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  Baron Growth Fund 24 trends are improving. This is consistent with our view that the broader U.S.economy is strengthening, helped by lower interest rates, and evidenced byrobust auto sales, improving housing data, declining unemployment andabundant, low cost domestic energy. Finally, we believe stocks remainattractively valued, trading around15.2Xearnings, roughly in line with themarket’s 100-year median P/E multiple.Baron Growth Fund does not change its investment approach becausecertain types of stocks are in or out of favor in the short term. We invest for the long term in businesses with large growth opportunities, sustainablecompetitive advantages and talented, visionary management. Following the year-to-date underperformance of small cap growth businesses, we believeBaron Growth Fund’s portfolio is unusually well-positioned and attractively valued. The businesses in which Baron Growth Fund has invested havegrown significantly this year. Since the Fund’s shares have not, we believethe Fund is well positioned to soon again outperform.Over the long term, the Fund has outperformed its benchmark by 608 basispoints per year on average since its inception on December31, 1994. It hasalso outperformed the large cap S&P500 Index by 378 basis points per year over the same time frame. Since inception, Baron Growth Fund has earnedan average compound annual return of 13.49%. This compares to 7.41% for the Russell2000 Growth Index and 9.71% for the S&P500 Index.During the quarter, we took advantage of market volatility to add or increaseour positions in several new and existing investments that had fallen sharplyin price. Since the beginning of the year, Baron Growth Fund has investednearly $600 million in 11 new companies with average market caps of $1.7billion. These included Masonite International Corp. , a low-costmanufacturer of premium residential doors andentryways, as well as two energy services companies, Badger Daylighting Ltd. and Atlas Energy, L.P. Badger is a specialized provider of excavation services to the oiland gas industry that is benefiting from significantshale exploration throughout North America. Atlas is aleading natural gas pipeline operator in the Midwest.Performance listed in the above table is net of annual operating expenses.Annual expense ratio for the Retail Shares as of September 30, 2013 was1.30%. The performance data quoted represents past performance. Past  performance is no guarantee of future results. The investment return and  principal value of an investment will fluctuate; an investor’s shares, whenredeemed, may be worth more or less than their srcinal cost. The Fund’stransfer agency expenses may be reduced by expense offsets from anunaffiliated transfer agent, without which performance would have beenlower. Current performance may be lower or higher than the performancedata quoted. For performance information current to the most recent monthend, visit www.BaronFunds.com or call 1-800-99BARON. 1 The indexes are unmanaged. The Russell 2000® Growth Index measures the performance of small-sized U.S. companies that are classified as growth and the S&P 500 Index of 500 widelyheld largecap U.S. companies. The indexes and the Fund are with dividends, which positivelyimpact the performance results. Russell Investment Group is the source and owner of thetrademarks, service marks and copyrights related to the Russell Indexes. Russell is a trademark of Russell Investment Group. 2 The performance data in the table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares. 3 Not annualized. Dear Baron Growth Fund Shareholder:Performance Baron Growth Fund declined 3.33% during the third quarter of 2014,outperforming the Russell2000 Growth Index, the small cap benchmark against which we compete, which fell 6.13%. By contrast, the broader S&P500 Index increased by 1.13% over the same period, illustrating thesignificant outperformance of large cap stocks over smaller companies duringthe quarter. Large cap stocks have outperformed small cap peers throughout2014 by more than 1200 basis points, an unusually large disparity.We believe there are two reasons for this divergence. The first is a “rotation”of interest into larger companies whose stocks lagged in 2013 and thusappeared less expensive than faster growing, small businesses. Second, largecap stocks represent a perceived “flight to safety” that, we believe, reflectsinvestor fear during times of instability.The third quarter was marked by a barrage of negative headlines thatcontributed to investor anxiety, from war in the Middle East to tensionsbetween Russia and Ukraine to ISIS to Hong Kong protests to, mostrecently, an Ebola panic. During these periods of inevitable volatility, westay focused on the fundamental prospects for our businesses. While we donot try to predict short-term “macro” developments or current events, webelieve conditions remain favorable for the U.S. economy and stocks. In our frequent meetings with management teams, we observe that business Table I.Performance (Retail Shares) Annualized for periods ended September 30, 2014RussellBaron2000GrowthGrowthS&P500Fund 1,2 Index 1 Index 1 Three Months 3 (3.33)%(6.13)%1.13%Nine Months 3 (2.64)%(4.05)%8.34%One Year 5.11%3.79%19.73%Three Years20.76%21.91%22.99%Five Years15.83%15.51%15.70%Ten Years9.20%9.03%8.11%Fifteen