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FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-21296
BARON SELECT FUNDS
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
767 Fifth Avenue, 49th Floor
New York, NY 10153
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(Address of Principal Executive Offices) (Zip Code)
Linda S. Martinson, Esq.
c/o Baron Select Funds
767 Fifth Avenue,49th Floor
New York, New York 10153
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(Name and Address of Agent for Service)
Registrant's Telephone Number, including Area Code 212-583-2000
-----------------------------
Date of fiscal year end: December 31
---------------
Date of reporting period: December 31, 2006
--------------------
Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17CRF 270.30e-1). The
Commission may use the information provided on Form N-CSR in its regulatory,
disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form
N-CSR, and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and suggestions for reducing the burden
to Secretary, Securities and Exchange Commission, 450 5th Street, NW,
Washington, D.C. 20549-6009. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. Section 3507.
Potential persons who are to respond to the collection of
information contained in this form are not required to respond
unless the form displays a currently valid OMB control number.
SEC 2569 (3-03)
Item 1. Baron Select Funds Annual Report for the period ended
December 31, 2006.
[Registered Castle Logo]
B A R O N
S E L E C T
F U N D S
MANAGEMENT'S DISCUSSION OF
FUND PERFORMANCE ............................................................3
FUND EXPENSES.................................................................5
STATEMENT OF NET ASSETS.......................................................6
STATEMENT OF ASSETS AND
LIABILITIES .................................................................7
STATEMENT OF OPERATIONS.......................................................7
STATEMENTS OF CHANGES IN
NET ASSETS ..................................................................8
STATEMENT OF CASH FLOWS.......................................................8
NOTES TO FINANCIAL
STATEMENTS ..................................................................9
REPORT OF INDEPENDENT
REGISTERED PUBLIC
ACCOUNTING FIRM ............................................................13
TAX INFORMATION..............................................................14
MANAGEMENT OF THE FUND.......................................................14
767 Fifth Avenue
NY, NY 10153
212.583.2100
1.800.99.BARON
BaronFunds.com
ANNUAL FINANCIAL REPORT DECEMBER 31, 2006
Dear Baron Partners Fund Shareholder:
Here are audited financial statements for Baron Partners Fund for its fiscal
year ended December 31, 2006. The Securities and Exchange Commission requires
that mutual funds furnish financial statements semi-annually to their
shareholders. The full year statements are audited. We hope you find these
statements informative and useful.
We thank you for choosing to join us as fellow shareholders in Baron Partners
Fund. We will continue to work hard to justify your confidence.
Sincerely,
/s/ Ronald Baron /s/ Linda Martinson /s/ Peggy Wong
- ------------------------ ---------------------- --------------------
Ronald Baron Linda Martinson Peggy Wong
Chief Executive Officer President, Chief Treasurer and
Chief Investment Officer Operating Officer Chief Financial
and Portfolio Manager and General Counsel Officer
February 26, 2007 February 26, 2007 February 26, 2007
A description of the Fund's proxy voting policies and procedures is available
without charge on the Fund's website, www.BaronFunds.com, or by calling 1-800-
99-BARON and on the SEC's website at www.sec.gov. The Fund's most current proxy
voting record, Form N-PX, is also available on the Fund's website,
www.BaronFunds.com and on the SEC's website at www.sec.gov.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Form N-Q is
available on the SEC's website at www.sec.gov. The Fund's Form N-Q may also be
reviewed and copied at the SEC's Public Reference Room in Washington, DC;
information on the operation of the SEC's Public Reference Room may be obtained
by calling 800-SEC-0330. A copy of the Fund's Form N-Q may also be obtained upon
request by contacting Baron Funds at 1-800-99-BARON. A schedule of portfolio
holdings current to the most recent quarter is also available at
www.BaronFunds.com.
Investors should consider the investment objectives, risks, and charges and
expenses of the investment carefully before investing. The Fund is described
in the prospectus which contains this and other information about the Fund.
You should carefully read the prospectus before investing. You can obtain a
copy of the prospectus by contacting its distributor, Baron Capital, Inc., at
767 Fifth Avenue, 49th Floor, New York, New York, 10153, or by calling 1-800-
99-BARON, or by going to our website at www.BaronFunds.com.
- ------------
Some of our comments are based on current management expectations and are
considered "forward-looking statements." Actual future results, however, may
prove to be different from our expectations. You can identify forward-looking
statements by words such as "estimate", "may", "expect", "should", "could",
"believe", "plan" and other similar terms. We cannot promise future returns and
our opinions are a reflection of our best judgment at the time this report is
compiled.
The views expressed in this report reflect those of Baron only through the end
of the period stated in this report. The views are not intended as
recommendations 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
no obligation to update them.
BARON PARTNERS FUND (UNAUDITED)
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COMPARISON OF THE CHANGE IN VALUE OF $10,000 INVESTMENT IN
BARON PARTNERS FUND+* IN RELATION TO THE S&P 500** AND THE RUSSELL 2000**
(PERFORMANCE LINE GRAPH)
Baron Partners Fund S&P 500 Russell 2000
01/31/92 $10,000 $10,000 $10,000
1992 11,963 10,954 10,953
1993 16,210 12,056 13,021
1994 16,895 12,213 12,784
1995 24,612 16,798 16,421
1996 29,452 20,656 19,130
1997 47,671 27,544 23,408
1998 53,059 35,410 22,812
1999 64,247 42,852 27,661
2000 67,123 38,940 26,825
2001 56,347 34,300 27,492
2002 45,982 26,718 21,861
2003 61,963 34,375 32,191
2004 88,203 38,099 38,091
2005 100,873 39,958 39,825
2006 122,607 46,271 47,140
- --------------------------------------------------------------------------------
Information Presented by Fiscal Year as of December 31
AVERAGE ANNUAL TOTAL RETURN
for the periods ended December 31, 2006
Since Inception
One Year Three Years Five Years Ten Years 01/31/1992+
-------- ----------- ---------- --------- ---------------
Baron Partners Fund* 21.55% 25.54% 16.82% 15.33% 18.30%
Russell 2000** 18.37% 13.56% 11.39% 9.44% 10.95%
S&P500** 15.79% 10.41% 6.17% 8.40% 10.82%
- ----------
The performance data quoted represents past performance. Past performance
is no guarantee of future results. The investment return and principal
value of an investment will fluctuate; an investor's shares, when redeemed,
may be worth more or less than their original cost. Current performance may
be lower or higher than the peformance data quoted. For performance
information current to the most recent month-end, visit www.BaronFunds.com
or call 1-800-99-BARON.
* The performance data does not reflect the deduction of taxes that a
shareholder would pay on dividends, capital gain distributions, or
redemption of Fund shares.
+ Since inception, January 31, 1992, Baron Partners Fund's predecessor was a
limited investment partnership, which imposed different advisory fees,
operating expenses, and no dividend or capital gain distributions. The
restated performance information reflects the imposition of the same
advisory fees and expenses that would have been applied historically if the
Fund had had its current structure since inception in accordance with SEC
guidelines. The performance data include the predecessor partnership's
performance for the periods before the Fund's registration statement became
effective on April 30, 2003. The predecessor partnership was not registered
under the 1940 Act. Hence it wasn't subject to certain investement
restrictions imposed by the 1940 Act and by the Internal Revenue Code of
1986, which if applicable, might have adversely affected the performance of
the Fund.
** The S&P 500, Russell 2000, and the Fund are with dividends. The inclusion
of dividends positively impacts the performance results of the Fund and the
indexes. The S&P 500 and the Russell 2000 are unmanaged indexes. The S&P
500 measures the performance of larger cap equities in the stock market in
general; the Russell 2000 of small companies.
