I N S I D E T H E B A R O N F U N D S

VO LU M E 4 / N O. 3 • S U M M E R 2 0 07

On the Avenue
INVESTOR
Baron 5th Ave. Growth Fund Seeks Global Growth
H ave you had a cocktail lately? A stick of gum or a
candy bar? How about a bowl of yogurt? Or perhaps you’ve
premium brands have been
gaining on value brands, we
sent an overnight delivery or stayed in a hotel. If so, you may believe from shifting demo-
well have purchased the product or service of one of the graphics and consumer
companies in which Baron Fifth Avenue Growth Fund has preferences. The result is a
invested for their global growth prospects. growth rate in the mid teens
“Much more than with smaller companies,” says Randy that we believe can be sus-
Haase, portfolio manager of the large-cap growth Fund, tained for years to come.”
“larger companies are likely to be multinational, doing busi- Group Danone (1.0%)
ness both in the U.S. and overseas. Whether it’s a U.S. com- is a French company well
pany that’s expanding globally or an internationally based known in the U.S. for its
company that also markets in the U.S., we’re taking a close Dannon and Stoneyfield yo-
look to see if its growth prospects warrant an investment. gurt brands and Evian water.
“Global growth business investments,” says Randy, “allow The company currently sells
us to participate in country economies growing faster than its products in just 30 coun- Randy Haase
America’s … as well as to diversify our risks by earning non- tries, where it enjoys a 36% market share.
dollar currencies. Multi-national companies represent about “Group Danone has benefited from consumer interest
44% of Baron Fifth Avenue Growth Fund’s portfolio. We in health and wellness products, which is one of our themes
think these businesses have strong and sustainable long-term when selecting companies,” says Randy. “In the entire food
growth opportunities. Like our large-cap U.S. growth com- and beverage category, the fastest growing segment is organic
pany investments they are market-share leaders with strong foods.” Sales of organic products grew from $4 billion in 1997
franchises and well-known brand names. Within Baron Fifth to $17 billion in 2006 and are projected to double to $34
Avenue Growth Fund, we believe that a lot of the companies billion in 2011, according to industry sources.
have strong growth potential not only in the U.S., but outside “Not only is organic the fastest-growing segment in the
the U.S. as well.” food and beverage industry,” says Randy, “the fastest-growing
Of the 50 companies currently held by Fifth Avenue
continued on page 2
Growth, three are domiciled outside the U.S. Together they
represent about 6.2% of the portfolio’s assets. While their
BARON
names may not all be familiar, their brands are.
Diageo (3.7% of the portfolio as of June 30), based in the
U.K., is the world’s largest spirits company, producing and
marketing premium brand spirits including Smirnoff,
INVESTOR
What’s Inside
Tanqueray, Captain Morgan, Johnnie Walker, J&B, Baileys Baron 5th Ave. Seeks Global Growth . . . . . . . . . .page 1
and Jose Cuervo. Its brands, Randy says, account for 29% of Baron Fifth Ave. Growth Portfolio Holdings . . . . .page 2
spirit sales in the U.S. and 21% of spirit sales worldwide. Inside iOpportunity: No More Books . . . . . . . . . .page 3
Diageo, says Randy, is benefiting from several trends. Performance as of December 31, 2006 . . . . . . . . .page 4
“Spirits are taking market share from wine and beer. And Baron Investment Conference . . . . . . . . . . . . . . . .page 4
How to Contact Baron Funds . . . . . . . . . . . . . . . .page 4
continued from page 1

ON THE Baron Fifth Avenue Growth Fund Portfolio Holdings

Avenue
segment within organic is yogurt. And Group
TOP TEN HOLDINGS
(As of June 30, 2007)

