UNITED STATES OMB APPROVAL
SECURITIES AND EXCHANGE COMMISSION OMB Number: 3235 -0570
Washington, D.C. 20549 Expires: October 31, 2006
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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
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(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
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Date of fiscal year end: December 31
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Date of reporting period: June 30, 2005
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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
June 30, 2005.
[Registered Logo]
B A R O N
S E L E C T
F U N D S
FUND EXPENSES......................................2
STATEMENT OF NET
ASSETS............................................3
STATEMENT OF ASSETS &
LIABILITIES.......................................5
STATEMENT OF OPERATIONS............................5
STATEMENT OF CHANGES
IN NET ASSETS.....................................6
STATEMENT OF CASH FLOWS............................7
NOTES TO FINANCIAL STATEMENTS......................8
767 Fifth Avenue
NY, NY 10153
212.583.2100
1.800.99.BARON
BaronFunds.com
SEMI-ANNUAL FINANCIAL REPORT JUNE 30, 2005
DEAR BARON PARTNERS FUND
SHAREHOLDER:
Attached you will find unaudited financial statements for Baron Partners Fund
for the six months ended June 30, 2005. The Securities and Exchange Commission
requires mutual funds to furnish these statements semi-annually to their
shareholders.
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
Ronald Baron
CEO and Portfolio Manager
August 8, 2005
/s/ Peggy Wong
Peggy Wong
Treasurer and CFO
August 8, 2005
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.
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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. The Fund's
Portfolio Holdings reported herein are current at June 30, 2005, but its
composition is subject to change.
BARON PARTNERS FUND
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FUND EXPENSES (UNAUDITED)
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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. 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 January 1,
2005, and held for the six months ended June 30, 2005.
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(1)
BEGINNING ENDING ANNUALIZED EXPENSES
ACTUAL TOTAL ACCOUNT VALUE ACCOUNT VALUE EXPENSE PAID DURING
RETURN JANUARY 1, 2005 JUNE 30, 2005 RATIO THE PERIOD(2)
------------ --------------- ------------- ---------- -------------
BARON PARTNERS FUND 4.61% $1,000 $1,046 1.54%* $7.81
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(1) For the six months ended June 30, 2005. Assumes all reinvestment of
dividends and capital gain distributions, if any.
(2) 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 TOTAL RETURN(1)
HYPOTHETICAL BEGINNING ENDING ANNUALIZED EXPENSES
ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE EXPENSE PAID DURING
TOTAL RETURN JANUARY 1, 2005 JUNE 30, 2005 RATIO THE PERIOD(2)
------------ --------------- ------------- ---------- -------------
BARON PARTNERS FUND 5.00% $1,000 $1,017 1.54%* $7.70
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(1) For the six months ended June 30, 2005.
(2) 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 June 30, 2005, includes
1.34% for operating expenses and 0.20% for interest expense.
2
BARON PARTNERS FUND
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STATEMENT OF NET ASSETS
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AS OF JUNE 30, 2005 (UNAUDITED)
Shares Cost Value
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COMMON STOCKS (105.95%)
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BUSINESS SERVICES (12.87%)
2,000,000 ChoicePoint, Inc.*+ $ 69,222,010 $ 80,100,000
2,200,000 Iron Mountain, Inc.* 64,454,323 68,244,000
---------- ----------
133,676,333 148,344,000
CONSULTING (5.81%)
2,525,000 Hewitt Associates, Inc.* 73,161,113 66,937,750
EDUCATION (9.24%)
1,175,000 Apollo Group, Inc., Cl A* 70,888,336 91,908,500