2
BARON PARTNERS FUND (UNAUDITED)
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TOP TEN HOLDINGS (AS A PERCENTAGE OF NET ASSETS) AS OF
DECEMBER 31, 2006
- --------------------------------------------------------------------------------
% OF NET
ASSETS
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Las Vegas Sands Corp. 7.3%
Wynn Resorts, Ltd. 6.3%
Boyd Gaming Corp. 4.4%
AllianceBernstein Holding L.P. 4.1%
Charles Schwab Corp. 4.0%
Iron Mountain, Inc. 4.0%
Jefferies Group, Inc. 3.8%
Manor Care, Inc. 3.3%
ChoicePoint, Inc. 3.3%
Whole Foods Market, Inc. 3.2%
- --------------------------------------------------------------------------------
43.7%
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TOP TEN INDUSTRIES
(AS A PERCENTAGE OF NET ASSETS)
AS OF DECEMBER 31, 2006
[PIE CHART]
Recreation & Resorts 22.1%
Financial Services -
Brokerage & Exchanges 12.7%
Financial Services -
Asset Management 9.0%
Business Services 8.9%
Retail - Specialty Stores 7.6%
Real Estate - REITs 6.8%
Healthcare Facilities 5.3%
Retail - Consumer Staples 3.2%
Transportation 2.7%
Hotels and Lodging 2.6%
Other 16.3%
Cash & Cash Equivalentse 2.8%
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Management's Discussion of Fund Performance
Baron Partners Fund performed well for the year ended December 31, 2006, gaining
21.55%. These results compared favorably with the return of the indexes against
which the Fund is compared. The S&P 500 gained 15.80% and the Russell 2000
gained 18.37% for the year ended December 31, 2006. The Fund's results also
compared favorably with those of its mid-cap peers. According to Morningstar*,
an average fund in its mid-cap growth category which includes the Fund
(consisting of 995 funds at December 31, 2006) gained 9.01% for the year ended
December 31, 2006. Baron Partners Fund has performed well since it converted
into an open-end mutual fund on April 30, 2003. In the period since the Fund's
conversion on April 30, 2003 through December 31, 2006, the Fund gained an
annualized 30.91% versus an annualized 14.67% for the S&P 500 and an annualized
21.82% for the Russell 2000. The Fund also has significantly outperformed both
the Russell 2000 and the S&P 500 since its inception in January 1992.
Baron Partners Fund continued to significantly outperform the Morningstar peer
group of mid-cap growth funds for the three, five and ten year periods ended
December 31, 2006. For the three years ended December 31, 2006, the Fund gained
an annualized 25.54% compared to 10.85% for the Morningstar mid-cap growth
category (consisting of 823 funds at December 31, 2006). For the five years
ended December 31, 2006, the Fund gained an annualized 16.82% compared to 6.48%
for the Morningstar mid-cap growth category (consisting of 665 funds at December
31, 2006). For the ten years ended December 31, 2006, the Fund gained an
annualized 15.33% compared to 8.31% for the Morningstar mid-cap growth category
(consisting of 264 funds at December 31, 2006).
Baron Partners Fund, like the other Baron Funds, utilizes value purchase
disciplines when investing in companies regardless of market capitalizations
that we believe have significant long-term growth opportunities. We believe that
our independent research will identify investment opportunities that are
attractively priced relative to their future prospects. Baron Partners Fund is
unique when compared to other Baron Funds with its concentrated portfolio and
its ability to leverage and sell short.
The Fund's performance was not uniform throughout the year. Baron Partners
Fund's performance was strong in the first and fourth quarters, up 12.81% and
9.43% respectively, down 2.65% in the second quarter and was up 1.14% in the
third
- ---------------
* The Morningstar composites are not weighted and represent the straight
average of annualized returns of each of the funds in the categories.
3
BARON PARTNERS FUND (UNAUDITED)
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quarter. The performance of the Russell 2000 was weaker than that of the Fund in
the last three quarters, and stronger than that of the Fund for the first
quarter of the year. The performance of the S&P 500 was weaker than that of the
Fund in the first and fourth quarters and stronger than that of the Fund in the
second and third quarters of the year. Baron Partners Fund's performance was not
uniform across industries either. Below we discuss the most positive and
negative contributors to the Fund's performance during the past year.
The Fund's best performing industry was Recreation and Resorts. The Fund's
gaming investments, most notably Wynn Resorts and Las Vegas Sands, added to the
strong performance of the Recreation and Resorts' industry. In December 2006,
Wynn Resorts paid a special cash distribution of $6.00 per share. Gaming
companies interest us because they offer communities not only entertainment for
their residents but also economic development, jobs and enhanced tax revenues.
The Fund's performance was also strong in Financial Services (Brokerage &
Exchanges and Asset Management), Retail -- Specialty Stores; and Real Estate --
REITs. The Fund was negatively impacted by Retail -- Consumer Staples. Whole
Foods Market, the only security in the Consumer Staples industry, performed
poorly after the company reported a slowdown in same-store sales. The company
attributed the slowdown at least in part to increasing competition from other
supermarket chains entering the organic food sector more aggressively. The Fund
was also negatively affected by its holdings in the Consulting industry.
In 2007, the Fund expects to continue to establish long positions in securities
that, in our opinion, have favorable price-to-value characteristics based on our
assessment of their prospects for future growth and profitability. The Fund may
establish short positions in securities that we believe have limited growth
prospects, are poorly managed, have a highly leveraged balance sheet, or are
over-priced.
4
BARON PARTNERS FUND
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FUND EXPENSES (UNAUDITED)
- --------------------------------------------------------------------------------
As a shareholder of the Fund, you may incur two types of costs: ongoing
expenses and transaction costs. Ongoing expenses include advisory fees,
distribution and service (12b-1) fees and other Fund expenses. Due to the
payment of Rule 12b-1 fees, long-term shareholders may indirectly pay more than
the maximum permitted front-end sales charge. The information on this page is
intended to help you understand your ongoing costs of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
This Example is based on an investment of $1,000 invested on July 1, 2006
and held for the six months ended December 31, 2006.
ACTUAL EXPENSES
The table below titled "Based on Actual Total Return" provides information
about actual account values and actual expenses. You may use the information
provided in this table, together with the amount you invested, to estimate the
expenses that you paid over the period. To estimate the expenses you paid on
your account, divide your ending account value by $1,000 (for example, an $8,600
ending account value divided by $1,000 = 8.6), then multiply the result by the
number under the heading titled "Expenses Paid During the Period".
BASED ON ACTUAL TOTAL RETURN FOR THE SIX MONTHS ENDED DECEMBER 31, 2006*
BEGINNING ENDING ANNUALIZED EXPENSES
ACTUAL TOTAL ACCOUNT VALUE ACCOUNT VALUE EXPENSE PAID DURING
RETURN JULY 1, 2006 DECEMBER 31, 2006 RATIO+ THE PERIOD#
------------ ------------- ----------------- ---------- -----------
BARON PARTNERS FUND 10.68% $1,000.00 $1,106.76 1.79% $9.51
- ---------------
* Assumes reinvestment of all dividends and capital gain distributions, if
any.
# Expenses are equal to the Fund's annualized expense ratio multiplied by the
average account value over the period, multiplied by the number of days in
the most recent fiscal half-year, then divided by 365.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below titled "Based on Hypothetical Total Return" provides
information about hypothetical account values and hypothetical expenses based on
the actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Fund's actual return. The hypothetical account values
and expenses may not be used to estimate the actual ending account values and
expenses you paid for the period. You may use the information provided in this
table to compare the ongoing costs of investing in the Fund and other funds. To
do so, compare the 5% hypothetical example relating to the Fund with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table below are meant to highlight
your ongoing costs and do not reflect any transactional costs, such as
redemption fees, if any. Therefore, the table is useful in comparing ongoing
costs only and will not help you determine your relative total costs of owning
different mutual funds. In addition, if these transactional costs were included,
your costs would have been higher.
