1,481,48015,000 Arch Capital Group Ltd.1 293,022 820,800

3,000 Core Laboratories N.V. 127,140 439,05075,000 Nomad Holdings Ltd.1 749,250 853,125

Total United States 1,880,022 3,594,455


Warrants (0.06%)

United States (0.06%)75,000 Nomad Holdings Ltd.

Warrants Exp 4/10/20171 750 39,000

Principal Amount Cost Value

Baron International Growth Fund — PORTFOLIO HOLDINGS (Continued)


Baron Funds

102

Short Term Investments (3.16%)$2,067,676 Repurchase Agreement with

Fixed Income Clearing Corp., dated 9/30/2014, 0.00% due 10/1/2014; Proceeds at maturity – $2,067,676; (Fully collateralized by $2,110,000 U.S. Treasury Note, 2.125% due 6/30/2021;Market value – $2,110,000) $ 2,067,676 $ 2,067,676


LIABILITIES LESS CASH AND OTHER ASSETS (-0.12%) (81,430)

NET ASSETS $65,484,275



% Represents percentage of net assets.1 Non-income producing securities.ADR American Depositary Receipt.

Summary of Investments by Sector Percentage of as of September 30, 2014 Net Assets

Consumer Discretionary 23.5%Information Technology 23.3Industrials 13.4Financials 12.8Energy 7.2Health Care 6.5Materials 4.4Telecommunication Services 4.2Unclassified 1.4Consumer Staples 0.3Cash and Cash Equivalents* 3.0

100.0%

* Includes short term investments.

103

Baron Funds

Baron Real Estate Fund — PORTFOLIO HOLDINGS



Consumer Discretionary (39.49%)Casinos & Gaming (6.13%)

488,450 Las Vegas Sands Corp. $ 27,061,237 $ 30,386,4741,006,117 Pinnacle Entertainment, Inc.1 17,389,348 25,243,476

189,800 Wynn Resorts Ltd. 23,808,799 35,507,784

68,259,384 91,137,734Home Furnishings (3.10%)

341,857 Mohawk Industries, Inc.1 45,217,233 46,089,161


696,807 Home Depot, Inc. 55,474,422 63,925,074589,700 Lowe’s Companies, Inc. 24,548,621 31,206,924

80,023,043 95,131,998

Homebuilding (4.34%)1,409,400 Brookfield Residential

Properties, Inc.1,2 29,554,965 26,623,5661,160,000 DR Horton, Inc. 24,033,166 23,803,200

452,300 Toll Brothers, Inc.1 15,215,210 14,093,668

68,803,341 64,520,434


1,394,999 Diamond Resorts International, Inc.1 21,440,405 31,750,177

891,748 Extended Stay America, Inc. 19,538,057 21,170,098991,806 Hyatt Hotels Corp., Cl A1 44,536,422 60,024,099178,039 Marriott Vacations Worldwide

Corp.1 8,057,025 11,289,453697,700 Norwegian Cruise Line

Holdings Ltd.1,2 20,198,744 25,131,154942,350 Starwood Hotels &

Resorts Worldwide, Inc. 64,866,096 78,412,943772,900 Wyndham Worldwide Corp. 49,240,935 62,805,854

227,877,684 290,583,778


Energy (0.63%)Oil & Gas Storage &

Transportation (0.63%)271,432 Golar LNG Partners L.P.2 8,618,762 9,424,119

Financials (30.91%)Diversified Real Estate

Activities (1.27%)418,900 Brookfield Asset

Management, Inc., Cl A2 15,497,738 18,833,744

Diversified REITs (1.00%)148,600 Vornado Realty Trust 12,733,743 14,854,056

Hotel & Resort REITs (3.95%)433,500 LaSalle Hotel Properties 11,655,547 14,843,040

1,914,750 Strategic Hotels & Resorts, Inc.1 15,778,605 22,306,8371,565,600 Sunstone Hotel Investors, Inc. 18,867,815 21,636,592

46,301,967 58,786,469Mortgage REITs (1.29%)

