|
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. The Trust currently offers seven series (individually, a “Fund” and collectively, the “Funds”): Baron Partners Fund, Baron
Focused Growth Fund, Baron Real Estate Fund and Baron Energy and Resources Fund, which are non-diversified; and Baron International Growth Fund, Baron Emerging Markets
Fund, and Baron Global Advantage Fund, which are diversified. The Funds’ investment objective is to seek capital appreciation. Baron Partners Fund may employ “leverage” by
borrowing money and using it to purchase additional securities. Borrowing for investment increases both investment opportunity and investment risk. Baron International
Growth Fund, Baron Emerging Markets Fund and Baron Global Advantage Fund invest their assets primarily in non-U.S. companies. Baron Real Estate Fund invests its assets
primarily in U.S. and non-U.S. real estate and real estate-related companies. Baron Energy and Resources Fund invests its assets primarily in U.S. and non-U.S. energy and
resources companies and related companies and energy and resources master limited partnerships (“MLPs”) of any market capitalization.
Each Fund offers two classes of shares, Retail Shares and Institutional Shares, which differ only in their ongoing fees, expenses and eligibility requirements. Retail Shares are
offered to all investors. Institutional Shares are for investments in the amount of $1 million or more per Fund. Institutional Shares are intended for certain financial
intermediaries that offer shares of Baron Funds through fee based platforms, retirement platforms or other platforms. Each class of shares has equal rights to earnings and assets,
except that each class bears different expenses for distribution and shareholder servicing. Each Fund’s investment income, realized and unrealized gains or losses on investments
and foreign currency, and expenses other than those attributable to a specific class are allocated to each class based on its relative net assets. Each class of shares has exclusive
voting rights with respect to matters that affect just that class.
Baron Partners Fund was organized originally as a limited partnership in January 1992 under the laws of the State of Delaware. Effective as of the close of business on April 30,
2003, the predecessor partnership was reorganized into a series of the Trust. Baron Partners Fund commenced operations on April 30, 2003 with a contribution of assets and
liabilities, including securities-in-kind, from the predecessor partnership.
Baron Focused Growth Fund was organized originally as a limited partnership in May 1996 under the laws of the State of Delaware. Effective as of the close of business on
June 30, 2008, the predecessor partnership was reorganized into a series of the Trust. Baron Focused Growth Fund commenced operations on June 30, 2008 with a contribution
of assets and liabilities, including securities-in-kind, from the predecessor partnership.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the Funds. The policies are in conformity with accounting principles generally accepted in the United
States of America (“GAAP”). The preparation of financial statements in accordance with GAAP 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. Events occurring subsequent to the date of the Statements of Assets and Liabilities and through the date of issuance of the financial statements have been
evaluated for adjustment to or disclosure in the financial statements.
a) Security Valuation.
The Funds’ share prices or net asset values are calculated as of the close of the regular trading session (usually 4 p.m. E.T.) on the New York Stock Exchange
(“NYSE”) on any day the NYSE is open. Portfolio securities traded on any national stock exchange are valued based on the last sale price on the exchange where such shares are
principally traded. For securities traded on NASDAQ, the Funds use the NASDAQ Official Closing Price. If there are no sales on a given day, the value of the security may be the
average of the most recent bid and asked quotations on such exchange or the last sale price from a prior day.Where market quotations are not readily available, or, if in BAMCO,
Inc.’s (the “Adviser”) judgment, they do not accurately reflect the fair value of a security, or an event occurs after the market close but before the Funds are priced that materially
affects the value of a security, the securities will be valued by the Adviser using policies and procedures approved by the Board of Trustees (the “Board”). The Adviser has a Fair
Valuation Committee (the “Committee”) comprised of senior executives, and the Committee reports to the Board every quarter. Factors the Committee may consider 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 guarantee, however, that a fair valuation used by the Funds 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 60 days will be valued on the basis of prices obtained from a pricing service approved by
the Board or at the mean of the bid and ask prices from the dealer maintaining an active market in that security. Money market instruments held by the Funds with a remaining
maturity of 60 days or less are valued at amortized cost, which approximates fair value.
Non-U.S. equity securities are valued on the basis of their most recent closing market prices and translated into U.S. dollars at 4 p.m. E.T., except under the circumstances
described below. Most foreign markets close before 4 p.m. E.T. For securities primarily traded in the Far East, for example, the most recent closing prices may be as much as fifteen
hours old at 4 p.m. E.T. If the Adviser determines that developments between the close of the foreign markets and 4 p.m. E.T. will, in its judgment, materially affect the value of
some or all of the Funds’ non-U.S. securities, the Adviser will adjust the previous closing prices to reflect what it believes to be the fair value of the securities as of 4 p.m. E.T. In
deciding whether to make these adjustments, the Adviser may review a variety of factors, including developments in foreign markets, the performance of U.S. securities markets,
and the performance of instruments trading in U.S. markets that represent non-U.S. securities and baskets of non-U.S. securities.The Adviser may also fair value securities in other
situations, for example, when a particular foreign market is closed but the Funds are open. The Adviser uses an outside pricing service that utilizes a systematic methodology to
provide the Adviser with closing market prices and information used for adjusting those prices. The Adviser cannot predict how often it will use closing prices or how often it will
adjust those prices. As a means of evaluating its fair value process, the Adviser routinely compares closing market prices, the next day’s opening prices in the same markets, and
the adjusted prices. Other mutual funds may adjust the prices of their securities by different amounts.
b) Securities Transactions, Investment
Income and Expense Allocation.