BASED ON HYPOTHETICAL ANNUALIZED TOTAL RETURN FOR THE SIX MONTHS ENDED
DECEMBER 31, 2006
HYPOTHETICAL BEGINNING ENDING ANNUALIZED EXPENSES
ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE EXPENSE PAID DURING
TOTAL RETURN JULY 1, 2006 DECEMBER 31, 2006 RATIO+ THE PERIOD#
------------ ------------- ----------------- ---------- -----------
BARON PARTNERS FUND 5.00% $1,000.00 $1,016.18 1.79% $9.10
- ---------------
# Expenses are equal to the Fund's annualized expense ratio multiplied by the
average account value over the period, multiplied by the number of days in
the most recent fiscal half-year, then divided by 365.
+ Annualized Expense Ratio for the six months ended December 31, 2006,
includes 1.32% for operating expenses and 0.47% for interest expense.
5
BARON PARTNERS FUND
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STATEMENT OF NET ASSETS
- -----------------------------------------------------------------------------
December 31, 2006
Shares Cost Value
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COMMON STOCKS (96.35%)
- -----------------------------------------------------------------------------
BUSINESS SERVICES (8.86%)
2,000,000 ChoicePoint, Inc.*+ $ 69,222,009 $ 78,760,000
175,000 Ecolab, Inc. 7,946,397 7,910,000
2,300,000 Iron Mountain, Inc.* 68,142,215 95,082,000
10,000,000 Li & Fung, Ltd.^ 24,975,775 31,112,200
--------------- ---------------
170,286,396 212,864,200
DISTRIBUTION (2.39%)
1,600,000 Fastenal Co. 62,825,323 57,408,000
EDUCATION (0.70%)
160,000 Strayer Education, Inc. 16,954,684 16,968,000
ENERGY SERVICES (0.74%)
725,000 Helmerich & Payne, Inc. 21,753,284 17,740,750
FINANCIAL SERVICES --
ASSET MANAGEMENT (8.98%)
1,214,000 AllianceBernstein Holding L.P. 64,782,670 97,605,600
580,000 Eaton Vance Corp. 16,257,677 19,145,800
800,000 Janus Capital Group, Inc. 14,044,123 17,272,000
300,000 Legg Mason, Inc. 26,181,930 28,515,000
1,025,000 Nuveen Investments, Inc., Cl A 34,752,789 53,177,000
--------------- ---------------
156,019,189 215,715,400
FINANCIAL SERVICES --
BROKERAGE & EXCHANGES (12.66%)
5,000,000 Charles Schwab Corp. 51,307,910 96,700,000
125,000 Chicago Mercantile
Exchange Holdings, Inc., Cl A 18,071,507 63,718,750
1,125,000 International Securities
Exchange Holdings, Inc., Cl A 34,980,682 52,638,750
3,400,000 Jefferies Group, Inc. 79,864,126 91,188,000
--------------- ---------------
184,224,225 304,245,500
FINANCIAL SERVICES --
INSURANCE (1.97%)
700,000 Arch Capital Group, Ltd.* 25,246,122 47,327,000
FINANCIAL SERVICES --
MISCELLANEOUS (1.05%)
575,000 National Financial
Partners Corp. 27,772,375 25,282,750
GAMING SERVICES (1.45%)
1,150,000 Scientific Games Corp., Cl A* 35,149,046 34,764,500
HEALTHCARE FACILITIES (5.32%)
1,000,000 Brookdale Senior Living, Inc. 40,189,610 48,000,000
1,700,000 Manor Care, Inc. 56,664,142 79,764,000
--------------- ---------------
96,853,752 127,764,000
HEALTHCARE PRODUCTS (1.63%)
500,000 Zimmer Holdings, Inc.* 30,747,962 39,190,000
HOTELS AND LODGING (2.63%)
770,000 Four Seasons Hotels, Inc. 44,815,857 63,132,300
REAL ESTATE (1.47%)
550,000 CoStar Group, Inc.* 21,612,360 29,458,000
100,000 Forest City Enterprises,
Inc., Cl A 5,316,000 5,840,000
--------------- ---------------
26,928,360 35,298,000
REAL ESTATE -- HOME
BUILDING (2.38%)
1,775,000 Toll Brothers, Inc.* 50,588,869 57,208,250
REAL ESTATE -- REITS (6.78%)
249,000 AvalonBay Communities, Inc. 26,487,851 32,382,450
250,000 Boston Properties, Inc. 14,876,774 27,970,000
1,150,000 Douglas Emmett, Inc. 27,842,455 30,578,500
500,000 General Growth
Properties, Inc. 16,096,149 26,115,000
650,000 Kimco Realty Corp. 17,349,570 29,217,500
125,000 SL Green Realty Corp. 16,723,981 16,597,500
--------------- ---------------
119,376,780 162,860,950
Shares Cost Value
- -----------------------------------------------------------------------------
RECREATION AND RESORTS (21.25%)
2,350,000 Boyd Gaming Corp. $ 93,516,302 $ 106,478,500
3,900,000 Kerzner Intl. Holdings,
Ltd., Cl A*o 39,000,000 39,000,000
1,950,000 Las Vegas Sands Corp.* 107,862,820 174,486,000
1,425,000 Penn National
Gaming, Inc.* 47,018,324 59,308,500
1,400,000 Wynn Resorts, Ltd.* 43,547,292 131,390,000
--------------- ---------------
330,944,738 510,663,000
RESTAURANTS (0.52%)
375,000 California Pizza Kitchen, Inc.* 10,944,850 12,491,250
RETAIL -- CONSUMER
STAPLES (3.22%)
1,650,000 Whole Foods Market, Inc. 81,396,689 77,434,500
RETAIL -- SPECIALTY
STORES (7.57%)
550,000 Blue Nile, Inc.* 14,760,565 20,289,500
1,125,000 CarMax, Inc.* 42,272,547 60,333,750
1,050,000 Dick's Sporting Goods, Inc.* 32,168,945 51,439,500
1,150,000 Select Comfort Corp.* 20,193,681 19,998,500
1,300,000 Urban Outfitters, Inc.* 21,634,502 29,939,000
--------------- ---------------
131,030,240 182,000,250
TRANSPORTATION (2.71%)
800,000 C. H. Robinson Worldwide, Inc. 20,066,739 32,712,000
800,000 Expeditors International
of Washington, Inc. 20,930,533 32,400,000
--------------- ---------------
40,997,272 65,112,000
UTILITY SERVICES (2.07%)
1,250,000 ITC Holdings Corp. 37,029,860 49,875,000
--------------- ---------------
TOTAL COMMON STOCKS 1,701,885,873 2,315,345,600
--------------- ---------------
Principal Amount
- -----------------------------------------------------------------------------
CORPORATE BONDS (0.85%)
- -----------------------------------------------------------------------------
RECREATION AND RESORTS
$5,000,000 Wynn Resorts, Ltd. 6.00%
Sub. Conv. Deb. due
07/15/2015 3,747,803 20,462,500
--------------- ---------------
- -----------------------------------------------------------------------------
SHORT TERM MONEY MARKET INSTRUMENTS (2.36%)
- -----------------------------------------------------------------------------
24,500,000 Chesham Finance Ltd. 5.29%
due 01/02/2007 24,500,000 24,500,000
7,114,362 Manhattan Asset Funding Co.
5.29% due 01/04/2007 7,114,362 7,114,362
4,995,600 New Jersey Natural Gas Co. 5.28%
due 01/03/2007 4,995,600 4,995,600
19,988,266 SanPaolo IMI U.S.
Financial Co.
5.28% due 01/02/2007 19,988,266 19,988,266
--------------- ---------------
TOTAL SHORT TERM MONEY MARKET
INSTRUMENTS 56,598,228 56,598,228
--------------- ---------------
TOTAL INVESTMENTS (99.56%) $ 1,762,231,904 2,392,406,328
===============
CASH AND OTHER ASSETS
LESS LIABILITIES (0.44%) 10,662,987
---------------
NET ASSETS (EQUIVALENT TO $22.34 PER
SHARE BASED ON 107,549,415 SHARES
OUTSTANDING) $ 2,403,069,315
===============
- ---------------
% Represents percentage of net assets
* Non-income producing securities
o See Note 8 regarding restricted and fair valued security.
