UNITED STATES OMB APPROVAL
SECURITIES AND EXCHANGE COMMISSION OMB Number: 3235 -0570
Washington, D.C. 20549 Expires: October 31, 2008
Estimated average burden
hours per response...
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
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Patrick M. Patalino, Esq.
c/o Baron Select Funds
767 Fifth Avenue,49th Floor
New York, New York 10153
- --------------------------------------------------------------------------------
(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, 2007
--------------------
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, 2007.
|
|
BARON PARTNERS FUND | BARON FUNDS (r)
- -------------------------------------------------------------------------------
|
|
December 31, 2007 | ANNUAL FINANCIAL REPORT
- -------------------------------------------------------------------------------
DEAR BARON PARTNERS FUND SHAREHOLDER:
In this report you will find the audited financial statements for Baron Partners
Fund for the year ended December 31, 2007. The Securities and Exchange
Commission requires mutual funds to furnish these statements semi-annually to
their shareholders. We hope you find these statements informative and useful.
We thank you for choosing to join us as fellow shareholders in Baron Funds. We
will continue to work hard to justify your confidence.
Sincerely,
/s/ Ronald Baron /s/ Linda S. Martinson /s/ Peggy Wong
Ronald Baron Linda S. Martinson Peggy Wong
Chief Executive Officer and Chief President and Chief Operating Officer Treasurer and Chief
Investment Officer February 26, 2008 Financial Officer
February 26, 2008 February 26, 2008
- --------
This Annual Financial Report is for the Baron Select Funds which currently has
one series: Baron Partners Fund. If you are interested in the Baron Investment
Funds Trust which contains the Baron Asset Fund, Baron Growth Fund, Baron Small
Cap Fund, Baron iOpportunity Fund and Baron Fifth Avenue Growth Fund series,
please visit the Funds' website www.BaronFunds.com or contact us at 1-800-99
BARON.
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 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 1-800-992-2766. Schedule of Portfolio
Holdings current to the most recent quarter is also available at
www.BaronFunds.com.
Some of the 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 the Fund 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 without notice based on market and other
conditions.
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. For more complete
information about Baron Partners Fund, including charges and expenses, call or
write for a prospectus. Read it carefully before you invest or send money. This
report is not authorized for use as an offer of sale or a solicitation of an
offer to buy shares of Baron Partners Fund unless accompanied or preceded by the
Fund's current prospectus.
[Registered
Castle Logo]
BARON
FUNDS(R)
BARON PARTNERS FUND
-------------------------------------------------
BARON PARTNERS FUND
Ticker Symbol: BPTRX
-------------------------------------------------
Performance 2
Top 10 Holdings 3
Top 10 Industries 3
Management's Discussion of
Fund Performance 3
-------------------------------------------------
FUND EXPENSES 4
-------------------------------------------------
FINANCIAL STATEMENTS
-------------------------------------------------
Statement of Net Assets 5
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
-------------------------------------------------
FINANCIAL HIGHLIGHTS 13
-------------------------------------------------
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING
FIRM 14
-------------------------------------------------
UNAUDITED TAX INFORMATION 15
-------------------------------------------------
MANAGEMENT OF THE FUND 15
-------------------------------------------------
[Registered
Castle Logo]
BARON
FUNDS(R)
1.800.99 BARON
www.BaronFunds.com
(C)2007 All Rights Reserved
2
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 INDEXES
[line graph]
1,2,3 1 1
Date BPF S&P500 R2000
---------- -------- ------- ------
01/31/1992 10,000 10,000 10,000
12/31/1992 11,963 10,954 10,953
12/31/1993 16,210 12,056 13,021
12/31/1994 16,895 12,213 12,784
12/31/1995 24,612 16,798 16,421
12/31/1996 29,452 20,656 19,130
12/31/1997 47,671 27,544 23,408
12/31/1998 53,059 35,410 22,812
12/31/1999 64,247 42,852 27,661
12/31/2000 67,123 38,940 26,825
12/31/2001 56,347 34,300 27,492
12/31/2002 45,982 26,718 21,861
12/31/2003 61,963 34,375 32,191
12/31/2004 88,203 38,099 38,091
12/31/2005 100,873 39,958 39,825
12/31/2006 122,607 46,271 47,140
12/31/2007 136,510 48,808 46,402
Annualized for the periods ended December 31, 2007
Since Inception
One Year Three Years Five Years Ten Years (January 31, 1992)
- -----------------------------------------------------------------------------------------
1,2,3
Baron Partners Fund 11.34% 15.67% 24.31% 11.09% 17.85%
1
S&P 500 5.48% 8.61% 12.81% 5.89% 10.47%
1
Russell 2000 (1.57%) 6.80% 16.25% 7.08% 10.12%
- ---------------------------
1
The S&P 500 and the Russell 2000 are unmanaged indexes. The S&P 500 Index
is a market value-weighted index of the stocks of 500 publicly traded U.S.
companies chosen for market size, liquidity, and industry group
representation that are considered to be leading firms in dominant
industries. Each stock's weight in the index is proportionate to its market
value. The Russell 2000 measures the performance of the 2,000 smallest of
the 3,000 largest publicly traded U.S. companies, based on total market
capitalization. The S&P 500, the Russell 2000, and the Fund are with
dividends, the inclusion of which positively impacts their performance
results.
2
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 investment
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.
3
Past performance is not predictive of future performance. The performance
data does not reflect the deduction of taxes that a shareholder would pay
on Fund distributions or redemption of Fund shares.