706,757 Blackstone Mortgage Trust, Inc., Cl A 19,208,904 19,153,115

Office REITs (3.19%)972,686 CyrusOne, Inc. 20,891,171 23,383,371595,886 Douglas Emmett, Inc. 14,022,825 15,296,394

87,100 SL Green Realty Corp. 7,457,121 8,824,972

42,371,117 47,504,737


Financials (continued)Real Estate Development (1.22%)

120,777 The Howard Hughes Corp.1 $ 14,769,029 $ 18,116,550

Real Estate Operating Companies (3.54%)

1,095,000 Forest City Enterprises, Inc., Cl A1 20,490,487 21,418,2001,764,514 Kennedy Wilson Europe Real

Estate PLC (United Kingdom)2,3 30,440,816 31,237,121

50,931,303 52,655,321Real Estate Services (9.05%)

1,746,500 CBRE Group, Inc., Cl A1 40,266,593 51,940,910413,130 Jones Lang LaSalle, Inc. 40,102,454 52,194,844

1,273,717 Kennedy-Wilson Holdings, Inc. 21,668,645 30,518,259

102,037,692 134,654,013Residential REITs (1.61%)

372,434 American Campus Communities, Inc. 13,242,797 13,575,219

1,016,888 Education Realty Trust, Inc. 9,912,699 10,453,609

23,155,496 24,028,828Retail REITs (1.84%)

108,600 Simon Property Group, Inc. 15,831,422 17,856,012292,800 Tanger Factory Outlet Centers, Inc. 9,543,667 9,580,416

25,375,089 27,436,428Specialized REITs (2.12%)

155,550 Alexandria Real Estate Equities, Inc.3 10,306,502 11,471,813

214,396 American Tower Corp. 16,794,872 20,073,897

27,101,374 31,545,710Thrifts & Mortgage

Finance (0.83%)577,916 Essent Group, Ltd.1,2 11,978,297 12,373,182


Health Care (12.23%)Health Care Facilities (12.23%)

4,180,100 Brookdale Senior Living, Inc.1 113,930,058 134,682,8222,228,063 Capital Senior Living Corp.1,4 48,627,349 47,301,778


Industrials (1.99%)Building Products (1.99%)

2,760,116 Builders FirstSource, Inc.1 18,456,809 15,042,632459,159 Owens Corning 16,996,701 14,578,298


Information Technology (3.13%)IT Consulting & Other

Services (3.13%)219,151 Equinix, Inc.1,3 42,752,632 46,565,204


485,700 CaesarStone Sdot-Yam Ltd.1,2 13,212,735 25,100,976


Services (4.84%)57,211,650 Sarana Menara Nusantara

Tbk PT (Indonesia)1,2 15,144,114 19,720,060269,800 SBA Communications Corp., Cl A1 21,583,639 29,920,820

34,047,909 Tower Bersama Infrastructure Tbk PT (Indonesia)2 17,742,224 22,353,982

Total Telecommunication Services 54,469,977 71,994,862

Shares Cost Value Principal Amount Cost Value

Baron Real Estate Fund — PORTFOLIO HOLDINGS (Continued)


Baron Funds

104



517,800 Brookfield Infrastructure Partners L.P.2 $ 19,389,752 $ 19,676,400


Total Utilities 31,354,942 33,618,419


Short Term Investments (2.30%)$34,200,371 Repurchase Agreement with




NET ASSETS $1,487,844,533




industry. Such reclassifications/classifications are not supported by S&P orMSCI.