Years9.82%5.69%4.87%Since Inception (December31, 1994)13.49%7.41%9.71% RONALD BARONRetail Shares: BGRFXCEO AND PORTFOLIO MANAGERInstitutional Shares: BGRIX  September 30, 2014 Baron Growth Fund 25 We also invested in Financial Engines, Inc. and ClubCorp Holdings, Inc. during the quarter, two companies that we have owned in otherFundspreviously and have gotten to know well. Financial Engines is a technology-enabled service provider that offers personalized investment managementand advice to small investors in 401(k)plans, while ClubCorp is the largestowner and consolidator of private golf and country clubs in the U.S.Year-to-date, the Fund also added approximately $260 million to existingholdings, while reducing positions totaling approximately $600 million inholdings with average market caps of $5.8 billion. Those larger businesseshad been very successful investments and had been owned for several yearsby the Fund.These transactions are illustrative of our strategy. Baron Growth Fundinvests in small cap businesses under $2.5 billion in size with significantcompetitive advantagesandlarge addressable market opportunities. Wemonitor their progress closely as they become mid cap stocks. We sell themafter they’ve become larger, successful companies and reinvest the proceedsin small cap growth businesses.A good example of this strategy during the quarter was our investment in Concur Technologies, Inc. , a $7.2 billion company that was the subject of a takeover by global software firm SAP. Baron Growth Fund has ownedConcur, a leading provider of travel and expense management software,since 2009, when the company had a market value of roughly $1.1 billion.We have since earned aboutsixtimes our initial investment. Concur joins CFR Pharmaceuticals SA , Windy City Investments Holdings, LLC(Nuveen Investments) , Kerzner International Holdings Ltd. and TargaResources Corp. as other Baron Growth Fund investments that have beenthe subject of acquisitions in 2014.We try to explain the reasons certain stocks outperformed or underperformed during the period in the “Top Contributors” and “TopDetractors” sectionsthat follows. In many instances, we regard gains andlosses in the short term as random. We continue to believe all the growthbusinesses in which we have invested could double in size within five years.Importantly, we believe these investments possess stronger fundamental andquality characteristics than the companies that comprise the benchmark.Baron Growth Fund’s investments consist primarily of companies with higher profit margins, more favorable returns on capital, and much lower earningsvolatility than the securities in the benchmark against which we compete.We believe these characteristics should offer investors better returns over time, although we obviously cannot guarantee that. “The Long andWinding Road”Bush Years“Here Comes“Yesterday”2000-2008the Sun”Clinton Years9/11; Iraq;Obama Years1992-2000Afghanistan;2008-2014Internet BubbleHousing Bubble;Recovery“Any Time12/31/99 P/E 33xFinancial PanicP/E 15.2xat All” Annualized Returns Inception Inception12/31/9412/31/99 to12/31/08 to12/31/94to 12/31/9912/31/089/30/14to 9/30/14 Baron Growth Fund29.90%2.46%18.41%13.49%Russell2000 Growth Index18.99%–4.71%18.51%7.41%S&P500 Index28.56%–3.60%17.05%9.71% Table II. Top contributors to performance for the quarter ended September30, 2014MarketCapQuarterWhenEnd MarketYearAcquiredCapTotalPercentAcquired(billions)(billions)ReturnImpact Under Armour, Inc.2005$1.0$14.716.21%0.50%Community Health Systems, Inc.20042.46.320.710.38Concur Technologies, Inc.20091.17.235.870.34Vail Resorts, Inc.19970.23.112.410.23The Middleby Corp.20111.65.06.540.19Shares of athletic apparel company Under Armour, Inc. increased in thethird quarter. Under Armour continues to have brand momentum. Sales aregrowing faster than 30% in nearly all categories, and sales of higher pricedmerchandise and postponed inventory liquidations have boosted grossmargins. Operating expenses rose as the company invested for futuregrowth in women’s apparel, footwear, international, and direct-to-consumer selling. The company has diversified from a singleproduct/category into a global sports brand. (Michael Baron) Community Health Systems, Inc. is one of the largest hospital operatorsin the U.S., with a focus on small and mid-sized markets in 29 states. Sharesrose on strong second quarter results, driven by higher utilization and animproved payor mix stemming from health care reform and the improvingeconomy. Management’s volume initiatives are taking hold. More stateswith large Community footprints are pursuing Medicaid expansion. Finally,the integration with HMA is going well, and we think synergies willultimately exceed initial guidance. (Susan Robbins)Shares of Concur Technologies, Inc. increased in the third quarter. Concur is a leading provider of travel booking and expense management software.On September18, SAP SE announced an agreement to acquire Concur for $129 per share, a 28% premium to the closing price on September2, theday before Bloomberg reported that Concur was exploring a sale. The $8.3billion acquisition implied a valuation of roughly 9.7 times Concur’sestimated fiscal year 2015 revenue and confirmed our view that Concur was a valuable strategic asset. (Neal Kaufman) Table III. Top detractors from performance for the quarter ended September30, 2014QuarterMarketEnd