UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   Form 10-QSB

(Mark One)
   [ X ]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

               For the quarterly period ended June 30, 2000

   [   ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

               For the transition period ended  ______________to________________

                        Commission file number 333-35063

                               Baron Capital Trust

        (Exact name of small business issuer as specified in its charter)

          Delaware                                      31-1574856

(State or other jurisdiction                          (IRS Employer
of incorporation or organization)                   Identification No.)

                    7826 Cooper Road, Cincinnati, Ohio 45242

                    (Address of principal executive offices)

                                 (513) 984-5001
                           (Issuer's telephone number)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

Yes  [   ]    No [ X ]

As of the date of this Report, the Registrant has outstanding 702,076 common
shares of beneficial interest ("Common Shares"), its only class of common
equity.


<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1.       Financial Statements

              See following pages




                                       2
<PAGE>
                               BARON CAPITAL TRUST

                         NOTES TO CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS
                                   (Continued)

                               BARON CAPITAL TRUST

                          INDEX TO FINANCIAL STATEMENTS

                                                                 PAGE
                                                                 ----

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

   Balance Sheet                                                 F-2

   Statements of Operations                                      F-3

   Statement of Shareholders' Equity                             F-4

   Statements of Cash Flows                                      F-5

   Notes to Financial Statements                               F-6-F-15


                                      F-1

<PAGE>

                               Baron Capital Trust
                           CONSOLIDATED BALANCE SHEET
                                  June 30, 2000


<TABLE>
<CAPTION>
                                                                                      June 30,       December 31,
                                                                                        2000             1999
                                                                                        ----             ----
Assets:                                                                             (Unaudited)
<S>                                                                                 <C>              <C>
Rental Apartments:

  Land                                                                              $  7,318,862     $  1,178,693
  Depreciable property                                                                32,249,572        6,189,095
                                                                                    ------------     ------------
                                                                                      39,568,434        7,367,788
  Less accumulated depreciation                                                       (6,414,750)      (1,453,177)
                                                                                    ------------     ------------
                                                                                      33,153,684        5,914,611

Investment In Partnerships                                                             4,277,246          930,970

Cash and Cash Equivalents                                                                127,372           33,774
Restricted Cash                                                                          762,969           52,089
Accrued Interest Receivable, Affiliate                                                 1,338,564           36,997
                                                                                            --             14,783
Other Receivables                                                                        113,798            3,724
Advances to Affiliates                                                                 6,251,905            5,141
Other Property and Equipment                                                             281,221          134,981
Other Assets                                                                             809,827          209,128
                                                                                    ------------     ------------
                                                                                       9,685,655          490,617
                                                                                    ------------     ------------
                                                                                    $ 47,116,585     $  7,336,198
                                                                                    ============     ============

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
  Mortgages payable                                                                   25,203,107        4,278,117
  Accounts payable and accrued liabilities                                             2,116,448        1,295,092
  Note payable                                                                           190,000          100,000
  Notes payable, affiliates                                                            3,778,779           50,000
  Capital lease obligation                                                                40,775           42,369
  Security deposits                                                                      227,066           40,308
                                                                                    ------------     ------------
      Total liabilities                                                               31,556,176        5,805,886

Commitments, Contingencies, Subsequent Events and Other Matters                             --               --

Minority Interest                                                                        536,900             --

Shareholders' Equity:
Common Shares of beneficial interest, no par value, 5,000,000 shares authorized;
702,076 and 675,086 shares issued and outstanding or
assumed to be issued as of June 30, 2000 and December 31, 1999 respectively           29,780,835        6,616,806
Distributions                                                                           (342,507)        (342,507)
Deficit                                                                              (14,414,819)      (4,743,987)
                                                                                    ------------     ------------
Total Shareholders' Equity                                                            15,023,509        1,530,312
                                                                                    ------------     ------------
                                                                                    $ 47,116,585     $  7,336,198
                                                                                    ============     ============
</TABLE>

                See notes to consolidated financial statements.

                                      F-2
<PAGE>


                            BARON CAPITAL TRUST

                   CONSOLIDATED STATEMENTS OF OPERATIONS
       For the Three and Six Months Ended June 30, 2000 and June 30, 1999

<TABLE>
<CAPTION>

                                                               Six               Six             Three             Three
                                                             Months             Months           Months            Months
                                                              Ended             Ended            Ended             Ended
                                                            June 30,           June 30,         June 30,          June 30,
                                                              2000               1999             2000              1999
                                                              ----               ----             ----              ----
                                                           (Unaudited)       (Unaudited)       (Unaudited)      (Unaudited)
                                                           -----------       -----------       -----------      -----------
<S>                                                       <C>               <C>               <C>               <C>
Revenue:
  Property:
     Rental                                               $  1,744,414      $    590,505      $  1,477,091      $    317,703
     Equity in net loss of unconsolidated partnership          (78,994)          (29,093)          (41,154)          (25,667)
  Interest and other income                                    368,479             1,037           342,939               654
                                                          ------------      ------------      ------------      ------------
                                                             2,033,899           562,449         1,778,876           292,690
                                                          ------------      ------------      ------------      ------------

Real Estate Expenses:
  Depreciation                                                 319,217            72,907           278,392            36,453
  Interest                                                     660,580           144,491           575,121            80,526
  Repairs and maintenance                                      237,806            37,727           211,997            18,176
  Personnel                                                    440,451            57,471           423,779            27,814
  Property Taxes                                               151,027            41,276           131,123            20,680
  Property Insurance                                            38,030            10,718            32,670             3,513
  Utilities                                                    185,657            29,601           172,283            16,714
  Other                                                        209,751           131,570           203,891            86,528
                                                          ------------      ------------      ------------      ------------
                                                             2,242,519           525,760         2,029,256           290,404
                                                          ------------      ------------      ------------      ------------

Provision for Property Impairment                            8,356,638              --           8,356,638              --
                                                          ------------      ------------      ------------      ------------

Administrative Expenses:
  Personnel, including officer's compensation                  535,461           465,509           375,843           132,711
  Professional services                                        249,539           258,889            88,419           188,187
  Other                                                        320,574           101,734           342,725            38,775
                                                          ------------      ------------      ------------      ------------

                                                             1,105,573           826,132           806,986           359,673
                                                          ------------      ------------      ------------      ------------


     Total expenses                                         11,704,730         1,351,892        11,192,880           650,077
                                                          ------------      ------------      ------------      ------------

Net Loss                                                  $ (9,670,832)     $   (789,443)     $ (9,414,004)     $   (357,387)
                                                          ============      ============      ============      ============

Net Loss per Common Share Basic and Diluted               $     (14.01)     $      (1.39)     $     (13.47)     $      (0.58)
                                                          ============      ============      ============      ============
Weighted Average Number of Common Shares Outstanding           690,306           567,840           698,947           614,813
                                                          ============      ============      ============      ============
</TABLE>

                See notes to consolidated financial statements.

                                      F-3
<PAGE>

                               BARON CAPITAL TRUST

             CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the
                         Six Months ended June 30, 2000


<TABLE>
<CAPTION>
                                                            SHARES       AMOUNT      DISTRIBUTIONS      DEFICIT          TOTAL
                                                            ------       ------      -------------      -------          -----
<S>                                                         <C>       <C>             <C>             <C>              <C>
Balance, December 31, 1999                                  675,086   $  6,616,806    $  (342,507)   $ (4,743,987)    $  1,530,312

Proceeds from sale of common shares of
    beneficial interest, net of offering costs               26,990        230,118           --              --            230,118

Common Shares assumed to be issued net; (see Note 6,
Exchange Offering)                                        2,449,525     22,825,371           --              --         22,825,371

Net Loss                                                       --             --             --        (9,670,832)      (9,670,832)

Credit for estimated fair value of services
     performed by officer                                      --          108,540           --              --            108,540
                                                       ------------   ------------    -----------    ------------     ------------

Balance, June 30, 2000                                    3,151,601   $ 29,780,835    $  (342,507)   $(14,414,819)    $ 15,023,509
                                                       ============   ============    ===========    ============     ============
</TABLE>

                See notes to consolidated financial statements.