4 An “Affiliated” investment may include any company in which the Fund owns5% or more of its outstanding shares.


Brazil (13.15%)1,471,275 Cetip SA - Mercados Organizados $ 17,153,651 $ 18,212,494

900,000 Estácio Participações SA 9,258,718 9,353,8973,299,300 GOL Linhas Aéras

Inteligentes SA, ADR1 19,142,371 15,869,6335,626,512 Kroton Educacional SA 29,064,044 35,353,183

403,000 Linx SA 8,052,130 8,429,619351,000 M. Dias Branco SA 14,442,364 13,998,415950,000 Multiplus SA 12,332,879 11,457,052

1,400,000 Smiles SA 22,117,328 22,191,809930,818 TOTVS SA 15,058,745 14,157,636

Total Brazil 146,622,230 149,023,738

Canada (0.31%)800,000 Africa Oil Corp.1 6,162,517 3,514,443

Chile (1.07%)465,000 Sociedad Química y

Minera de Chile SA, ADR 12,982,278 12,155,100

China (15.32%)176,000 Alibaba Group Holding Ltd., ADR1 14,303,397 15,637,600

2,094,829 Biostime International Holdings Ltd. 13,674,120 6,555,7412,968,000 China Mengniu Dairy Co. Ltd. 13,993,568 12,193,307

13,000,000 China Petroleum & Chemical Corp., Cl H 13,391,443 11,384,637

7,000,000 China Unicom (Hong Kong) Ltd. 11,491,832 10,457,38114,401,000 Haitong Securities Co., Ltd., Cl H 22,704,341 22,218,58535,000,000 Kingdee International Software

Group Co. Ltd.1 11,060,161 10,322,157595,000 Perfect World Co. Ltd., ADR 12,322,238 11,715,550

8,999,000 Shandong Weigao Group Medical Polymer Co. Ltd. 10,084,514 8,935,432

14,500,600 Sihuan Pharmaceutical Holdings Group Ltd. 6,860,118 10,943,356

3,000,000 Sinopharm Group Co. Ltd., Cl H 10,638,014 10,953,206496,515 TAL Education Group, ADR1 13,661,466 17,348,234

1,027,000 Tencent Holdings Ltd. 13,977,274 15,249,889201,500 WuXi PharmaTech (Cayman),

Inc., ADR1 6,383,375 7,056,53010,000,000 Yashili International Holdings Ltd. 4,561,784 2,717,374

Total China 179,107,645 173,688,979

Hong Kong (3.47%)4,000,000 Luk Fook Holdings International Ltd. 13,079,019 11,616,4517,040,000 Man Wah Holdings Ltd. 11,697,112 10,353,9413,097,000 Melco International Development Ltd. 10,131,318 7,179,2763,200,000 Wynn Macau Ltd. 13,205,018 10,179,205

Total Hong Kong 48,112,467 39,328,873

India (16.23%)1,962,000 Amara Raja Batteries Ltd. 12,261,648 19,011,6402,400,000 Axis Bank Ltd. 12,708,740 14,677,4613,851,000 Crompton Greaves Ltd. 11,381,658 12,539,4452,972,679 DEN Networks Ltd.1 8,297,340 7,094,768

10,499,000 Dish TV India Ltd.1 9,676,362 9,154,326900,000 Divi’s Laboratories Ltd. 19,365,191 26,235,670

1,154,000 Hathway Cable and Datacom Ltd.1 5,093,897 5,443,943560,000 Larsen & Toubro Ltd. 12,875,086 13,222,474760,653 Lupin Ltd. 12,607,242 17,189,206

1,300,000 PVR Ltd. 12,092,341 14,719,7221,850,000 Sun TV Network Ltd. 11,821,325 10,129,1691,541,000 Torrent Pharmaceuticals Ltd. 14,412,041 21,743,9192,504,000 Zee Entertainment Enterprises Ltd. 10,864,027 12,736,911

Total India 153,456,898 183,898,654

Indonesia (5.39%)18,542,000 Bank Rakyat Indonesia

(Persero) Tbk PT 14,442,731 15,863,79612,503,527 Matahari Department Store Tbk PT 15,959,424 16,649,13627,631,350 Sarana Menara Nusantara Tbk PT1 8,841,958 9,524,14229,015,000 Tower Bersama Infrastructure Tbk PT 15,633,737 19,049,651

Total Indonesia 54,877,850 61,086,725


Korea, Republic of (6.07%)45,000 CJ O Shopping Co., Ltd. $ 16,076,609 $ 13,718,550

