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 September 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  [X]    No [_]

As of the date of this Report, the Registrant has outstanding  824,522 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
                                    (Cont'd)


                          INDEX TO FINANCIAL STATEMENTS


                                                                            PAGE

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

   Balance Sheets                                                         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 Sheets
                    September 30, 2000 and December 31, 1999

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

  Land                                                                      $  7,695,392    $ 1,178,693
  Depreciable property                                                        31,873,043      6,189,095
                                                                            ------------    -----------
                                                                              39,568,435      7,367,788
  Less accumulated depreciation                                               (6,612,304)    (1,453,177)
                                                                            ------------    -----------
                                                                              32,956,131      5,914,611

Investment In Partnerships                                                     4,275,810        930,970

Cash and Cash Equivalents                                                        193,465         33,774
Restricted Cash                                                                  864,959         52,089
Accrued Interest Receivable, Affiliates                                        1,325,169         36,997
Other Receivables                                                                 79,103          3,724
Due from Managing Shareholder                                                          0         14,783
Advances to Affiliates                                                         6,730,936          5,141
Other Property and Equipment                                                     272,720        134,981
Other Assets                                                                     748,733        209,128
                                                                            ------------    -----------
      Total Assets                                                          $ 47,447,025    $ 7,336,198
                                                                            ============    ===========


Liabilities:

Mortgages payable                                                           $ 25,144,421    $ 4,278,117
Accounts payable and accrued liabilities                                       2,341,518      1,295,092
Note payable                                                                     115,000        100,000
Notes payable, affiliates                                                      3,813,313         50,000
Capital lease obligation                                                          40,775         42,369
Security deposits                                                                195,515         40,308
                                                                            ------------    -----------
      Total Liabilities                                                       31,650,542      5,805,886

Minority Partners                                                                536,900              0

Shareholders' Equity:
Common  Shares  of  beneficial  interest,   no  par  value,   25,000,000  shares
authorized; 824,552 and 675,086 shares issued and outstanding or assumed
to be issued as of September 30, 2000 and December 31, 1999, respectively     29,871,847      6,616,806
Distributions                                                                   (342,507)      (342,507)
Deficit                                                                      (14,269,757)    (4,743,987)
                                                                            ------------    -----------
     Total Shareholders' Equity                                               15,259,583      1,530,312
                                                                            ------------    -----------
                                                                            $ 47,447,025    $ 7,336,198
                                                                            ============    ===========
</TABLE>


                 See notes to consolidated financial statements.

                                       F-2
<PAGE>

                               Baron Capital Trust
                      Consolidated Statements of Operations
         For the Three and Nine Months Ended September 30, 2000 and 1999

<TABLE>
<CAPTION>
                                                            Nine                Nine               Three              Three
                                                           Months              Months             Months             Months
                                                           Ended               Ended               Ended              Ended
                                                       September 30,       September 30,      September 30,      September 30,
                                                            2000                1999               2000               1999
                                                            ----                ----               ----               ----
                                                        (unaudited)         (unaudited)         (unaudited)        (unaudited)
<S>                                                    <C>                    <C>               <C>                  <C>
Revenue:
  Rental                                               $3,155,896             $871,001          $1,411,137           $280,496
  Equity in net loss of unconsolidated partnership       (113,915)                   0             (34,921)            29,093
  Interest and other income                               634,476                1,037             266,342                  -
                                                       -----------------------------------------------------------------------
                                                        3,676,457              872,038           1,642,558            309,589

Real Estate Expenses:
  Depreciation                                            550,985              107,361             231,768             34,454
  Interest                                              1,045,039              230,534             489,524             86,043
  Repairs and maintenance                                 502,951               61,092             222,387             23,365
  Personnel                                               442,644               89,576             177,268             32,105
  Property Taxes                                          274,838               61,484             127,020             20,208
  Property Insurance                                       68,504               15,418              30,474              4,700
  Utilities                                               283,151               50,621             138,997             21,020
  Other                                                   308,226              143,948              98,475             12,378
                                                       -----------------------------------------------------------------------
                                                        3,476,338              760,034           1,515,913            234,273