Securities transactions are recorded on a trade date basis. Realized gain and loss from securities
transactions are recorded on an identified cost basis for financial reporting and federal income tax purposes. Dividend income 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. Certain dividends from foreign securities will be recorded as
soon as the Funds are informed of the dividend if such information is obtained subsequent to the ex-dividend date. Distributions received from certain investments held by the
Funds may be comprised of dividends, realized gains and returns of capital. The Funds originally estimate the expected classification of such payments. The amounts may
subsequently be reclassified upon receipt of information from the issuer. The Funds are charged for those expenses of the Trust that are directly attributable to each Fund, such
as advisory and custodian fees. Expenses that are not directly attributable to a Fund are typically allocated among the Funds in proportion to their respective net assets.
c) Foreign Currency Translations.
Values of assets and liabilities denominated in foreign currencies are translated into U.S. dollars using the price of such currencies at the time
the 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 gain (loss) on foreign currency transactions includes gain (loss) arising from the fluctuation in the exchange rates between trade and settlement dates
on security transactions and currency gain (loss) between the accrual and payment dates on dividends and foreign withholding taxes. The Funds do 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.
35
Baron Select Funds
|
|
December 31, 2013
|
|
NOTES TO FINANCIAL STATEMENTS (Continued)
|
|
|
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Such fluctuations are included with the net realized and unrealized gain or loss from investments and foreign currency transactions. The Funds may invest in foreign securities
and foreign currency transactions that may involve risks not associated with domestic investments as a result of the level of governmental supervision and regulation of foreign
securities markets and the possibility of political or economic instability, among others.
Pursuant to U.S. federal income tax regulations, gains and losses from certain foreign currency transactions, and the foreign currency portion of gains and losses realized on sales
and maturities of foreign denominated debt securities, are generally treated as ordinary income for U.S. federal income tax purposes.
d) Securities Lending.
The Funds may lend securities to certain brokers. Upon such loans, the Funds receive collateral which is maintained by the custodian. The Funds earn
interest on such collateral and earn income in the form of negotiated lenders’ fees, both of which are included in securities lending income in the Statements of Operations.
Securities loaned are required to be secured at all times by collateral equal to at least 102% of the market value of the securities loaned. Risks may arise upon entering into
securities lending to the extent that the value of the collateral is less than the value of the securities loaned due to the changes in the value of collateral or the loaned securities.
The Funds may receive collateral in the form of cash or other eligible securities, such as a letter of credit issued by a U.S. bank or securities issued or guaranteed by the U.S.
government. Securities purchased with cash collateral are subject to the risks inherent in investing in these securities.
At December 31, 2013, the Funds did not have any securities on loan.
e) Repurchase Agreements.
The Funds may invest in repurchase agreements, which are short-term investments whereby the Funds acquire 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 Funds’ policy that their 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 Funds
may be delayed or limited.
f) Federal and Foreign Income Taxes.
The Trust treats each Fund as a separate entity for federal income tax purposes. Each Fund intends to meet the requirements of the
Internal Revenue Code of 1986, as amended, applicable to regulated investment companies, and to distribute to its shareholders substantially all of its net investment income
and any net realized capital gains at least annually. None of the Funds will be subject to federal or state income taxes to the extent that they qualify as regulated investment
companies and substantially all of their income is distributed.
The Funds may be subject to foreign taxes on income and gains on investments that are accrued based upon the Funds’ understanding of the tax rules and regulations that exist
in the countries in which the Funds invest. Foreign governments may also impose taxes or other payments on investments with respect to foreign securities. Such taxes are
accrued as applicable.
g) Restricted Securities.
The Funds may invest in securities that are restricted as to public sale in accordance with the Securities Act of 1933. Such assets are valued by the
Adviser pursuant to policies and procedures approved by the Board.
h) Distributions to Shareholders.
Income and capital gain distributions to shareholders are determined in accordance with income tax regulations which may differ from GAAP.
These differences are primarily due to differing treatments for net investment loss, foreign currency gains and losses, reclassification of distributions, partnership basis
adjustments, income from passive foreign investment corporations and wash sale losses deferred.
i) Commitments and Contingencies.
In the normal course of business, the Funds may enter into contracts and agreements that contain a variety of representations and
warranties, which provide general indemnification. The maximum exposure to the Funds under these agreements is unknown, as this would involve future claims that may be
made against the Funds that have not yet occurred. However, based on experience, the Funds expect the risk of loss to be remote.
j) Cash and Cash Equivalents.
The Funds consider all short term liquid investments with a maturity of three months or less when purchased to be cash equivalents.
k) Fund Diversification and Concentration.
Certain of the Funds hold relatively concentrated portfolios that may contain fewer securities or invest in fewer industries than the
portfolios of other mutual funds. Holding a relatively concentrated portfolio may increase the risk that the value of a Fund could decrease because of the poor performance of
one or a few investments.Additionally, non-diversified funds may encounter difficulty liquidating securities.