326,000 Grand Korea Leisure Co., Ltd. 13,732,899 12,959,678230,000 KIA Motors Corp. 12,100,168 11,704,335

11,000 Samsung Electronics Co., Ltd. 14,436,630 12,342,099435,000 WeMade Entertainment Co., Ltd.1 16,928,584 18,137,882

Total Korea, Republic of 73,274,890 68,862,544

Mexico (2.88%)215,000 Fomento Económico

Mexicano S.A.B. de C.V., ADR 20,016,833 19,790,7502,100,000 Infraestructura Energetica

Nova S.A.B. de C.V. 11,898,434 12,827,817

Total Mexico 31,915,267 32,618,567

Norway (1.79%)1,448,500 Opera Software ASA 19,040,853 20,279,789

Philippines (4.87%)20,505,000 Ayala Land, Inc. 13,822,423 15,969,021

4,500,000 BDO Unibank, Inc. 9,413,986 9,831,764115,450,000 Metro Pacific Investments Corp. 12,364,743 12,605,538

4,022,000 Universal Robina Corp. 11,492,570 16,759,267

Total Philippines 47,093,722 55,165,590

Russian Federation (0.51%)208,000 Yandex N.V., Cl A1 6,399,324 5,781,360

Singapore (1.17%)6,250,000 Global Logistic Properties Ltd. 13,933,737 13,277,024

South Africa (5.33%)692,700 Aspen Pharmacare Holdings Ltd. 18,507,474 20,659,285505,000 Bidvest Group Ltd. 13,828,302 12,792,006475,000 Mr Price Group Ltd. 9,127,354 8,939,022

3,750,000 Steinhoff International Holdings Ltd. 15,850,488 17,974,341

Total South Africa 57,313,618 60,364,654

Taiwan, Province of China (7.77%)6,371,000 Far EasTone Telecommunications

Co., Ltd. 13,617,082 12,210,2371,025,000 Ginko International Co., Ltd. 18,051,022 13,815,1521,676,180 HIWIN Technologies Corp. 15,600,829 14,987,7861,000,000 MediaTek Inc. 15,150,842 14,809,5793,050,000 Novatek Microelectronics Corp. 13,931,646 15,089,827

850,000 Taiwan Semiconductor Manufacturing Co. Ltd., ADR 15,968,871 17,153,000

Total Taiwan, Province of China 92,320,292 88,065,581

Thailand (1.88%)2,051,000 Bangkok Bank Public Co.,

Ltd., NVDR 11,824,351 12,903,74712,500,000 L.P.N. Development PCL, Cl F 6,648,494 8,365,459

Total Thailand 18,472,845 21,269,206

United Arab Emirates (0.56%)20,062,000 SHUAA Capital psc1 6,684,893 6,390,651

United Kingdom (0.51%)5,250,000 Lekoil Ltd.1 6,097,868 5,787,506

TOTAL COMMON STOCKS 973,869,194 1,000,558,984


India (0.04%)30,983,400 Zee Entertainment Enterprises Ltd.,

6% due 3/5/2022 367,971 421,407

105105

Baron Funds


Baron Emerging Markets Fund — PORTFOLIO HOLDINGS


Convertible Bonds (0.53%)

China (0.53%)$50,000,000 Biostime International

Holdings Ltd., 0.00% due 2/20/20191 $ 6,590,207 $ 5,956,329

Short Term Investments (10.50%)118,990,756 Repurchase Agreement with

Fixed Income Clearing Corp., dated 9/30/2014, 0.00% due 10/1/2014; Proceeds at maturity – $118,990,756; (Fully collateralized by $121,375,000 U.S. Treasury Note, 2.125% due 6/30/2021; Market value – $121,375,000) 118,990,756 118,990,756



NET ASSETS $1,133,349,596



% Represents percentage of net assets.1 Non-income producing securities.ADR American Depositary Receipt.NVDR Non-Voting Depositary Receipt.