Administrative Expenses:
  Personnel, including officers' compensation             691,864              642,633             156,403            143,215
  Professional services                                   288,556              593,208              34,517            162,653
  Other                                                   388,832               47,677             179,209              5,509
                                                       -----------------------------------------------------------------------
                                                        1,369,252            1,283,518             370,129            311,377

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

     Total expenses                                    13,202,227            2,043,552           1,886,041            545,650
                                                       -----------------------------------------------------------------------

Net Loss                                               $9,525,770)         ($1,171,514)          ($243,483)         ($236,061)
                                                       =======================================================================

Net Loss per Common Share Basic and Diluted               ($13.72)              ($1.97)             ($0.35)            ($0.36)
                                                       =======================================================================
Weighted Average Number of Common Shares Oustanding       694,258              594,677             702,076            655,725
</TABLE>


                                       F-3
<PAGE>

                               BARON CAPITAL TRUST
                 Consolidated Statement of Shareholders' Equity
                  For the Nine Months Ended September 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                          2,449,525     22,861,995         --               --         22,861,995

Net Loss                                                         --             --           --         (9,525,770)      (9,525,770)

Credit for estimated fair value of services
     performed by officer                                        --          162,928         --               --            162,928
                                                            -----------------------------------------------------------------------
Balance, September 30, 2000                                 3,151,601    $29,871,847    ($342,507)    ($14,269,757)    $ 15,259,583
                                                            =======================================================================
</TABLE>


                                       F-4
<PAGE>

                               BARON CAPITAL Trust
                      Consolidated Statements of Cash Flows
              For the Nine Months Ended September 30, 2000 and 1999

<TABLE>
<CAPTION>
                                                                    Nine months ended September 30,
                                                                         2000          1999
                                                                         ----          ----
                                                                     (Unaudited)    (Unaudited)
<S>                                                                  <C>            <C>
Cash Flows from Operating Activities:
   Net loss                                                          ($9,525,770)   ($1,171,514)
   Adjustments to reconcile net loss to net cash
           used by operating activities:
         Provision for officer's compensation                            162,928           --
         Depreciation and Amortization                                   550,985        132,662
         Equity in net loss of unconsolidated partnership                113,915           --
         Recognition of Provision for Impairment                       8,356,638           --
        (Increase) Decrease in operating assets:
            Other receivables                                             37,579         62,254
            Accrued Interest Receivable, Affiliate                        13,394         87,132
            Other assets                                                  (9,450)       (39,295)
         Increase (Decrease) in operating liabilities:
            Accounts payable and accrued liabilities                    (111,041)       259,489
            Lease Obligations                                               --          (20,325)
            Security deposits                                            (28,092)         3,560
                                                                     ---------------------------
               Net cash used by operating activities                    (438,914)      (686,037)

Cash Flows from Investing Activities:
   Investment in partnerships                                              1,203       (820,121)
   Cash distributions from partnerships                                  557,471           --
   Purchases of other property and equipment                             (17,697)         6,311
   Increase in Restricted Cash                                          (101,990)      (118,773)
   Advances to affiliates                                                (13,479)        10,750
                                                                     ---------------------------
               Net cash provided by (used in) investing activities       425,508       (921,833)

Cash Flows from Financing Activities:
   Partners' capital contributions                                       230,118      1,845,666
   Distributions paid                                                       --         (269,947)
   Proceeds from mortgage financing                                         --          236,273
   Proceeds from notes payable affiliates                                 34,534       (256,000)
   Proceeds from note payable                                             15,000           --
   Payments on mortgages payable                                        (101,575)          --
   Payments on capital lease obligation                                   (4,980)          --
   Other                                                                    --             --
                                                                     ---------------------------
               Net cash provided by financing activities                 173,097      1,555,992

Net Increase in Cash and Cash Equivalents                                159,691        (51,878)

Cash and Cash Equivalents, Beginning                                      33,774        177,299
                                                                     ---------------------------
Cash and Cash Equivalents, Ending                                    $   193,465    $   125,421
                                                                     ==========================

Supplemental Disclosure of Cash Flow Information:
    Cash paid for mortgage and other interest                        $ 1,045,039    $   230,534
                                                                     ==========================
</TABLE>



                                       F-5
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                    (Cont'd)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Basis of Presentation

        The  consolidated  balance sheet as of September 30, 2000,  consolidated
        statements  of operations  for the nine months ended  September 30, 2000
        and 1999 and  three  months  ended  September  30,  2000 and  1999,  the
        consolidated  statements  of  cash  flows  for  the  nine  months  ended
        September  30,  2000  and  1999,  and  the  consolidated   statement  of
        shareholders'  equity for the nine months ended  September 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 September  30, 2000 and for the period
        presented,  have been made.  The results of operations for the three and
        nine months ended September 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 Trust's  Declaration of Trust (the  "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 Trust 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.