                                      F-4
<PAGE>




                               BARON CAPITAL TRUST

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     For the Six Months Ended June 30, 2000

<TABLE>
<CAPTION>
                                                                             Six Months Ended
                                                                        June 30,           June 30,
                                                                          2000               1999
                                                                          ----               ----
                                                                       (Unaudited)       (Unaudited)
<S>                                                                   <C>               <C>
Cash Flows from Operating Activities:
  Net Loss                                                            $(9,670,832)      $  (789,443)
  Adjustmnets to reconcile net loss to
   net cash used by operating activities:
     Provision for officers compensation                                  108,540              --
     Depreciation                                                         319,217            94,721
     Equity in net loss of unconsolidated partnership                      78,994            29,093
     Recognition of Provision for Impairment                            8,356,638
     Changes in operating assets and liabilities:
     (Increase) decrease in operating assets:
       Property management reimbursemnets                                  36,997            38,476
       Due from managing shareholder                                       14,783              --
       Other receivables                                                 (110,074)           80,984
       Other assets                                                       122,343           (30,894)
     Increase (decrease) in operating liabilities:
       Accounts payable and accrued liabilities                           112,876           (14,178)
       Security Deposits                                                  186,758              (840)
                                                                      -----------       -----------
         Net cash used by operating activities                           (443,760)         (592,081)
                                                                      -----------       -----------


Cash Flows from Investing Activities:
  Investment in partnerships                                                9,318          (885,000)
  Cash distribution from partnerships                                     357,260            27,000
  Restricted Cash                                                         (40,664)             --
  Advances to afiliates                                                    27,109            10,750
  Other property and equipment                                           (146,240)          (10,073)
                                                                      -----------       -----------
          Net cash provided by (used in) investing activities             206,783          (857,323)
                                                                      -----------       -----------

Cash Flows from Financing Activities:
  Proceeds from the sale of common shares of beneficial interest          230,118         1,681,653
  Distributions paid                                                         --            (167,596)
  Proceeds from mortgage financing                                           --             273,499
  Notes payable affiliates                                                 89,141              --
  Payments on mortgages payable                                           (77,090)          (22,141)
  Proceeds from Notes Payable                                              90,000              --
  Payments on notes payable                                                  --            (275,000)
  Other                                                                    (1,594)           20,000
                                                                      -----------       -----------
          Net cash provided by financing activities                       330,575         1,510,415
                                                                      -----------       -----------

Net Increase in Cash and Cash Equivalents                                  93,598            61,011

Cash and Cash Equivalents, Beginning                                       33,774           243,498
                                                                      -----------       -----------

Cash and Cash Equivalents, Ending                                     $   127,372       $   304,509
                                                                      ===========       ===========

Supplemental Disclosure of Cash Flow Information:
    Cash paid for mortgage and other interest                         $   660,580       $   144,491
                                                                      ===========       ===========
</TABLE>

                See notes to consolidated financial statements.

                                      F-5
<PAGE>


                               BARON CAPITAL TRUST

                         NOTES TO CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS
                                   (Continued)


NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Basis of Presentation

        The consolidated balance sheet as of June 30, 2000, consolidated
        statements of operations for the six months ended June 30, 2000 and 1999
        and three months ended June 30, 2000 and 1999, the consolidated
        statements of cash flows for the six months ended June 30, 2000 and
        1999, and the consolidated statement of shareholders' equity for the six
        months ended June 30, 2000 have been prepared by the Trust. In the
        opinion of management, all adjustments (which include reclassifications
        and normal recurring adjustments) necessary to present fairly the
        financial position, results of operations and cash flows at June 30,
        2000 and for the period presented, have been made. The results of
        operations for the three and six months ended June 30, 2000 are not
        necessarily indicative of the operating results for the full year.

        Certain information and footnote disclosures normally included in the
        financial statements prepared in accordance with generally accepted
        accounting principles have been condensed or omitted. It is suggested
        that these condensed consolidated financial statements be read in
        conjunction with the Trust's financial statements and notes thereto
        included in the Trust's December 31, 1999 Form 10-KSB.

      Organization and Capitalization

        Baron Capital Trust (the "Trust") was organized as a business trust in
        Delaware on July 31, 1997. The Trust and its affiliate, Baron Capital
        Properties, L.P. (the "Operating Partnership"), a Delaware limited
        partnership, have been organized to acquire equity interests in
        residential apartment properties located in the United States and to
        provide or acquire mortgage loans secured by such types of property.

        The Managing Shareholder of the Trust is Baron Advisors, Inc., a
        Delaware corporation which will manage the operations of the Trust and
        the Operating Partnership subject to the supervisory authority of the
        Board of the Trust over the activities of the Trust and the Operating
        Partnership and the Board's prior approval authority in respect of
        certain actions of the Trust and the Operating Partnership specified in
        the Declaration of Trust of the Trust (the "Declaration").

        The Trust's Declaration authorizes it to issue up to 25,000,000 shares
        of beneficial interest, no par value per share, consisting of common
        shares and of preferred shares of such classes with such preferences,
        conversion or other rights, voting powers, restrictions, limitations as
        to dividends, qualifications, or terms or conditions of redemption as
        the Managing Shareholder may create and authorize from time to time in
        accordance with Delaware law and the Declaration.

        The Trust commenced operations on February 3, 1998, at which time it
        received its initial capital contribution.


                                      F-6
<PAGE>

                               BARON CAPITAL TRUST

                         NOTES TO CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS
                                   (Continued)

NOTE 2. BASIS OF PRESENTATION

        The accompanying consolidated financial statements have been prepared in
        conformity with generally accepted accounting principles which assume
        that the Trust will continue on a going concern basis, including the
        realization of assets and liquidation of liabilities in the ordinary
        course of business. For the six months ended June 30, 2000 and the year
        ended December 31, 1999 the Trust incurred net losses of $9,670,832 and
        $3,166,927 and negative cash flows from operations of $443,760 and
        $1,022,587. The auditors' report for the year ended December 31, 1999
        was qualified to express substantial doubt about the Trust's ability to
        continue as a going concern.

        Management's plans to continue its operations and become profitable
        encompass the following:

        o       The Trust plans to attempt to raise capital through additional
                public or private offerings of common shares and/or Operating
                Partnership units within the next 12 months.

        o       The Trust, through its Operating Partnership, intends to
                continue to acquire rental properties with proceeds from any
                future public or private offering of common shares ("Common
                Shares") of beneficial interest in the Trust and/or units
                ("Units") of limited partnership interest in the Operating
                Partnership. The operating results of the Trust and the
                Operating Partnership will depend primarily upon income from the
                residential apartment properties in which they directly or
                indirectly acquire an equity or subordinate mortgage interest.
                Operating results in respect of equity interests will be
                substantially influenced by the demand and supply of residential
                apartment units in their primary market and sub-markets, and
                operating expense levels. Operating results in respect of
                mortgage and other debt interests will depend upon interest
                income, including, in certain cases, participation interest,
                whose payment will depend upon the operating performance, sale
                or refinancing of the underlying properties. The operating
                results of the Trust and Operating Partnership will also depend
                upon the pace and price at which they can acquire and improve
                additional property interests.

        o       The Trust intends to review its entire portfolio of properties
                to determine the potential for restructuring and refinancing
                various first mortgage loans and to evaluate certain properties
                for possible sale due to recent performance that negatively
                impacts overall operating results. The Trust will also explore
                possible business combinations with other apartment owners that
                would give it the economies of scale and the size that it
                requires to list its Common Shares on a recognized securities
                exchange.

        o       The Trust will also negotiate with the firms who are owed
                accounts payable for services performed in connection with the
                Exchange Offering of the Operating Partnership in order to
                extend payment terms and, where possible, to reduce the amounts
                due.