+ Represents security, or a portion thereof, in segregated custodian account.
^ Foreign domiciled corporation
See Notes to Financial Statements.
6
BARON PARTNERS FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
DECEMBER 31, 2006
ASSETS:
Investments in securities, at value (Cost $1,762,231,904) $2,392,406,328
Cash 113,332
Dividends and interest receivable 3,120,058
Receivable for securities sold 4,950,577
Receivable for shares sold 12,178,420
Prepaid expenses 2,933
--------------
2,412,771,648
--------------
LIABILITIES:
Payable for securities purchased 8,265,642
Payable for shares redeemed 1,085,730
Accrued expenses and other payables 350,961
--------------
9,702,333
--------------
NET ASSETS $2,403,069,315
==============
NET ASSETS CONSIST OF:
Capital paid-in $1,770,554,493
Undistributed net realized gain 2,340,398
Net unrealized appreciation on investments 630,174,424
--------------
NET ASSETS $2,403,069,315
==============
SHARES OUTSTANDING
($.01 PAR VALUE; INDEFINITE SHARES AUTHORIZED) 107,549,415
==============
NET ASSET VALUE PER SHARE $ 22.34
==============
STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------
FOR THE YEAR ENDED
DECEMBER 31, 2006
------------------
INVESTMENT INCOME:
INCOME:
Interest $ 442,639
Dividends 16,839,976
------------
Total income 17,282,615
------------
EXPENSES:
Investment advisory fees 17,718,092
Distribution fees 4,429,523
Shareholder servicing agent fees 313,235
Reports to shareholders 474,200
Proxy expenses 149,200
Professional fees 64,890
Registration and filing fees 105,891
Custodian fees 53,176
Trustee fees 93,845
Miscellaneous 28,535
------------
Total operating expenses 23,430,587
Interest expense 8,060,795
------------
Total expenses 31,491,382
------------
Net investment loss (14,208,767)
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments sold 15,386,260
Change in net unrealized appreciation of investments 350,628,398
------------
Net gain on investments 366,014,658
------------
Net increase in net assets resulting from operations $351,805,891
============
See Notes to Financial Statements.
7
BARON PARTNERS FUND
- -----------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the FOR THE
Year Ended YEAR ENDED
December 31, 2006 DECEMBER 31, 2005
-------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss $ (14,208,767) $ (9,744,412)
Net realized gain on investments 15,386,260 33,784,164
Net change in unrealized appreciation on
investments 350,628,398 131,774,894
-------------- --------------
Increase in net assets resulting from
operations 351,805,891 155,814,646
-------------- --------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net realized gain on investments (6,212,696) (53,956,540)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from the sale of shares 1,129,088,771 1,048,959,250
Net asset value of shares issued in
reinvestment of dividends 5,867,920 51,770,755
Cost of shares redeemed (480,519,337) (432,281,144)
-------------- --------------
Increase in net assets derived from
capital share transactions 654,437,354 668,448,861
-------------- --------------
Net increase in net assets 1,000,030,549 770,306,967
NET ASSETS:
Beginning of year 1,403,038,766 632,731,799
-------------- --------------
End of year $2,403,069,315 $1,403,038,766
============== ==============
ACCUMULATED NET INVESTMENT INCOME AT END
OF YEAR $ 0 $ 0
============== ==============
SHARES:
Shares sold 55,234,988 61,189,922
Shares issued in reinvestment of
dividends 262,312 2,977,432
Shares redeemed (24,056,794) (25,609,039)
-------------- --------------
NET INCREASE 31,440,506 38,558,315
============== ==============
STATEMENT OF CASH FLOWS
- -----------------------------------------------------------------------------
FOR THE YEAR ENDED
DECEMBER 31, 2006
------------------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES:
Sales of capital shares $ 1,123,681,777
Cash distributions paid (344,776)
Repurchase of capital shares (481,110,758)
---------------
Cash provided by capital share transactions 642,226,243
---------------
Decrease in due from broker 427,617
Increase in due to custodian bank (91,500,000)
---------------
551,153,860
---------------
CASH PROVIDED (USED) BY OPERATIONS:
Purchases of portfolio securities (1,160,032,414)
Proceeds from sales of portfolio securities 681,794,479
Cash paid in connection with swap transactions (202,375)
Other decreases (6,973)
---------------
(478,447,283)
---------------
Net investment loss (14,208,767)
Net change in receivables/payables related to operations (2,451,989)
---------------
(495,108,039)
---------------
Net increase in cash and cash equivalents 56,045,821
---------------
Cash and cash equivalents beginning of year 665,739
---------------
Cash and cash equivalents end of year $ 56,711,560
===============
Supplemental cash flow information:
Interest paid $ 8,452,323
===============
Non-cash financing activities:
Net asset value of shares issued in reinvestment of
dividends $ 5,867,920
===============
See Notes to Financial Statements.
8
BARON PARTNERS FUND
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
(1) ORGANIZATION.
Baron Select Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end management investment
company established as a Delaware statutory trust on April 30, 2003. Baron
Partners Fund (the "Fund") is a separate non-diversified series of the Trust.
The Fund may employ "leverage" by borrowing money and using it for the purchase
of additional securities. Borrowing for investment increases both investment
opportunity and investment risk. The Fund's investment objective is to seek
capital appreciation.
The Fund was organized originally as a limited partnership in January 1992,
under the laws of the State of Delaware (the "Partnership"). Effective as of the
close of business on April 30, 2003, the Partnership was reorganized into a
Delaware statutory trust. The Fund commenced operations with an initial tax-
free contribution of assets and liabilities, including securities-in-kind from
the Partnership.
(2) SIGNIFICANT ACCOUNTING POLICIES.
The following is a summary of significant accounting policies followed by the
Fund. The policies are in conformity with accounting principles generally
accepted in the United States of America.
(A) SECURITY VALUATION. Portfolio securities traded on any national stock
exchange are valued based on the last sale price. For securities traded on
NASDAQ, the Fund uses the NASDAQ Official Closing Price. Where market quotations
are not readily available, or in the Adviser's judgment, they do not accurately
reflect fair value of a security, or an event occurs after the market close but
before the Fund is priced that materially affects the value of a security, the
securities will be valued by the Adviser using procedures established by the
Board of Trustees. The Adviser has a fair valuation committee comprised of
senior executives and members of the Board. Factors the committee uses include
whether a current price is stale, there is recent news, the security is thinly
traded, transactions are infrequent, or quotations are genuine. There can be no
assurance, however, that a fair valuation used by the Fund on any given day will
more accurately reflect the market value of an investment than the closing price
of such investment in its market. Debt instruments having a remaining maturity
greater than sixty days will be valued at the highest bid price from the dealer
maintaining an active market in that security or on the basis of prices obtained
from a pricing service approved by the Board of Trustees. Money market
instruments held by the Fund with a remaining maturity of sixty days or less are
valued at amortized cost, which approximates value.
(B) SECURITIES TRANSACTIONS, INVESTMENT INCOME AND EXPENSE ALLOCATION.
Securities transactions are recorded on a trade date basis. Realized gain and
loss from securities transactions are recorded on an identified cost basis for
financial reporting and federal income tax purposes. Dividend income/expense is
recognized on the ex-dividend date and interest income is recognized on an
accrual basis, which includes the accretion of discounts and amortization of
premiums.
(C) FEDERAL INCOME TAXES. It is the policy of the Fund to continue to qualify as
a regulated investment company under Subchapter M of the Internal Revenue Code
and to distribute all of its taxable income, including net realized capital
gains, if any, to its shareholders. No federal income tax provision is therefore
required.