Consumer Discretionary 24.4%Information Technology 15.8Financials 13.3Health Care 12.1Industrials 7.8Consumer Staples 6.9Telecommunication Services 4.5Energy 1.8Utilities 1.1Materials 1.1Cash and Cash Equivalents* 11.2

100.0%


Baron Emerging Markets Fund — PORTFOLIO HOLDINGS (Continued)

September 30, 2014 (Unaudited)Principal Amount Cost Value

Baron Funds

106

107107

Baron Funds

Baron Energy and Resources Fund — PORTFOLIO HOLDINGS

SEPTEMBER 30, 2014 (Unaudited)Shares Cost Value Shares Cost Value



11,546 Helmerich & Payne, Inc. $ 940,980 $ 1,130,00711,767 Seadrill Partners, LLC2 320,913 367,013

1,261,893 1,497,020

Oil & Gas Equipment & Services (15.74%)8,050 Core Laboratories N.V.2 1,238,774 1,178,117

56,442 Forum Energy Technologies, Inc.1 1,640,560 1,727,69041,196 Halliburton Co. 2,257,824 2,657,554

6,243 National Oilwell Varco, Inc. 392,769 475,09214,031 Oil States International, Inc.1 777,238 868,51916,090 RigNet, Inc.1 610,553 650,84058,457 Superior Energy Services, Inc. 1,711,738 1,921,48285,700 Tesco Corp.2 1,691,272 1,701,145

10,320,728 11,180,439

Oil & Gas Exploration & Production (33.59%)9,939 Anadarko Petroleum Corporation 967,961 1,008,212

19,500 Antero Resources Corp.1 1,061,689 1,070,35542,476 Athlon Energy Inc.1 1,443,235 2,473,37849,048 Bonanza Creek Energy, Inc.1 2,137,491 2,790,83123,600 Cabot Oil & Gas Corp. 814,901 771,48421,399 Concho Resources, Inc.1 2,281,646 2,683,221

8,868 EOG Resources, Inc. 777,689 878,10934,836 Gulfport Energy Corp.1 2,090,024 1,860,24265,302 Kodiak Oil & Gas Corp.1,2 638,948 886,148

528,400 Lekoil Ltd. (United Kingdom)1,2 593,215 582,49913,149 Noble Energy, Inc. 827,998 898,86643,838 Oasis Petroleum, Inc.1 1,942,275 1,832,86794,900 Parsley Energy, Inc., Cl A1 1,919,364 2,024,21764,700 RSP Permian, Inc.1 1,454,204 1,653,73231,248 SM Energy Co. 2,234,821 2,437,344

21,185,461 23,851,505

Oil & Gas Refining & Marketing (1.40%)11,778 Marathon Petroleum Corp. 983,706 997,243

Oil & Gas Storage & Transportation (24.41%)61,850 Atlas Energy, L.P. 2,800,801 2,721,40019,335 Golar LNG Ltd.2 724,855 1,283,84446,521 PBF Logistics LP 1,193,983 1,177,91211,340 Phillips 66 Partners LP 323,570 756,94539,742 Rose Rock Midstream, L.P. 1,643,754 2,350,739

111,804 Scorpio Tankers, Inc.2 1,036,767 929,09148,640 Tallgrass Energy Partners, LP 1,351,389 2,203,878

8,646 Targa Resources Corp. 642,952 1,177,32610,728 Tesoro Logistics LP 568,165 759,22115,800 Valero Energy Partners LP 378,377 705,15410,876 Western Gas Equity Partners LP 434,510 662,783

8,437 Western Gas Partners, LP 497,657 632,77556,639 Western Refining Logistics, LP 1,543,560 1,972,170

13,140,340 17,333,238

Total Energy 46,892,128 54,859,445

Industrials (6.17%)Construction & Engineering (2.21%)

24,300 Badger Daylighting Ltd. (Canada)2 799,988 605,79136,002 Primoris Services Corp. 847,460 966,294

1,647,448 1,572,085

Electrical Components & Equipment (0.37%)6,863 Polypore International, Inc.1 273,545 267,040


Industrials (continued)Industrial Machinery (2.38%)