        In view of these matters, realization of a major portion of the assets
        in the accompanying consolidated balance sheet is dependent upon the
        continued operations of the Trust, which in turn is dependent upon the
        Trust's ability to meet its capital and financing requirements, and the
        success of its future operations. Management believes that the actions
        presently being taken by the Trust provide the opportunity for the Trust
        to continue as a going concern. However, there can be no assurance that
        management will be successful in the implementation of its plans to
        raise


                                      F-7
<PAGE>

                               BARON CAPITAL TRUST

                         NOTES TO CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS
                                   (Continued)

        adequate amounts of capital or that future operations will become
        profitable. The accompanying consolidated financial statements do not
        include any adjustments that might result from the outcome of this
        uncertainty.

NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS

        In June 1998, the FASB issued SFAS 133, Accounting for Derivative
        Instruments and Hedging Activities, which has been deferred by SFAS 137,
        Accounting for Derivative Instruments and Hedging Activities - Deferral
        of the Effective Date of FASB Statement No. 133, and amended by the
        issuance in June 2000 of SFAS 138, Accounting for Certain Derivative
        Instruments and Certain Hedging Activities, an amendment of FASB
        Statement No. 133. SFAS 133 requires that every derivative instrument be
        recorded on the balance sheet as an asset or liability measured at its
        fair value and that changes in the fair value of derivative instruments
        be recognized currently in earnings unless specific hedge accounting
        criteria are met. SFAS 133 is effective for fiscal years beginning after
        June 15, 2000.

        Historically, the Trust has not entered into derivatives contracts to
        hedge existing risks or for speculative purposes. Accordingly, the Trust
        does not expect adoption of the new standard on January 1, 2001 to
        affect its financial statements.

NOTE 4. COMMITMENTS AND CONTINGENCIES

      Contract to Purchase Additional Properties

        In September 1998, the Trust entered into an agreement with three real
        estate development companies (Brentwood at Southgate, Ltd., Burlington
        Residential, Ltd. and The Shoppes at Burlington, Ltd.) to acquire two
        luxury residential apartment properties in the development stage upon
        the completion of construction. The three development companies are
        controlled by Gregory K. McGrath, a founder and the Chief Executive
        Officer of the Trust. One of the residential properties has been sold to
        a third party with the Trust's consent. The remaining property is
        scheduled to have a total of 396 units, comprised of one, two and three
        bedroom/one or two bathroom apartments. Construction of the property
        (the "Burgundy Hills Property"), located in Florence, Kentucky (part of
        the Cincinnati metropolitan area), is expected to be completed by the
        end of the first quarter of 2004. The Trust has a right of first
        negotiation to purchase the property from the development company upon
        completion and a right of first refusal to purchase the property on the
        same terms offered by a third party. The purchase price is expected to
        be approximately $30,000,000. It is contemplated that a significant
        portion of that amount would be covered by first mortgage financing. At
        the current time the Trust does not have adequate resources to close on
        the transaction and it is uncertain whether the Trust will have adequate
        resources to complete the transaction upon completion of construction.

        In connection with the transaction, the Trust (along with its Chief
        Executive Officer) agreed to co-guarantee up to 35% (or approximately
        $6,000,000) of existing long-term construction financing provided by
        KeyBank National Association ("KeyBank") in respect of the Burgundy
        Hills Property. As of December 15, 2000, approximately $5,300,000 of the
        loan had been drawn down, resulting in outstanding guarantees of
        approximately $1,900,000. The interest rate on the construction loan is
        KeyBank's prime rate (currently 9.25%) or the LIBOR rate plus 2%. The


                                      F-8
<PAGE>

                               BARON CAPITAL TRUST

                         NOTES TO CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS
                                   (Continued)

        Trust also agreed that, if the loan is not repaid prior to the
        expiration of the guarantee, it would either buy out the bank's position
        on the entire amount of the construction loan or arrange for a third
        party to do so.

        In September 2000, the Trust received notice from counsel to KeyBank
        that Burlington Residential, Ltd. ("Borrower"), the owner and developer
        of the Burgundy Hills Property, had defaulted on its loan for failure to
        pay current interest due and meet certain equity requirements and
        covenants under the loan agreement, adverse changes in the financial
        conditions of the Borrower and the Trust, and the Trust's failure to
        meet certain tangible net worth tests set forth in the loan agreements.
        KeyBank has indicated that it was exercising its right to accelerate the
        loan. According to Mr. McGrath, KeyBank agreed to forego further action
        for at least 60 days while the parties attempted to reach an
        arrangement. The extension expired in November 2000 and, according to
        Mr. McGrath, is currently being extended on a month-to-month basis. The
        Borrower paid down the outstanding accrued interest and a portion of the
        principal and is currently negotiating a new long-term construction
        facility with another institutional lender to replace the KeyBank loan.
        The Borrower anticipates completion of the refinancing in the first
        quarter of 2001.

      Officers' Compensation

        A founder of the Trust and the Operating Partnership serves as Chief
        Executive Officer of the Trust and the Managing Shareholder. He agreed
        to serve as Chief Executive Officer for the first year in exchange for
        compensation in the form of Common Shares or Units in an amount not to
        exceed 25,000 shares or units, as applicable, to be determined by the
        Executive Compensation Committee of the Board of the Trust based upon
        his performance, in addition to benefits and eligibility for
        participation in any option plan and bonus incentive compensation plan
        which may be implemented by the Trust. During 1998 and 1999, no Common
        Shares or Units were issued to the Chief Executive Officer as
        compensation. However, in order to reflect all appropriate
        administrative expenses of the Operating Partnership, a provision of
        $108,540 has been made in the accompanying financial statements for the
        estimated fair value of the services rendered by the Chief Executive
        Officer for the first two quarters 2000. This amount has been charged to
        compensation expense, with corresponding credits to partners' capital.
        This estimate of the fair value of such services was determined by
        management based upon an analysis of compensation paid to chief
        executive officers of a number of comparable real estate investment
        trusts. Compensation and benefits for the Chief Executive Officer are
        determined annually by the Executive Compensation Committee of the Board
        of the Trust.

        The other founder of the Trust and Operating Partnership serves as the
        Chief Operating Officer of the Trust and the Managing Shareholder. His
        initial annual salary has been set at $100,000, in addition to benefits,
        and eligibility for participation in any Common Share option plan and
        bonus incentive compensation plan which may be implemented by the Trust.

      Underwriting Agreement

        In connection with the Cash Offering which terminated on May 31, 2000
        (see "Note 6. Shareholders' Equity"), the Trust issued to Sigma
        Financial Corporation (the "Underwriter"), warrants to purchase Common
        Shares in an amount equal to 8.5% of the number of Common Shares sold on
        a best effort basis, by the Underwriter and participating broker-dealers
        selected by


                                      F-9
<PAGE>

                               BARON CAPITAL TRUST

                         NOTES TO CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS
                                   (Continued)

        the Underwriter and the Trust. The warrants may be exercised at any time
        and from time to time through May 15, 2003 at an exercise price of $13
        per warrant share. The Trust has reserved 59,676 Common Shares under the
        Underwriting Agreement, which represents 8.5% of the 702,076 Common
        Shares sold in the Cash Offering.

NOTE 5. RELATED PARTY TRANSACTIONS

      Trust Management Agreement

        The Trust has entered into a Trust Management Agreement with the
        Managing Shareholder under which the Managing Shareholder is obligated
        to provide management, administrative and investment advisory services
        to the Trust. The services to be rendered include, among other things,
        communicating with and reporting to investors, administering accounts,
        providing the Trust office space, equipment and facilities and other
        services necessary for the Trust's operation, and representing the Trust
        in its relations with custodians, depositories, accountants, attorneys,
        brokers and dealers, corporate fiduciaries, insurers, banks and others,
        as required. The Managing Shareholder is also responsible for
        determining which real estate investments and non-real estate
        investments (including the temporary investment of the Trust's available
        funds prior to their commitment to particular real estate investments)
        the Trust will make and for making divestment decisions, subject to the
        provisions of the Declaration. The Trust Management Agreement had an
        initial term of one year, has been renewed for two one-year periods, and
        may be extended following the expiration of its current term on a
        year-to-year basis on approval of the Board or a majority of the
        shareholders entitled to vote on such matter or a majority of the
        Independent Trustees.