(D) RESTRICTED SECURITIES. The Fund invests in securities which are restricted
as to public sale in accordance with the Securities Act of 1933. Such assets are
valued at fair value as determined in good faith by the Board of Trustees.
(E)DISTRIBUTIONS. Income and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for net operating losses, and wash sale losses deferred.
Distributions received from certain investments held by the Fund may be
comprised of dividends, realized gains and return of capital. The Fund
originally estimates the expected classification of such payments. The amounts
may subsequently be reclassified upon receipt of information from the issuer.
(F) USE OF ESTIMATES. The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements, and
the amounts of income and expenses during the period. Actual results could
differ from those estimates.
(G) COMMITMENTS AND CONTINGENCIES. In the normal course of business, the Fund
may enter into contracts and agreements that contain a variety of
representations and warranties, which provide general indemnification. The
maximum exposure to the Fund under these agreements is unknown, as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, based on experience, the Fund expects the risk of loss to be
remote.
(H) CASH AND CASH EQUIVALENTS. The Fund considers all short term liquid
investments with a maturity of three months of less when purchased to be cash
equivalents.
9
BARON PARTNERS FUND
- -----------------------------------------------------------------------------
(I) NEW ACCOUNTING PRONOUNCEMENTS. In July 2006, the Financial Accounting
Standards Board ("FASB") issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes" ("FIN 48"), which clarifies the accounting for
uncertainty in tax positions taken or expected to be taken in a tax return. FIN
48 sets forth a threshold for financial statement recognition, measurement and
disclosure of tax positions taken or expected to be taken on a tax return. FIN
48 is effective for fiscal years beginning after December 15, 2006 (January 1,
2007 for calendar year companies), and is to be applied to all open tax years as
of the date of effectiveness. Management is currently evaluating the impact, if
any, of applying the various provisions of FIN 48.
In September 2006, FASB issued Statement of Financial Accounting Standards No.
157 ("SFAS 157"). SFAS 157, which defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles, clarifies
the definition of fair value within that framework, and expands disclosures
about the use of fair value measurements. SFAS 157 is intended to increase
consistency and comparability among fair value estimates used in financial
reporting. SFAS 157 is effective for fiscal years beginning after November 15,
2007. Management is currently evaluating the impact, if any, of applying the
various provisions of SFAS 157.
(3) PURCHASES AND SALES OF SECURITIES.
For the year ended December 31, 2006, purchases and sales of securities, other
than short-term securities, aggregated $1,180,345,852 and $681,864,926,
respectively.
(4) INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
(A) INVESTMENT ADVISORY FEES. BAMCO, Inc. (the "Adviser"), a wholly owned
subsidiary of Baron Capital Group, Inc. ("BCG"), serves as investment adviser to
the Fund. As compensation for services rendered, the Adviser receives a fee
payable monthly from the assets of the Fund equal to 1% per annum of the Fund's
average daily net asset value. The Adviser has contractually agreed to reduce
its fee to the extent required to limit the expense ratio for the Fund to 1.45%,
excluding portfolio transaction costs, interest and extraordinary expenses.
(B) DISTRIBUTION FEES. Baron Capital, Inc. ("BCI"), a wholly owned subsidiary of
BCG, is a registered broker-dealer and the distributor of the shares of the Fund
pursuant to a distribution plan under Rule 12b-1 of the 1940 Act. The
distribution plan authorizes the Fund to pay BCI a distribution fee equal on an
annual basis to 0.25% of the Fund's average daily net assets.
(C) TRUSTEE FEES. Certain Trustees of the Trust may be deemed to be affiliated
with or interested persons (as defined by the 1940 Act) of the Fund's Adviser or
of BCI. None of the Trustees so affiliated received compensation for his or her
services as a Trustee of the Trust. None of the Fund's officers received
compensation from the Fund.
(5) LINE OF CREDIT. The Fund has a line of credit with the custodian bank in the
amount of $250,000,000 to be used for investment purposes. Interest is charged
to the Fund, based on its borrowings, at a rate per annum equal to the Federal
Funds Rate plus a margin of 1.50%.
During the year ended December 31, 2006, the Fund had an average daily balance
on the line of credit of $131,036,630 at a weighted average interest rate of
6.16%. At December 31, 2006, there were no loans outstanding under the line of
credit.
(6) SWAP CONTRACTS. The Fund may enter into equity swap transactions as a
substitute for investing or selling short directly in securities. A swap
transaction is entered into with a counterparty to exchange the returns on a
particular security or a basket of securities. The gross returns to be exchanged
or "swapped" between the parties are calculated with respect to a "notional
amount". The counterparty will generally agree to pay the Fund the amount, if
any, by which the notional amount of the swap contract would have increased had
it been invested or decreased if sold short in the particular stocks. Upon
entering into the swap contract, the Fund is required to pledge to the broker an
amount of cash and/or other assets equal to a certain percentage of the contract
amount. During the period the swap contract is open, the Fund marks to market
the underlying instruments, including accrued dividends, and recognizes any
unrealized gain or loss. Net payments made or received periodically are
recognized as realized gain or loss. Swap contracts may involve exposure to loss
in excess of the amount recognized in the Statement of Assets and Liabilities.
The notional amount reflects the exposure the Fund has in the underlying
securities. These transactions are subject to credit risks in addition to the
various risks related to the underlying securities. At December 31, 2006, there
were no swap contracts outstanding.
10
BARON PARTNERS FUND
- -----------------------------------------------------------------------------
(7) SHORT SALES. The Fund may sell securities short. When the Fund sells short,
the Fund records a liability for securities sold short and records an asset
equal to the proceeds received. The amount of the liability is subsequently
marked to market to reflect the market value of the securities sold short. The
Fund may incur dividend expense if a security that has been sold short declares
a dividend. The Fund is exposed to market risk based on the amount, if any, that
the market value of the securities sold short exceeds the proceeds received. The
Fund is required to maintain collateral in a segregated account for the
outstanding short sales. Short sales involve elements of market risks and
exposure to loss in excess of the amount recognized in the Statement of Assets
and Liabilities. The Fund's risk of loss in these types of short sales is
unlimited because there is no limit to the cost of replacing the borrowed
security.
(8) RESTRICTED SECURITIES. At December 31, 2006, investments in securities
included securities that are restricted and/or illiquid. Restricted securities
are often purchased in private placement transactions, are not registered under
the Securities Act of 1933, may have contractual restrictions on resale, and are
valued under methods approved by the Board of Trustees as reflecting fair value.
A security may be considered illiquid if it lacks a readily available market or
if its valuation has not changed for a certain period of time. At December 31,
2006, the Fund held an investment in a restricted and illiquid security that was
valued under approved methods by the Board, as follows:
ACQUISITION
NAME OF ISSUER DATE VALUE
- -------------- ----------- -----------
COMMON STOCK
Kerzner Intl. Holdings, Ltd., Cl A (See Note 9) 09/27/06 $39,000,000
(Cost $39,000,000) (1.62% of Net Assets)
(9) COMMITMENTS AND CONTINGENCIES. On September 27, 2006, Baron Partners Fund,
in connection with its investment in Kerzner Intl. Holdings Ltd. ("Kerzner"),
agreed to guarantee ("Windstorm Guarantee") its proportionate share (based on
the Fund's ownership interests in Kerzner), of certain obligations relating to
amounts that may become payable due to wind or storm damage at Kerzner's
Bahamian properties to the lenders that financed the Kerzner acquisition. The
maximum amount of potential future payments by the Fund would be $3,984,656. The
Windstorm Guarantee will expire June 2009. Accordingly, Baron Partners Fund has
segregated securities valued in excess of the guarantee amount to meet these
contingencies.
(10) INCOME TAXES AND DISTRIBUTIONS TO SHAREHOLDERS.
Federal income tax regulations differ from generally accepted accounting
principles; therefore, distributions determined in accordance with tax
regulations may differ in amount or character from net investment income and
realized gains for financial reporting purposes. Net investment loss and
realized and unrealized gains differ for financial statement and tax purposes
due to differing treatment of wash sale losses deferred and net investment loss.
