Baron Partners Fund | Q4 2024

Baron Partners Fund® (the Fund) performed very well in the final quarter of 2024. These returns contributed to the Fund meaningfully exceeding the Russell Midcap Growth Index’s (the Index) returns over the prior calendar year.

For the fourth quarter, the Fund gained 27.05% (Institutional Shares), meaningfully ahead of advances in the Index and the large-cap dominated Russell 3000 Index (the Market Index), which gained 8.14% and 2.63%, respectively. In 2024, the Fund gained 33.08% compared to the Index and the Market Index’s returns of 22.10% and 23.81%, respectively.

While the Fund has modestly trailed the Index and Market Index over the prior 3-year period, it is ranked in the top percentile of its Morningstar category over the prior 5-, 10-, 15-, 20-year, and since conversion periods.* Since its conversion to a mutual fund, the Fund’s annual return of 17.63% compared to the Index’s return of 11.85%. We are very proud of these long- term achievements.

We believe that after a period of macro driven pressures, investor confidence is improving. Companies are slowly returning to being valued based on their fundamentals and opportunities dictate the stock price. Inflation has remained manageable. Interest rate cuts should persist. The soft landing the government is attempting to orchestrate, is occurring. And the incoming administration appears more accommodating towards growth business objectives.

In the past quarter, the Fund’s two largest holdings, Tesla, Inc. and Space Exploration Technologies Corp., each appreciated more than 50%. Upcoming product launches and improvements in software propelled Tesla shares higher. The latest version of its autonomous driving software showed massive improvements and investors are optimistic that the new presidential administration will more broadly approve its use. This extended deployment would open new and large revenue opportunities for the company. Additionally, upcoming product launches should spur renewed vehicle sales growth in 2025. The Energy business continued to grow, which not only improved top-line revenue but also carries significantly higher margins. The gross profit of the company has improved significantly. More cost reductions should enable a more profitable business in the future.

While these two companies were the largest contributors, we had several other holdings that appreciated more than 10% in the quarter. They included financial services, real estate related, and core growth companies such as Vail Resorts, Inc., The Charles Schwab Corporation, and Birkenstock Holding plc. Many of these companies have proven that prior negative sentiment surrounding their businesses was unfounded. Vail had a resurgence in pass sales and continued to exhibit an ability to increase prices at its resorts. An improvement in sales coupled with a focus on cost management, we believe, should lead to margin expansion in the coming years. Schwab has used strong client inflows to pay down expensive short- term borrowings that should lead to improving net interest margins. And Birkenstock demonstrated that demand for its products remains strong. The company continued to gain market share through categories in their existing wholesale accounts.

Only four holdings declined by more than 10% for company-specific reasons. The CEO at Arch Capital Group Ltd., the insurance company, unexpectedly resigned. He had anticipated stepping down from his position at the end of 2025 but accelerated the timing for a smoother transition and less complexity around decision making. IDEXX Laboratories, Inc., Red Rock Resorts, Inc., and Northvolt AB also declined in the period. Investors are awaiting IDEXX’s new test introductions and smoother clinical visit data. Red Rock faced a tougher Vegas economy. But we believe their ongoing capital improvement projects should enable it to win share in their market. After experiencing significant production and funding challenges in the prior quarter, private battery cell manufacturer Northvolt filed for Chapter 11 bankruptcy protection in the U.S. in November. Northvolt was a very small position in the period with an average weight of only 0.01%.

We remain pleased with the portfolio’s composition and the execution of the businesses held. A more constructive investment environment, in our opinion, should be beneficial for the Fund and its holdings.

* As of 12/31/2024, the annualized returns of the Morningstar Large Growth Category average were 28.96%, 15.42%, 14.02%, and 14.17% for the 1-, 5-, 10, and 15-year periods, respectively.

As of 12/31/2024, Morningstar Large Growth Category consisted of 1,088, 952, and 748, share classes for the 1-, 5-, and 10-year periods. Morningstar ranked Baron Partners Fund in the 30th, 1st, 1st, 1st , 1st, and 1st percentiles for the 1-, 5-, 10-, 15-, 20-year, and since inception periods, respectively. The Fund converted into a mutual fund on 4/30/2003, and the category consisted of 678 share classes.

Morningstar calculates the Morningstar Large Growth Category Average performance and rankings using its Fractional Weighting methodology. Morningstar rankings are based on total returns and do not include sales charges. Total returns do account for management, administrative, and 12b-1 fees and other costs automatically deducted from fund assets.

© 2025 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its affiliates or content providers; (2) may not be copied, adapted or distributed; (3) is not warranted to be accurate, complete or timely; and (4) does not constitute advice of any kind, whether investment, tax, legal or otherwise. User is solely responsible for ensuring that any use of this information complies with all laws, regulations

and restrictions applicable to it. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

MORNINGSTAR IS NOT RESPONSIBLE FOR ANY DELETION, DAMAGE, LOSS OR FAILURE TO STORE ANY PRODUCT OUTPUT, COMPANY CONTENT OR OTHER CONTENT.