        Under the Trust Management Agreement, the Trust will reimburse the
        Managing Shareholder, on a monthly basis during the term of the
        agreement, for its operating expenses relating to the business of the
        Trust and the Operating Partnership in an amount up to the sum of 1% of
        the gross proceeds from the sale by the Trust of Common Shares in the
        Trust's Cash Offering, and 1% of the initial assigned value of each Unit
        in the Operating Partnership issued in connection with the Exchange
        Offering. The Managing Shareholder in its sole discretion may elect to
        receive payment for its service in the form of Common Shares with an
        equivalent value.

      Accrued Interest Receivable, Affiliates

        Certain of the Exchange Partnerships acquired by the Operating
        Partnership in the Exchange Offering hold subordinated notes due from
        limited partnerships controlled by Mr. McGrath. See "Note 6.
        Shareholders' Equity." These debt instruments have varying interest
        rates and the interest is accrued and/or paid on a monthly basis. As of
        June 30, 2000 the Trust was due $1,338,564 on these notes.


                                      F-10
<PAGE>

                               BARON CAPITAL TRUST

                         NOTES TO CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS
                                   (Continued)

NOTE 6. SHAREHOLDERS' EQUITY

      Cash Offering

        On May 15, 1998, pursuant to a registration statement on Form SB-2, the
        Trust commenced an initial public offering of a maximum of 2,500,000
        Common Shares of beneficial interest in the Trust at $10 per Common
        Share (the "Cash Offering"). The Cash Offering, as amended, was
        terminated May 31, 2000. The Trust sold 702,076 Common Shares in the
        offering for an aggregate offering price of $7,020,763. All of the
        Common Shares issued by the Trust in the offering are tradable without
        restriction under the Securities Act, but are subject to certain
        restrictions designed to permit the Trust to qualify and maintain its
        status as a real estate investment trust under the Internal Revenue
        Code. The Common Shares are not listed for trading on any stock
        exchange, and no market currently exists for the Common Shares.

      Exchange Offering

        In April 2000, pursuant to a registration statement on Form S-4, the
        Operating Partnership completed an exchange offering (the "Exchange
        Offering") under which it acquired additional interests in residential
        apartment properties. In the Exchange Offering, the Operating
        Partnership issued 2,449,525 registered Operating Partnership Units
        (with an initial assigned value of $24,495,249) in exchange for
        substantially all outstanding units of limited partnership interest
        owned by individual limited partners ("Exchange Limited Partners") in 23
        limited partnerships (the "Exchange Partnerships"), which directly or
        indirectly own equity and/or debt interests in one or more of 26
        residential apartment properties located in the southeast and mid-west
        United States. Prior to the completion of the Exchange Offering, the
        Exchange Partnerships were managed by corporate general partners (the
        "Corporate General Partners"), which were controlled by Gregory K.
        McGrath, who is the Chief Executive Officer of the Trust and the Chief
        Executive Officer, sole stockholder and sole director of the Managing
        Shareholder of the Trust.

        Following the completion of the Exchange Offering, the Exchange
        Partnerships continue to own the same property interests they owned
        prior to the offering; substantially all of the limited partnership
        interests in the 23 Exchange Partnership are owned by the Operating
        Partnership; Mr. McGrath, for nominal consideration, assigned to the
        Trust all of the equity stock in 18 of the Corporate General Partners
        and granted to the Board of the Trust a management proxy coupled with an
        interest to vote the shares of the remaining five Corporate General
        Partners; the Corporate General Partner of each of the Exchange
        Partnerships assigned to the Operating Partnership all of its economic
        interest in the partnership; and Mr. McGrath caused each Corporate
        General Partner to waive its right to receive from its Exchange
        Partnership any ongoing fees, effective upon completion of the exchange.
        As a result of the foregoing, the Operating Partnership (and indirectly
        the Trust) own substantially all of the economic interest represented by
        the equity and debt interests owned by the Exchange Partnerships and
        control management of such partnerships.

        The Exchange Offering expired on April 7, 2000. Under the terms of the
        Exchange Offering, Exchange Limited Partners in a particular Exchange
        Partnership were entitled to participate in the offering only if limited
        partners holding at least 90% of the units of limited partnership
        interest in that partnership affirmatively elected to accept the
        offering. Exchange Limited Partners holding approximately 97.4% of the
        outstanding units of limited partnership interest in such partnerships


                                      F-11
<PAGE>

                               BARON CAPITAL TRUST

                         NOTES TO CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS
                                   (Continued)

        accepted the offering, and each of the Exchange Partnerships exceeded
        the 90% requirement. As a result, following the completion of the
        Exchange Offering, the limited partnership interests of nine Exchange
        Partnerships are owned entirely by the Operating Partnership (in the
        case of nine Exchange Partnership in which all Exchange Limited Partners
        accepted the offering), and substantially all of the limited partnership
        interests in the other 14 Exchange Partnerships are owned by the
        Operating Partnership, with the remaining limited partnership interests
        being retained by Exchange Limited Partners who elected not to accept
        the offering or failed to respond to the offering.

        For financial statement presentation purposes it is assumed that the
        Units of limited partnership interest in the Operating Partnership
        issued to Exchange Limited Partners in the Exchange Offering have been
        issued as Common Shares of the Trust, since the unitholders are entitled
        to exchange all or a portion of their Units at any time and from time to
        time for an equivalent number of Common Shares, so long as the exchange
        would not cause the exchanging party to own in excess of 5% of the then
        outstanding Common Shares, subject to the Trust's right to cash out any
        unitholder who requests an exchange and subject to certain other
        exceptions.

      Operating Partnership Limited Partnership Units

        In connection with the formation of the Trust and the Operating
        Partnership, their two founders (the "Original Investors") each
        subscribed for 601,080 Units of limited partnership interest in the
        Operating Partnership (a total of 1,202,160 Units). In consideration for
        the Units subscribed for by them, the Original Investors made a $100,000
        capital contribution to the Operating Partnership. The number of Units
        subscribed for by the Original Investors represented 19% of the maximum
        Common Shares that would have been outstanding following the completion
        of the Cash Offering and the Exchange Offering, assuming that the Trust
        had sold all Common Shares offered in the Cash Offering and that the
        Operating Partnership had issued the maximum number of Units (2,500,000)
        offered in the Exchange Offering, calculated on a fully diluted basis
        assuming all then outstanding Units (other than those acquired by the
        Trust) had been exchanged into an equivalent number of Common Shares.
        The Original Investors deposited the Units subscribed for by them into a
        security escrow account for six to nine years, subject to earlier
        release under certain conditions.

        The subscription agreement entered into by the Original Investors
        provided that if, as of May 31, 2000, the number of Units subscribed for
        by the Original Investors represents a percentage greater than 19% of
        the then outstanding Common Shares, calculated on a fully diluted basis,
        each of the Original Investors would be required to return any excess
        Units to the Operating Partnership for cancellation. Therefore, as of
        May 31, 2000, an adjustment, reducing the number of Units held in escrow
        by 444,414, is necessary to accurately reflect the number of Units held
        by the Original Investors.