170,000 Strayer Education, Inc. 18,097,588 14,664,200
---------- ----------
88,985,924 106,572,700
ENERGY SERVICES (4.64%)
1,575,000 XTO Energy, Inc. 38,887,434 53,534,250
FINANCIAL SERVICES -- ASSET
MANAGEMENT (3.34%)
1,025,000 Nuveen Investments, Inc. 34,752,789 38,560,500
FINANCIAL SERVICES -- BANKING (1.27%)
900,000 UCBH Holdings, Inc. 16,898,502 14,616,000
FINANCIAL SERVICES -- BROKERAGE &
EXCHANGES (16.58%)
4,650,000 Charles Schwab Corp. 45,103,800 52,452,000
230,000 Chicago Mercantile Exchange
Holdings, Inc. 36,843,892 67,965,000
850,000 Jefferies Group, Inc. 33,677,237 32,206,500
370,000 Legg Mason, Inc. 27,482,633 38,520,700
---------- ----------
143,107,562 191,144,200
FINANCIAL SERVICES --
INSURANCE (6.42%)
700,000 Arch Capital Group, Ltd.* 25,246,122 31,535,000
1,500,000 Axis Capital Holdings, Ltd. 40,593,260 42,450,000
---------- ----------
65,839,382 73,985,000
FINANCIAL SERVICES --
MISCELLANEOUS (3.95%)
1,300,000 First Marblehead Corp.* 54,840,355 45,578,000
HEALTHCARE FACILITIES (5.17%)
1,500,000 Manor Care, Inc. 49,447,650 59,595,000
HEALTHCARE SERVICES --
INSURANCE (2.84%)
400,000 AMERIGROUP Corp.* 8,264,447 16,080,000
240,000 WellPoint, Inc.* 8,334,661 16,713,600
---------- ----------
16,599,108 32,793,600
HOME BUILDING (5.67%)
350,000 Centex Corp. 19,959,951 24,734,500
400,000 Toll Brothers, Inc.* 17,176,941 40,620,000
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37,136,892 65,354,500
REAL ESTATE SERVICES (6.75%)
250,000 Boston Properties, Inc. 15,152,919 17,500,000
473,933 CoStar Group, Inc.* 18,031,911 20,663,479
500,000 General Growth Properties, Inc. 16,535,052 20,545,000
325,000 Kimco Realty Corp. 17,415,133 19,145,750
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67,135,015 77,854,229
RECREATION AND RESORTS (11.73%)
275,000 Carnival Corp. 13,625,623 15,001,250
210,000 Kerzner Intl., Ltd.* 4,653,485 11,959,500
300,000 Las Vegas Sands Corp.* 11,313,511 10,725,000
600,000 Penn National Gaming, Inc.* 19,131,471 21,900,000
1,600,000 Wynn Resorts, Ltd. * 66,469,423 75,632,000
---------- ----------
115,193,513 135,217,750
RETAIL -- CONSUMER STAPLES (1.03%)
100,000 Whole Foods Market, Inc. 4,808,122 11,830,000
Shares Cost Value
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RETAIL -- SPECIALTY STORES
(4.89%)
550,000 Blue Nile, Inc.* $ 14,760,565 $ 17,979,500
450,000 Cabela's, Inc.* 10,291,283 9,612,000
575,000 CarMax, Inc.* 15,992,328 15,323,750
450,000 O'Reilly Automotive, Inc.* 10,105,118 13,414,500
------------ -------------
51,149,294 56,329,750
TRANSPORTATION (3.75%)
400,000 C. H. Robinson Worldwide,
Inc. 20,066,739 23,280,000
400,000 Expeditors International of
Washington, Inc. 20,930,533 19,924,000
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40,997,272 43,204,000
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TOTAL COMMON STOCKS 1,032,616,260 1,221,451,229
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Notional Amount
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SWAP CONTRACTS (0.00%)
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$(619,650) Total Return Swap
Contract on a Variety
of Short Securities
Terminating 06/30/2006 0 0
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Principal Amount
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CORPORATE BONDS (0.95%)
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RECREATION AND RESORTS
$5,000,000 Wynn Resorts, Ltd. 6.00%
Sub. Conv. Deb.
due 07/15/2015 4,912,121 10,976,100
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TOTAL INVESTMENTS (106.90%)
$1,037,528,381 1,232,427,329
==============
LIABILITIES LESS
CASH AND OTHER ASSETS (-6.90%) (79,549,743)
-------------
NET ASSETS (EQUIVALENT TO $17.20 PER
SHARE BASED ON 67,023,746 SHARES
OUTSTANDING)
$1,152,877,586
=============
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% Represents percentage of net assets
* Non-income producing securities
+ Represents security, or a portion thereof, segregated with broker as
collateral for swap contracts.
See Notes to Financial Statements.