Financial reporting records are adjusted for permanent book/tax differences to
reflect tax character. Financial records are not adjusted for temporary
differences.
For the year ended December 31, 2006, the Fund recorded the following permanent
reclassifications to reflect tax character. Reclassifications between income,
gains and paid-in-capital relate primarily to the tax treatment of net
investment loss. Results of operations and net assets were not affected by these
reclassifications.
UNDISTRIBUTED UNDISTRIBUTED
NET INVESTMENT REALIZED
INCOME GAIN/LOSS CAPITAL-PAID-IN
--------------------- ----------------------- ---------------------
$ 14,208,767 $ 5,200 $ (14,213,967)
11
BARON PARTNERS FUND
- -----------------------------------------------------------------------------
(10) INCOME TAXES AND DISTRIBUTIONS TO SHAREHOLDERS (CONTINUED)
As of December 31, 2006, the components of net assets on a tax basis were as
follows:
Cost of investments $ 1,764,138,392
===============
Gross tax unrealized appreciation $ 657,660,791
Gross tax unrealized depreciation (29,392,855)
---------------
Net tax unrealized appreciation 628,267,936
Undistributed Long-Term Capital Gains 4,246,886
Capital paid-in 1,770,554,493
---------------
Net Assets $2,403,069,315
===============
The tax character of distributions paid during the fiscal years ended
December 31, 2006 and 2005 were as follows:
2006 2005
---------- -----------
Long-term capital gains $6,212,696 $26,360,760
Ordinary Income* 27,595,780
- ---------------
* For tax purposes, short-term capital gains are considered ordinary income
distributions.
(11) FINANCIAL HIGHLIGHTS.
Selected data for a share of beneficial interest outstanding throughout each
year:
YEAR ENDED DECEMBER 31,
--------------------------------------
2006 2005 2004 2003*
-------- -------- ------ ------
NET ASSET VALUE, BEGINNING OF YEAR $ 18.43 $ 16.85 $12.17 $10.00
-------- -------- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (0.16)^ (0.13) (0.06) (0.10)
Net realized and unrealized gain on investments 4.13 2.49 5.17 3.63
-------- -------- ------ ------
TOTAL FROM INVESTMENT OPERATIONS 3.97 2.36 5.11 3.53
-------- -------- ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income 0.00 0.00 0.00 0.00
Distributions from net realized gains (0.06) (0.78) (0.43) (1.36)
-------- -------- ------ ------
TOTAL DISTRIBUTIONS (0.06) (0.78) (0.43) (1.36)
-------- -------- ------ ------
NET ASSET VALUE, END OF YEAR $ 22.34 $ 18.43 $16.85 $12.17
======== ======== ====== ======
TOTAL RETURN 21.55% 14.37% 42.35% 35.76%
-------- -------- ------ ------
RATIOS/SUPPLEMENTAL DATA
Net assets (in millions), end of year $2,403.1 $1,403.0 $632.7 $164.3
Ratio of total expenses to average net assets 1.77% 1.62% 1.46% 1.77%
Less: Ratio of interest expense to average net assets (0.45%) (0.27%) (0.12%) (0.37%
-------- -------- ------ ------
Ratio of operating expenses to average net assets 1.32% 1.35% 1.34% 1.40%
======== ======== ====== ======
Ratio of net investment loss to average net assets (0.80%) (0.85%) (0.83%) (1.39%
Portfolio turnover rate 35.92% 37.62% 57.77% 36.67%
- ---------------
* For the period April 30, 2003 (commencement of operations) to December 31,
2003.
** Annualized.
+ Not annualized.
^ Based on average shares outstanding.
12
BARON PARTNERS FUND
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
- ------------------------------------
TO THE BOARD OF TRUSTEES
AND SHAREHOLDERS OF BARON
PARTNERS FUND
- ------------------------------------
In our opinion, the accompanying statement of assets and liabilities, including
the statement of net assets, and the related statements of operations and of
changes in net assets and cash flows, and the financial highlights present
fairly, in all material respects, the financial position of Baron Partners Fund
(the "Fund"), at December 31, 2006, the results of its operations, the changes
in its net assets and its cash flows, and the financial highlights for each of
the periods presented, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 2006 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 26, 2007
13
BARON PARTNERS FUND
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days
of the Fund's fiscal year end as to the federal tax status of distributions paid
by the Fund during such fiscal year.
The Fund's distributions to shareholders included:
o $6,212,696 from long-term capital gains, subject to a maximum
allowable rate of 15% for individuals pursuant to The Jobs and Growth
Tax Relief Reconciliation Act of 2003.
The information and distributions reported may differ from the information
and distributions taxable to the shareholders for the calendar year ended
December 31, 2006. The information necessary to complete your income tax return
for the calendar year ended December 31, 2006 is listed on Form 1099- DIV which
was mailed to you in January 2007.
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
The Board of Trustees oversees the management of Baron Select Funds (the
"Fund"). The following table lists the Trustees and executive officers of the
Fund, their date of birth, current positions held with the Fund, length of time
served, principal occupations during the past five years and other
Trusteeships/Directorships held outside the Fund complex. Unless otherwise
noted, the address of each executive officer and Trustee is Baron Funds, 767
Fifth Avenue, 49th Floor, New York, NY 10153. Trustees who are not deemed to be
"interested persons" of the Fund as defined in the 1940 Act are referred to as
"Disinterested Trustees." Trustees who are deemed to be "interested persons" of
the Fund are referred to as "Interested Trustees." All Trustees listed below,
whether Interested or Disinterested, serve as trustee for the Fund.
- ------------------------------------------------------------------------------------------------------------------------------
OTHER TRUSTEE/
NAME, ADDRESS & POSITION(S) HELD LENGTH OF PRINCIPAL OCCUPATION(S) DIRECTORSHIPS
DATE OF BIRTH WITH THE FUND TIME SERVED DURING THE PAST FIVE YEARS HELD BY THE TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES:
Ronald Baron *+ Chief Executive 4 years Chairman, CEO and Director: Baron None outside Baron
767 Fifth Avenue Officer, Chief Capital, Inc. (1982-Present), Funds Complex.
New York, NY 10153 Investment Officer, Baron Capital Management, Inc.
DOB: May 23, 1943 Trustee and Portfolio (1983-Present), Baron Capital
Manager Group, Inc. (1984-Present),
BAMCO, Inc. (1987-Present);
President: Baron Capital, Inc.
(03/06-Present), Baron Capital
Management, Inc. (03/06-Present),
Baron Capital Group, Inc. (03/06-
Present), BAMCO, Inc. (03/06-
Present);Chairman (1999-2004),
CIO and Trustee (1987-Present):
Baron Investment Funds Trust;
President (2004-02/07), Chairman
(1997-2004), CIO and Trustee
(1997-Present): Baron Capital
Funds Trust; President (2004-02/
07), Chairman (2003-2004), CIO
and Trustee (2003-Present): Baron
Select Funds; CIO and Portfolio
Manager: Baron Managed Funds plc
(2005-Present).
14
BARON PARTNERS FUND
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
OTHER TRUSTEE/
NAME, ADDRESS & POSITION(S) HELD LENGTH OF PRINCIPAL OCCUPATION(S) DIRECTORSHIPS
DATE OF BIRTH WITH THE FUND TIME SERVED DURING THE PAST FIVE YEARS HELD BY THE TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES:
Linda S. Martinson*+ President, Chief 4 years President: Baron Investment Funds None outside the
767 Fifth Avenue Operating Officer, (Appointed Trust, Baron Capital Funds Trust, Baron Funds Complex.
New York, NY 10153 Secretary, General President Baron Select Funds (02/07-
DOB: February 23, 1955 Counsel and Trustee 02/7) Present); Chief Operating
Officer: Baron Investment Funds
Trust, Baron Capital Funds Trust;
Baron Select Funds (05/06-
Present); Secretary, Trustee,
General Counsel: Baron Investment
Funds Trust (1987-Present), Baron
Capital Funds Trust (1998-
Present), Baron Select Funds
(2003-Present); Vice President:
Baron Investment Funds Trust
(1987-2007), Baron Capital Funds
Trust (1998-2007), Baron Select
Funds (2003-2007); Chief
Operating Officer: Baron Capital
Group, Inc., Baron Capital, Inc.,
BAMCO, Inc., and Baron Capital
Management, Inc. (05/06-Present);
Director: Baron Managed Funds plc
(2005-Present), BAMCO, Inc.