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 nine months ended September 30, 2000 and the
        year ended December 31, 1999 the Trust incurred net losses of $9,525,770
        and $3,166,927  and negative cash flows from  operations of $438,914 and
        $1,022,587. The auditors' report for the year


                                       F-6
<PAGE>
                               BARON CAPITAL TRUST

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                    (Cont'd)


        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 the 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 subordinated 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  which 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 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.


                                       F-7
<PAGE>


                               BARON CAPITAL TRUST

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                    (Cont'd)

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 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.

        In  connection  with the  transaction,  the Trust  (along with its Chief
        Executive  Officer)  agreed to  co-guarantee  up to 35% (or a maximum of
        approximately   $6,000,000)   of  existing   long-term   first  mortgage
        construction   financing   provided  by  KeyBank  National   Association
        ("KeyBank").  As of February 12, 2001,  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  8.5%) 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.

                                       F-8
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                    (Cont'd)

        In September  2000,  the Trust  received  notice from counsel to KeyBank
        that  Burlington  Residential,  Ltd.  ("Borrower"),  the  owner  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
        indicated  that it was  exercising its right to accelerate the loan. Mr.
        McGrath has indicated  that KeyBank  agreed to forego further action for
        at least 60 days while the parties attempt 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 (and the Bank
        One loan  described  below).  The Trust  anticipates  completion  of the
        refinancing in the first quarter of 2001.

        Bank  One  has  provided  additional   institutional  financing  in  the
        principal amount of $1,576,000 to the Borrower. The loan is secured by a
        security  interest in  partnership  interests in the Borrower.  Due to a
        default in payment of interest due,  Bank One has been  assigned  rental
        payments and has taken over day-to-day management of the property.  This
        loan is expected  to be paid off with the  proposed  new first  mortgage
        financing referenced above.

        Officers' Compensation

        Gregory  K.   McGrath,   a  founder  of  the  Trust  and  the  Operating
        Partnership,  and the President,  sole  shareholder and sole director of
        Baron Advisors, Inc., a Delaware corporation that serves as a trustee of
        the Board of the Trust,  serves as Chief Executive Officer of the Trust.
        He  agreed  to serve as Chief  Executive  Officer  of the  Trust for its
        initial year of operations 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,  1999 and the first three  quarters of 2000, no
        Common  Shares or Units  were  issued to Mr.  McGrath  as  compensation.
        However, in order to reflect all appropriate  administrative expenses of
        the Operating Partnership,  a provision of $162,928 has been made in the
        accompanying  financial  statements  for the estimated fair value of the
        services  rendered by Mr. McGrath as the Chief Executive Officer for the
        first  three  quarters  of  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.

        Robert  S.  Geiger,  the  other  founder  of  the  Trust  and  Operating
        Partnership,  serves as the Chief  Operating  Officer of the Trust,  the
        Operating Partnership and Baron Advisors, Inc. His initial annual salary
        was set at  $100,000,  in  addition to  benefits,  and  eligibility  for
        participation  in any  Common  Share  option  plan and  bonus  incentive
        compensation  plan  implemented by the Trust.  Since August 1, 2000, Mr.
        Geiger has received no compensation.


                                      F-9
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                    (Cont'd)

        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 in
        the  offering  on  a  best  effort  basis,   by  the   Underwriter   and
        participating  broker-dealers selected by 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 $13.00 per warrant share. The Trust
        has reserved  59,676  Common  Shares under the  Underwriting  Agreement,
        which is  equivalent  to 8.5% of the 702,076  Common  Shares sold in the
        Cash Offering.