Company Industry % of Portfolio

Danone has 20% of the worldwide market share
Procter & Gamble Co. Consumer Products 4.0%
for yogurt.”
U.K. confectionary and beverage marketer American Express Corp. Financial Services – Miscellaneous 3.9%
Cadbury Schweppes is the third international com- Wells Fargo & Co. Financial Services – Community Banks 3.8%
pany held in the portfolio (1.5%). With brands that Comcast Corp. Media 3.8%
include Cadbury, Halls, Trident, Dentyne, Chiclets Diageo PLC Consumer Products 3.7%
and Clorets, Cadbury is the worldwide confec- Diamond Offshore Drilling, Inc. Energy & Energy Services 3.7%
tionary market leader with a 10% share. Beverage
Transocean, Inc. Energy & Energy Services 3.6%
brands include Schweppes, Dr. Pepper, 7-Up,
Microsoft Corp. Computer Technology 3.3%
Mott’s, Snapple and Hawaiian Punch.
Randy says the company’s growth has been Macy’s, Inc. Retail – Consumer Staples 3.2%
strong, and the stock’s price has increased. He an- PepsiCo, Inc. Consumer Products 3.2%
ticipates a split of the company into its confec- Total 36.2%
tionary and beverage components, which should Portfolio holdings are subject to change
yield positive results over time.
Companies based overseas are not the only ones that says. Marriott currently has six hotels in India, with 10 more
Randy has targeted for Baron Fifth Avenue Growth Fund. set to open by 2009 and 15 more in the pipeline beyond.
U.S.-based hotel operator Marriott Corp. (1.5%) has strong Similarly, China’s market is also under-developed, says
growth prospects, Randy says, both at home and overseas. The R a n d y. I n C h i n a , Marriott currently operates 32 hotels
company currently has a 9% market share in North America with 15 more in the pipeline.
and it drives about 20% of its income from outside the U.S. “These two countries, with their emerging middle class
“We own the and developing business,
stock mainly because INDUSTRY BREAKDOWN (% of Portfolio) p re s e n t s i g n i f i c a n t
within the U.S., there (As of June 30, 2007) growth opportunities for
Retail –
is a demand/supply Specialty Stores Business Services Cash the hotel industry,” says
6.2 5.1
imbalance in its fa- 1.1 Randy, “and we believe
Retail –
vor,” Randy says. Consumer Staples Computer Technology that Marriott is well posi-
9.0 5.4
“There has been little tioned to benefit from
Recreation Consumer Products
new capacity in the & Resorts
that growth.”
13.4
last few years while 5.2 Federal Express
Energy &
demand has grown, Energy Services (1.8%) is another U.S.-
Other
pushing occupancy 13.8 8.4 based company that has
rates and prices up. Financial Services – taken advantage of
Brokerages & Exchanges
At the same time sup- Media 8.5 growth opportunities
10.3
ply has dropped in Financial Services – both here and abroad.
Health Services – Financial Services –
some markets as ho- Insurance Miscellaneous
Community Banks “Integration of the
4.6
tels are converted 5.1 3.9 world’s economies is one
into condos. of four trends that has
“We also see a huge opportunity in Europe,” Randy says. benefited Federal Express,” says Randy. “As businesses
“In the U.S., 78% of all hotels are branded. But in Europe, just around the globe work closer together, we think FedEx ben-
30% of the hotels are branded; the rest are independent. That efits because it literally physically links the world.”
has begun to change, which we think will give Marriott a A second factor is that businesses taking advantage of
significant opportunity.” faster supply chains and just-in-time inventory control are
Randy also sees opportunities for Marriott in China and more dependent on companies like Federal Express, says
India. Today, there are just 110,000 hotel rooms in all of Randy. Third, he says, is the increasing use of transportation
India, says Randy. “That’s less than Orlando, Florida,” he continued on page 3