        The fair value of the Units issued to the Original Investors amounted to
        $100,000, based upon a determination made by the Independent Trustees of
        the Trust as of the date of subscription for these Units (February 3,
        1998). The determination of the fair value took into consideration that
        at the time of the subscription for the Units, the Trust and the
        Operating Partnership were development stage companies, with no cash or
        other significant tangible assets, operating history or revenue and no
        certainty of successful offerings or future operations; the founders had
        at risk


                                      F-12
<PAGE>

                               BARON CAPITAL TRUST

                         NOTES TO CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS
                                   (Continued)

        their initial capital contributions plus certain additional unreimbursed
        advances to cover certain offering and operating expenses; the founders
        have significant experience and developed know-how critical to the
        success of the Trust and the Operating Partnership; and the founders'
        Units are subject to significant transfer restrictions. The Operating
        Partnership has accounted for the Units as being issued and outstanding,
        but subject to escrow restrictions, in the accompanying consolidated
        financial statements, and has included the Units as outstanding in
        determining the weighted average shares outstanding for purposes of
        calculating net loss per partnership unit in the accompanying
        consolidated financial statements. Because the release of the Units from
        escrow is not dependent upon the achievement of any specified level of
        profits, the release of the Units from escrow is not considered to be
        compensatory and, accordingly, no accounting measurement will be given
        to the release of the Units from escrow.

        Under the subscription agreement, the Original Investors agreed to waive
        future administrative fees for managing Exchange Partnerships which
        participated in the Exchange Offering; agreed to assign to the Operating
        Partnership the right to receive all residual economic rights
        attributable to the general partner interests in the Exchange
        Partnerships; and, in order to permit management by the Operating
        Partnership of the properties owned by the Exchange Partnerships, caused
        the Exchange Partnerships to cancel the partnerships' prior property
        management agreements and agreed to forego the right to have a property
        management firm controlled by the Original Investors assume the property
        management role in respect of properties in which the Trust or the
        Operating Partnership invest.

        Following the Exchange Offering, the Operating Partnership controls all
        of the Exchange Partnerships by virtue of its ownership of substantially
        all of the limited partnership interests therein, which provides the
        Operating Partnership the ability to remove the general partner under
        the provisions of the limited partnership agreement pertaining to each
        Exchange Partnership that authorize limited partners holding over 50% of
        total partnership interest to remove the general partner.

      Distributions

        There were no distributions in the six months ended June 30, 2000.

NOTE 7. NET LOSS PER SHARE

        The Trust computes per share data in accordance with Statement of
        Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share".
        SFAS 128 requires dual presentation of basic and diluted earnings per
        share on the face of the income statement.

        Basic net loss per share equals net loss divided by the weighted average
        shares outstanding during the year. The computation of diluted net loss
        per share that includes dilutive Common Share equivalents in the
        weighted average shares outstanding has not been presented, as it is
        anti-dilutive for both the three and six months ended June 30, 2000 and
        1999.


                                      F-13
<PAGE>

                               BARON CAPITAL TRUST

                         NOTES TO CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS
                                   (Continued)

     The components used in calculating basic net loss per share are as follows:

                                                           Weighted
                                                            Average     Loss
                                              Net Loss      Shares    Per Share
                                            ------------    ------    ---------

     Three Months Ended June 30, 2000       $(9,414,004)    698,947    (13.47)

     Three Months Ended June 30, 1999       $  (357,387)    614,813   $ (0.58)

     Six Months Ended June 30, 2000         $(9,670,832)    690,306     (14.01)
                                            -----------     -------     ------

     Six Months Ended June 30, 1999         $  (789,443)    567,840   $ (1.39)
                                            ===========     =======     =====

NOTE 8. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

        The unaudited pro forma condensed consolidated statements of operation
        for the six months ended June 30, 2000 have been prepared assuming that
        the Exchange Offering had been fully subscribed and occurred on January
        1, 2000.

        The pro forma information is not necessarily indicative of what the
        Trust's results of operations would have been assuming the completion of
        the described transaction at the beginning of the period indicated, nor
        does it purport to project the Trust's results of operations for any
        future period.


       Unaudited Pro Forma Condensed Consolidated Statement of Operations
                     For the Six Months ended June 30, 2000

<TABLE>
<CAPTION>
                                      Statement of
                                  Operations as of June          Pro Forma
                                         30, 2000                Adjustments               Pro Forma
<S>                                           <C>                  <C>                       <C>
     Total Revenues                           $2,034,000           $1,486,000(1)             $3,520,000
     Cost and Expenses                        $3,348,100           $1,350,000(2)              4,698,100
     Provision for Property
     Impairment                               $8,357,000          $(8,357,000)(3)
     Net Income (loss)                       $(9,671,000)                                   $(1,178,100)
     Weighted Average
     Number of Common
     Shares                                      690,306                                        690,306

     Net Loss Per Share                         $(14.01)                                        $(1.71)
</TABLE>

      Pro Forma Adjustments

        The unaudited pro forma condensed consolidated financial statements
        represent the acquisition of substantially all of the partnership
        interests in the Exchange Partnerships, which will be accounted


                                      F-14
<PAGE>

                               BARON CAPITAL TRUST

                         NOTES TO CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS
                                   (Continued)

        for under the purchase method of accounting. The Trust has estimated the
        adjustments necessary to allocate the aggregate purchase price over the
        recorded book value of these partnerships. Such allocations are subject
        to final determination based upon valuations provided by the Trust and
        other valuations of fair value as if the acquisitions were effective
        January 1, 2000. Therefore, the allocations reflected in the unaudited
        pro forma condensed consolidated financial statements may differ from
        amounts ultimately determined. Differences between the amounts included
        herein and the final allocations are not expected to have a material
        effect on the unaudited pro forma financial statements.

        Pro forma depreciation for the period ended June 30, 2000 is based upon
        assets at fair value at January 1, 2000, primarily based upon 30-year
        asset lives.

        Summary pro forma adjustments to present comparative per share data
        assume that the Exchange Offering had been consummated January 1, 2000
        (assumes Units outstanding for entire period). The Original Investors'
        escrowed Units are not included in the pro forma computation with basic
        loss per share because there is no assurance that the Units will be
        released from escrow and their inclusion would be antidilutive.

        The pro forma adjustments detailed above are as follows:

        1)      The Exchange Partnerships provide an additional $1.4 million in
                revenue if assumed to have been included from January 1, 2000.

        2)      The Exchange Partnerships incur an additional $1.35 million in
                expenses if assumed to have been included from January 1, 2000.

        3)      A one-time Provision for Property Impairment of $8.4 million was
                recognized at the end of the second quarter to account for the
                excess of the exchanged value over the estimated equity value of
                the Exchange Partnerships.

NOTE 9. SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

        In April 2000, in connection with the completion of the Exchange
        Offering, the Operating Partnership acquired indirect equity interests
        in 13 rental properties and subordinated mortgage interests in 10
        additional properties through the acquisition of substantially all
        partnership interests in the Exchange Partnerships, which own land and
        depreciable property, accrued interest, advances, other assets,
        mortgages and notes payable, as follows:

        Land and Depreciable Property                        $32,474,270
        Accrued Interest - Affiliate                           1,338,564
        Advances to Affiliates                                 6,048,286
        Other Assets                                             736,604
                                                             -----------
        Total Assets                                         $40,597,724


        Mortgages Payable                                    $19,725,536
        Notes Payable - Affiliate                              3,639,638
                                                             -----------
        Total Liabilities                                    $23,365,174
                                                             ===========
        Equity                                               $17,232,550
                                                             ===========

                                      F-15
<PAGE>

Item 2. Management's Discussion and Analysis or Plan of Operation

        The following discussion should be read in conjunction with the
        Consolidated Financial Statements of Baron Capital Trust (the
        "Registrant" or the "Trust") and the Notes thereto. (See ITEM 1 -
        FINANCIAL STATEMENTS.)