NOTE 5. RELATED PARTY TRANSACTIONS

        Trust Management Agreement

        Under a Trust Management  Agreement  entered into with the Trust,  Baron
        Advisors,   Inc.  (the  "Managing   Shareholder")   previously  provided
        management,  administrative  and  investment  advisory  services  to the
        Trust. The services included, 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 was 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, and was renewed for one additional  one-year period. The agreement
        was  terminated  as of December 31, 2000 by the mutual  agreement of the
        Trust and the Managing Shareholder.

        Under the  Trust  Management  Agreement,  the  Trust  was  obligated  to
        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
        Cash Offering,  and 1% of the initial assigned value of each Unit in the
        Operating Partnership issued in connection with the Exchange Offering.

        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
        September 30, 2000, the Trust was due $1,325,169 on these notes.


                                      F-10
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                    (Cont'd)


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 $10.00 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 a founder and the Chief Executive Officer of the Trust,
        a founder and principal unitholder of the Operating Partnership, and the
        President, sole shareholder and sole director of Baron Advisors, Inc., a
        Delaware corporation that serves as a trustee of the Board 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  Partnerships  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


                                      F-11
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                    (Cont'd)


        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  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 unit  holders  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 unit holder 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,  Mr.  McGrath  and Mr.  Geiger  (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
        (2,500,000)  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,  was made to accurately  reflect the number of Units held by
        the Original Investors.

                                      F-12
<PAGE>


                               BARON CAPITAL TRUST

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                    (Cont'd)


        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 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  share  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 nine months ended September 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


                                      F-13
<PAGE>
                               BARON CAPITAL TRUST

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                    (Cont'd)


        Share  equivalents in the weighted  average shares  outstanding  has not
        been  presented,  as it is  anti-dilutive  for both the  three  and nine
        months ended September 30, 2000 and 1999.

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

<TABLE>
<CAPTION>
                                                                       Weighted           Loss
                                                                        Average           Per
                                                    Net Loss            Shares            Share
                                                    --------            ------            -----
<S>                                                <C>                  <C>              <C>
        Three Months Ended September 30, 2000      ($243,483)           702,076          ($0.35)
        Three Months Ended September 30, 1999      ($236,061)           655,725          ($0.36)
        Nine Months Ended September 30, 2000     ($9,525,770)           694,258         ($13.72)
        Nine Months Ended September 30, 1999     ($1,171,514)           594,677          ($1.97)
</TABLE>

NOTE 8. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

        The unaudited pro forma condensed consolidated  statements of operations
        for the nine months ended September 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 Nine Months ended September 30, 2000

                                   Statement of
                                 Operations as of      Pro Forma
                                September 30, 2000    Adjustments     Pro Forma

       Total Revenues              $ 3,676,000      $ 1,486,000(1)   $5,162,000
       Cost and Expenses           $ 4,846,000      $ 1,350,000(2)   $6,196,000
       Provision for Property
       Impairment                  $ 8,357,000      ($8,357,000)(3)
                                   -----------      ---------------  ----------
       Net Income (loss)           ($9,526,000)                     ($1,034,000)
       Weighted Average
       Number of Common Shares         694,258                          694,258

       Net Loss Per Share          ($    13.72)                      ($    1.49)

        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  for
        under the purchase  method of  accounting.  The Trust has  estimated the


                                      F-14
<PAGE>


                               BARON CAPITAL TRUST

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                    (Cont'd)


        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 September 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 16  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                             6,843,286
          Other Assets                                         736,604
                                                           -----------
          Total Assets                                     $41,392,724

          Mortgages Payable                                $19,725,536
          Notes Payable - Affiliate                          3,639,638
                                                           -----------
          Total Liabilities                                $23,365,174
                                                           ===========
          Equity                                           $18,027,550
                                                           ===========

                                      F-15
<PAGE>


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

        The  following  discussion  should  be  read  in  conjunction  with  the
        Condensed  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.  The  Trust  has  elected  to be  taxed  as a  real  estate
        investment trust for federal income tax purposes.

        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


                                       3
<PAGE>

        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.

        The Trust  contributed the net cash proceeds from the issuance of Common
        Shares in the Cash Offering ($5,467,858) to the Operating Partnership in
        exchange for an equivalent number of Units in the Operating Partnership.
        As of February 12, 2001, the Trust owned 702,076  Operating  Partnership
        Units,  representing  approximately 18.0% 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.