2 SUMMER 2007•BARON INVESTOR

 eral decision-making throughout the IT field. Although
INSIDE Gartner does have competitors, its long-standing reputa-

iOpportunity tion has made it the market leader, enabling it to leverage

With
Michael Lippert
No More Books
If, like so many people these days, you find yourself
turning to the Internet for news and information, you’ll un-
derstand why Baron iOpportunity Fund has been invest-
ing more in online information services.
Costar Group (1.9% of the portfolio as of June 30) is
the creator and provider of an online database covering
the commercial real estate market. The service provides
pictures and maps along with detailed information on ten-
ants, space, rents and sales data.
its business into other areas such as events.
IHS (1.0%) is a leading provider of analytic tools and
information for the oil and gas industry. Not unlike
Costar’s real-estate database, IHS provides online infor-
mation about oil and gas wells, including exploration, de-
velopment and production. The company can produce
customized data sets for specific customers. IHS, too, is a
subscription-based business with a 90% renewal rate.
In the financial services area, we’ve taken a position in
FactSet Research Systems (0.8%). In addition to providing
financial news and data where it has significant competi-
tors, FactSet also delivers a set of investment and portfolio
analytical tools that set it apart. We think the company is run
by a focused and talented management staff and is taking
market share away from some of its competition.

The subscription-based business enjoys a high re-
newal rate and has plans to expand into retail real estate.
Costar currently has no competitors and, in our opinion,
presents a high barrier to entry for others.
Gartner Group (1.8%) is another example of a com-
pany generating information for online sale and distribution.
Its 650 analysts produce comprehensive reports and consult
for information technology executives. Gartner is also a sub-
scription-based business with a high renewal rate.
The company provides guidance on trends and tech-
nologies that will influence purchasing, security and gen-
These companies demonstrate the powerful effect of
the Internet on distribution and related costs. Where
information providers such as these companies would
once have relied on the frequent and expensive publish-
ing of books and directories, they now take advantage of
online distribution, which we think enhances the value of
their products and services, while greatly reducing costs.
(Baron iOpportunity Fund invests in companies that we believe will
benefit from growth opportunities resulting from the Internet and in-
formation technology. In this column, Portfolio Manager Michael
Lippert presents his views on technologies and developments that he
believes will influence the market in the months to come.)

services by manufacturers of technol-
ogy. And last is the expanding e-com-
merce market. Companies like FedEx,
says Randy, are the last link in online
purchases.
As for growth prospects, both in
the U.S. and beyond, Randy notes that
while 25% of the company’s revenue
now comes from outside the U.S., 95%
of consumers live outside the U.S.
“Given those numbers,” says Randy,
“we believe FedEx will experience sub-
stantial growth in overseas markets.”
As is the case with Marriott, Randy
says, FedEx also has significant growth
opportunities in China and India.
FedEx has just begun overnight deliv-
ery service to 19 cities in China. Within
China, overnight service for 60 cities is
set to launch soon. As for India, there
are now 16 weekly flights from the U.S.
to India, making FedEx the largest
carrier currently serving that market.
Another example of a U.S. com-
pany with growth prospects both here
and abroad, says Randy, is Pepsi (3.2%).
Its five major brands are Pepsi,
Tropicana, Frito-Lay, Gatorade and
Quaker Oats.
In 2002, Randy says, Pepsi
achieved more than $200 million in
revenue from each of 7 international
markets. Last year, it exceeded $200
million in 15 international markets.
Last year, he says, Pepsi’s operating
earnings outside the U.S. were 20% of
the total. In 2009, Pepsi projects oper-
ating earnings outside the U.S. will
reach 30%. In the last quarter, overall
earnings were up 17%, while operating
earnings from outside the U.S. were up
29%, Randy says.
“When it comes to selecting com-
panies for Fifth Avenue Growth
Fund,” says Randy, “clearly one of the
themes is global growth. Whether it’s
picking a U.S. company like Marriott,
FedEx or Pepsi for its potential to ben-
efit from overseas markets or a com-
pany overseas like Diageo, Group
Danone or Cadbury for its potential to
also grow in the U.S. market, we’re
looking for quality companies that are
well known and respected.”
(Baron Fifth Avenue Growth Fund
invests in large companies that we believe
have significant growth potential over the
next five years. This is the first install-
ment of a column in which Portfolio
Manager Randy Haase presents his views
on the companies, industries and devel-
opments that he believes will be impor-
tant in the months to come.)