December 31, 2007 BARON PARTNERS FUND
- -------------------------------------------------------------------------------
TOP 10 HOLDINGS AS OF DECEMBER 31, 2007
----------------------------------------
PERCENTAGE
OF LONG
POSITIONS
----------------------------------------
Wynn Resorts, Ltd. 5.3%
----------------------------------------
CME Group, Inc., Cl A 4.8%
----------------------------------------
Whole Foods Market, Inc. 4.3%
----------------------------------------
Iron Mountain, Inc. 3.6%
----------------------------------------
Charles Schwab Corp. 3.3%
----------------------------------------
Polo Ralph Lauren Corp., Cl A 3.0%
----------------------------------------
Fastenal Co. 3.0%
----------------------------------------
Helmerich & Payne, Inc. 2.9%
----------------------------------------
Edwards Lifesciences Corp. 2.8%
----------------------------------------
Penn National Gaming, Inc. 2.8%
----------------------------------------
35.8%
----------------------------------------
TOP 10 INDUSTRIES AS OF DECEMBER 31, 2007
(AS A PERCENTAGE OF LONG POSITIONS)
[PIE CHART}
Recreation and Resorts 14.2%
Financial Services - Brokerage & Exchanges 12.1%
Business Services 11.1%
Financial Services - Asset Management 7.8%
Retail - Specialty Stores 7.3%
Healthcare Products 6.9%
Real Estate - REITs 6.5%
Distribution 5.3%
Retail - Consumer Staples 4.3%
Apparel 3.4%
Other 21.1%
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
Baron Partners Fund performed well for the year ended December 31, 2007, gaining
11.34%. These results compared favorably with the return of the indexes against
which the Fund is compared. The S&P 500 gained 5.48% and the Russell 2000 was
down 1.57% for the year ended December 31, 2007. The 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, 2007, the
Fund gained an annualized 26.45% versus an annualized 12.64% for the S&P 500 and
an annualized 16.38% for the Russell 2000. Since its inception in January 1992*,
the Fund also has significantly outperformed both the S&P 500 and the Russell
2000. Since its inception on January 31, 1992 to December 31, 2007, the Fund
gained an annualized 17.85% compared to an annualized 10.47% for the S&P 500 and
an annualized 10.12% for the Russell 2000.
The Fund utilizes value purchase disciplines when investing in companies,
regardless of market capitalization, 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. The 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 positive in the first three quarters, up 2.87%, 3.71%
and 11.31%, respectively, but was down 6.24% in the fourth quarter. The
performance of the S&P 500 and the Russell 2000 was weaker than the Fund in the
first and third quarters and stronger in the second and fourth quarters. 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 & Resorts, due mostly to Wynn
Resorts. Throughout the year, the market remained concerned about the impact of
increased gaming capacity in the Macau market, which we believe did not prove to
have a serious impact on Wynn's operations, as the company maintained its market
share and generated good results. As a result of its strong free cash flow
generation, the company was able to return cash to shareholders in the form of a
$6 per share distribution and to introduce a $1.2 billion stock buyback program.
The Fund's performance was also strong in Financial Services (Brokerage &
Exchanges) and Energy industries.
The Fund was most negatively impacted by its holdings in the Real Estate (REITs)
industry, which performed poorly in 2007 due to concerns about the potential for
financial service-related layoffs from the credit market crisis and a
corresponding decrease in tenant demand, increase in supply, and slowdown in
earnings. The Fund was also negatively impacted by Real Estate (Home Building)
and the Apparel industries.
In 2008, the Fund expects to continue to establish positions in securities that,
in our opinion, have favorable price-to-value characteristics based on our
assessment of 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.
- ---------------------------
*Please see Footnote 2 on Page 2.
3
BARON PARTNERS FUND
- --------------------------------------------------------------------------------
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, 2007 and
held for the six months ended December 31, 2007.
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".
1
BASED ON ACTUAL TOTAL RETURN FOR THE SIX MONTHS ENDED DECEMBER 31, 2007
- -----------------------------------------------------------------------------------
Actual Beginning Ending Annualized Expenses
Total Account Value Account Value Expense Paid During
3 2
Return July 1, 2007 December 31, 2007 Ratio the Period
- -----------------------------------------------------------------------------------
Baron Partners Fund 4.37% $ 1,000.00 $ 1,043.67 2.13% $ 10.97
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 FOR THE SIX MONTHS ENDED DECEMBER 31, 2007
- -----------------------------------------------------------------------------------------
Hypothetical Beginning Ending Annualized Expenses
Annualized Account Value Account Value Expense Paid During
3 2
Total Return July 1, 2007 December 31, 2007 Ratio the Period
- -----------------------------------------------------------------------------------------
Baron Partners Fund 5.00% $ 1,000.00 $ 1,014.47 2.13% $ 10.82
- ---------------------------
1
Assumes reinvestment of all 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.
3
Annualized expense ratio for the six months ended December 31, 2007,
includes 1.32% for net operating expenses and 0.81% for interest expense.