      Forward-looking Statements

        This Management's Discussion and Analysis or Plan of Operation and other
        sections of this Report contain certain forward-looking statements
        within the meaning of the Securities Litigation Reform Act of 1995 that
        are based on current expectations, estimates and projections about the
        Trust's business, management's beliefs and assumptions made by
        management. Words such as "expects", "anticipates", "intends", "plans",
        "believes", "seeks", "estimates", and variations of such words and
        similar expressions are intended to identify such forward-looking
        statements. These statements are not guarantees of future performance
        and involve certain risks, uncertainties and assumptions that are
        difficult to predict. Therefore, actual outcomes and results may differ
        materially from what is expressed or forecasted in such forward-looking
        statements due to numerous factors, including, but not limited to those
        discussed in this Management's Discussion and Analysis or Plan of
        Operation section of this Report, as well as those discussed elsewhere
        in this Report and from time to time in the Trust's other Securities and
        Exchange Commission filings and reports. In addition, such statements
        could be affected by general domestic and international economic
        conditions. The forward-looking statements contained in this Report
        speak only as of the date on which they are made, and the Trust does not
        undertake any obligation to update any forward-looking statement to
        reflect events or circumstances after the date of this Report.

      Results of Operations

        The Trust commenced operations in the first half of 1998. The Trust and
        its affiliate, Baron Capital Properties, L.P. (the "Operating
        Partnership"), a Delaware limited partnership, constitute an affiliated
        real estate company which has been organized to acquire equity interests
        in residential apartment properties located in the United States and/or
        to provide or acquire mortgage loans secured by such types of property.
        The Operating Partnership conducts all of the Trust's real estate
        operations and holds all direct or indirect property interests acquired.

        The Trust is the sole general partner of the Operating Partnership, and,
        in such capacity, the Trust controls the activities of the Operating
        Partnership. As of December 15, 2000, the Trust also owned 546,786
        Operating Partnership Units, representing approximately 14.0% of the
        then outstanding Units. Since the Units comprise substantially all of
        the assets of the Trust, the operating results of the Trust are
        primarily dependent upon the operating results of the Operating
        Partnership.


                                       3
<PAGE>

        As described below in this Report, in May 1998, the Trust commenced an
        offering (the "Cash Offering") of up to 2,500,000 common shares of
        beneficial interest ("Common Shares") in the Trust at a purchase price
        of $10.00 per share (maximum proceeds of $25,000,000). In the Cash
        Offering, which expired on May 31, 2000, the Trust sold 702,076 Common
        Shares for an aggregate purchase price of $7,020,763.

        Through the Operating Partnership, the Trust has acquired substantially
        all the beneficial interests in 16 residential apartment properties,
        including the Heatherwood I Apartments (67 studio, one bedroom and two
        bedroom units located in Kissimmee, Florida) in June 1998; Crystal Court
        II Apartments (80 studio, one bedroom and two bedroom units located in
        Lakeland, Florida) in July 1998; and Riverwalk Apartments (50 two
        bedroom units located in New Smyrna, Florida) and 13 properties acquired
        as part of the Exchange Offering (discussed below). In July 1998 the
        Operating Partnership also acquired a minority limited partnership
        interest in 13 real estate limited partnerships then managed by
        affiliates of Gregory K. McGrath (a founder and Chief Executive Officer
        of the Trust and founder of the Operating Partnership), including
        certain of the Exchange Partnerships which participated in the Exchange
        Offering and which are now managed by the Trust.

        During 1998 and 1999, the Trust acquired a total of 40% of the limited
        partnership interests in Alexandria Development, L.P., which owns
        Alexandria Apartments, a 168-unit residential apartment property under
        construction in Alexandria, Kentucky. As of June 30, 2000, 112 of the
        168 residential units (approximately 67%) had been completed and were in
        the rent-up stage. Of the completed units, 107 units have been rented.

        In September 1998, the Trust entered into an agreement with three real
        estate development companies (Brentwood at Southgate, Ltd., Burlington
        Residential, Ltd. and The Shoppes at Burlington, Ltd.) to acquire two
        luxury residential apartment properties in the development stage upon
        the completion of construction. The three development companies are
        controlled by Mr. McGrath. One of the residential properties has been
        sold to a third party with the Trust's consent. The remaining property
        is scheduled to have a total of 396 units, comprised of one, two and
        three bedroom/one or two bathroom apartments. Construction of the
        property (the "Burgundy Hills Property"), located in Florence, Kentucky
        (part of the Cincinnati metropolitan area), is expected to be completed
        by the end of the first quarter of 2004. The Trust has a right of first
        negotiation to purchase the property from the development company upon
        completion and a right of first refusal to purchase the property on the
        same terms offered by a third party. The purchase price is expected to
        be approximately $30,000,000. It is contemplated that a significant
        portion of that amount would be covered by first mortgage financing. At
        the current time the Trust does not have adequate resources to close on
        the transaction and it is uncertain whether the Trust will have adequate
        resources to complete the transaction upon completion of construction.


                                       4
<PAGE>

        In connection with the transaction, the Trust (along with its Chief
        Executive Officer) agreed to co-guarantee up to 35% (or approximately
        $6,000,000) of existing long-term construction financing provided by
        KeyBank National Association ("KeyBank") in respect of the Burgundy
        Hills Property. As of December 15, 2000, approximately $5,300,000 of the
        loan had been drawn down, resulting in outstanding guarantees of
        approximately $1,900,000. The interest rate on the construction loan is
        KeyBank's prime rate (currently 9.25%) or the LIBOR rate plus 2%. The
        Trust also agreed that, if the loan is not repaid prior to the
        expiration of the guarantee, it would either buy out the bank's position
        on the entire amount of the construction loan or arrange for a third
        party to do so.

        In September 2000, the Trust received notice from counsel to KeyBank
        that Burlington Residential, Ltd. ("Borrower"), the owner and developer
        of the Burgundy Hills Property, had defaulted on its loan for failure to
        pay current interest due and meet certain equity requirements and
        covenants under the loan agreement, adverse changes in the financial
        conditions of the Borrower and the Trust, and the Trust's failure to
        meet certain tangible net worth tests set forth in the loan agreements.
        KeyBank has indicated that it was exercising its right to accelerate the
        loan. According to Mr. McGrath, KeyBank agreed to forego further action
        for at least 60 days while the parties attempted to reach an
        arrangement. The extension expired in November 2000 and, according to
        Mr. McGrath, is currently being extended on a month-to-month basis. The
        Borrower paid down the outstanding accrued interest and a portion of the
        principal and is currently negotiating a new long-term construction
        facility with another institutional lender to replace the KeyBank loan.
        The Borrower anticipates completion of the refinancing in the first
        quarter of 2001.

        In April 2000, pursuant to a registration statement on Form S-4, the
        Operating Partnership completed an exchange offering (the "Exchange
        Offering") under which it acquired additional interests in residential
        apartment properties. In the Exchange Offering, the Operating
        Partnership issued 2,449,525 registered units of limited partnership
        interest in the Operating Partnership (the "Operating Partnership Units"
        or "Units") (with an initial assigned value of $24,495,249) in exchange
        for substantially all outstanding units of limited partnership interest
        owned by individual limited partners ("Exchange Limited Partners") in 23
        limited partnerships (the "Exchange Partnerships"). The Exchange
        Partnerships directly or indirectly own equity and/or debt interests in
        one or more of 26 residential apartment properties (the "Exchange
        Properties") located in the southeast and mid-west United States.

        Holders of Operating Partnership Units (other than the Trust) are
        entitled to exchange all or a portion of their Units at any time and
        from time to time for an equivalent number of Common Shares of the
        Trust, so long as the exchange would not cause the exchanging party to
        own (taking into account certain ownership attribution rules) in excess
        of 5% of the then outstanding Common Shares, subject to the Trust's
        right to cash out any holder of Units who requests an exchange and
        subject to certain other exceptions.


                                       5
<PAGE>

        Prior to the completion of the Exchange Offering, the Exchange
        Partnerships were managed by corporate general partners (the "Corporate
        General Partners"), which were controlled by Mr. McGrath.