        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;  Riverwalk  Apartments (50 two bedroom
        units  located  in  New  Smyrna,  Florida)  in  September  1998;  and 13
        properties  acquired  as part of the  Exchange  Offering  in April  2000
        (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,  a founder  and  principal
        unitholder  of  the  Operating  Partnership,  and  the  President,  sole
        shareholder  and sole  director  of Baron  Advisors,  Inc.,  a  Delaware
        corporation  that  serves  as a  trustee  of the  Board  of the  Trust),
        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 Operating  Partnership acquired a total of 40%
        of the limited  partnership  interests in Alexandria  Development,  L.P.
        (the  "Alexandria  Partnership"),  which owns Alexandria  Apartments,  a
        168-unit  residential  apartment  property (the  "Alexandria  Property")
        under construction in Alexandria, Kentucky. As of February 12, 2001, 112
        of the 168 residential units  (approximately 67%) had been completed and
        were in the rent-up stage. Of the completed  units,  109 units have been
        rented.  In September 2000, the Alexandria  Partnership  entered into an
        agreement to sell the Alexandria Property in exchange for $510,000 cash,
        record title to 20 acres of undeveloped  property located in Vero Beach,
        Florida and the assumption by the contemplated purchaser of the existing
        first  mortgage  loan  secured  by a first  mortgage  on the  Alexandria
        Property   with  a  principal   balance  as  of  February  12,  2001  of
        approximately  $8,650,000.  If the sale,  which is  subject  to  certain
        closing conditions, is completed, the Operating Partnership will receive
        40%  of  the  net  proceeds  and  other  consideration  payable  to  the
        Alexandria Partnership.

        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  apartment properties
        has been sold to a third party with the Trust's consent. The


                                       4
<PAGE>

        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 a maximum of
        approximately  $6,000,000)  of  long-term  first  mortgage  construction
        financing provided by KeyBank National  Association  ("KeyBank").  As of
        February 12, 2001, approximately $5,300,000 of the construction 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  8.5%) 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  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
        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 (and the Bank
        One loan described below). It anticipates  completion of the refinancing
        in the first quarter of 2001.

        Bank  One  has  provided  additional   institutional  financing  in  the
        principal amount of $1,576,000 to the Borrower. The loan is secured by a
        security  interest in  partnership  interests in the Borrower.  Due to a
        default in payment of interest due,  Bank One has been  assigned  rental
        payments and has taken over day-to-day management of the property.  This
        loan is expected  to be paid off with the  proposed  new first  mortgage
        financing  referenced above.  There can be no assurance that refinancing
        will be available or will be available on commercially reasonable terms,
        that KeyBank will


                                       5
<PAGE>


        not  seek to  enforce  its  right  to  accelerate  the  loan  and  begin
        foreclosure  proceedings  against the Burgundy Hills  Property,  or that
        BankOne  will not seek to enforce its right to take over  control of the
        Borrower.

        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.

        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 of
        the Exchange Partnerships  ("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.


                                       6
<PAGE>


        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 September 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
        shareholders'  equity.  During the nine months ended September 30, 2000,
        total assets increased to $47.4 million while  liabilities  increased to
        $31.7 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 $39.5
        million, which are subject to $25.1 million in first mortgage debt.

        Shareholders'  equity  increased to $15.3 million due to the issuance in
        the Exchange  Offering of 2,449,525 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 nine months ended September 30, 2000 of $9.5 million.

        Operations for the Nine Months Ended September 30, 2000 Compared to Nine
        Months Ended September 30, 1999

        Revenues, real estate expenses and administrative expenses all increased
        substantially for the nine months ended September 30, 2000 in comparison
        to the nine months ended September 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 nine months ended September
        30, 2000 was ($438,914)  compared to ($686,037) in the nine months ended
        September 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 nine  months  ended
        September  30,  2000 was  $425,508  compared to  ($921,833)  in the nine
        months ended September 30, 1999.


                                       7
<PAGE>


        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 nine  months  ended
        September  30, 2000 was  $173,097  compared to  $1,555,992  for the nine
        months  ended  September  30,  1999.  The  decrease in cash was due to a
        decrease in the sale of Trust Common Shares in the Cash Offering,  which
        expired in May 2000.