4
December 31, 2007 BARON PARTNERS FUND
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
December 31, 2007
Shares Cost Value
- ---------- ------------------------------------------ ------------ ------------
Common Stocks (112.47%)
- -------------------------------------------------------------------------------
Advertising Services (1.28%)
1,100,000 JC Decaux SA/2/ $ 34,371,664 $ 43,262,067
Apparel (4.00%)
1,941,500 Polo Ralph Lauren Corp., Cl A 136,420,279 119,965,285
350,000 Under Armour, Inc., Cl A/1/ 18,045,780 15,284,500
------------ ------------
154,466,059 135,249,785
Business Services (12.93%)
1,475,000 ChoicePoint, Inc./1,4/ 47,214,258 53,719,500
1,525,000 Ecolab, Inc. 66,660,311 78,095,250
1,500,000 FactSet Research Systems, Inc. 90,970,219 83,550,000
3,825,000 Iron Mountain, Inc./1/ 78,153,277 141,601,500
20,000,000 Li & Fung, Ltd./2/ 64,389,502 80,667,900
------------ ------------
347,387,567 437,634,150
Distribution (6.18%)
2,925,000 Fastenal Co. 114,442,097 118,228,500
2,250,000 MSC Industrial Direct Co., Inc., Cl A 112,163,527 91,057,500
------------ ------------
226,605,624 209,286,000
Education (0.81%)
160,000 Strayer Education, Inc. 16,954,684 27,292,800
Energy (3.37%)
2,850,000 Helmerich & Payne, Inc. 78,106,384 114,199,500
Financial Services -- Asset
Management (7.28%)
1,225,000 AllianceBernstein Holding L.P. 60,951,124 92,181,250
750,000 Apollo Global Management LLC, Cl A
144A 18,000,000 16,312,500
675,000 Brookfield Asset Management, Inc., Cl A/2/ 24,227,278 24,077,250
1,900,000 Eaton Vance Corp. 64,911,500 86,279,000
775,000 Onex Corp./2/ 31,313,955 27,475,809
------------ ------------
199,403,857 246,325,809
Financial Services -- Brokerage &
Exchanges (14.00%)
2,410,000 Bolsa de Mercadorias e Futuros, 144A/2/ 28,969,641 33,848,313
1,250,000 Bovespa Holding SA, 144A/2/ 18,197,551 24,087,077
5,125,000 Charles Schwab Corp. 54,106,123 130,943,750
275,000 CME Group, Inc., Cl A 97,971,811 188,650,000
4,175,000 Jefferies Group, Inc. 100,297,293 96,233,750
------------ ------------
299,542,419 473,762,890
Financial Services -- Insurance (2.39%)
1,150,000 Arch Capital Group, Ltd./1,2/ 56,427,504 80,902,500
Financial Services --
Miscellaneous (0.29%)
300,000 Redecard SA, GDR 144A/2/ 10,941,185 9,707,880
Gaming Services (1.72%)
1,750,000 Scientific Games Corp., Cl A/1/ 55,462,554 58,187,500
Healthcare Facilities (3.14%)
1,075,000 Brookdale Senior Living, Inc. 42,664,534 30,540,750
2,050,000 Community Health Systems, Inc./1/ 62,944,733 75,563,000
------------ ------------
105,609,267 106,103,750
Healthcare Products (8.07%)
2,400,000 Edwards Lifesciences Corp./1/ 117,202,143 110,376,000
325,000 Millipore Corp./1/ 26,149,719 23,783,500
2,000,000 Varian Medical Systems, Inc./1/ 93,669,119 104,320,000
525,000 Zimmer Holdings, Inc./1/ 32,454,556 34,728,750
------------ ------------
269,475,537 273,208,250
Healthcare Services (2.27%)
3,375,266 HLTH Corp./1/ 50,376,250 45,228,565
600,000 Quest Diagnostics, Inc. 31,375,595 31,740,000
------------ ------------
81,751,845 76,968,565
Shares Cost Value
- ---------- ----------------------------------------- -------------- --------------
Common Stocks (continued)
- ----------------------------------------------------------------------------------
Hotels and Lodging (0.46%)
350,000 Starwood Hotels & Resorts
Worldwide, Inc. $ 17,296,263 $ 15,410,500
Infrastructure (1.39%)
1,650,000 AECOM Technology Corp./1/ 46,598,089 47,140,500
Real Estate (1.03%)
550,000 CoStar Group, Inc./1/ 21,612,360 25,987,500
200,000 Forest City Enterprises, Inc., Cl A 11,198,036 8,888,000
-------------- --------------
32,810,396 34,875,500
Real Estate -- REITs (7.55%)
180,000 Alexandria Real Estate Equities, Inc. 18,369,633 18,300,600
249,000 AvalonBay Communities, Inc. 26,487,851 23,440,860
400,000 Boston Properties, Inc. 30,599,776 36,724,000
1,600,000 Douglas Emmett, Inc. 38,584,184 36,176,000
500,000 General Growth Properties, Inc. 15,944,815 20,590,000
650,000 Kimco Realty Corp. 17,252,863 23,660,000
485,000 ProLogis 33,350,958 30,739,300
365,000 SL Green Realty Corp. 48,554,542 34,112,900
360,000 Vornado Realty Trust 36,833,906 31,662,000
-------------- --------------
265,978,528 255,405,660
Recreation and Resorts (14.51%)
2,875,000 Boyd Gaming Corp. 117,749,005 97,951,250
730,800 Las Vegas Sands Corp./1/ 28,188,345 75,308,940
1,850,000 Penn National Gaming, Inc./1/ 65,790,607 110,167,500
1,850,000 Wynn Resorts, Ltd. 68,583,257 207,440,500
-------------- --------------
280,311,214 490,868,190
Retail -- Consumer Staples (4.94%)
4,100,000 Whole Foods Market, Inc. 186,164,776 167,280,000
Retail -- Specialty Stores (8.52%)
400,000 Blue Nile, Inc./1/ 10,471,387 27,224,000
3,700,000 CarMax, Inc./1/ 76,405,977 73,075,000
775,000 Coach, Inc./1/ 33,614,904 23,699,500
2,200,000 Dick's Sporting Goods, Inc./1/ 35,011,481 61,072,000
1,000,000 J. Crew Group, Inc./1/ 39,549,809 48,210,000
1,600,000 Penske Automotive Group, Inc. 33,053,086 27,936,000
1,000,000 Urban Outfitters, Inc./1/ 22,400,361 27,260,000
-------------- --------------
250,507,005 288,476,500
Transportation (3.84%)
880,000 C. H. Robinson Worldwide, Inc. 24,227,605 47,625,600
1,400,000 Expeditors International of
Washington, Inc. 47,170,839 62,552,000
500,000 Ryanair Holdings plc, ADR/1,2/ 19,741,029 19,720,000
-------------- --------------
91,139,473 129,897,600
Utility Services (2.50%)
1,500,000 ITC Holdings Corp. 47,510,701 84,630,000
-------------- --------------
Total Common Stocks 3,154,822,595 3,806,075,896
-------------- --------------
- ----------------------------------------------------------------------------------
Private Equity Investments (3.72%)
- ----------------------------------------------------------------------------------
Financial Services -- Asset
Management (1.78%)
6,014,997 Windy City Investments Holdings
LLC/1,3/ (formerly Nuveen
Investments, Inc., Cl A) 38,319,447 60,149,965
Recreation and Resorts (1.94%)
1,250,000 Fontainebleau Resorts, LLC/1,3/ 15,000,000 15,000,000
3,900,000 Kerzner Intl. Holdings, Ltd., Cl A/1,2,3/ 39,000,000 50,700,000
-------------- --------------
54,000,000 65,700,000
-------------- --------------
Total Private Equity Investments 92,319,447 125,849,965
-------------- --------------
See Notes to Financial Statements. 5
BARON PARTNERS FUND
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (Continued)
- --------------------------------------------------------------------------------
December 31, 2007
Principal
Amount Cost Value
---------- ------------------------------ -------------- --------------
Short Term Investments (0.05%)
-------------------------------------------------------------------------
Short Term Money Market
Instruments
$1,781,167 State Street Eurodollar Time
Deposit, 2.10% due 01/02/2008 $ 1,781,167 $ 1,781,167
-------------- --------------
Total Investments (116.24%) $3,248,923,209 3,933,707,028
==============
Liabilities Less Cash and Other Assets
(-16.24%) (549,633,299)
--------------
Net Assets (Equivalent to $23.76 per share
based on 142,436,697 shares outstanding) $3,384,073,729
==============
- ---------------------------
% Represents percentage of net assets.