        Following the completion of the Exchange Offering, the Exchange
        Partnerships continue to own the same property interests they owned
        prior to the offering; substantially all of the limited partnership
        interests in the 23 Exchange Partnership are owned by the Operating
        Partnership; Mr. McGrath, for nominal consideration, assigned to the
        Trust all of the equity stock in 18 of the Corporate General Partners
        and granted to the Board of the Trust a management proxy coupled with an
        interest to vote the shares of the remaining five Corporate General
        Partners; the Corporate General Partner of each of the Exchange
        Partnerships assigned to the Operating Partnership all of its economic
        interest in the partnership; and Mr. McGrath caused each Corporate
        General Partner to waive its right to receive from its Exchange
        Partnership any ongoing fees, effective upon completion of the exchange.
        As a result of the foregoing, the Operating Partnership (and indirectly
        the Trust) own substantially all of the economic interest represented by
        the equity and debt interests owned by the Exchange Partnerships and
        control management of such partnerships.

        Certain of the Exchange Partnerships own direct or indirect equity
        interests in 16 Exchange Properties which consist of an aggregate of
        1,012 residential units (comprised of studio and one, two, three and
        four-bedroom units). Certain of the Exchange Partnerships own direct or
        indirect mortgage interests in 10 Exchange Properties, which consist of
        an aggregate of 813 existing residential units (studio and one and two
        bedroom) and 168 units (two and three bedroom) under development. Of the
        Exchange Properties, 21 properties are located in Florida, three
        properties in Ohio and one property each in Georgia and Indiana.

        Consolidated Balance Sheet as of June 30, 2000 Compared to December 31,
        1999

        Due to the completion of the Exchange Offering, the balance sheet for
        the Trust reflects large increases in assets, liabilities and partners'
        equity. During the six months ended June 30, 2000, total assets
        increased to $47.1 million while liabilities increased to $31.6 million.
        As described above, the Exchange Offering increased the number of
        properties in which the Operating Partnership indirectly owns an equity
        and/or mortgage interest by adding 26 Exchange Properties. The Operating
        Partnership now has rental apartment assets in excess of $39.6 million,
        which are subject to $25.2 million in first mortgage debt.

        Shareholders' equity increased to $15.0 million due to the issuance in
        the Exchange Offering of more than 2.4 million Units with an initial
        assigned value of $24.5 million, reduced by a one-time write off charge
        of $1.7 million (which represents unamortized loan costs recorded on the
        Exchange Partnerships' books that were in place at the time of the
        Exchange Offering from the syndication of the prior partnership
        structure) and a net loss for the six months ended June 30, 2000 of $9.7
        million.


                                       6
<PAGE>

        Operations for the Six Months Ended June 30, 2000 Compared to Six Months
        Ended June 30, 1999

        Revenues, real estate expenses and administrative expenses all increased
        substantially for the six months ended June 30, 2000 in comparison to
        the six months ended June 30, 1999 due to the completion of the Exchange
        Offering mentioned above and the addition of the 26 Exchange Properties
        and their related operating costs.

        The Trust recognized a one-time charge of $8.4 million to operations as
        a Provision for Property Impairment in the second quarter of 2000. This
        provision is the result of writing off the excess of the exchanged value
        of the Exchange Partnerships over the estimated equity value of the
        Exchange Properties. The equity value is calculated by reducing the
        appraised value of the Exchange Properties by any mortgages or interest
        payables due on the Exchange Properties.

      Liquidity and Capital Resources

        Net Cash Used by Operating Activities in the six months ended June 30,
        2000 was ($443,760) compared to ($592,081) in the six months ended June
        30, 1999. A number of items, including an increase in certain
        liabilities and a decrease in certain assets, contributed to the reduced
        use of cash by operating activities.

        Net cash provided by investing activities in the six months ended June
        30, 2000 was $206,783 compared to ($857,323) in the six months ended
        June 30, 1999. The increase in cash for 2000 was due primarily to an
        increase in cash distributions from the Exchange Partnerships and a
        decrease in investments in partnerships.

        Net cash provided by financing activities in the six months ended June
        30, 2000 was $330,575 compared to $1,510,415 for the six months ended
        June 30, 1999. The decrease in cash was due to a decrease in the sale of
        Trust shares in the Cash Offering, which expired in May 2000.

        The net cash proceeds from the issuance of Common Shares in connection
        with the Cash Offering have been contributed by the Trust to the
        Operating Partnership in exchange for an equivalent number of Units in
        the Operating Partnership. The Trust is the sole general partner of the
        Operating Partnership and, as of December 15, 2000, owned 546,786
        Operating Partnership Units, representing approximately 14.0% of the
        then outstanding Units.

        Because of the net loss of $3,166,927 incurred by the Trust in the
        period ended December 31, 1999, and the $1,123,000 in accounts payable
        owed to professionals in connection with the Exchange Offering as of
        December 31, 1999, and its limited liquid resources as of December 31,
        1999, the Trust's independent auditors qualified their auditors' report
        to reflect a going concern contingency.

        The completion in April 2000 of the Exchange Offering described above
        has completed the first effort, in the opinion of management, to provide
        the critical mass


                                       7
<PAGE>

        necessary for profitable operations. The Company is negotiating with the
        firms who are owed accounts payable in order to extend payment terms
        and, where possible, reduce the amounts due. Distributions will be made
        by the Trust as cash flow allows, but will be negatively impacted until
        the open accounts payable are reduced. Management does not anticipate
        that the Trust will make distributions to its shareholders for the next
        several quarters.

        The Trust and the Operating Partnership intend to use securities of the
        Trust and the Operating Partnership (including Common Shares and Units),
        proceeds from future sales of such securities, and available operating
        cash flow and financing from other sources to acquire interests in
        additional residential apartment properties or interests in other
        partnerships substantially all of whose assets consist of residential
        apartment property interests, and payment of applicable fees and
        expenses.

        The operating results of the Trust and the Operating Partnership will
        depend primarily upon income from the residential apartment properties
        in which they directly or indirectly own or acquire an equity or debt
        interest. Operating results in respect of equity interests will be
        substantially influenced by the demand for and supply of residential
        apartment units in their primary market and sub-markets, and operating
        expense levels. Operating results in respect of mortgage and other debt
        interests will depend upon interest income, including, in certain cases,
        participation interest, whose payment will depend upon the operating
        performance, sale or refinancing of the underlying properties. The
        operating results of the Trust and the Operating Partnership will also
        depend upon the pace and price at which they can acquire and improve
        additional property interests.

        The target metropolitan markets and sub-markets have benefited in recent
        periods from demographic trends (including population and job growth)
        which increase the demand for residential apartment units, while
        financing constraints (specifically, reduced availability of development
        capital) have limited new construction to levels significantly below
        construction activity in prior years. Consequently, rental rates for
        residential apartment units have increased at or above the inflation
        rate for the last two years and are expected to continue to experience
        such increases for the next 18 months based on market statistics made
        available to management of the Trust in terms of occupancy rates,
        supply, demographic factors, job growth rates and recent rental trends.
        Expense levels also influence operating results, and rental expenses
        (other than real estate taxes) for residential apartment properties have
        generally increased at approximately the rate of inflation for the past
        three years and are expected to increase at the rate of inflation for
        the next 18 months. Changes in interest rates are not expected to
        materially impact operations, because the majority of the real estate
        mortgages have fixed interest rates, as do all of the inter-company
        loans.

        The Trust believes that known trends, events or uncertainties which will
        or are reasonably likely to affect the short-term and long-term
        liquidity and current and future prospects of the Trust and the
        Operating Partnership include the performance of the economy and the
        building of new apartment communities. Although the Trust


                                       8
<PAGE>

        cannot reliably predict the effects of these trends, events and
        uncertainties on the property investments of the Trust and the Operating
        Partnership as a whole, some of the reasonably anticipated effects might
        include downward pressure on rental rates and occupancy levels.

        Generally, there are no seasonal aspects of the operations of the Trust
        or the Operating Partnership that might have a material effect on their
        financial conditions or results of operation. However, for the last 36
        months, one 60-unit student housing property owned by one of the
        Exchange Partnerships involved in the Exchange Offering has had an
        average occupancy rate of 88% for nine months of the year and 61% for
        the remaining three months of the year.

