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Baron Fifth Avenue Growth Fund displace the company and the company will maintain its leadership position. In 2016, roughly 750,000 procedures were performed worldwide using Intuitive’s robotic systems, an increase of 15% year-over-year. Intuitive generates revenue from instruments/accessories every time a procedure is performed using its robotic system, which together with annual service fees provides recurring revenue. Management has defined its current addressable market as four million procedures, but we believe Intuitive will continue to expand its addressable market by entering new procedure areas. The company has an exciting pipeline of new products, including a single port system that will enable new procedures and a robotic catheter system that will enable lung tissue biopsies to be taken minimally invasively. In the fourth quarter, the stock pulled back despite a strong fundamental outlook because investors became concerned that the repeal of the Affordable Care Act would cause Intuitive’s hospital customers to cut capital spending, which would negatively impact Intuitive’s system sales. We saw this pullback as short-sighted and bought the stock. We think Intuitive can grow revenue and earnings at attractive rates over the long term. We initiated a position in Synchrony Financial, the largest provider of private label credit cards in the U.S. Synchrony partners with leading retailers such as Lowe’s, Walmart, and Amazon to offer their customers credit products to finance the purchase of goods and services. These partnerships are win-win since merchants benefit from increased sales and stronger customer loyalty, customers enjoy access to credit and promotional offers, and Synchrony earns high margins and returns on capital. We believe that Synchrony will be a prime beneficiary of the secular growth of private label credit cards. Private label card spending is growing two to three times faster than overall retail sales and has a long runway for growth given that private label represents only 3% of total card spending in the U.S. Synchrony is the largest player in a consolidated industry with meaningful barriers to entry including economies of scale, the importance of marketing expertise, close integration with merchants, and long-term contracts. Synchrony has a long track record of success under GE’s prior ownership that we believe will continue for many more years. We continued to ramp up our investment in Expedia, Inc., which we initiated in the third quarter. Expedia is the largest global online travel agency in the U.S., and the second largest in the world. The company generates over $60 billion of global bookings and revenues of $6.6 billion. Expedia operates in 75 different countries and has over 18,000 employees globally. Expedia operates over 20 global brands including Expedia, Trivago, Hotels.com, Travelocity, CheapTickets, Wotif, Hotwire, and Venere. The company also recently acquired Orbitz and HomeAway. We believe Expedia is a leading player in a large and secularly growing online travel market where the penetration rate is still relatively low (Priceline Group and Expedia, the two largest players, account for less than 10% of the $1.4 trillion global travel market). Expedia has grown its supply of properties by 73,000 in the last two years (it now has 180,000 compared to 800,000 for Priceline) and improved its user interface leading to better conversion rates. We further believe that Expedia’s margins and overall profitability, which have been running at about half those of Priceline, are poised for significant improvement over the next few years. We added to our position in First Republic Bank because our confidence in the company’s uniqueness, business model, and management continues to grow. The election results clearly suggest potential for higher interest rates, faster economic growth, lower corporate tax rates, and a more benign regulatory environment. We first purchased First Republic Bank earlier in the year because we believed it was a highly differentiated bank with a long runway for growth. First Republic Bank employs a unique, high-touch business model to serve wealthy customers in fast-growing, coastal markets of the U.S. A singular focus on client service leads to high customer retention and word-of-mouth referrals. Despite growing much faster than the overall banking industry, First Republic Bank is a disciplined underwriter with much lower credit losses than peers. We believe First Republic Bank can continue growing profitably for many years given its strong reputation and low penetration in large markets. Table VI. Top net sales for the quarter ended December 31, 2016 Quarter End Market Cap or Market Cap When Sold (billions) Amount Sold (millions) YUM! Brands, Inc. $ 32.5 $3.5 FireEye, Inc. 2.0 2.5 Bristol-Myers Squibb Company 84.2 1.7 Amazon.com, Inc. 356.3 1.2 athenahealth, Inc. 4.0 1.2 We decided to close out our FireEye, Inc. position this quarter. While we see long-term value potential in this asset, it was clear that harvesting this turn-around situation in a large-cap focused portfolio was problematic. We moved on and reallocated the funds to other ideas. Bristol-Myers Squibb Company is a leading developer in Immuno- Oncology, the new wave of therapeutics aimed at displacing chemotherapeutics in cancer care with both improved efficacy (measured via survival outcomes) and safety profiles. While the class as a whole represents a success for society, the race for class dominance is heated and has proven to be difficult to predict. Coming into mid-2016, Bristol was the clear leader. The company squandered this lead in July when a widely anticipated clinical trial whose outcome was expected to read out positively, failed. While few question the drug’s efficacy, statistics and poor clinical trial design submarined Bristol and allowed competitor Merck to take the pole position commercially. Given the dire need for this patient population, the FDA granted Merck a pathway to market by the first half of this year that will give Merck at least a one year commercial advantage in time to market versus its competition. As a result, we decided to exit our investment in Bristol. While Merck has become the consensus leader, we think that their combination employs the wrong science approach and that Bristol is one of two players (AstraZeneca, the other) that will have an opportunity to ultimately come out on top given its strategy of combining two immunetherapeutics. We intend to follow the situation closely while looking for a more appropriate time to potentially get back into the investment. We modestly trimmed the size of our Amazon.com, Inc. position for purposes of risk management. Amazon continues to be our highest conviction long-term investment. We eliminated our small investment in athenahealth, Inc. during the quarter. Although we think athena has a unique business model and best-inclass offering, we lack conviction in the company’s ability to overcome end market challenges (such as fewer opportunities and elongated sales cycles in the ambulatory market, and a trend among clients towards using one vendor for both hospital and ambulatory, a trend which favors competitors like Epic and Cerner) and decided to make room for other new ideas. We continue to monitor the company’s progress and may reconsider the investment thesis in the future. 46

December 31, 2016 Baron Fifth Avenue Growth Fund Outlook 2017 is off to a good start and we were able to recover all of the fourth quarter losses and more than half of the relative performance shortfall in the first 17 trading days of the year. After declining in the first two quarters of the year, S&P 500 earnings increased 3.1% in the third quarter, with consensus looking for 3.2% growth in the December quarter. Economists are predicting earnings growth of between 11% and 12% for 2017, driven by a reduction in corporate tax rates, and an improved backdrop for Financials, Energy, and Industrials companies. More relevant to our portfolio, digital ad spending and e-commerce are expected to grow in excess of 15% with spending on cloud computing growing more than 80%. This should favor many of the companies in which we are invested that have been growing even faster. Every day we live and invest in a world full of uncertainty. Fed policy, China’s economy, energy prices, politics, terrorism–these are all serious challenges with clearly uncertain outcomes. History would suggest that most will prove passing or manageable. The business of capital allocation (or investing) is the business of taking risk, managing the uncertainty, and taking advantage of the long-term opportunities that those risks and uncertainties create. We are confident that our process is the right one and that it will enable us to make good investment decisions over time. Our goal remains to maximize long-term returns without taking significant risks of permanent loss of capital. We focus on identifying and investing in what we believe are unique companies with sustainable competitive advantages that have the ability to compound capital at high rates of return for extended periods of time. We are optimistic about the long-term prospects of the companies in which we are invested and continue to search for new ideas and investment opportunities. Sincerely, Alex Umansky Portfolio Manager 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 Fund invests primarily in large cap equity securities which are subject to price fluctuations in the stock market. The Fund may 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 the respective 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 reading this 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 Fifth Avenue Growth Fund by anyone in any jurisdiction where it would be unlawful under the laws of that jurisdiction to make such offer or solicitation. 47

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