/1/ Non-income producing securities.
/2/ Foreign domiciled corporation.
/3/ See Note 8 regarding Restricted and Fair Valued Securities.
/4/ Represents securities or a portion thereof, in segregated custodian
account. See Note 9.
/ADR/ American Depositary Receipt.
/GDR/ Global Depositary Receipt.
/144A/ Security is exempt from registration under Rule 144A of the Securities
Act of 1933. This security may be resold in transactions that are exempt
from registration, normally to qualified institutional buyers. This
security has been deemed liquid pursuant to guidelines approved by the
Board of Trustees, unless otherwise noted.
6 See Notes to Financial Statements.
December 31, 2007 BARON PARTNERS FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
December 31, 2007
- --------------------------------------------------------------------------------
Assets:
Investments in securities, at value (Cost $3,248,923,209) $3,933,707,028
Cash 157
Receivable for shares sold 9,990,006
Receivable for securities sold 7,992,385
Dividends and interest receivable 5,424,088
Prepaid expenses 27,031
--------------
3,957,140,695
--------------
Liabilities:
Payable for borrowings against line of credit 524,000,000
Payable for securities purchased 41,833,866
Payable for shares redeemed 4,510,736
Accrued expenses and other payables 2,722,364
--------------
573,066,966
--------------
Net Assets $3,384,073,729
==============
Net Assets consist of:
Capital paid-in $2,606,843,312
Accumulated net investment loss (31,686)
Undistributed net realized gain on investments and foreign currency transactions 92,478,284
Net unrealized appreciation of investments 684,783,819
--------------
Net Assets $3,384,073,729
==============
Shares Outstanding ($.01 par value; indefinite shares authorized) 142,436,697
==============
Net Asset Value Per Share $ 23.76
==============
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2007
- --------------------------------------------------------------------------------
Investment income:
Income:
Interest $ 1,047,298
Dividends 31,046,931
Taxes withheld on dividends (88,200)
------------
Total income 32,006,029
------------
Expenses:
Investment advisory fee 31,462,073
Distribution fees 7,865,518
Reports to shareholders 838,318
Shareholder servicing agent fees and expenses 496,551
Professional fees 139,040
Custodian fees 118,005
Trustee fees and expenses 111,765
Registration and filing fees 78,423
Insurance expense 37,436
Administration fees 11,300
Line of credit fees 11,897
Miscellaneous expenses 26,957
------------
Total operating expenses 41,197,283
Interest expense 18,091,716
------------
Total expenses 59,288,999
Expense offsets (83,186)
------------
Net expenses 59,205,813
------------
Net investment loss (27,199,784)
------------
Realized and unrealized gains (losses) on investments:
Net realized gains (losses) on:
Investments 267,828,229
Foreign currency transactions (214,296)
Net change in unrealized appreciation of investments 54,609,395
------------
Net gain on investments 322,223,328
------------
Net increase in net assets resulting from operations $295,023,544
============
See Notes to Financial Statements. 7
BARON PARTNERS FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Year Ended December 31
- --------------------------------------------------------------------------------
2007 2006
-------------- --------------
Increase (Decrease) in Net Assets:
Operations:
Net investment loss $ (27,199,784) $ (14,208,767)
Net realized gain on investments and foreign currency transactions 267,613,933 15,386,260
Net change in unrealized appreciation 54,609,395 350,628,398
-------------- --------------
Increase in net assets resulting from operations 295,023,544 351,805,891
-------------- --------------
Distributions to shareholders from:
Net realized gain on investments (151,406,674) (6,212,696)
-------------- --------------
Decrease in net assets from distributions to shareholders (151,406,674) (6,212,696)
-------------- --------------
Capital share transactions:
Proceeds from the sale of shares 1,522,908,883 1,129,088,771
Net asset value of shares issued in reinvestment of dividends 143,306,344 5,867,920
Cost of shares redeemed (828,827,683) (480,519,337)
-------------- --------------
Increase in net assets from capital share transactions 837,387,544 654,437,354
-------------- --------------
Net increase in net assets 981,004,414 1,000,030,549
-------------- --------------
Net Assets:
Beginning of year 2,403,069,315 1,403,038,766
-------------- --------------
End of year $3,384,073,729 $2,403,069,315
============== ==============
Accumulated net investment loss at end of year $ (31,686) $ --
============== ==============
Shares:
Shares sold 63,184,444 55,234,988
Shares issued in reinvestment of dividends 6,019,349 262,312
Shares redeemed (34,316,511) (24,056,794)
-------------- --------------
Net increase 34,887,282 31,440,506
============== ==============
STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
For the Year Ended December 31
- --------------------------------------------------------------------------------
2007
---------------
Cash provided (used) by financing activities:
Sales of capital shares $ 1,525,097,297
Cash distributions paid (8,100,330)
Repurchase of capital shares (825,402,677)
---------------
Cash provided by capital share transactions 691,594,290
---------------
Increase in payable for borrowings against line of credit 524,000,000
---------------
1,215,594,290
---------------
Cash provided (used) by operations:
Purchases of portfolio securities (2,323,615,493)
Proceeds from sales of portfolio securities 1,135,068,364
Other decreases (3,828)
---------------
(1,188,550,957)
---------------
Net investment loss (27,199,784)
Net change in receivables/payables related to operations 43,276
---------------
(1,215,707,465)
---------------
Net decrease in cash and cash equivalents (113,175)
---------------
Cash and cash equivalents beginning of year 113,332
---------------
Cash and cash equivalents end of year $ 157
===============
Supplemental cash flow information:
Interest paid $ 15,765,662
===============
Non-cash financing activities:
