<PAGE>   1
                    U. S. 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 March 31, 1999

[ ]      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 [ ]


<PAGE>   2
                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                              BARON CAPITAL TRUST
                           CONSOLIDATED BALANCE SHEET
                      DECEMBER 31, 1998 AND MARCH 31, 1999


<TABLE>
<CAPTION>
                                                                              DECEMBER 31, 1998            MARCH 31, 1999

                                ASSETS
                                ------
<S>                                                                          <C>                          <C>
Rental Apartments:
     Land                                                                     $    1,178,693                $    1,178,693
     Depreciable Property                                                          6,189,095                     6,189,095
                                                                              --------------                --------------
                                                                                   7,367,788                     7,367,788
     Less: Accumulated Depreciation                                               (1,246,627)                   (1,287,894)
                                                                              --------------                --------------
                                                                                   6,121,161                     6,079,894

Investments in Partnerships                                                          730,330                     1,409,497

Cash and Cash Equivalents                                                            177,299                        10,261
Restricted Cash                                                                       66,199                        68,540
Property Management Reimbursements Rec., Affiliates                                  155,071                       155,071
Other Receivables                                                                     80,112                        99,754
Advances to Affiliates                                                                10,750                        10,750
Other Property and Equipment                                                         168,982                       199,403
Other Assets                                                                         221,611                       208,178
                                                                              --------------                --------------
                                                                                     880,024                       751,957

          Total Assets                                                        $    7,731,515                $    8,241,348
                                                                              --------------                --------------

                LIABILITIES AND SHAREHOLDERS EQUITY

Liabilities:
     Mortgages Payable                                                        $    4,039,718                $    4,029,810
     Notes Payables                                                                  375,000                       375,000
     Accounts Payable and accrued liabilities
       including $105,573 due to Managing Shareholder                                388,385                       237,922
     Capital Lease Obligation                                                        55,984                        55,984
     Security Deposit                                                                 38,336                        40,865
                                                                              --------------                --------------
          Total Liabilities                                                        4,897,423                     4,739,581

Shareholder's Equity:
     Common Shares of beneficial interest, no par value;                      $    4,257,101                $    5,389,503
       2,500,000 shares authorized; 583,850 shares issued and outstanding
     Operating Partnership limited partnership units;                                100,000                       100,000
       1,202,160 units issued and outstanding; which are subject
       to escrow restrictions (122,561 convertible into common shares)
     Distributions                                                                   (72,159)                     (146,341)
     Retained Earnings                                                            (1,450,850)                   (1,450,850)
     Current Year Deficit                                                                  -                      (390,545)
                                                                              --------------                --------------
          Total Shareholders Equity                                                2,834,092                     3,501,767

     Total Liabilities and Shareholders Equity                                $    7,731,515                $    8,241,348
                                                                              --------------                --------------
</TABLE>

                See notes to consolidated financial statements

                                       2


<PAGE>   3

                              BARON CAPITAL TRUST
                     CONSOLIDATED STATEMENT OF OPERATIONS
              FOR THE THREE MONTHS ENDED MARCH 31, 19998 AND 1999

<TABLE>
<CAPTION>
                                               MARCH 31, 1998            MARCH 31, 1999
<S>                                         <C>                            <C>
REVENUES:
Property                                                                      $257,350
Rental                                                                           4,844
Other                                                                              383
                                                        ---                        ---
Total Revenues                                            0                    262,577

REAL ESTATE EXPENSES:
Depreciation                                                                    36,453
Interest                                                                        73,186
Repairs and Maintenance                                                         17,476
Personnel                                                                       29,040
Property Taxes                                                                  20,596
Property Insurance                                                               7,206
Utilities                                                                       11,551
Other                                                                            9,214
                                                        ---                      -----
                                                          0                    204,722

ADMINISTRATIVE EXPENSES:
Personnel                                            23,600                    272,661
Management, investment and administrative fees,                                 92,873
Managing Shareholder
Professional Services                                 9,785                     59,710
Other                                                 13,768                    29,323
                                                      ------                    ------
                                                      47,153                   454,567

Total Expenses                                        47,153                   659,289

Income/(Loss) from Investment                                                    6,167

Net Loss                                           ($47,153)                ($390,545)
                                                    =======                  ========
Net Loss per Common Share                          ($471.53)                   ($0.61)
                                                    =======                     =====
</TABLE>

                See notes to consolidated financial statements

                                       3
<PAGE>   4




                              BARON CAPITAL TRUST
                      CONSOLIDATED STATEMENT OF CASH FLOWS
              FOR THE THREE MONTHS ENDED MARCH 31, 19998 AND 1999

<TABLE>
<CAPTION>
                                                           MARCH 31, 1998            MARCH 31, 1999
<S>                                                          <C>                      <C>
Cash Flows from Operating Activities
        Net Loss                                                 ($47,153)               ($390,545)

Adjustments to Reconcile Net Loss to Net Cash
        Depreciation                                                  -                     41,267
        Other Receivables                                          (2,062)                 (19,642)
        Other Assets                                                  -                     13,433
        Accounts Payable and Accrued Expenses                                             (150,463)
        Security Deposits                                             -                      2,529
                                                               --------               ------------
                                                                   (2,062)                (112,876)


Cash Flows from Investing Activities:
        Investment in Partnerships                                    -                   (679,167)
        Purchases of Other Property and Equipment                     -                    (30,421)
                                                               --------               ------------
                                                                      -                   (709,588)


Cash Flows from Financing Activities:
        Proceeds from Sale of Common Stock                            100                1,132,402
        Dividends                                                                          (74,182)
        Proceeds from Sale of Operating Partnership Units          50,000
        Payments on Mortgages                                         -                     (9,908)
                                                               ----------             ------------
                                                                   50,100                1,048,312

Net Increase (Decrease) in Cash and Equivalents                      $885                ($164,697)

Cash and Equivalents, Beginning                                         0                  243,498

Cash and Equivalents, Ending                                         $885                  $78,801
</TABLE>

                See notes to consolidated financial statements

                                       4

<PAGE>   5
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                 MARCH 31, 1999

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    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, constitute an integrated real estate company which has
         been organized to acquire equity interests in residential apartment
         properties located in the United States and to provide or acquire debt
         mortgage loans secured by such types of property.