MarketCapCap or WhenMarket CapYearAcquiredWhen SoldTotalPercentAcquired(billions)(billions)ReturnImpact Colfax Corp.2011$1.0$7.0-23.57%-0.51%Financial Engines, Inc.20100.71.8-24.23-0.29Benefitfocus, Inc.20131.30.7-41.72-0.29CARBO Ceramics, Inc.20091.51.6-55.71-0.29Generac Holdings, Inc.20100.92.8-16.82-0.27Shares of industrial machinery company Colfax Corp. fell in the wake of weaker-than-expected second quarter results. Strong margins in weldingwere offset by operational missteps in the legacy fluid handling business  26 Baron Growth Fund combined with a weak macro environment. Colfax recently announced anew president for the fluid handling business, and we expect this businessto get back on track soon. We believe that Colfax will continue to use itsproven business strategy to improve operations at acquired companies,generating substantial shareholder value over time. (Rebecca Ellin)Shares of Financial Engines, Inc. ,a service provider to defined contributionplans and individual investors, fell in the third quarter. While the companycontinues to penetrate the market, investors have become concerned aboutprofitability and competition. Gross profit yield continues to graduallydecline as plan providers use their gatekeeper positions to receive a higher share incremental economics. Investors are also concerned that cheaper target date funds could take market share. We retain conviction about thecompany’s unique product and significant market opportunity. (MichaelBaron)Shares of Benefitfocus, Inc. fell in the third quarter, partly due to asecondary offering in Julythat increased the public float by more than 30%.Benefitfocus is the leading provider of cloud-based benefits software,offering an integrated suite of solutions to help customers more efficientlyshop, enroll, manage, and exchange benefits information. We think Benefitfocus serves an addressable market more than 100 times larger thanits current business, which should allow it to compound revenue at morethan 30% annually. (Neal Rosenberg) R ECENT P URCHASES Table IV. Top net purchases for the quarter ended September30, 2014MarketQuarterCapEndWhenMarketAmount YearAcquiredCapPurchasedAcquired(billions)(billions)(millions) Masonite International Corp.2014$1.7$1.6$8.3Badger Daylighting Ltd.20141.30.97.5Financial Engines, Inc.20100.71.86.5Atlas Energy, L.P.20142.22.35.8ClubCorp Holdings, Inc.20131.11.34.4During the third quarter, we increased our investment in MasoniteInternational Corp. Masonite is a leading, vertically-integrated manufacturer of interior and exterior doors. In 2013, Masonite sold 32 million doors to over 7,000 customers in 80 countries. Sales are split 58% U.S., 16% Canada, and26% rest of the world. Masonite has dominant market positions in its productcategories, particularly in North America, and is poised to benefit from animprovement in residential and non-residential construction activity off of depressed levels. Additionally, the door industry has consolidated recently for certain product categories, improving Masonite’s ability to raise prices, eventhough capacity is underutilized. The management team is impressive and hasinculcated a culture of operational discipline and innovation. We believe thatEBITDA can triple as construction levels normalize and pricing firms. Accretiveautomation investments and acquisitions should be additive to growth.(David Kirshenbaum)We increased our position in Badger Daylighting Ltd. , a provider of custom-made trucks that use pressurized water and powerful vacuums toexcavate in areas with buried pipes and cables. These “hydrovac” trucks aremuch safer than mechanical equipment and more efficient than manualdigging. Hydrovac truck demand is growing rapidly as oil& gas companiesuse them to build new wells and pipelines and as utilities increasingly usethem to maintain underground infrastructure. Badger is meeting thisdemand by building more trucks and adding more service locations acrossthe U.S. and Canada. With over 900 trucks and 110 locations, Badger is byfar the largest provider of hydrovacs in North America. The company enjoysa cost advantage relative to peers by manufacturing its own trucks andmaximizing utilization across its large geographic footprint. Given thestrong tailwinds of capital investment by the energy and utility industries,along with increasing safety pressures around accessing and maintainingexisting infrastructure, demand for Badger’s services should continuegrowing nicely. (Josh Saltman)The share price of Financial Engines, Inc. , a service provider to definedcontribution plans and individual investors, has declined by approximately50% year-to-date. Although we thought its valuation was justified by itsgrowth prospects, lower profit yield in 2014 and investor rotation awayfrom less established businesses led to the drop in share value. We took advantage of its attractive stock price to add to the Fund’s investment andbelieve its long-term investment premise still holds. Financial Engines is thedominant player in a $5 trillion market, with roughly $900 billion in planassets under contract and $100 billion in assets under management.Significant potential exists to add to these amounts through increased salesto plan sponsors and improved marketing to plan participants andbroadening product offerings. Additionally, we believe the company shouldeventually be able to use its expertise