Net asset value of shares issued in reinvestment of dividends $ 143,306,344
===============
8 See Notes to Financial Statements.
December 31, 2007 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. Securities traded in
foreign markets are valued based on the last sale price reported by local
foreign markets and translated into U.S. dollars using the price of such foreign
currencies at the time the net asset value is determined. 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 approved
by the Board of Trustees. The Adviser has a fair valuation committee comprised
of senior executives and certain Trustees. Factors the committee considers when
valuing a security 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) Foreign Currency Translations. Values of investments denominated in foreign
currencies are translated into U.S. dollars using the prices of such foreign
currencies at the time net asset value is determined. Purchases and sales of
investments and dividend income are converted at the prevailing rate of exchange
on the respective dates of such transactions. Net realized gains (losses) on
foreign currency transactions include gains (losses) arising from the
fluctuation in the exchange rates between trade and settlement dates on security
transactions and currency gains (losses) between the accrual and payment dates
on dividends and foreign withholding taxes. The Fund does not isolate that
portion of the results of operations resulting from changes in foreign exchange
rates on investments from the fluctuations arising from changes in market prices
of securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
c) Securities Transactions, Investment Income and Expense Offsets. 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.
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.
The Fund's expenses were reduced by expense offsets from an unaffiliated
transfer agent. The Fund earned cash management credits which were used to
reduce Shareholder servicing agent fees and expenses. These offsets are included
in Expense offsets on the Statement of Operations.
d) Repurchase Agreements. The Fund may invest in repurchase agreements, which
are short-term investments whereby the Fund acquires ownership of a debt
security and the seller agrees to repurchase the security at a future date at a
specified price. When entering into repurchase agreements, it is the Fund's
policy that its custodian or a third party custodian take possession of the
underlying collateral securities, the market value of which, at all times,
equals at least 102% of the principal amount of the repurchase transaction. To
the extent that any repurchase transaction exceeds one business day, the value
of the collateral is marked-to-market to ensure the adequacy of the collateral.
If the seller defaults, and the market value of the collateral declines or if
bankruptcy proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
e) 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.
9
BARON PARTNERS FUND
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
f) 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 by the Adviser using procedures approved by the Board of Trustees.
g) 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.
h) 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.
i) 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.
j) 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.
k) 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 on 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 and applies
to all open tax years as of the date of effectiveness. Management has evaluated
the adoption of FIN 48 and determined that there is no impact on the Fund's
financial statements.
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, 2007, purchases and sales of securities, other
than short term securities, aggregated $2,423,150,911 and $1,129,736,308,
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 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 payable
monthly equal to 0.25% per annum of the Fund's average daily net assets.
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.
d) Fund Accounting and Administration Fees. The Fund has entered into an
agreement with the custodian bank to perform accounting and certain
administrative services. The custodian bank is compensated for fund accounting
based on a percentage of the Fund's net assets, subject to certain minimums plus
fixed annual fees for the administrative services.
10
December 31, 2007 BARON PARTNERS FUND
- --------------------------------------------------------------------------------
5. LINE OF CREDIT.
The Fund participates in a committed line of credit provided by a syndication of
banks (including the custodian bank) in the amount of $550 million to be used
for investment purposes. The Fund may borrow up to the lesser of $550 million or
the maximum amount the Fund may borrow under the 1940 Act, the limitations
included in the Fund's prospectus, or any limit or restriction under any law or
regulation to which the Fund is subject or any agreement to which the Fund is a
party. 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 0.70%. A commitment fee
of 0.05% per annum is incurred on the unused portion of the line of credit.
During the year ended December 31, 2007, the Fund had an average daily balance
on the line of credit of $307.4 million at a weighted average interest rate of
5.89%. At December 31, 2007, the Fund had an outstanding loan in the amount of
$524 million 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. During the year ended
December 31, 2007, the Fund did not enter into any swap contracts.
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 a 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, 2007, 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. The Fund may receive more or less than
this valuation in an actual sale and that difference could be material. At
December 31, 2007, the Fund held investments in restricted and illiquid
securities that were valued under approved methods as follows:
- ----------------------------------------------------------------------------------------------
Acquisition
Name of Issuer Date Value
- ----------------------------------------------------------------------------------------------
Private Equity Investments
Fontainebleau Resorts, LLC 06/01/07 $ 15,000,000
Kerzner Intl. Holdings, Ltd., Cl A (see Note 9) 09/27/06 50,700,000
Windy City Investments Holdings LLC (formerly Nuveen Investments,
Inc., Cl A) 11/30/07 60,149,965
------------
Total Restricted Securities
(Cost $92,319,447) (3.72% of Net Assets) $125,849,965
============
9. COMMITMENTS AND CONTINGENCIES. On September 27, 2006, the 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 would be $3,334,656. The Windstorm Guarantee will
expire June 2009. Accordingly, the Fund has segregated securities valued in
excess of the guarantee amount to meet these contingencies.