        Subject to the foregoing discussion, management believes that the Trust
        and the Operating Partnership have the ability to satisfy their cash
        requirements for the foreseeable future. However, management of the
        Trust believes that it will be necessary to raise additional capital
        during the next 12 months to make acquisitions and to meet management's
        revenue and cash flow goals. The Trust and the Operating Partnership
        intend to investigate making an additional public or private offering of
        Common Shares and/or Units during the next 12 months.

        As part of the Trust's ongoing operations, management is reviewing the
        entire portfolio of properties to determine the potential for
        restructuring or refinancing various first mortgage loans. Additionally,
        properties whose recent performance has materially negatively impacted
        the Trust's operating results are being evaluated for possible sale.
        Certain of these properties have been listed for sale. The Trust is also
        in discussions with other apartment owners, and is exploring business
        combinations that will bring it economies of scale and the size it needs
        for listing its Common Shares on a recognized securities exchange.
        Additional size would also give the Company the operating margin
        necessary to support its valuable management team that is believed
        necessary for its long-term growth.

        The Trust and the Operating Partnership expect no material change in the
        number of employees over the next 12 months.

        In an effort to increase profitability, the Trust has also entered into
        agreements with WaKuL, Inc. (formerly Rapid Transmit Technology, Inc.),
        a provider of integrated communications services to owners, property
        managers and residents of residential apartment properties, including
        discounted local and long distance phone service, digital cable TV, high
        speed Internet access, monitored security systems, utility sub-metering
        and various property management services. WaKuL will provide these
        services at no capital cost to the Trust, and has entered into revenue
        sharing relationships with the Trust. (WaKuL is an affiliate of the
        Trust by virtue of the overlapping management and ownership capacities
        in the Trust, the Operating Partnership and WaKuL of Gregory K. McGrath,
        a founder of the Trust, the Operating Partnership, and WaKul.) The WaKuL
        services are expected to provide the Trust's properties with a
        significant marketing advantage over its competitors, and


                                       9
<PAGE>

        to provide significant rental and other revenues that the properties
        otherwise would not have generated.

      Year 2000

        The computer systems of the Trust and the Operating Partnership have
        been tested for year 2000 problems and the Trust and the Operating
        Partnership believe that such systems are year 2000 compatible. The
        Trust and the Operating Partnership have not experienced any material
        year 2000 problems so far in 2000. It is possible, however, that the
        computer systems of the Trust and the Operating Partnership and certain
        computer systems or software products of their suppliers could
        experience year 2000 problems and that such problems could adversely
        affect them. With respect to their own computer systems, the Trust and
        the Operating Partnership have upgraded their principal operating
        computer software to the most recent available revision sold by their
        software supplier, which software the supplier has represented to be
        year 2000 compliant. The Trust and the Operating Partnership believe
        that such upgrade will solve any year 2000 problems that could affect
        their operating software. The failure to identify and solve all year
        2000 problems affecting their business could have an adverse effect on
        the business, financial condition and results of operations of the Trust
        and the Operating Partnership.


                                       10
<PAGE>


                           PART II - OTHER INFORMATION


Item 1. Legal Proceedings

        The Trust is a claimant in the Georgia Pacific class action lawsuit, and
        is not a party to any other legal proceeding.


Item 2. Changes in Securities and Use of Proceeds

        The Trust's Form SB-2 Registration Statement (the "Registration
        Statement") (Commission file number 333-35063) was declared effective by
        the Commission on May 15, 1998. On May 18, 1998, the Trust commenced its
        public offering (the "Cash Offering") of common shares of beneficial
        interest in the Trust ("Common Shares"), the class of securities
        registered. On June 2, 1999, the Trust filed Post-Effective Amendment
        No. 1 (the "Amendment") to the Registration Statement, which the
        Commission declared effective on June 11, 1999. The Cash Offering
        expired on May 31, 2000.

        The managing underwriter of the Cash Offering was Sigma Financial
        Corporation. The amount of Common Shares registered was 2,500,000
        shares. The offering price per Common Share was $10.00, and the
        aggregate price of the offering amount registered was $25,000,000. The
        Trust sold 702,076 Common Shares in the Cash Offering, for an aggregate
        offering price of $7,020,763.

        From the effective date of the Registration Statement through June 30,
        2000, the following expenses have been incurred for the Trust's account
        in connection with the issuance and distribution of the registered
        Common Shares:

<TABLE>
<S>                                                   <C>
        Underwriting discounts and commissions:          $ 565,557 (plus five-year warrants to
                                                         acquire 59,676 Common Shares at an
                                                         exercise price of $13.00 per share)

        Finder's Fees:                                   $0

        Expenses Paid to or for Underwriter:             $0

        Other Expenses (reimbursement for advisory
        and investment expenses):                        $521,008

                        Total Expenses:                  $1,086,565
</TABLE>

        Of such expense payments, $471,472 were made directly to Baron Advisors,
        Inc., the Managing Shareholder of the Trust. The remaining payments of
        $615,093 were made directly or indirectly to others. The net offering
        proceeds to the Trust after deducting the foregoing total expenses were
        $5,991,522.


                                       11
<PAGE>

        From the effective date of the Registration Statement through June 30,
        2000, the net offering proceeds to the Trust were used for the following
        purposes:

        Improvements to buildings and facilities:                 $0
        Purchase and installation of equipment:                   $0
        Repayment of indebtedness:                                $0
        Working capital:                                          $519,770
        Temporary investments:                                    $0
        Investment in Baron Capital Properties, L.P. (the
        Operating Partnership)                                    $5,467,858
        Other purposes for which 5% or more of net
        offering proceeds or $100,000 (whichever is less)
        have been used:                                           $0

        Of such net proceeds, $5,467,858 was directly contributed to the
        Operating Partnership in exchange for Units of limited partnership
        interest therein. The Operating Partnership conducts all of the real
        estate operations of the Trust and holds all of its real property
        assets. Thus, the operating results of the Trust are primarily dependent
        upon the operating results of the Operating Partnership.

Item 3. Defaults upon Senior Securities

        None

Item 4. Submission of Matters to a Vote of Security Holders

        None

Item 5. Other Information

        None

Item 6. Exhibits and Reports on Form 8-K

        (a)


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<PAGE>


     Exhibit
     Number          Description

           3.1       Certificate of Business Trust Registration of the
                     Registrant (incorporated herein by reference to
                     Exhibit 3.1 to the Form SB-2 Registration
                     Statement of Baron Capital Trust filed with the
                     Securities and Exchange Commission on September 5,
                     1997).

           3.2       Amended and Restated Declaration of Trust for the
                     Registrant made as of August 11, 1998
                     (incorporated herein by reference to Exhibit 10.2
                     to Amendment No. 1 to the Form S-4 Registration
                     Statement of Baron Capital Properties, L.P. filed
                     with the Securities and Exchange Commission on
                     September 22, 1998 (Registration No. 333-55753)).

           3.3       Form of by-laws of the Registrant (incorporated
                     herein by reference to Exhibit 3.3 to Amendment
                     No. 3 to the Form SB-2 Registration Statement of
                     Baron Capital Trust filed with the Securities and
                     Exchange Commission on May 15, 1998).
           27         Financial Data Schedule

        (b)     The Registrant did not file any Current Reports on Form 8-K
                during the quarter for which this Report is filed.


                                       13
<PAGE>

     In accordance with the requirements of the Exchange Act, the Registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.

December 20, 2000

                                        BARON CAPITAL TRUST

                                        By:       /s/  Gregory K. McGrath
                                                 -------------------------------
                                                 Gregory K. McGrath
                                                 Chief Executive Officer

                                        By:       /s/  Mark L. Wilson
                                                 -------------------------------
                                                 Mark L. Wilson
                                                 Chief Financial Officer


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