16,194 Chart Industries, Inc.1 $ 1,316,420 $ 989,9399,900 Flowserve Corp. 715,179 698,148

2,031,599 1,688,087

Trading Companies & Distributors (1.21%)36,800 MRC Global, Inc.1 993,114 858,176


Information Technology (1.75%)Semiconductor Equipment (1.75%)

65,700 SunEdison, Inc.1 1,343,585 1,240,416


23,332 Westlake Chemical Partners LP1 636,117 676,628

Diversified Metals & Mining (0.55%)11,937 Freeport-McMoRan Copper & Gold, Inc. 417,329 389,743


Steel (1.94%)32,217 SunCoke Energy, Inc.1 615,106 723,27222,277 SunCoke Energy Partners LP 521,966 655,612

1,137,072 1,378,884


Utilities (1.58%)Renewable Electricity (1.58%)

10,948 Abengoa Yield plc1,2 352,626 389,53025,310 TerraForm Power, Inc., Cl A1 734,597 730,446

Total Utilities 1,087,223 1,119,976


Principal Amount




LIABILITIES LESS CASH AND OTHER ASSETS (-0.39%) (275,454)





108108

Baron Funds


Baron Global Advantage Fund — PORTFOLIO HOLDINGS



Brazil (5.71%)18,367 Cetip SA - Mercados

Organizados $ 196,454 $ 227,36012,663 Smiles SA 202,747 200,725

Total Brazil 399,201 428,085

Canada (3.25%)2,056 Brookfield Asset Management, Inc., Cl A 67,929 92,438

604 Constellation Software, Inc. 139,461 151,810

Total Canada 207,390 244,248

China (12.89%)2,684 Alibaba Group Holding Ltd., ADR1 231,023 238,4731,037 Baidu, Inc., ADR1 143,994 226,3054,150 Qunar Cayman Islands Ltd., ADR1 62,250 114,7479,490 TAL Education Group, ADR1 216,237 331,5813,138 Youku Tudou, Inc., ADR1 73,321 56,233

Total China 726,825 967,339

India (3.90%)2,699 ICICI Bank Limited, ADR 95,316 132,5213,291 Just Dial Ltd. 49,159 86,8952,625 MakeMyTrip Limited1 52,793 73,054

Total India 197,268 292,470

Indonesia (8.14%)1,116,770 Sarana Menara Nusantara Tbk PT1 321,392 384,935

343,836 Tower Bersama Infrastructure Tbk PT 157,981 225,744

Total Indonesia 479,373 610,679

Israel (4.07%)5,499 Mellanox Technologies Ltd.1 216,341 246,7401,091 Mobileye N.V.1 27,275 58,467

Total Israel 243,616 305,207

Japan (3.88%)4,156 SoftBank Corp. 324,658 291,365

Netherlands (1.75%)1,316 ASML Holding N.V. 91,106 131,012

Norway (0.99%)2,392 Seadrill Partners, LLC 54,857 74,606

Spain (2.25%)4,800 Grifols SA, ADR 192,456 168,624

United Kingdom (6.69%)35,617 AO World plc1 178,111 108,552

6,934 ARM Holdings plc 113,571 101,84461,037 Just Eat plc1 263,150 291,903

Total United Kingdom 554,832 502,299

United States (39.53%)6,784 Acxiom Corp.1 139,334 112,2751,039 Amazon.com, Inc.1 293,020 335,0155,274 Atlas Energy, L.P. 221,212 232,0562,969 Benefitfocus, Inc.1 134,141 79,9855,026 Coupons.com Incorporated1 80,416 60,1114,702 Facebook Inc., Cl A1 126,568 371,646

636 Google, Inc., Cl C1 322,674 367,201


United States (continued)1,710 Illumina, Inc.1 $ 74,766 $ 280,3033,304 Medidata Solutions, Inc.1 150,875 146,334