        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  necessary for profitable  operations.  The Company is
        negotiating  with the firms which 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


                                       8
<PAGE>

        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  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.

                                       9
<PAGE>

        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 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. 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


        Not Applicable.

Item 3. Defaults upon Senior Securities

        In connection  with a transaction  described  above at "Part I - Item 2.
        Management's  Discussion and Analysis or Plan of Operations - Results of
        Operations,"  the Trust (along with its Chief Executive  Officer) agreed
        to co-guarantee up to 35% (or a maximum of approximately  $6,000,000) of
        long-term  first  mortgage  construction  financing  provided by KeyBank
        National  Association  ("KeyBank")  to  Burlington   Residential,   Ltd.
        ("Borrower"),  the  owner  of  a  residential  apartment  property  (the
        "Burgundy Hills Property") under development in Boone County,  Kentucky.
        The  Borrower is  controlled  by Gregory K.  McGrath,  a founder and the
        Chief  Executive  Officer  of  the  Trust.  The  interest  rate  on  the
        construction  loan is KeyBank's prime rate (currently 8.5%) 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 the Borrower  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 indicated that
        since the default had not been cured  within  applicable  grace  periods
        under the loan agreement,  it was exercising its right to accelerate the
        loan and demanded  payment of the outstanding  principal  balance of the
        loan, together with all interest due thereon and amounts owed to KeyBank
        for charges,  fees and expenses,  in the aggregate amount of $5,633,135,
        and that it was relieved of any commitment to loan any additional  funds
        to the  Borrower  for the existing  phase and  additional  phases of the
        construction project.

        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 (and the Bank


                                       11
<PAGE>


        One loan described below). It anticipates  completion of the refinancing
        in the first  quarter of 2001.  As of February 12,  2001,  approximately
        $5,300,000 of the  construction  loan had been drawn down,  resulting in
        outstanding guarantees of approximately $1,900,000.

        Bank  One  has  provided  additional   institutional  financing  in  the
        principal amount of $1,576,000 to the Borrower. The loan is secured by a
        security  interest in  partnership  interests in the Borrower.  Due to a
        default in payment of interest due,  Bank One has been  assigned  rental
        payments and has taken over day-to-day management of the property.  This
        loan is expected  to be paid off with the  proposed  new first  mortgage
        financing  referenced above.  There can be no assurance that refinancing
        will be available or will be available on commercially reasonable terms,
        that KeyBank will not seek to enforce its right to  accelerate  the loan
        and begin foreclosure  proceedings  against the Burgundy Hills Property,
        or that  BankOne will not seek to enforce its right to take over control
        of the Borrower.

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

        On July 25, 2000, the Trust held its annual meeting of shareholders.  At
        the meeting,  shareholders voted to elect all three nominees to serve as
        Trustees on the Board of the Trust,  to ratify the  selection of Rachlin
        Cohen & Holtz, Miami,  Florida, as the independent auditors of the Trust
        and the Operating Partnership,  and to increase the authorized number of
        Trustees of the Board from three to five.  Set forth below is the number
        of votes  cast  for,  against  or  withheld,  as well as the  number  of
        abstentions and broker non-votes, as to each such matter.


<TABLE>
<CAPTION>
                                           No. Votes                                                         Broker
        Matter Presented                       For            Against         Withheld       Abstained       Non-Votes
                                               ---            -------         --------       ---------       ---------
<S>                                         <C>                 <C>              <C>           <C>               <C>
        Election of Trustees
           James H. Bownas                  240,301             500              -             5,060             -
           Peter M. Dickson                 240,301             500              -             5,060             -
           Baron Advisors, Inc.             240,301             500              -             5,060             -
        Ratify Auditors                     240,301             500              -             5,060             -
        Increase No. of Trustees            245,861               -              -                 -             -
</TABLE>

Item 5. Other Information

        None


                                       12
<PAGE>


Item 6. Exhibits and Reports on Form 8-K

        (a)


        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) On September 28, 2000,  the  Registrant  filed a Current Report on Form
     8-K to report the item described above in "Part II - Item 3 - Defaults Upon
     Senior Securities."


     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.


February 27, 2001

                                       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