3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short term securities, for the year ended December 31, 2013 were as follows:
|
Fund
|
|
|
Purchases
|
|
|
Sales
|
|
Baron Partners
Fund
|
|
|
$504,903,888
|
|
|
$268,108,528
|
|
Baron Focused
Growth Fund
|
|
|
98,326,200
|
|
|
51,150,956
|
|
Baron International
Growth Fund
|
|
|
22,398,600
|
|
|
25,169,573
|
|
Baron Real
Estate Fund
|
|
|
871,836,800
|
|
|
106,481,776
|
|
Baron Emerging
Markets Fund
|
|
|
310,964,721
|
|
|
6,491,039
|
|
Baron Energy
and Resources Fund
|
|
|
29,720,955
|
|
|
4,104,393
|
|
Baron Global
Advantage Fund
|
|
|
2,520,427
|
|
|
1,249,082
|
36
December 31, 2013
|
|
Baron Select Funds
|
|
NOTES TO FINANCIAL STATEMENTS (Continued)
|
|
|
4. INVESTMENT ADVISORY FEES AND OTHER
TRANSACTIONS WITH AFFILIATES
a) Investment Advisory Fees.
The Adviser, a wholly owned subsidiary of Baron Capital Group, Inc. (“BCG”), serves as investment adviser to the Funds.As compensation for services
rendered, the Adviser receives a fee payable monthly equal to 1% per annum of the average daily net assets of the respective Funds.The Adviser has contractually agreed to reduce
its fee, to the extent required to limit the net annual operating expense ratio (excluding portfolio transaction costs, interest, dividend and extraordinary expenses), as follows:
|
|
|
Annual Operating
|
|
|
|
Expense Ratio Cap
|
|
|
|
Retail
|
|
Institutional
|
|
Fund
|
|
Shares
|
|
Shares
|
|
Baron Partners
Fund
|
|
|
1.45
|
%
|
|
|
1.20
|
%
|
|
Baron Focused
Growth Fund
|
|
|
1.35
|
%
|
|
|
1.10
|
%
|
|
Baron International
Growth Fund
|
|
|
1.50
|
%
|
|
|
1.25
|
%
|
|
Baron Real
Estate Fund
|
|
|
1.35
|
%
|
|
|
1.10
|
%
|
|
Baron Emerging
Markets Fund
|
|
|
1.50
|
%
|
|
|
1.25
|
%
|
|
Baron Energy
and Resources Fund
|
|
|
1.35
|
%
|
|
|
1.10
|
%
|
|
Baron Global
Advantage Fund
|
|
|
1.50
|
%
|
|
|
1.25
|
%
|
b) Distribution Fees.
Baron Capital, Inc. (“BCI”), a wholly owned subsidiary of BCG, is a registered broker-dealer and the distributor of the Funds’ shares.The Funds are authorized
to pay BCI a distribution fee pursuant to a distribution plan under Rule 12b-1 of the 1940 Act, payable monthly equal to 0.25% per annum of the Retail Shares’ average daily net
assets of the respective Funds.
c) Trustee Fees.
Certain Trustees of the Trust may be deemed to be affiliated with, or interested persons (as defined by the 1940 Act) of the Funds, the Funds’Adviser or of BCI.
None of the Trustees so affiliated received compensation for his or her services as a Trustee of the Trust. None of the Funds’ officers received compensation from the Funds for
their services as an officer.
d) Fund Accounting and Administration
Fees.
The Funds have entered into an agreement with State Street Bank and Trust Company (“State Street”) to perform accounting
and certain administrative services. State Street is compensated for fund accounting services based on a percentage of the Funds’ net assets, subject to certain minimums plus
fixed annual fees for the administrative services.
5. LINE OF CREDIT
Baron Partners Fund participates in a committed line of credit agreement with State Street in the amount of $475 million. A commitment fee of 0.15% per annum is incurred
on the unused portion of the line of credit. The line of credit is used for investment purposes and expires on September 19, 2014. Baron Partners Fund may borrow up to the
lesser of $475 million or the maximum amount Baron Partners Fund may borrow under the 1940 Act, the limitations included in Baron Partners Fund’s prospectus, or any limit
or restriction under any law or regulation to which Baron Partners Fund is subject or any agreement to which Baron Partners Fund is a party. Interest is charged to Baron Partners
Fund, based on its borrowings, at a rate per annum equal to the higher of the Federal Funds Rate or LIBOR rate plus a margin of 0.85%. For the year ended December 31, 2013,
interest expense incurred on these loans amounted to $3,332,278.
During the year ended December 31, 2013, Baron Partners Fund had an average daily balance on the line of credit of $323.2 million at a weighted average interest rate of 1.03%.
At December 31, 2013, Baron Partners Fund had an outstanding balance in the amount of $279,000,000.
6. RESTRICTED SECURITIES
At December 31, 2013, 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 pursuant to the policies and procedures for fair value pricing
approved by the Board. 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 Funds may
receive more or less than this valuation in an actual sale and that difference could be material. At December 31, 2013, the Funds held investments in restricted and/or illiquid
securities that were valued pursuant to policies and procedures for fair value pricing as follows:
|
|
|
|
Baron Partners Fund
|
|
|
|
|
Acquisition
|
|
|
|
|
Name of
Issuer
|
|
|
Date(s)
|
|
|
Value
|
|
Private
Equity Investments
|
|
|
|
|
|
|
|
|
Kerzner
International Holdings Ltd., Cl A
|
|
|
9/27/2006
|
|
|
$
|
13,923,000
|
|
Windy
City Investments Holdings, L.L.C.
|
|
|
11/13/2007, 1/27/2011
|
|
|
|
31,832,346
|
|
|
|
|
|
|
|
|
|
Total Restricted
Securities:
|
|
|
|
|
|
|
|
|
(Cost $80,134,888)
†
(3.11% of Net Assets)
|
|
|
|
|
|
$
|
45,755,346
|
|
|
|
|
|
|
|
|
†
See Statements of Net Assets for cost of individual securities.