Sources: Baron Capital, FTSE Russell, and FactSet PA.
*  Individual weights may not sum to displayed total due to rounding.
** Represents the blended return of all share classes of the Fund.

Tesla, Inc. designs, manufactures, and sells electric vehicles, related software and components, and solar and energy storage products. Shares rose on growth in the energy segment, the promise of new model launches in 2025, and increasing investor confidence in Tesla’s AI initiatives. Despite macroeconomic challenges, delivery data in major markets like China have shown considerable improvement. The energy and automotive segments demonstrated stronger-than-expected profitability. Tesla also expanded its advanced computing center in Texas, released improved version of its software-enhanced driving solution, and is set to launch new mass market vehicles years after the initial rollouts of Models 3 and Y. Expectations of deregulation under the incoming administration point to the potential acceleration of new technology rollouts, which could enhance Tesla’s leadership position in real world AI and bolster investor confidence that Tesla will benefit from these large and attractive growth opportunities.

Space Exploration Technologies Corp. (SpaceX) is a high-profile private company founded by Elon Musk. Its primary focus is on developing and launching advanced rockets, satellites, and spacecrafts, with the ambitious long-term goal of enabling human colonization of Mars. SpaceX is generating significant value with the rapid expansion of its Starlink broadband service. The company is successfully deploying a vast constellation of Starlink satellites in Earth’s orbit, reporting substantial growth in active users, and regularly deploying new and more efficient hardware technology. Furthermore, SpaceX has established itself as a leading launch provider by offering highly reliable and cost-effective launches, leveraging the company’s reusable launch technology. SpaceX capabilities extend to strategic services such as crewed space flights. Moreover, SpaceX is making tremendous progress on its newest rocket, Starship, which is the largest, most powerful rocket ever flown. This next- generation vehicle represents a significant leap forward in reusability and space exploration capabilities. We value SpaceX using prices of recent financing transactions.

Brokerage firm The Charles Schwab Corporation contributed to performance after a strong quarterly earnings report. Most notably, client cash levels appeared to be stabilizing at Schwab and across the broader industry after a two-year drawdown caused by interest rate hikes and robust equity markets, both of which pulled idle cash off the sidelines and into investments, creating a headwind to Schwab’s net interest income. This cash stabilization should allow Schwab to continue paying down its short-term borrowings, which, in turn, should lead to an increase in net interest income and earnings. The company also participated in the broader rally of financial stocks following the Republican elections sweep, which is expected to lead to more buoyant capital markets and a more business-friendly regulator, both of which should support increased activity and earnings at Schwab. As Schwab continues to improve its balance sheet and earnings, we expect potentially strong earnings growth over a multi-year period.

Shares of specialty insurer Arch Capital Group Ltd. fell due to concerns about a cyclical slowdown following several years of favorable market conditions. The Street has forecast a decline in property catastrophe reinsurance pricing during the January 1 renewal period, defying earlier hopes for stable pricing. Despite solid third quarter earnings, underwriting margins worsened due to a recent acquisition, business mix shifts, and normal quarterly volatility. Additionally, shares were pressured by an unexpected CEO transition. We continue to own the stock due to Arch’s strong management team and our expectation of significant growth in earnings and book value.

Shares of veterinary diagnostics leader IDEXX Laboratories, Inc. detracted as foot traffic to veterinary clinics remained under pressure, which has continued to hamper aggregate revenue growth. We remain investors. Despite macro challenges, IDEXX’s excellent execution enabled the company to deliver robust financial results. We believe competitive trends are outstanding, and we expect new proprietary innovations and field sales force expansion to be meaningful contributors to growth in 2025. We see increasing evidence that secular trends around pet ownership and pet care spending have been structurally accelerated, which should help support IDEXX’s long-term growth rate.

CoStar Group, Inc. is the leading provider of information and marketing services to the commercial real estate (CRE) industry. Shares detracted from performance due to mixed net new sales performance in its residential product. We remain encouraged by the traffic growth and growing brand awareness for the company’s Homes.com platform. We are optimistic that sales momentum will improve as the company builds out a dedicated residential sales force, enhances its customer targeting, and benefits from potential changes in multiple listing services practices. We believe performance in CoStar’s non-residential business remains strong, and we expect to see better organic growth as the CRE market improves and salespeople return to focus exclusively on a single product. We believe the value of CoStar’s core non-residential business exceeds the current share price, implying that investors are ascribing negative value to the residential opportunity.

We seek to invest in businesses we believe can double in value within five or six years. We invest for the long term in a focused portfolio of appropriately capitalized, well-managed growth businesses at attractive prices across market capitalizations. We attempt to create a portfolio of no more than 30 securities diversified by GICS sectors, but with the top 10 positions representing a significant portion of net assets. These businesses are identified by our analysts and portfolio managers using our proprietary research. We think these well-managed businesses have sustainable competitive advantages and strong, long-term growth opportunities. We use leverage to enhance returns, which increases the Fund’s volatility.

As of December 31, 2024, the Fund held 21 investments. The median market capitalization of these growth companies was $23.7 billion. The top 10 positions represented 90.7% of total investments. Leverage was 12.3%. The long-term absolute and relative performance of the Fund has been very good. The Fund has returned 17.63% annualized since conversion to a mutual fund on April 30, 2003, exceeding the Index by 5.78% per year.