BARON INVESTOR • S U M M E R 2007 3

 Performance as of June 30, 2007
Average Annualized Returns Since Inception Inception Expense
YTD 1-Year 5-Years 10-Years Annualized Cumulative Date Ratio*
Baron Asset Fund 8.63% 16.96% 13.22% 8.71% 13.43% 1151.08% 6/12/87 1.33%
Baron Growth Fund 6.94% 15.52% 14.00% 13.02% 17.61% 659.53% 12/31/94 1.31%
Baron Small Cap Fund 10.21% 19.57% 13.74% N/A 12.65% 219.37% 9/30/97 1.33%
Baron iOpportunity Fund 12.20% 24.80% 23.89% N/A 2.83% 22.74% 2/29/00 1.45%
Baron Partners Fund** 6.68% 18.07% 19.23% 13.58% 18.15% 1207.98% 1/31/92 1.77%
Baron 5th Ave.Growth Fund 3.51% 14.32% N/A N/A 10.12% 35.70% 4/30/04 1.39%
Performance data quoted represents past performance. Past performance is no guarantee of future results. The investment return
and principal value of an investment will fluctuate; an investor’s shares, when redeemed, may be worth more or less than their
original cost. Current performance may be lower or higher than the performance data quoted above. For performance informa-
tion current to the most recent month end, visit www.BaronFunds.com/performance or call 800-99-BARON. Performance data
does not reflect imposition of a short-term trading fee of 1% on redemptions of Baron iOpportunity Fund shares held for less than
six months.
Investors should consider the investment objectives, risks, and charges and expenses of the investment carefully before investing. The
Baron Family of Funds is described in prospectuses that contain this and other information about the Funds. You should carefully
read the prospectus before investing. You can read, print, or download a prospectus at www.BaronFunds.com/prospectus. Or call
800-99-BARON to receive a prospectus in the mail. Baron Capital, Inc. is the distributor of the Baron Funds.
Baron Growth and Small Cap Funds invest primarily in small-cap securities. Baron Asset Fund invests in mid-cap securities.
Specific risks associated with investing in smaller and medium sized companies include that the securities may be thinly traded
and they may be more difficult to sell during market downturns. Specific risk associated with Baron iOpportunity Fund:
Internet-related companies and companies propelled by new technologies may present the risk of rapid change and product
obsolescence and their successes may be difficult to predict for the long term. Specific risks associated with Baron Partners
Fund involve the use of non-diversification, leverage, and short selling, which increase volatility of the Fund’s returns and
expose it to greater loss in any given period. The Fifth Avenue Growth Fund invests in large-cap securities, which like all
equities are subject to price fluctuations in the stock market. The Funds may not achieve their objectives. Portfolio holdings
are subject to change.
*As of September 30, 2006 for Baron Asset, Baron Growth, Baron Small Cap, Baron iOpportunity and Baron Fifth Avenue Growth Funds.
As of December 31, 2006 for Baron Partners Fund. Expense ratio shown for Baron Partners Fund comprises total operating expenses of
1.32% and interest expense of 0.45%.
**Since inception, February 1, 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 im-
position 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 was not 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.

Baron Investment Conference

Our 16th Annual Baron Investment conference will be held Friday, November 2,
in New York City at the Metropolitan Opera House at Lincoln Center. Advance
registration is required and seating is first come, first served. For your free registra-
tion, visit www.BaronFunds.com/register. Or call 800-99-BARON, option 4.
Our conference features guest speakers from the compa-
nies in which we invest, our own portfolio managers and,
as always, dazzling entertainment. Tickets are free, but
space is limited. Please reserve your place now.

How to Contact Baron Funds

Web site: For daily NAVs, portfolio details and performance Shareholder Services: Call 800-99-BARON (800-992-2766)
data current to the most recent month end, or to open an and select option 1 to request literature or select option 3 to
account, please visit www.BaronFunds.com. speak with a representative.
If you have any questions or comments, please feel free to contact us at 800-99-BARON or via email at info@BaronFunds.com. If you send an email,
we will reply to you via email within two business days letting you know that we have received your email. We look forward to hearing from you.

4 SUMMER 2007•BARON INVESTOR 539833