7. FAIR VALUE MEASUREMENTS
Fair value is defined by GAAP as the price that the Funds would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most
advantageous market for the investment. GAAP provides a three-tier hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to
establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability.
Inputs may be observable or unobservable. Observable inputs are based on market data obtained from sources independent of the Funds. Unobservable inputs are inputs that reflect
the Funds’ own assumptions based on the best information available in the circumstances. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below.
|
|
•
|
|
Level 1 — quoted prices in active markets for identical assets or liabilities;
|
|
|
|
|
•
|
|
Level 2 — prices determined using other significant inputs that are observable either directly or indirectly through corroboration with observable market data (which
could include quoted prices for similar assets or liabilities, interest rates, credit risk, etc.);
|
37
Baron Select Funds
|
|
December 31, 2013
|
|
NOTES TO FINANCIAL STATEMENTS (Continued)
|
|
|
7. FAIR VALUE MEASUREMENTS (Continued)
|
|
•
|
|
Level 3 — prices determined using significant unobservable inputs when quoted prices or observable inputs are unavailable, such as when there is little or no market
activity for an asset or liability (unobservable inputs reflect each Fund’s own assumptions in determining the fair value of assets or liabilities and would be based on the
best information available).
|
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. For example, non-U.S. securities,
with markets that close hours before the Funds value their holdings, may require revised valuations due to significant movement in the U.S. markets. Since these values are not
obtained from quoted prices in an active market, such securities are reflected as Level 2.
The Funds have procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably
priced. Under these procedures, the Funds primarily employ a market-based approach that may use related or comparable assets or liabilities, recent transactions, market
multiples, book values, and other relevant information for the investment to determine the fair value of the investment. The Funds may also use an income-based valuation
approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any
restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that
would have been used had an active market existed.
The following is a summary of the inputs used as of December 31, 2013 in valuing the Funds’
investments carried at fair value:
|
|
Baron Partners Fund
|
|
|
Quoted Prices in
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
Significant
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
|
|
|
|
Description
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
Total
|
|
Common
Stocks
†
|
|
$
|
1,701,159,619
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
1,701,159,619
|
|
Private
Equity Investments
†
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
45,755,346
|
|
|
|
|
45,755,346
|
|
Short Term
Investments
|
|
|
—
|
|
|
|
|
202,064
|
|
|
|
|
—
|
|
|
|
|
202,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
$
|
1,701,159,619
|
|
|
|
$
|
202,064
|
|
|
|
$
|
45,755,346
|
|
|
|
$
|
1,747,117,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers between Levels 1, 2 or 3, if any, are recognized at ending value on December 31, 2013.There have been no transfers in and out of Level 1, 2 or 3 fair value measurements
for the Fund for the year ended December 31, 2013.
|
|
Baron Focused Growth Fund
|
|
|
Quoted Prices in
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
Significant
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
|
|
|
|
Description
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
Total
|
|
Common
Stocks
†
|
|
$
|
193,971,519
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
193,971,519
|
|
Short Term
Investments
|
|
|
—
|
|
|
|
|
2,090,400
|
|
|
|
|
—
|
|
|
|
|
2,090,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
$
|
193,971,519
|
|
|
|
$
|
2,090,400
|
|
|
|
$
|
—
|
|
|
|
$
|
196,061,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers between Levels 1, 2 or 3, if any, are recognized at ending value on December 31, 2013.There have been no transfers in and out of Level 1, 2 or 3 fair value measurements
for the Fund for the year ended December 31, 2013.
|
|
Baron International Growth Fund
|
|
|
Quoted Prices in
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
Significant
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
|
|
|
|
Description
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
Total
|
|
Common
Stocks
†
|
|
$
|
37,152,298
|
|
|
|
$
|
23,719,631
|
|
|
|
$
|
—
|
|
|
|
$
|
60,871,929
|
|
Short Term
Investments
|
|
|
—
|
|
|
|
|
1,286,590
|
|
|
|
|
—
|
|
|
|
|
1,286,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
$
|
37,152,298
|
|
|
|
$
|
25,006,221
|
|
|
|
$
|
—
|
|
|
|
$
|
62,158,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$10,812,448 was transferred out of Level 2 into Level 1 at December 31, 2013 as a result of no longer adjusting closing prices for certain securities (as described in Note 2a), due
to significant market movements between the time at which the Fund valued its securities and the earlier closing of foreign markets. $1,428,489 was transferred out of Level 1
into Level 2 at December 31, 2013 as a result of adjusting closing prices for certain securities and the earlier closing of foreign markets. It is the Fund’s policy to recognize
transfers in and transfers out at the fair value as of the end of the period.
†
See Statements of Net Assets for additional detailed categorizations.