(1988-1996, 2003-Present), Baron
Capital Group, Inc., Baron
Capital, Inc., Baron Capital
Management, Inc. (2003-Present);
Vice President: Baron Capital
Group, Inc. (1999-Present), Baron
Capital, Inc., Baron Capital
Management, Inc. (1998-Present),
BAMCO, Inc. (1993-Present);
General Counsel: BAMCO, Inc.
(1987-Present), Baron Capital
Group, Inc. (1984-Present), Baron
Capital, Inc., Baron Capital
Management, Inc. (1983-Present);
Secretary: Baron Capital, Inc.,
Baron Capital Management, Inc.,
Baron Capital Group, Inc. (1997-
Present), BAMCO, Inc. (1987-
Present); Treasurer: BAMCO, Inc.
(1987-1993).
15
BARON PARTNERS FUND
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER TRUSTEE/
NAME, ADDRESS & POSITION(S) HELD LENGTH OF PRINCIPAL OCCUPATION(S) DIRECTORSHIPS
DATE OF BIRTH WITH THE FUND TIME SERVED DURING THE PAST FIVE YEARS HELD BY THE TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED TRUSTEES:
Norman S. Edelcup++^** Trustee 4 years Director (2006-Present) CompX Director (2006-
City of Sunny Isles International, Inc. (diversified Present) CompX
Beach manufacturer of engineered International, Inc.
18070 Collins Avenue components); Mayor (2003- (diversified
Sunny Isles Beach, FL Present), Commissioner (2001- manufacturer of
33160 2003), Sunny Isles Beach, engineered
DOB: May 8, 1935 Florida; Director, (2001-2006), components); Director
Senior Vice President (2001- (1975-Present),
2004), Florida Savings Bank; Valhi, Inc.
Senior Vice President (1999- (diversified
2000), Item Processing of America company).
(a subsidiary of The Intercept
Group); Chairman (1989-1999),
Item Processing of America (a
financial institution service
bureau); Director (1975-
Present), Valhi, Inc.
(diversified company); Director
(1985-1998), Artistic Greetings,
Inc.; Trustee (1987-Present),
Baron Investment Funds Trust;
Trustee (1997-Present), Baron
Capital Funds Trust; Trustee
(2003-Present), Baron Select
Funds.
David I. Fuente ^** Trustee 3 years Director (1987-Present), Chairman Director (1987-
701 Tern Point Circle (1987-2001), CEO (1987-2000) Present), Office
Boca Raton, FL 33431 Office Depot; Director (1998- Depot; Director
DOB: September 10, 1945 Present), Ryder Systems, Inc.; (1998-Present), Ryder
Director (1993-Present), Dick's Systems, Inc.;
Sporting Goods, Inc.; Trustee Director (1993-
(2004-Present), Baron Investment Present), Dick's
Funds Trust, Baron Capital Funds Sporting Goods, Inc.
Trust, and Baron Select Funds.
Charles N. Mathewson ^** Chairman and Trustee 4 years; Chairman Emeritus (October 2003- None outside the
9295 Prototype Drive Elected as Present), Chairman (1986-2003), Baron Funds Complex.
Reno, NV 89521 Chairman International Game Technology,
DOB: June 12, 1928 08/04 Inc. (manufacturer of
microprocessor-controlled gaming
machines and monitoring systems);
Chairman (1994-2002), American
Gaming Association; Chairman
(2004-Present), Trustee (1987-
Present), Baron Investment Funds
Trust; Chairman (2004-Present),
Trustee (1997-Present), Baron
Capital Funds Trust; Chairman
(2004-Present), Trustee (2003-
Present), Baron Select Funds.
Harold W. Milner ^** Trustee 4 years Retired; President and CEO (1985- None outside the
2293 Morningstar Drive 1997, Kahler Realty Corporation) Baron Funds Complex.
Park City, UT 84060 (hotel ownership and management);
DOB: November 11, 1934 Trustee (1987-Present), Baron
Investment Funds Trust; Trustee
(1997-Present), Baron Capital
Funds Trust; Trustee (2003-
Present), Baron Select Funds.
16
BARON PARTNERS FUND
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER TRUSTEE/
NAME, ADDRESS & POSITION(S) HELD LENGTH OF PRINCIPAL OCCUPATION(S) DIRECTORSHIPS
DATE OF BIRTH WITH THE FUND TIME SERVED DURING THE PAST FIVE YEARS HELD BY THE TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED TRUSTEES:
Raymond Noveck++^** Trustee 4 years Private Investor (1999-Present); None outside the
31 Karen Road President (1997-1998), The Baron Funds Complex.
Waban, MA 02168 Medical Information Line, Inc.
DOB: May 4, 1943 (health care information);
President (1990-1997), Strategic
Systems, Inc. (health care
information); Director (1987-
1997), Horizon/CMS Healthcare
Corporation; Trustee (1987-
Present), Baron Investment Funds
Trust; Trustee (1997-Present),
Baron Capital Funds Trust;
Trustee (2003-Present), Baron
Select Funds.
David A. Silverman, MD^** Trustee 4 years Physician and Faculty Director (1999-
146 Central Park West (1976-Present), New York Present), New York
New York, NY 10024 University School of Medicine; Blood Center.
DOB: March 14, 1950 Trustee (1987-Present),
Baron Investment Funds Trust;
Trustee (1997-Present),
Baron Capital Funds Trust;
Trustee (2003-Present), Baron
Select Funds.
Alex Yemenidjian^** Trustee (less than) 1 year Trustee (2006-Present), Baron Director (2005-
1925 Century Park East (Voted into Investment Funds Trust; Chairman Present), Guess?,
Suite 1975 office12/06) and CEO (2005-Present), Armenco Inc.; Director (2005-
Los Angeles, CA 90067 Holdings, LLC (investment Present), Regal
DOB: December 27, 1955 company); Director (2005- Entertainment Group;
Present), Guess?, Inc. (retail); Director (2005-
Director (2005-Present), Regal Present), USC
Entertainment Group Marshall School of
(entertainment company); Business Board of
Director, (2005-Present) USC Leaders; Co-chair of
Marshall School of Business Board Imagine the Arts
of Leaders; Co-chair of Imagine Campaign (2005-
the Arts Campaign (2005-Present), Present), California
California State University- State University-
Northridge; Trustee (2000- Northridge; Trustee
Present), American Film (2000-Present),
Institute; Chairman and CEO American Film
(1999-2005), Metro-Goldwyn-Mayer, Institute; Director
Inc.; Director (1989-Present), (1989-Present), The
The Lincy Foundation; Director Lincy Foundation;
(1989-Present), The United Director (1989-
Armenian Fund; Director and Present), The United
member of Executive Committee Armenian Fund;
(1989-2005), MGM MIRAGE, Inc.; Director and member
President and COO (1989-1999), of Executive
MGM Grand, Inc. (now MGM MIRAGE, Committee (1989-
Inc.); Managing Partner (1984- 2005), MGM MIRAGE,
1989), Parks, Palmer, Turner & Inc.
Yemenidjian (certified public
accounting firm).