to service the IRA and defined benefitmarket, each of which represents an additional $5 trillion in assets. Webelieve that Financial Engines’ essential advice offering and planconnectivity advantage will result in significant client growth and a highlyprofitable recurring revenue stream. (Michael Baron) P ORTFOLIO S TRUCTUREAND S TRATEGY Baron Growth Fund owns 98 stocks. Its top10holdings compriseapproximately 27% of the Fund. We believe this diversified Fund offersinvestors potentially better than market returns with less volatility than themarket. The Fund’s “beta,” or sensitivity to market movements, is 0.77. Our strategy to accomplish this is to invest for the long term in a diversifiedportfolio of appropriately capitalized, well-managed, growing small capbusinesses at attractive prices. The Fund’s average portfolio turnover for thepast three years is 12%. This means the Fund has an average holding periodfor its investments of overeightyears. This contrasts sharply with theaverage small cap mutual fund which typically “turns over” its portfolioeveryeightmonths. We invest in companies with market capitalizations of $2.5 billion or less at the time of purchase that we believe have thepotential to double in size within four to five years. We believe that aportfolio of investments, diversified among several industries, all of whichare dependent upon different, non-correlated fundamentals, will likelyreduce portfolio volatility. In addition, many of the companies in which theFund invests have significant recurring revenue, which makes their earnings  September 30, 2014 Baron Growth Fund 27 Investors should consider the investment objectives, risks, and charges and expenses of the investment carefully before investing. The prospectus and summary  prospectus contains this and other information about the Funds. You may obtain them from its distributor, Baron Capital, Inc., by calling 1-800-99BARON or visiting www.BaronFunds.com. Please read them carefully before investing. The Adviser believes that there is more potential for capital appreciation in smaller companies, but there also may be more risk. Specific risks associated withinvesting in smaller companies include that the securities may be thinly traded and they may be more difficult to sell during market downturns. The Fundmay not achieve its objectives. Portfolio holdings are subject to change. Current and future portfolio holdings are subject to risk. The discussions of the companies herein are not intended as advice to any person regarding the advisability of investing in any particular security. The views expressed in this report reflect those of therespective portfolio managers only through the end of the period stated in this report. The portfolio manager’s views are not intended as recommendations or investment advice to any person readingthis report and are subject to change at any time based on market and other conditions and Baron has no obligation to update them.This report does not constitute an offer to sell or a solicitation of any offer to buy securities of Baron Growth Fund by anyone in any jurisdiction where it would be unlawful under the laws of that jurisdiction to make such offer or solicitation. Beta: measures a fund’s sensitivity to market movements. The beta of the market (Russell2000 Growth Index) is 1.00 by definition. P/E: the price earnings ratio is a valuation ratio of a company’s current stock price to its actual earnings per share. less volatile than the Russell2000 Growth Index.We find all thesebusinesses through our dedicated research effort. Our holdings are well-managed businesses with significant barriers to competitive threats. Thesebarriers provide our companies with pricing power. Most of our companiesproduce significant cash flows, which are often reinvested in their businesses to increase their revenues and margins over the long term. Webelieve the Fund has an opportunity to meet its objectives, although thereis no guarantee that it will do so. Table V. Top 10 holdings as of September30, 2014MarketQuarterCapEndWhenMarketPercentYearAcquiredCapAmountof NetAcquired(billions)(billions)(millions)Assets Under Armour, Inc.2005$1.0$14.7$272.93.5%ITC Holdings Corp.20050.85.5237.83.1The Middleby Corp.20111.65.0224.72.9Arch Capital Group Ltd.20020.47.4216.12.8Gartner, Inc.20072.36.5207.62.7FactSet Research Systems, Inc.20062.55.1194.42.5Genesee& Wyoming, Inc.20040.55.1190.62.5Dick’s Sporting Goods, Inc.20041.45.3179.92.3Vail Resorts, Inc.19970.23.1179.12.3Community Health Systems, Inc.20042.46.3178.12.3 Thank you for investing in Baron Growth Fund. Thank you for joining us as fellow shareholders in Baron Growth Fund. Webelieve the growth prospects for the businesses in which Baron GrowthFund has invested continue to be favorable.We continue to work hard to justify your confidence and trust in our stewardship of your family’s hard-earned savings. We will also continue toprovide you with information that I would like to have if our roles werereversed. This is so you will be able to make an informed judgment aboutwhether Baron Growth Fund remains an appropriate and attractiveinvestment for your family.Respectfully,Ronald BaronCEO and Portfolio Manager October20, 2014For more information about this Fundplease scan this QR code with any bar code reader on your mobile device.
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