38
December 31, 2013
|
|
Baron Select Funds
|
|
NOTES TO FINANCIAL STATEMENTS (Continued)
|
|
|
7. FAIR VALUE MEASUREMENTS (Continued)
|
|
Baron Real Estate Fund
|
|
|
Quoted Prices in
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
Significant
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
|
|
|
|
Description
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
Total
|
|
Common
Stocks
†
|
|
$
|
951,439,176
|
|
|
|
$
|
18,362,050
|
|
|
|
$
|
—
|
|
|
|
$
|
969,801,226
|
|
Short Term
Investments
|
|
|
—
|
|
|
|
|
51,731,813
|
|
|
|
|
—
|
|
|
|
|
51,731,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
$
|
951,439,176
|
|
|
|
$
|
70,093,863
|
|
|
|
$
|
—
|
|
|
|
$
|
1,021,533,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$11,082,526 was transferred out of Level 1 into Level 2 at December 31, 2013 as a result of adjusting closing prices for certain securities and the earlier closing of foreign
markets. It is the Fund’s policy to recognize transfers in and transfers out at the fair value as of the end of the period.
|
|
Baron Emerging Markets Fund
|
|
|
Quoted Prices in
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
Significant
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
|
|
|
|
Description
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
Total
|
|
Common
Stocks
†
|
|
$
|
256,057,106
|
|
|
|
$
|
64,703,618
|
|
|
|
$
|
—
|
|
|
|
$
|
320,760,724
|
|
Short Term
Investments
|
|
|
—
|
|
|
|
|
45,939,448
|
|
|
|
|
—
|
|
|
|
|
45,939,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
$
|
256,057,106
|
|
|
|
$
|
110,643,066
|
|
|
|
$
|
—
|
|
|
|
$
|
366,700,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$59,147,495 was transferred out of Level 2 into Level 1 at December 31, 2013 as a result of no longer adjusting closing prices for certain securities (as described in Note 2a), due
to significant market movements between the time at which the Fund valued its securities and the earlier closing of foreign markets. $10,910,000 was transferred out of Level
1 into Level 2 at December 31, 2013 as a result of adjusting closing prices for certain securities and the earlier closing of foreign markets. It is the Fund’s policy to recognize
transfers in and transfers out at the fair value as of the end of the period.
|
|
Baron Energy and Resources Fund
|
|
|
Quoted Prices in
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
Significant
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
|
|
|
|
Description
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
Total
|
|
Common
Stocks
†
|
|
$
|
31,759,551
|
|
|
|
$
|
478,435
|
|
|
|
$
|
—
|
|
|
|
$
|
32,237,986
|
|
Short Term
Investments
|
|
|
—
|
|
|
|
|
4,416,941
|
|
|
|
|
—
|
|
|
|
|
4,416,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
$
|
31,759,551
|
|
|
|
$
|
4,895,376
|
|
|
|
$
|
—
|
|
|
|
$
|
36,654,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers between Levels 1, 2 or 3, if any, are recognized at ending value on December 31, 2013.There have been no transfers in and out of Level 1, 2 or 3 fair value measurements
for the Fund for the year ended December 31, 2013.
|
|
Baron Global Advantage Fund
|
|
|
Quoted Prices in
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
Significant
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
|
|
|
|
Description
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
Total
|
|
Common
Stocks
†
|
|
$
|
4,882,089
|
|
|
|
$
|
595,195
|
|
|
|
$
|
—
|
|
|
|
$
|
5,477,284
|
|
Short Term
Investments
|
|
|
—
|
|
|
|
|
198,328
|
|
|
|
|
—
|
|
|
|
|
198,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
$
|
4,882,089
|
|
|
|
$
|
793,523
|
|
|
|
$
|
—
|
|
|
|
$
|
5,675,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$517,507 was transferred out of Level 2 into Level 1 at December 31, 2013 as a result of no longer adjusting closing prices for certain securities (as described in Note 2a), due
to significant market movements between the time at which the Fund valued its securities and the earlier closing of foreign markets. $230,212 was transferred out of Level 1
into Level 2 at December 31, 2013 as a result of adjusting closing prices for certain securities and the earlier closing of foreign markets. It is the Fund’s policy to recognize
transfers in and transfers out at the fair value as of the end of the period.
†
See Statements of Net Assets for additional detailed categorizations.