17
BARON PARTNERS FUND
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
OTHER TRUSTEE/
NAME, ADDRESS & POSITION(S) HELD LENGTH OF PRINCIPAL OCCUPATION(S) DIRECTORSHIPS
DATE OF BIRTH WITH THE FUND TIME SERVED DURING THE PAST FIVE YEARS HELD BY THE TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL OFFICERS OF THE FUND:
Clifford Greenberg Senior Vice President 4 years Director: BAMCO, Inc., Baron None.
767 Fifth Avenue and Portfolio Manager Capital Management, Inc. (2003-
New York, NY 10153 Present); Director: Baron Capital
DOB: April 30, 1959 Group, Inc., Baron Capital, Inc.
(2000-Present); Senior Vice
President: Baron Capital Group,
Inc., Baron Capital, Inc., Baron
Capital Management, Inc. and
BAMCO, Inc. (2003-Present); Vice
President: Baron Capital, Inc.
(1997-2003); Portfolio Manager:
Baron Small Cap Fund (1997-
Present); General Partner: HPB
Associates, L.P. (1984-1996).
Gretta J. Heaney Chief Compliance 3 years Chief Compliance Officer: Baron None.
767 Fifth Avenue Officer Managed Funds plc (2005-Present),
New York, NY 10153 Baron Investment Funds Trust,
DOB: July 10, 1960 Baron Capital Funds Trust, Baron
Select Funds (2004-Present); Vice
President, Assistant General
Counsel, Chief Compliance
Officer: Baron Capital
Management, Inc., BAMCO, Inc.
(2004-Present), Baron Capital,
Inc. (2002-Present); Vice
President, Goldman Sachs (2000-
2002); Vice President, Associate
Counsel, Hoenig & Co., Inc.
(1995-2000).
Andrew Peck Vice President and 4 years Vice President: BAMCO, Inc. None
767 Fifth Avenue Co-Portfolio Manager (2003-Present); Vice President:
New York, NY 10153 Baron Investment Funds Trust
DOB: March 25, 1969 (2003-Present); Vice President,
Research Analyst: Baron Capital,
Inc. (1998-Present); Co-Portfolio
Manager: Baron Asset Fund (2003-
Present); Co-Portfolio Manager
(mid cap accounts): Baron Capital
Management, Inc. (04/06-
Present).
Susan Robbins Vice President 4 years Director, Vice President and None
767 Fifth Avenue Senior Analyst: Baron Capital
New York, NY 10153 Management, Inc. (1982-Present),
DOB: October 19, 1954 Baron Capital, Inc. (1982-
Present), BAMCO, Inc. (1997-
Present), Baron Capital Group,
Inc. (1982-Present); Vice
President: Baron Investment Funds
Trust (1994-Present), Baron
Capital Funds Trust (1998-
Present), Baron Select Funds
(2003-Present).
Peggy C. Wong Treasurer and Chief 4 years Chief Financial Officer: Baron None
767 Fifth Avenue Financial Officer Capital Group, Inc., Baron
New York, NY 10153 Capital, Inc., BAMCO, Inc., Baron
DOB: April 30, 1961 Capital Management, Inc., Baron
Investment Funds Trust (1987-
Present); Treasurer: Baron
Capital, Inc. (1988-Present),
Baron Capital Group, Inc. and
Baron Capital Management, Inc.
(1990-Present), BAMCO, Inc.
(1993-Present); Baron Investment
Funds Trust (1992-Present); Chief
Financial Officer, Treasurer:
Baron Capital Funds Trust (1998-
Present), Baron Select Funds
(2003-Present), Baron Managed
Funds plc. (2005-Present).
- -------------------------------------------------------------------------------
* Trustees deemed to be "interested persons" of the Fund as that term is
defined in the Investment Company Act of 1940 by reason of their
employment with the Fund's Adviser and Distributor.
+ Members of the Executive Committee, which is empowered to exercise all of
the powers, including the power to declare dividends, of the full Board
of Trustees when the full Board of Trustees is not in session.
++ Members of the Audit Committee.
^ Members of the Nominating Committee.
** Members of the "Non-Interested" Committee.
18
[Registered Castle Logo]
B A R O N
S E L E C T
F U N D S
AR06
Item 2. Code of Ethics.
Filed herewith pursuant to Item 10(a) (1) of Item 2 to Form N-CSR. The
Fund will provide a copy of the Code of Ethics to any person without
charge, upon written request to info@baronfunds.com or by calling
1-800-992-2766.
Item 3. Audit Committee Financial Expert.
The Board of Trustees of the Fund has determined that Norman S.
Edelcup, and Raymond Noveck, both members of the Audit Committee,
possess the technical attributes identified in Instruction 2(b) of
Item 3 to Form N-CSR to qualify as "Audit Committee Financial Expert"
and has designated both Mr. Edelcup and Raymond Noveck as the Audit
Committee's Financial Experts. Both Mr. Noveck and Mr. Edelcup are
"idependent" Trustees pursuant to paragraph (a)(2) of Item 3 to Form
N-CSR.
Item 4. Principal Accountant Fees and Services.
The following table shows the fees paid to PricewaterhouseCoopers,
LLP, the registrant's prinicpal accounting firm during the fiscal year
January 1, 2006 to December 31, 2006 (a) for profesional services
rendered for the audit of the registrant's annual financial statements
or services that are normally provided in connection with statutory
and regulatory filings or engagements ("Audit Fees"), (b) for
assurance and related services that are reasonably related to the
performance of the audit and are not included as Audit Fees
("Audit-Related Fees"), (c) for professional services rendered for tax
compliance, tax advice and tax planning ("Tax Fees"), and (d) for
products and services provided by such accounting firm that are not
included in (a), (b) or (c) above ("All Other Fees").
For the Fiscal Year Ended December 31, 2006:
Audit Fees Tax Fees
----------- ---------
Baron Partners Fund $30,000 $0
Pursuant to its charter, the Audit Committee shall pre-approve all
audit and non-audit services provided by the independent auditors and
in connection therewith to review and elvaluate the qualifications,
independence and performance of the Fund's independent auditors.
Item 5. Audit Committee of Listed Registrants.
The members of the Fund's Audit Committee are Norman Edelcup and
Raymond Noveck, both "idependent" Trustees pursuant to paragraph
(a)(2) of Item 3 to Form N-CSR.
Item 6. Schedule of Investments.
Please see Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
NOT APPLICABLE.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
NOT APPLICIABLE.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
NOT APPLICABLE.
Item 10. Submission of Matters to a Vote of Security Holders.
NOT APPLICABLE.
Item 11. Controls and Procedures.
(a) The Registrant's principal executive officer and principal
financial officer have concluded that the Registrant's disclosure
controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940 (the "1940 Act")) are effective as of a
date within 90 days of the filing date of the report that includes the
disclosure required by this paragraph, based on the evaluation of
these controls and procedures required by Rule 30a-3(b) under the 1940
Act and Rules 15d-15(b) under the Securities Exchange Act of 1934, as
amended.
(b) There were no changes in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Investment
Company Act of 1940) that occurred during the Registrant's second
fiscal quarter of the period covered by this report that have
materially affected, or are reasonably likely to materially affect,
the Registrant's internal control over financial reporting.
Item 12. Exhibits.
a). Ex-99.COE
Current copy of the Funds Code of Ethics pursuant to Item 2 of the
Form N-CSR.
b). Ex-99.CERT
Certification pursuant to Item 10(b) of the Form N-CSR.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
BARON SELECT FUNDS
By: /s/ Ronald Baron
-------------------
Ronald Baron
Chief Executive Officer
Date: March 9, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Ronald Baron
--------------------
Ronald Baron
Chief Executive Officer
Date: March 9, 2007
By: /s/ Peggy Wong
--------------------
Peggy Wong
Treasurer and Chief Financial Officer
Date: March 9, 2007
A signed original of this written statement has been provided to Baron Select
Funds and will be retained by Baron Select Funds and furnished to the Securities
and Exchange Commission or its staff upon request.