3
BARON PARTNERS FUND
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TOP TEN HOLDINGS (AS A PERCENTAGE OF LONG POSITIONS)
AS OF JUNE 30, 2005
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% OF NET
ASSETS
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Apollo Group, Inc., Cl A 7.5%
Wynn Resorts, Ltd. 7.0%
ChoicePoint, Inc. 6.5%
Iron Mountain, Inc. 5.5%
Chicago Mercantile Exchange Holdings, Inc. 5.5%
Hewitt Associates, Inc. 5.4%
Manor Care, Inc. 4.8%
XTO Energy, Inc. 4.4%
Charles Schwab Corp. 4.3%
First Marblehead Corp. 3.7%
-----
54.6%
=====
TOP TEN INDUSTRY GROUPS
(AS A PERCENTAGE OF LONG POSITIONS)
AS OF JUNE 30, 2005
[GRAPHIC OMITTED]
Financial Services - Brokerage and Exchanges 15.5%
Business Services 12.0%
Recreation and Resorts 11.9%
Education 8.7%
Real Estate 6.3%
Financial Services - Insurance 6.0%
Consulting 5.4%
Home Building 5.3%
Health Care Facilities 4.8%
Retail - Specialty Stores 4.6%
Other 19.5%
4
BARON PARTNERS FUND
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STATEMENT OF ASSETS AND LIABILITIES
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JUNE 30, 2005 (UNAUDITED)
ASSETS:
Investments in securities, at value (Cost $1,037,528,381) $1,232,427,329
Cash 300,991
Dividends and interest receivable 736,404
Due from broker 1,801,700
Receivable for securities sold 9,264,899
Receivable for shares sold 2,501,901
--------------
1,247,033,224
--------------
LIABILITIES:
Due to custodian bank 89,500,000
Payable for securities purchased 3,710,485
Payable for shares redeemed 477,920
Accrued expenses and other payables 467,233
--------------
94,155,638
--------------
NET ASSETS $1,152,877,586
==============
NET ASSETS CONSIST OF:
Capital paid-in $ 957,776,838
Accumulated net investment loss (3,886,857)
Undistributed net realized gain 4,088,657
Net unrealized appreciation on investments 194,898,948
--------------
NET ASSETS $1,152,877,586
==============
SHARES OF BENEFICIAL INTEREST OUTSTANDING
($.01 PAR VALUE; INDEFINITE SHARES AUTHORIZED) 67,023,746
==============
NET ASSET VALUE PER SHARE $ 17.20
==============
STATEMENT OF OPERATIONS
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FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED)
INVESTMENT INCOME:
INCOME:
Interest $ 498,331
Dividends 3,234,917
-----------
Total income 3,733,248
-----------
EXPENSES:
Investment advisory fees 4,938,466
Distribution fees 1,234,616
Shareholder servicing agent fees 113,690
Reports to shareholders 135,530
Professional fees 34,895
Registration and filing fees 124,098
Custodian fees 18,580
Trustee fees 45,179
Miscellaneous 10,355
-----------
Total operating expenses 6,655,409
-----------
Interest expense 964,696
-----------
Total expenses 7,620,105
-----------
Net investment loss (3,886,857)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments sold 4,413,658
Change in net unrealized appreciation of investments 47,127,816
-----------
Net gain on investments 51,541,474
-----------
Net increase in net assets resulting from operations $47,654,617
===========
See Notes to Financial Statements.
5
BARON PARTNERS FUND
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STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
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FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31, 2004
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss $ (3,886,857) $ (2,252,135)
Net realized gain on investments 4,413,658 40,120,593
Net change in unrealized appreciation
on investments 47,127,816 72,084,684
-------------- ------------
Increase in net assets resulting from
operations 47,654,617 109,953,142
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DIVIDENDS TO SHAREHOLDERS FROM:
Net realized gain on investments (26,110,666) (11,165,295)
-------------- ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from the sale of shares 682,353,968 405,169,767
Net asset value of shares issued in
reinvestment of dividends 25,186,203 10,479,556
Cost of shares redeemed (208,938,335) (45,968,023)
-------------- ------------
Increase in net assets derived from
capital share transactions 498,601,836 369,681,300
-------------- ------------
Net increase in net assets 520,145,787 468,469,147
NET ASSETS:
Beginning of period 632,731,799 164,262,652
-------------- ------------
End of period $1,152,877,586 $632,731,799
============== ============
SHARES TRANSACTIONS:
Shares sold 40,824,911 26,676,880
Shares issued in reinvestment of
dividends 1,540,430 678,541
Shares redeemed (12,892,189) (3,306,451)
-------------- ------------
Net increase 29,473,152 24,048,970
============== ============
See Notes to Financial Statements.
6
BARON PARTNERS FUND
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STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES:
Sales of capital shares $ 691,743,885
Cash distributions paid (924,463)
Redemption of capital shares (208,726,331)
-------------
Cash provided by capital share transactions 482,093,091
-------------
Increase in due from broker (486,459)
Increase in due to custodian bank 89,500,000
-------------
571,106,632
-------------
CASH PROVIDED (USED) BY OPERATIONS:
Purchases of portfolio securities (929,429,158)
Proceeds from sales of portfolio securities 267,027,979
Cash paid in connection with swap transactions (268,460)
Other decreases (3,495)
-------------
(662,673,134)
-------------
Net investment loss (3,886,857)
Net change in receivables/payables related to operations (47,823)
-------------
(666,607,814)
-------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (95,501,182)
-------------
Cash and cash equivalents beginning of period 95,802,173
-------------
Cash and cash equivalents end of period $ 300,991
=============
Supplemental cash flow information:
Interest paid $ 646,439
=============
Non-cash financing activities:
Net asset value of shares issued in reinvestment of
dividends $ 25,186,203
=============
See Notes to Financial Statements.