39
Baron Select Funds
|
|
December 31, 2013
|
|
NOTES TO FINANCIAL STATEMENTS (Continued)
|
|
|
7. FAIR VALUE MEASUREMENTS (Continued)
The following is a reconciliation of investments in which significant
unobservable inputs (Level 3) were used in determining fair value:
|
|
|
Baron Partners Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Depreciation)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
Net Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from Investments
|
|
|
|
Balance as of
|
|
Accrued
|
|
Realized
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
Transfers
|
|
Transfers
|
|
Balance as of
|
|
still held at
|
|
Investments in
|
|
December 31,
|
|
Premiums/
|
|
Gain
|
|
Appreciation
|
|
|
|
|
|
|
|
|
|
|
|
Into
|
|
Out of
|
|
December 31,
|
|
December 31,
|
|
Securities
|
|
2012
|
|
Discounts
|
|
(Loss)
|
|
(Depreciation)
|
|
Purchases
|
|
Sales
|
|
Level 3
|
|
Level 3
|
|
2013
|
|
2013
|
|
|
|
Private
Equity Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discretionary
|
|
|
$
|
5,265,000
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
8,658,000
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
13,923,000
|
|
|
|
$
|
8,658,000
|
|
|
Financials
|
|
|
|
23,646,886
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
8,185,460
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
31,832,346
|
|
|
|
|
8,185,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
28,911,886
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
16,843,460
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
45,755,346
|
|
|
|
$
|
16,843,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baron International Growth Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Depreciation)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
Net Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from Investments
|
|
|
|
Balance as of
|
|
Accrued
|
|
Realized
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
Transfers
|
|
Transfers
|
|
Balance as of
|
|
still held at
|
|
Investments in
|
|
December 31,
|
|
Premiums/
|
|
Gain
|
|
Appreciation
|
|
|
|
|
|
|
|
|
|
|
|
Into
|
|
Out of
|
|
December 31,
|
|
December 31,
|
|
Securities
|
|
2012
|
|
Discounts
|
|
(Loss)
|
|
(Depreciation)
|
|
Purchases
|
|
Sales
|
|
Level 3
|
|
Level 3
|
|
2013
|
|
2013
|
|
|
|
Private
Equity Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
|
$
|
2,423
|
|
|
|
$
|
—
|
|
|
|
$
|
(275,001
|
)
|
|
|
$
|
272,578
|
|
|
|
$
|
—
|
|
|
|
$
|
0
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant unobservable valuation inputs developed by the Adviser for significant (greater than 1% of net assets) Level 3 investments as of December 31, 2013,were
as follows:
|
Baron Partners Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
Range
|
|
|
|
|
|
Fair
Value as of
|
|
|
|
|
|
used on
|
|
used on
|
|
Sector
|
|
Company
|
|
December
31, 2013
|
|
Valuation
Technique
|
|
Unobservable
Input
|
|
December 31, 2013
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
Estimated
volatility of the returns of the enterprise value
(1)
|
|
|
5.78
|
%
|
|
|
5.78%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount for
lack of marketability
|
|
|
3.92
|
%
|
|
|
3.92%
|
|
|
|
|
|
|
|
|
|
|
|
Private Equity
Investments:
Financials
|
|
Windy City
Investments Holdings, L.L.C.
|
|
$31,832,346
|
|
Combination
of Market Comparables and Option Pricing methods
|
|
EV/Run Rate
EBITDA Multiple
(2)
|
|
|
10.87
|
x
|
|
9.01x to 11.64x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment
to the EBITDA Multiple due to leverage
(2)
|
|
|
2.65
|
%
|
|
|
2.65%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
the composite equity index of comparable companies
|
|
|
0.56
|
%
|
|
-0.44% to 1.19%
|
|
|
|
(1)
|
|
The volatility was derived using the historical returns of the publicly traded debt of Nuveen Investments, Inc., historical returns of the SMI 100 Index and the historical returns
of the equity of comparable public companies. Nuveen Investments, Inc. is the sole asset of Windy City Investments Holdings, L.L.C.
|
|
(2)
|
|
The multiple was derived as a simple average of the multiples of comparable companies. The derived EBITDA multiple was increased by 2.65% to 10.87x. This increase adjusts
for leverage, as Nuveen Investments, Inc. is more levered than its comparable companies.
|
A significant change in the EV/EBITDA multiple ratio may result in a directionally similar significant change in the fair value measurement, while a significant change in the
discount for lack of marketability and equity index of comparable companies may not result in a materially higher or lower fair value measurement.
40
December 31, 2013
|
|
Baron Select Funds
|
|
NOTES TO FINANCIAL STATEMENTS (Continued)
|
|
|
8. INCOME TAXES AND DISTRIBUTIONS TO SHAREHOLDERS
Federal income tax regulations differ from GAAP. Therefore, distributions determined in accordance with tax regulations may differ in amount or character from net investment
income and net realized gain for financial reporting purposes. Net investment income (loss) and net realized and unrealized gain (loss) differ for financial statement and tax
purposes due to differing treatments of net investment loss, foreign currency gains and losses, reclassification of distributions, partnership basis adjustments, income from
passive foreign investment corporations and wash sale losses deferred. 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, 2013, the Funds recorded the following permanent reclassifications to reflect tax character. Reclassifications between income, gains and paidin
capital relate primarily to the tax treatment of net investment loss, foreign currency gains and losses, reclassification of distributions and partnership basis adjustments.
Results of operations and net assets were not affected by these reclassifications.