11
BARON PARTNERS FUND
- --------------------------------------------------------------------------------
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 and losses differ for financial statement and tax
purposes due to differing treatment of wash sale losses deferred and net
investment losses. 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, 2007, the Fund recorded the following permanent
reclassifications to reflect tax character. Reclassifications between income,
gains and capital paid-in relate primarily to the tax treatment of net
investment losses. Results of operations and net assets were not affected by
these reclassifications.
- ----------------------------------------------------------------------------
Accumulated
Net Investment Undistributed Net
Loss Realized Gain Capital Paid-In
- ----------------------------------------------------------------------------
$27,168,098 $(26,069,373) $(1,098,725)
As of December 31, 2007, the components of net assets on a tax basis were as
follows:
Cost of investments $3,250,161,779
==============
Gross tax unrealized appreciation 888,385,740
Gross tax unrealized depreciation (204,840,491)
--------------
Net tax unrealized appreciation 683,545,249
Other temporary differences (31,686)
Undistributed net realized gain 93,716,854
Capital paid-in 2,606,843,312
--------------
Net Assets $3,384,073,729
==============
The tax character of distributions paid during the fiscal years ended
December 31, 2007 and 2006 were as follows:
- ----------------------------------------------------------------
2007 2006
- ----------------------------------------------------------------
Ordinary income/1/ $64,674,805 $ --
Long-term capital gains 86,731,869 6,212,696
- --------------
/1/ For tax purposes, short-term capital gains are considered ordinary income
distributions.
12
December 31, 2007 BARON PARTNERS FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each year:
- --------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------
2007 2006 2005 2004 2003/1/
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $ 22.34 $ 18.43 $ 16.85 $12.17 $10.00
-------- -------- -------- ------ ------
Income from investment operations:
Net investment loss (0.21)/2/ (0.16)/2/ (0.13) (0.06) (0.10)
Net realized and unrealized gain on investments 2.74 4.13 2.49 5.17 3.63
-------- -------- -------- ------ ------
Total from investment operations 2.53 3.97 2.36 5.11 3.53
-------- -------- -------- ------ ------
Less distributions to shareholders from:
Net investment income 0.00 0.00 0.00 0.00 0.00
Net realized gain on investments (1.11) (0.06) (0.78) (0.43) (1.36)
-------- -------- -------- ------ ------
Total distributions (1.11) (0.06) (0.78) (0.43) (1.36)
-------- -------- -------- ------ ------
Net asset value, end of year $ 23.76 $ 22.34 $ 18.43 $16.85 $12.17
======== ======== ======== ====== ======
Total return 11.34% 21.55% 14.37% 42.35% 35.76%/3/
-------- -------- -------- ------ ------
Ratios/Supplemental data:
Net assets (in millions), end of year $3,384.1 $2,403.1 $1,403.0 $632.7 $164.3
Ratio of total expenses to average net assets 1.88%/5/ 1.77% 1.62% 1.46% 1.77%/4/
Less: Ratio of interest expense to average net assets (0.57)% (0.45)% (0.27)% (0.12)% (0.37)%/4/
-------- -------- -------- ------ ------
Ratio of operating expenses to average net assets 1.31% 1.32% 1.35% 1.34% 1.40%/4/
======== ======== ======== ====== ======
Ratio of net investment loss to average net assets (0.86)% (0.80)% (0.85)% (0.83)% (1.39)%/4/
Portfolio turnover rate 32.95% 35.92% 37.62% 57.77% 36.67%/3/
- ---------------------------
/1/For the period April 30, 2003 (Commencement of Operations) to December 31,
2003.
/2/Based on average shares outstanding.
/3/Not Annualized.
/4/Annualized.
/5/Benefit of expense reduction rounds to less than 0.01%.
13
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, 2007, 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, 2007 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 26, 2008
14
December 31, 2007 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 fiscal year ended December 31, 2007.
The Fund's distributions to shareholders included:
. $64,674,806 from ordinary income (including short-term capital gains),
. $86,731,868 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.
Of the total ordinary income distributions, 41.40% is qualified dividend income
subject to a reduced tax rate.
The information and distributions reported may differ from the information and
distributions taxable to the shareholders for the calendar year ended December
31, 2007. The information necessary to complete your income tax return for the
calendar year ended December 31, 2007 is listed on Form 1099-DIV which was
mailed to you in January 2008.
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
The Board of Trustees oversees the management of 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."
- -------------------------------------------------------------------------------------
Name, Address & Position(s) Held Length of Principal Occupation(s)
Date of Birth with the Fund Time Served During the Past Five Years
- -------------------------------------------------------------------------------------
INTERESTED TRUSTEES:
Ronald Baron/1,2/ Chief Executive 5 years Director, Chairman, CEO and CIO: the Firm* (2003-Present);
767 Fifth Avenue Officer, Chief President: the Firm* (03/06-06/07); President (2004-02/07),
New York, NY 10153 Investment Officer, Chairman (1999-2004), and Trustee (1987-Present): Baron
DOB: May 23, 1943 Trustee and Portfolio Investment Funds Trust; President (2004-02/07), Chairman
Manager (2003-2004), and Trustee (2003-Present): Baron Select Funds;
Portfolio Manager: Baron USA Partners Fund, Ltd. (2003-
Present); Portfolio Manager: Baron Managed Funds plc (2005-
Present); President (2004-02/07), Chairman (1997-2004), and
Trustee (1997-06/07): Baron Capital Funds Trust.
Linda S. Martinson/1,2/ President, Chief 5 years President and Chief Operating Officer: the Firm* (06/07-
767 Fifth Avenue Operating Officer, Present); General Counsel and Vice President: the Firm*
New York, NY 10153 Secretary, and Trustee (2003-2007); Director and Secretary: the Firm* (2003-
DOB: February 23, 1955 Present); Trustee (1987-Present): Baron Investment Funds
Trust; President (02/07-Present), and Trustee (2003-Present):
Baron Select Funds; Director: Baron USA Partners Fund, Ltd.