7
BARON PARTNERS FUND
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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(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 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.
(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) DISTRIBUTIONS. Income distributions 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 realized gains (losses) from
swap transactions.
(e) 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.
(f) CASH AND CASH EQUIVALENTS. The Fund considers all short term liquid
investments with a maturity of three months or less when purchased to be cash
equivalents.
(3) PURCHASES AND SALES OF SECURITIES.
For the six months ended June 30, 2005, purchases and sales of securities, other
than short term securities, aggregated $913,683,439 and $266,721,826,
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.
8
BARON PARTNERS FUND
- --------------------------------------------------------------------------------
Brokerage transactions for the Fund may be effected by or through BCI. During
the six months ended June 30, 2005, BCI earned gross brokerage commissions of
$393,332.
(C) TRUSTEE FEES. Certain Trustees of the Fund 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 Fund. 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 $150,000,000 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 six months ended June 30, 2005, the Fund had an average daily balance
on the line of credit of $43,263,536 at a weighted average interest rate of
4.5%. At June 30, 2005, the Fund had an outstanding loan in the amount of
$89,500,000 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.
The notional value of the contract amount with respect to the Fund's outstanding
equity swap contract as of June 30, 2005 was ($619,650).
(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) INCOME TAXES AND DISTRIBUTIONS TO SHAREHOLDERS.
As of June 30, 2005, the components of net assets on a tax basis were as
follows:
Cost of investments ........................................... $1,037,802,081
==============
Gross tax unrealized appreciation ............................. 229,558,040
Gross tax unrealized depreciation ............................. (34,932,792)
--------------
Net tax unrealized appreciation ............................... $ 194,625,248
==============
Net investment loss and realized and unrealized gains and losses differ for
financial statement and tax purposes due to differing treatments of wash sale
losses deferred, net operating losses and realized gains (losses) from swap
transactions.
9
BARON PARTNERS FUND
- --------------------------------------------------------------------------------
(9) FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period:
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
FOR THE FOR THE APRIL 30, 2003
SIX MONTHS ENDED YEAR ENDED (COMMENCEMENT OF OPERATIONS)
JUNE 30, 2005 DECEMBER 31, 2004 TO DECEMBER 31, 2003
---------------- ----------------- ----------------------------
NET ASSET VALUE, BEGINNING OF PERIOD....................... $ 16.85 $12.17 $10.00
-------- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment loss........................................ (0.06) (0.06) (0.10)
Net realized and unrealized gain on investments............ 0.82 5.17 3.63
-------- ------ ------
TOTAL FROM INVESTMENT OPERATIONS.......................... 0.76 5.11 3.53
-------- ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income....................... 0.00 0.00 0.00
Distributions from net realized gains...................... (0.41) (0.43) (1.36)
-------- ------ ------
TOTAL DISTRIBUTIONS....................................... (0.41) (0.43) (1.36)
-------- ------ ------
NET ASSET VALUE, END OF PERIOD............................. $ 17.20 $16.85 $12.17
======== ====== ======
TOTAL RETURN.............................................. 4.6%+ 42.3% 35.7%+
-------- ------ ------
RATIOS/SUPPLEMENTAL DATA
Net assets (in millions), end of period.................... $1,152.9 $632.7 $164.3
Ratio of total expenses to average net assets.............. 1.54%** 1.46% 1.77%**
Less: Ratio of interest expense and dividend expense to
average net assets....................................... 0.20%** (0.12%) (0.37%)**
-------- ------ ------
Ratio of operating expenses to average net assets.......... 1.34%** 1.34% 1.40%**
======== ====== ======
Ratio of net investment loss to average net assets......... (0.78%)** (0.83%) (1.39%)**
Portfolio turnover rate.................................... 26.78%+ 57.77% 36.67%+
- ------------------------------------------------------------------------------------------------------------------------------------
** Annualized.
+ Not annualized.
10
[Registered Logo]
B A R O N
S E L E C T
F U N D S
767 Fifth Avenue
NY, NY 10153
SAR05
Item 2. Code of Ethics.
Not applicable at this time. This item is applicable to annual
reports.
Item 3. Audit Committee Financial Expert.
Not applicable at this time. This item is applicable to annual
reports.
Item 4. Principal Accountant Fees and Services.
Not applicable at this time. This item is applicable to annual
reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable at this time. This item is applicable to annual
reports.
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 APPLICABLE.
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 11. Exhibits.
a). Ex-99.COE
Not applicable at this time. This item is applicable to annual
reports.
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
President and Chief Executive Officer
Date: August 24, 2005
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
President and Chief Executive Officer
Date: August 24, 2005
By: /s/ Peggy Wong
--------------------
Peggy Wong
Treasurer and Chief Financial Officer
Date: August 24, 2005
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.