|
|
Undistributed
|
|
Undistributed
|
|
|
|
|
|
|
|
(Accumulated)
|
|
(Accumulated)
|
|
|
|
|
|
|
|
Net Investment
|
|
Net Realized
|
|
|
|
Fund
|
Income (Loss)
|
|
Gain (Loss)
|
|
Paid-In Capital
|
|
Baron Partners
Fund
|
|
$
|
8,218,895
|
|
|
|
$
|
260,354
|
|
|
|
$
|
(8,479,249
|
)
|
|
Baron Focused
Growth Fund
|
|
|
724,804
|
|
|
|
|
64,420
|
|
|
|
|
(789,224
|
)
|
|
Baron International
Growth Fund
|
|
|
(72,152
|
)
|
|
|
|
72,152
|
|
|
|
|
—
|
|
|
Baron Real
Estate Fund
|
|
|
992,527
|
|
|
|
|
(45,012
|
)
|
|
|
|
(947,515
|
)
|
|
Baron Emerging
Markets Fund
|
|
|
(296,741
|
)
|
|
|
|
419,226
|
|
|
|
|
(122,485
|
)
|
|
Baron Energy
and Resources Fund
|
|
|
38,550
|
|
|
|
|
12,514
|
|
|
|
|
(51,064
|
)
|
|
Baron Global
Advantage Fund
|
|
|
7,369
|
|
|
|
|
(7,398
|
)
|
|
|
|
29
|
|
As of December 31, 2013, the components of net assets on a tax basis were as follows:
|
|
|
|
|
|
|
|
|
|
|
Baron
|
|
|
|
|
|
Baron
|
|
Baron
|
|
Baron
|
|
|
|
Baron Partners
|
|
Baron Focused
|
|
International
|
|
Baron Real
|
|
Emerging
|
|
Energy and
|
|
Global
|
|
|
|
Fund
|
|
Growth Fund
|
|
Growth Fund
|
|
Estate Fund
|
|
Markets Fund
|
|
Resources Fund
|
|
Advantage Fund
|
|
Cost of investments
|
|
$
|
926,028,205
|
|
|
$
|
132,252,594
|
|
|
$
|
39,686,650
|
|
|
$
|
881,868,307
|
|
|
$
|
357,244,866
|
|
|
$
|
32,755,817
|
|
|
$
|
4,411,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross tax
unrealized appreciation
|
|
|
856,564,840
|
|
|
|
63,899,941
|
|
|
|
24,081,473
|
|
|
|
149,347,044
|
|
|
|
13,498,429
|
|
|
|
4,292,632
|
|
|
|
1,360,363
|
|
|
Gross tax
unrealized depreciation
|
|
|
(35,476,016
|
)
|
|
|
(90,616
|
)
|
|
|
(1,609,604
|
)
|
|
|
(9,682,312
|
)
|
|
|
(4,043,123
|
)
|
|
|
(393,522
|
)
|
|
|
(96,181
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net tax unrealized
appreciation
|
|
|
821,088,824
|
|
|
|
63,809,325
|
|
|
|
22,471,869
|
|
|
|
139,664,732
|
|
|
|
9,455,306
|
|
|
|
3,899,110
|
|
|
|
1,264,182
|
|
|
Net
tax unrealized currency appreciation (depreciation)
|
|
|
—
|
|
|
|
—
|
|
|
|
430
|
|
|
|
—
|
|
|
|
(107,069
|
)
|
|
|
(12
|
)
|
|
|
(5,080
|
)
|
|
Undistributed
net investment income
|
|
|
—
|
|
|
|
—
|
|
|
|
101,926
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
92
|
|
|
Undistributed
net realized gain
|
|
|
—
|
|
|
|
—
|
|
|
|
525,479
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Qualified
late year loss deferral
|
|
|
(3,131,267
|
)
|
|
|
(784,559
|
)
|
|
|
(98,686
|
)
|
|
|
—
|
|
|
|
(343,557
|
)
|
|
|
(4,976
|
)
|
|
|
—
|
|
|
Capital loss
carryforwards
|
|
|
(371,428,280
|
)
|
|
|
(137,106
|
)
|
|
|
—
|
|
|
|
(4,900,207
|
)
|
|
|
(1,379,028
|
)
|
|
|
(416,754
|
)
|
|
|
—
|
|
|
Paid-in capital
|
|
|
1,028,098,510
|
|
|
|
133,139,232
|
|
|
|
39,400,776
|
|
|
|
890,881,273
|
|
|
|
367,963,582
|
|
|
|
29,731,017
|
|
|
|
4,296,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets
|
|
$
|
1,474,627,787
|
|
|
$
|
196,026,892
|
|
|
$
|
62,401,794
|
|
|
$
|
1,025,645,798
|
|
|
$
|
375,589,234
|
|
|
$
|
33,208,385
|
|
|
$
|
5,556,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013, the Funds had capital
loss carryforwards expiring as follows:
|
|
|
|
|
|
|
|
|
|
|
Baron
|
|
|
|
|
|
Baron
|
|
Baron
|
|
Baron
|
|
|
|
Baron Partners
|
|
Baron Focused
|
|
International
|
|
Baron Real
|
|
Emerging
|
|
Energy and
|
|
Global
|
|
|
|
Fund
|
|
Growth Fund
|
|
Growth Fund
|
|
Estate Fund
|
|
Markets Fund
|
|
Resources Fund
|
|
Advantage Fund
|
|
Short term capital
loss carryforwards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
$
|
36,761,101
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
December 31, 2017
|
|
|
334,667,179
|
|
|
|
137,106
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
No expiration
date
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,900,207
|
|
|
|
904,112
|
|
|
|
339,483
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
371,428,280
|
|
|
$
|
137,106
|
|
|
$
|
—
|
|
|
$
|
4,900,207
|
|
|
$
|
904,112
|
|
|
$
|
339,483
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term capital
loss carryforwards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No expiration
date
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
474,916
|
|
|
|
77,271
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
loss carryforward utilized during the year ended December 31, 2013
|
|
$
|
67,139,255
|
|
|
$
|
8,696,659
|
|
|
$
|
399,735
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
79,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
Baron Select Funds
|
|
December 31, 2013
|
|
NOTES TO FINANCIAL STATEMENTS (Continued)
|
|
|
8. INCOME TAXES AND DISTRIBUTIONS TO SHAREHOLDERS (Continued)
The tax character of distributions paid during the fiscal years ended December 31, 2013 and December 31, 2012 was as follows:
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
Long Term
|
|
|
Return of
|
|
|
|
|
|
|
Long Term
|
|
Fund
|
|
Ordinary
1
|
|
|
Capital Gain
|
|
|
Capital
|
|
|
Ordinary
1
|
|
|
Capital Gain
|
|
Baron Partners
Fund
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Baron Focused
Growth Fund
|
|
|
2,471,584
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Baron International
Growth Fund
|
|
|
3,362
|
|
|
|
—
|
|
|
|
—
|
|
|
|
66,030
|
|
|
|
—
|
|
Baron Real
Estate Fund
|
|
|
247,412
|
|
|
|
555,524
|
|
|
|
673,756
|
|
|
|
854,357
|
|
|
|
500,219
|
|
Baron Emerging
Markets Fund
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
134,341
|
|
|
|
—
|
|
Baron Energy
and Resources Fund
|
|
|
26,290
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Baron Global
Advantage Fund
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
1
For tax purposes, short-term capital gains are considered ordinary income distributions.