The Fund’s performance has also exceeded the Index over the prior 5-, 10-, 15-, and 20-year periods. But the distinct composition of the portfolio could result in periods of underperformance. The past 3-year period is one of those periods. And while we are disappointed with that distinct period, we are not alarmed by the modest relative underperformance. The low turnover strategy implemented by the Fund has previously resulted in similar difficult stretches. And we have not only endured analogous periods throughout the Fund’s history but have also typically emerged with strong absolute and relative performance in subsequent years. Although we have no guarantees of continued success, we believe this trend will continue.

While we present the Fund’s absolute and relative returns over the SEC mandated periods, we believe it is also important to discuss how the Fund performs over the course of different market environments. Over the prior two years, the economy and markets have transitioned, in our opinion. The three-year period ended 12/21/2022 was a difficult time for growth investors. It was a period punctuated by a global pandemic, geopolitical instability, and macroeconomic headwinds. The VIX was trading at above- average levels, while Barra factor returns for Beta and Growth were low. And the Index’s annual return over this period was below its historical rate. Despite these challenges, the Fund’s portfolio of high-quality growth companies weathered the period well.

However, the transition from that market environment to a more constructive environment has been (temporarily) challenging. We believe lower quality, value-oriented businesses tend to be sought by investors along with mega-cap growth companies. This occurred at the end of 2022 and into 2023. It resulted in one calendar year (2022) when the Fund lagged its Index. The Fund typically holds a balanced portfolio of distinct types of quality growth businesses. Customers at many service businesses had retreated causing revenue growth to moderate. Suppliers had increased prices causing margins to be pressured. Higher interest rates increased financing costs and raised the discount on future earnings. Investors gravitated towards large, steady, value-oriented businesses, which are largely not held in the Fund. And the underperformance during this one-year period is what caused the prior three-year returns to slightly trail the Index’s.

Therefore, in addition to viewing the Fund’s returns over these various SEC mandated trailing annual periods, we believe it is helpful to understand how the Fund has performed over economic cycles.

Performance data quoted represents past performance. Past performance is no guarantee of future results. The indexes are unmanaged. Index performance is not Fund performance. Investors cannot invest directly in an index.

The Fund has appreciated considerably in good times…

There have been two distinct periods over the life of the Fund with significant economic growth. The nearly 8-year period from the Fund’s inception through the Internet Bubble (1/31/1992 to 12/31/1999) and the more recent 11-year period Post-Great Recession to the start of the COVID Pandemic (12/31/2008 to 12/31/2019). During both periods, the Index had strong returns; however, the Fund’s returns were even better. The Fund’s annualized return during the most recent robust economic period was 17.44% compared to the Index’s 16.84%. The Market Index had an annual return of 14.70% during that time.

Performance data quoted represents past performance. Past performance is no guarantee of future results. The indexes are unmanaged. Index performance is not Fund performance. Investors cannot invest directly in an index.

The Fund has retained value in challenging times…

We believe what especially sets the Fund apart from other growth funds is its historic ability to outperform in more challenging economic periods. The nine-year period from the Internet Bubble collapse through the Great Recession (12/31/1999 to 12/31/2008) saw lower returns for the Fund. It had annualized returns of 1.54%. However, the Index declined substantially. A $10,000 hypothetical investment in the Fund at the start of this period would have been worth $11,479 after those nine years. A $10,000 hypothetical investment in a fund designed to track the Index would be worth only $6,488, more than a 35% cumulative decline. The Fund preserved (and slightly grew) capital during this difficult economic time because its investments in a diverse set of high-quality growth businesses could weather the environment and enhance their competitive positioning.

The COVID pandemic and its lingering macroeconomic issues have caused excessive market volatility. Over the course of three years, there were two sizable market corrections during which most major indexes fell more than 25%. But the Fund performed admirably in both protecting and growing clients’ capital. During the COVID pandemic and its aftermath (12/31/2019 to 12/31/2022), the Fund had an annualized return of 23.65%. The Index’s annualized return was significantly lower at only 3.85%.

The Fund is off to a good start in the current period…

Since the COVID pandemic and subsequent market downturn ended, the Fund has performed well on an absolute and relative basis. Since December 31, 2022, the Fund returned 38.18% annualized compared to the Index’s annualized return of 23.97%. While this is only a partial cycle, we believe we are off to a good start.

Over the longer term, this combination of exceeding the Index in various market environments has been rewarding for clients. A $10,000 hypothetical investment at the inception of the Fund on January 31, 1992, would have been worth $1,205,892 on December 31, 2024. That same $10,000 hypothetical investment in a fund designed to track the Index would now be worth $249,335, only approximately 20% of what it would have been worth if invested in the Fund.

Thank you for joining us as fellow shareholders in Baron Partners Fund. We continue to work hard to justify your confidence and trust in our stewardship of your hard-earned savings. We remain dedicated to giving you the information we would want if our roles were reversed. We hope this letter enables you to make an informed decision about whether this Fund remains an appropriate investment.

Respectfully,