(2006-Present); Director (2005-Present): Baron Managed
Funds plc; President (02/07-06/07), and Trustee (1998-06/07):
Baron Capital Funds Trust.
- --------------------------------------------
Other Trustee/
Name, Address & Directorships
Date of Birth Held by the Trustee
- --------------------------------------------
INTERESTED TRUSTEES:
Ronald Baron/1,2/ None.
767 Fifth Avenue
New York, NY 10153
DOB: May 23, 1943
Linda S. Martinson/1,2/ None.
767 Fifth Avenue
New York, NY 10153
DOB: February 23, 1955
- ---------------------------
* The Firm (Baron Capital Group, Inc. with its subsidiaries Baron Capital,
Inc., Baron Capital Management, Inc. and BAMCO, Inc.).
15
BARON PARTNERS FUND
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Name, Address & Position(s) Held Length of Principal Occupation(s)
Date of Birth with the Fund Time Served During the Past Five Years
- ------------------------------------------------------------------------------------------
DISINTERESTED TRUSTEES:
Norman S. Edelcup/3,4,5/ Trustee 5 years Director: Marquis Bank (2007-Present); Director: CompX
City of Sunny Isles Beach International, Inc. (diversified manufacturer of engineered
18070 Collins Avenue components) (2006-Present); Mayor: (2003-Present),
Sunny Isles Beach, FL 33160 Commissioner: (2001-2003), Sunny Isles Beach, Florida;
DOB: May 8, 1935 Director: (2001-2006), Senior Vice President: (2001-2004),
Florida Savings Bank; Director: Valhi, Inc. (diversified
company) (1975-Present); Trustee: Baron Investment
Funds Trust (1987-Present); Baron Select Funds (2003-
Present), Baron Capital Funds Trust (1997-06/07).
David I. Fuente/4,5/ Trustee 4 years Director: (1987-Present), Office Depot; Director: Ryder
701 Tern Point Circle Systems, Inc. (1998-Present); Director: Dick's Sporting
Boca Raton, FL 33431 Goods, Inc. (1993-Present); Trustee: Baron Investment
DOB: September 10, 1945 Funds Trust, Baron Select Funds (2004-Present), Baron
Capital Funds Trust (2004-06/07).
Charles N. Mathewson/4,5/ Chairman and Trustee 5 years; Chairman Emeritus: (October 2003-Present), Chairman:
9295 Prototype Drive Elected as (1986-2003), International Game Technology, Inc.
Reno, NV 89521 Chairman 08/04 (manufacturer of microprocessor-controlled gaming
DOB: June 12, 1928 machines and monitoring systems); Chairman: Baron
Investment Funds Trust, Baron Select Funds (2004-
Present); Baron Capital Funds Trust (2004-06/07); Trustee:
Baron Investment Funds Trust (1987-Present), Baron Select
Funds (2003-Present), Baron Capital Funds Trust (1997-
06/07).
Harold W. Milner/4,5/ Trustee 5 years Retired; Trustee: Baron Investment Funds Trust (1987-
2293 Morningstar Drive Present), Baron Select Funds (2003-Present), Baron Capital
Park City, UT 84060 Funds Trust (1997-06/07).
DOB: November 11, 1934
Raymond Noveck/3,4,5/ Trustee 5 years Private Investor (1999-Present); Trustee: Baron Investment
31 Karen Road Funds Trust (1987-Present), Baron Select Funds (2003-
Waban, MA 02168 Present), Baron Capital Funds Trust (1997-06/07).
DOB: May 4, 1943
David A. Silverman, MD/4,5/ Trustee 5 years Physician and Faculty: New York University School of
146 Central Park West Medicine (1976-Present); Trustee: Baron Investment Funds
New York, NY 10024 Trust (1987-Present), Baron Select Funds (2003-Present),
DOB: March 14, 1950 Baron Capital Funds Trust (1997-06/07).
- -----------------------------------------------
Other Trustee/
Name, Address & Directorships
Date of Birth Held by the Trustee
- -----------------------------------------------
DISINTERESTED TRUSTEES:
Norman S. Edelcup/3,4,5/ Director: Marquis Bank
City of Sunny Isles Beach (2007-Present);
18070 Collins Avenue Director: CompX
Sunny Isles Beach, FL 33160 International, Inc.
DOB: May 8, 1935 (diversified
manufacturer of
engineered
components) (2006-
Present) ; Director:
Valhi, Inc., (diversified
company) (1975-
Present).
David I. Fuente/4,5/ Director: Office Depot
701 Tern Point Circle (1987-Present);
Boca Raton, FL 33431 Director: Ryder
DOB: September 10, 1945 Systems, Inc. (1998-
Present); Director:
Dick's Sporting Goods,
Inc. (1993-Present).
Charles N. Mathewson/4,5/ None.
9295 Prototype Drive
Reno, NV 89521
DOB: June 12, 1928
Harold W. Milner/4,5/ None.
2293 Morningstar Drive
Park City, UT 84060
DOB: November 11, 1934
Raymond Noveck/3,4,5/ None.
31 Karen Road
Waban, MA 02168
DOB: May 4, 1943
David A. Silverman, MD/4,5/ Director: New York
146 Central Park West Blood Center (1999-
New York, NY 10024 Present).
DOB: March 14, 1950
16
December 31, 2007 BARON PARTNERS FUND
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Other Trustee/
Name, Address & Position(s) Held Length of Principal Occupation(s) During the Directorships
Date of Birth with the Fund Time Served Past Five Years Held by the Trustee
- ----------------------------------------------------------------------------------------------------------------
Alex Yemenidjian/4,5/ Trustee 2 years Chairman and CEO: Armenco Director: Guess?, Inc.