The Funds follow the provisions of the Financial Accounting Standards Board (“FASB”) Codification Section 740 (“ASC Section 740”) “Accounting for Uncertainty in Income
Taxes” which clarifies the accounting for uncertainty in tax positions taken or expected to be taken on a tax return. ASC Section 740 sets forth a threshold for financial statement
recognition, measurement and disclosure of tax positions taken or expected to be taken on a tax return. The Funds are required to recognize the tax effects of certain tax
positions under a “more likely than not” standard, that, based on their technical merits, have more than 50 percent likelihood of being sustained upon examination. Management
has analyzed the tax positions taken on the Funds’ federal income tax returns for all open years (current and prior three years), and has concluded that no provision for federal
income tax is required in the Funds’ financial statements. At December 31, 2013, the Funds did not have any uncertain tax benefits that require recognition, de-recognition or
disclosure. The Funds’ federal, state and local income and federal excise tax returns for which the applicable statutes of limitations have not expired (current and prior three
years) are subject to examination by the Internal Revenue Service and state departments of revenue.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted. The Act modernized several of the federal income and excise
tax provisions related to regulated investment companies and, with certain exceptions, is effective for taxable years beginning after December 22, 2010. New capital losses may
now be carried forward indefinitely. Rules in effect prior to December 22, 2010 limited the carryforward period to eight years. Post-enactment capital loss carryforwards must be
fully used before capital loss carryforwards generated prior to the enactment of the Act. As a result of this ordering rule, pre-enactment capital loss carryforwards may have an
increased likelihood to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital
losses rather than all short-term as under previous rules.
9. OWNERSHIP CONCENTRATION
As of December 31, 2013, the officers and trustees owned, directly or indirectly, 27.00% of Baron Focused Growth Fund and 51.52% of Baron Global Advantage Fund. As of
December 31, 2013, the officers, trustees, and one other investor owned, directly or indirectly, 53.42% of Baron International Growth Fund. As a result of their ownership, these
investors may be able to materially affect the outcome of matters presented to Baron Focused Growth Fund, Baron International Growth Fund and Baron Global Advantage Fund
shareholders.
10. TRANSACTIONS IN “AFFILIATED” COMPANIES
1
BARON REAL ESTATE FUND
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
Value at
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
Held at
|
|
Value at
|
|
|
|
December 31,
|
|
Purchase
|
|
Sales
|
|
Appreciation
|
|
Realized
|
|
Dividend
|
|
December 31,
|
|
December 31,
|
|
Name of
Issuer
|
|
2012
|
|
Cost
|
|
Proceeds
|
|
(Depreciation)
|
|
Gains/(Losses)
|
|
Income
|
|
2013
|
|
2013
|
|
“Affiliated” Company as of December 31, 2013:
|
|
Capital Senior
Living Corp.
|
|
$
|
4,642,970
|
|
|
$
|
31,345,054
|
|
|
$
|
—
|
|
|
$
|
2,742,751
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
1,614,455
|
|
|
$
|
38,730,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
An “Affiliated” company, as defined in the 1940 Act, is a company in which a Fund held 5% or more of the company’s outstanding voting securities at any time during the year
ended December 31, 2013.
11. DISCLOSURES REGARDING OFFSETTING ASSETS AND LIABILITIES
In December 2011, the FASB issued an Accounting Standards Update (“ASU”) related to disclosures about offsetting assets and liabilities in financial statements. This ASU
requires an entity to disclose both gross and net information for derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities
lending transactions that are either offset in the statement of assets and liabilities or subject to an enforceable master netting arrangement or similar agreement. In
January 2013, the FASB issued an ASU to clarify the scope of disclosures about offsetting assets and liabilities. The ASU is effective for reporting periods beginning on or after
January 1, 2013. The information required to be disclosed by the ASU for the Funds’ investments in repurchase agreements at December 31, 2013, including the fair value of the
repurchase agreement and the amount of collateral, can be found in each respective Fund’s statement of net assets within these financial statements. The Funds did not hold
derivatives or participate in securities lending or borrowing activities at December 31, 2013.
42