689 Monsanto Co. 56,646 77,5201,128 Pacira Pharmaceuticals, Inc.1 83,154 109,3265,126 PBF Logistics LP 120,443 129,791

197 The Priceline Group, Inc.1 167,416 228,2403,975 Tallgrass Energy Partners, LP 92,964 180,1071,985 TerraForm Power, Inc., Cl A1 56,806 57,2872,161 Westlake Chemical Partners LP1 58,450 62,6696,216 Xoom Corporation1 123,464 136,441

Total United States 2,302,349 2,966,307


Principal Amount

Short Term Investments (6.65%)$498,473 Repurchase Agreement with

Fixed Income Clearing Corp., dated 9/30/2014, 0.00% due 10/1/2014; Proceeds at maturity – $498,473; (Fully collateralized by $510,000 U.S. Treasury Note, 2.125% due 6/30/2021; Market value – $510,000) 498,473 498,473


CASH AND OTHER ASSETS LESS LIABILITIES (0.30%) 22,791


RETAIL SHARES (Equivalent to $14.05 per share based on 244,994 shares outstanding) $3,443,070

INSTITUTIONAL SHARES (Equivalent to $14.13 per share based on 287,382 shares outstanding) $4,060,435

% Represents percentage of net assets.1 Non-income producing securities.ADR American Depositary Receipt.


Information Technology 35.4%Consumer Discretionary 19.4Telecommunication Services 12.0Health Care 9.4Energy 8.2Financials 6.0Materials 1.9Utilities 0.8Cash and Cash Equivalents* 6.9

100.0%


109

Baron Funds


Baron Discovery Fund — PORTFOLIO HOLDINGS




Luxury Goods (1.72%)55,000 Tumi Holdings, Inc.1 $ 1,140,807 $ 1,119,250

Casinos & Gaming (1.79%)12,000 Churchill Downs, Inc. 1,109,865 1,170,000

Homefurnishing Retail (1.10%)12,000 Mattress Firm Holding Corp.1 761,162 720,720

Internet Retail (1.00%)215,000 AO World plc (United Kingdom)1,2 879,978 655,269

Restaurants (4.42%)45,000 Del Frisco’s Restaurant Group, Inc.1 902,452 861,30034,000 Fiesta Restaurant Group, Inc.1 1,525,430 1,689,12011,000 Zoe’s Kitchen, Inc.1 178,852 338,360

2,606,734 2,888,780

Specialized Consumer Services (1.96%)

21,300 Ascent Capital Group, Inc., Cl A1 1,446,831 1,282,260

Specialty Stores (1.00%)30,000 The Container Store Group, Inc.1 785,067 653,100


Consumer Staples (3.33%)Packaged Foods &

Meats (3.33%)37,000 Farmer Bros Co.1 804,243 1,071,15085,000 Inventure Foods, Inc.1 1,099,902 1,101,600


Energy (10.48%)Oil & Gas Equipment &

Services (1.49%)24,000 RigNet, Inc.1 1,060,461 970,800


17,000 Parsley Energy, Inc., Cl A1 314,500 362,61013,000 RSP Permian, Inc.1 280,291 332,280

594,791 694,890


50,000 PBF Logistics LP 1,233,900 1,266,00025,000 Rose Rock Midstream, L.P. 1,127,770 1,478,75040,000 Tallgrass Energy Partners, LP 1,518,634 1,812,40018,000 Western Refining Logistics, LP 507,578 626,760

4,387,882 5,183,910

Total Energy 6,043,134 6,849,600

Financials (7.42%)Consumer Finance (1.03%)

37,400 Regional Management Corp.1 611,714 671,330

Diversified REITs (2.12%)42,000 American Assets Trust, Inc. 1,452,853 1,384,740

Hotel & Resort REITs (4.27%)45,000 Chesapeake Lodging Trust 1,263,094 1,311,750

127,000 Strategic Hotels & Resorts, Inc.1 1,381,982 1,479,550

2,645,076 2,791,300




24,000 Esperion Therapeutics, Inc.1 $ 466,461 $ 587,04093,600 Foundation Medicine, Inc.1 2,257,898 1,774,656

2,724,359 2,361,696

Health Care Equipment (3.04%)50,000 Inogen, Inc.1 927,716 1,030,50016,760 Masimo Corporation1 447,537 356,65347,400 Novadaq Technologies, Inc.