1925 Century Park East Holdings, LLC (investment company) (2005-Present);
Suite 1975 (2005-Present); Director: Guess?, Director: Regal
Los Angeles, CA 90067 Inc. (retail) (2005-Present); Entertainment Group
DOB: December 27, 1955 Director: Regal Entertainment (2005-Present);
Group (entertainment company) Director: USC Marshall
(2005-Present); Director: USC School of Business
Marshall School of Business Board Board of Leaders
of Leaders (2005-Present); (2005-Present); Co-
Co-chair: Imagine the Arts chair: Imagine the Arts
Campaign, California State Campaign, California
University-Northridge State University-
(2005-Present); Trustee: American Northridge (2005-
Film Institute (2000-2007); Present); Trustee:
Chairman and CEO: American Film Institute
Metro-Goldwyn-Mayer, Inc. (2000-Present);
(1999-2005); Director: The Lincy Director: The Lincy
Foundation (1989-Present); Foundation (1989-
Director: The United Armenian Fund Present); Director: The
(1989-Present); Director and United Armenian Fund
member of Executive Committee: MGM (1989-Present);
MIRAGE, Inc. (1989-2005); Trustee: Director and member
Baron Investment Funds Trust of Executive
(2006-Present), Baron Select Funds Committee: MGM
(12/06-Present), Baron Capital MIRAGE, Inc. (1989-
Funds Trust (12/06-06/07). 2005).
ADDITIONAL OFFICERS OF THE FUND:
Clifford Greenberg Senior Vice President 5 years Director and Senior Vice None.
767 Fifth Avenue President: the Firm*
New York, NY 10153 (2003-Present); Vice President:
DOB: April 30, 1959 Baron Capital, Inc. (1997-2003);
Portfolio Manager: Baron Small Cap
Fund (1997-Present).
Gretta J. Heaney Vice President and 5 years Vice President and Chief None.
767 Fifth Avenue Chief Compliance Compliance Officer: the Firm*
New York, NY 10153 Officer (2003-Present), Baron Investment
DOB: July 10, 1960 Funds Trust, Baron Select Funds
(2004-Present), Baron USA Partners
Fund, Ltd. (2006-Present), Baron
Managed Funds plc (2005-Present),
Baron Capital Funds Trust
(2004-06/07).
- ---------------------------
* The Firm (Baron Capital Group, Inc. with its subsidiaries Baron Capital,
Inc., Baron Capital Management, Inc. and BAMCO, Inc.).
17
BARON PARTNERS FUND
- --------------------------------------------------------------------------------
Name, Address & Position(s) Held Length of Principal Occupation(s)
Date of Birth with the Fund Time Served During the Past Five Years
- -------------------------------------------------------------------------------------
Patrick M. Patalino Vice President and (less than)1 year Vice President and Chief Legal Officer: the Firm*, Baron
767 Fifth Avenue Chief Legal Officer Investment Funds Trust, Baron Select Funds, Baron
New York, NY 10153 Managed Funds plc, Baron USA Partners Fund, Ltd. (08/07-
DOB: May 3, 1968 Present); Managing Director and Chief Operating Officer:
Legal and Compliance Division, Morgan Stanley (01/06-
06/07); Director of Regulatory Matters: Credit Suisse
Securities (USA) (04/04-01/06); Counsel to Vice Chairman:
Credit Suisse Securities (USA) (09/02-04/04).
Andrew Peck Vice President 5 years Portfolio Manager: Baron Asset Fund (01/08-Present); Vice
767 Fifth Avenue President: BAMCO, Inc. (2003-Present); Vice President:
New York, NY 10153 Baron Investment Funds Trust (2003-Present); Vice
DOB: March 25, 1969 President, Research Analyst: Baron Capital, Inc. (1998-
Present); Co-Portfolio Manager (mid cap accounts): Baron
Capital Management, Inc. (04/06-Present); Co-Portfolio
Manager: Baron Asset Fund (2003-01/08).
Susan Robbins Vice President 5 years Director, Vice President and Senior Analyst: the Firm*
767 Fifth Avenue (2003-Present); Vice President: Baron Investment Funds
New York, NY 10153 Trust (1994-Present), Baron Select Funds (2003-Present),
DOB: October 19, 1954 Baron Capital Funds Trust (1998-06/07).
Peggy C. Wong Treasurer and Chief 5 years Chief Financial Officer and Treasurer: the Firm* (2003-
767 Fifth Avenue Financial Officer Present), Baron Investment Funds Trust (1987-Present),
New York, NY 10153 Baron Select Funds (2003-Present), Baron USA Partners
DOB: April 30, 1961 Fund, Ltd. (1993-Present), Baron Managed Funds plc.
(2005-Present), Baron Capital Funds Trust (1998-06/07).
- -----------------------------------------
Other Trustee/
Name, Address & Directorships
Date of Birth Held by the Trustee
- -----------------------------------------
Patrick M. Patalino None.
767 Fifth Avenue
New York, NY 10153
DOB: May 3, 1968
Andrew Peck None.
767 Fifth Avenue
New York, NY 10153
DOB: March 25, 1969
Susan Robbins None.
767 Fifth Avenue
New York, NY 10153
DOB: October 19, 1954
Peggy C. Wong None.
767 Fifth Avenue
New York, NY 10153
DOB: April 30, 1961
- ---------------------------
* The Firm (Baron Capital Group, Inc. with its subsidiaries Baron Capital,
Inc., Baron Capital Management, Inc. and BAMCO, Inc.).
/1/ 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.
/2/ 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.
/3/ Members of the Audit Committee.
/4/ Members of the Nominating Committee.
/5/ Members of the "Disinterested" Committee.
18
[Registered
Castle Logo]
BARON
FUNDS(R)
767 Fifth Avenue, 49/th/ Fl.
New York, NY 10153
1.800.99.BARON
212-583-2000
www.BaronFunds.com
[Registered
Castle Logo]
BARON
FUNDS(R)
DEC07
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, 2007:
Audit Fees Tax Fees
----------- ---------
Baron Partners Fund $31,500 $12,150
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 10, 2008
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 10, 2008
By: /s/ Peggy Wong
--------------------
Peggy Wong
Treasurer and Chief Financial Officer
Date: March 10, 2008
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.