(Canada)1,2 623,196 601,506

1,998,449 1,988,659

Health Care Facilities (0.46%)14,200 Capital Senior Living Corp.1 332,496 301,466

Health Care Services (5.14%)281,300 BioScrip, Inc.1 2,146,822 1,943,783

43,100 ExamWorks Group, Inc.1 1,441,930 1,411,525

3,588,752 3,355,308

Health Care Supplies (4.67%)114,900 The Spectranetics Corporation1 3,049,675 3,052,893

Managed Health Care (1.09%)38,800 HealthEquity, Inc.1 721,369 710,428

Pharmaceuticals (6.67%)15,000 Aerie Pharmaceuticals, Inc.1 285,976 310,35077,528 Intersect ENT, Inc.1 1,009,154 1,201,684

6,960 Pacira Pharmaceuticals, Inc.1 357,312 674,56343,000 Revance Therapeutics, Inc.1 1,015,542 831,190

288,700 TherapeuticsMD, Inc.1 1,569,589 1,339,568

4,237,573 4,357,355



83,019 The KEYW Holding Corp.1 1,064,156 919,020

Air Freight & Logistics (0.80%)11,000 Park-Ohio Holdings Corp. 577,517 526,460

Construction & Engineering (2.05%)50,000 Primoris Services Corp. 1,430,961 1,342,000

Electrical Components & Equipment (1.92%)

32,200 Polypore International, Inc.1 1,289,477 1,252,902

Industrial Machinery (0.60%)25,000 ARC Group Worldwide, Inc.1 414,629 390,500



23,400 The Descartes Systems Group Inc.1,2 327,877 323,154


19,560 Coherent, Inc.1 1,262,533 1,200,397


66,900 Amber Road, Inc.1 897,266 1,160,04637,000 Benefitfocus, Inc.1 1,242,438 996,78030,000 comScore, Inc.1 1,066,644 1,092,300

125,000 E2open, Inc.1 1,907,844 1,163,75027,138 Envestnet, Inc.1 1,162,587 1,221,210

6,276,779 5,634,086

110

Baron Funds

Baron Discovery Fund — PORTFOLIO HOLDINGS (Continued)

September 30, 2014 (Unaudited)Shares Cost Value Principal Amount Cost Value


Information Technology (continued)Semiconductor

Equipment (1.21%)62,500 PDF Solutions, Inc.1 $ 1,259,807 $ 788,125

Semiconductors (1.75%)21,200 Power Integrations, Inc. 1,154,948 1,142,892

Systems Software (6.15%)50,600 Barracuda Networks, Inc.1 1,349,153 1,297,89055,200 Qualys, Inc.1 1,294,492 1,468,32059,200 Varonis Systems, Inc.1 1,402,848 1,249,120

4,046,493 4,015,330



37,000 Westlake Chemical Partners LP1 1,088,408 1,073,000

Construction Materials (1.55%)19,500 CaesarStone Sdot Yam Ltd.1,2 972,793 1,007,760




77,339 Iridium Communications Inc.1 638,870 684,450


Short Term Investments (9.24%)$ 6,037,051 Repurchase Agreement with


TOTAL INVESTMENTS (103.22%) $ 68,460,967 67,431,031


NET ASSETS $ 65,330,613




767 Fifth Avenue, 49th Fl.New York, NY 10153

1.800.99.BARON212-583-2000

www.BaronFunds.com

Go Paperless !It’s fast, simple and a smart way to help the environment.

Enjoy the speed and convenience of receiving Fund documents electronically.For more information and to enroll today go to www.baronfunds.com/edelivery

Sept

embe

r30

Baron Funds - valuewalk.com · the 2014 Baron Conference scheduled for November 7th at the...

Documents

Transcript of Baron Funds - valuewalk.com · the 2014 Baron Conference scheduled for November 7th at the...