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

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

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

         BASIS OF PRESENTATION

         The accompanying consolidated financial statements include the accounts
         of the Trust and the Operating Partnership and all of the Trust's
         interest in the partnerships that own Heatherwood Kissimmee, Ltd.,
         Riverwalk Enterprises, Ltd., and Crystal Court Apartments II, Ltd.

         All significant inter-company transactions and balances have been
         eliminated in consolidation.

         The accompanying condensed consolidated financial statements at March
         31, 1999 have been prepared in accordance with generally accepted
         accounting principles for interim financial information and with the
         instructions to Form 10-QSB promulgated by the Securities and Exchange
         Commission. These condensed consolidated financial statements include
         all adjustments which, in the opinion of management, are necessary in
         order to make the financial 


               5

<PAGE>   6

statements not misleading and for a fair presentation of financial position as
of March 31, 1999 and results of operations for the three months ended March 31,
1999 and 1998 and cash flows for the three months ended March 31, 1999 and 1998.
All such adjustments are of a normal recurring nature. The results of operations
for interim periods are not necessarily indicative of the results to be expected
for a full year.

CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject the Trust to concentrations of
credit risk are comprised of cash and receivables.

     Cash

At various times during the year the Trust had deposits in financial
institutions in excess of the federally insured limits. The Trust maintains its
cash with high quality financial institutions, which the Trust believes limits
these risks.

     Property Management Reimbursements and Other Receivables

Receivables are comprised mainly of property management reimbursements due to
the Operating Partnership from various properties it manages and monthly rents
due. The Operating Partnership monitors exposure to credit losses and does not
maintain an allowance for these receivables, as it believes that these
receivables are fully collectible.

REAL ESTATE RENTAL PROPERTIES AND DEPRECIATION

Real estate rental properties are stated at cost less accumulated depreciation.
Ordinary repairs and maintenance are expensed as incurred; replacements having
an estimated useful life of at least one year and improvements are capitalized
and depreciated over their estimated useful lives.

Depreciation is computed on a straight-line basis over useful lives of the
properties as follows:

<TABLE>
<CAPTION>
                                                             Estimated Useful
                                                              Lives (Years)
                                                              ------------
<S>                                                                <C>
       Building                                                     30
       Leasehold improvements                                       10
       Furniture and fixtures                                       7
       Computer equipment and software                             3-5
</TABLE>

Losses in carrying values of investment assets are provided by management when
the losses become apparent and the investment asset is considered impaired in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Management evaluates its investment properties annually to assess whether
any impairment indications are present. If any investment 


          6

<PAGE>   7

asset is considered impaired, a loss is provided to reduce the carrying value of
the property to its estimated fair value. No such losses have been required or
provided in the accompanying consolidated financial statements.

REVENUE RECOGNITION

Apartment units are leased under operating leases with terms of generally one
year or less. Rental income is recognized when due from tenants.

CASH AND CASH EQUIVALENTS

For purposes of the statement of cash flows, the Trust considers all investments
purchased with an original maturity of three months or less to be cash
equivalents.

INVESTMENTS IN PARTNERSHIPS

The Trust's investments in unconsolidated partnerships are accounted for on the
cost method inasmuch as the respective ownership interests represent less than
20% of the general partnership interest therein. The Trust periodically assesses
the realizable value of these investments in order to ascertain that there has
been no impairment in their recorded value.

CAPITAL RESERVE

In connection with the acquisition of the investment properties, as required by
the lending institutions, the Trust has established a capital reserve account,
which is to be used for significant improvements to the property.

LOAN COSTS

The Trust has capitalized those costs incurred with obtaining financing on the
investment properties. Such costs (included with other assets) are being
amortized over the estimated term of the financing of ten years.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.


          7
<PAGE>   8

INCOME TAXES

The Trust has not provided for federal income taxes because the Trust believes
it qualifies as a real estate investment trust (REIT) under Section 856 to 860
of the Internal Revenue Code. A REIT will generally not be subject to federal
income taxation on that portion of its income that qualifies a REIT taxable
income to the extent that it distributes substantially all of its taxable income
to its stockholders and complies with certain other requirements. The Trust made
an REIT election for the year ended December 31, 1998.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The respective carrying value of certain on-balance-sheet financial instruments
approximated their fair value. These instruments include cash, receivables,
accounts payable and accrued liabilities. Fair values were assumed to
approximate carrying values for these financial instruments since they are
short-term in nature and their carrying amounts approximate fair values or they
are receivable or payable on demand.

The fair value of debt instruments has been estimated by using discounted cash
flow models incorporating discount rates based on current market interest rates
for similar types of instruments. At December 31, 1998, the differences between
estimated fair value and the carrying value of debt instruments were not
material.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 130 establishes standards for
reporting and displaying comprehensive income, its components, and accumulated
balances. SFAS No. 131 establishes standards for the way that public companies
report information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. Both SFAS No. 130 and SFAS No. 131
are effective for periods beginning after December 15, 1997. The Trust adopted
these new accounting standards in 1998, and their adoption had no effect on the
Trust's financial statements and disclosures.

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires companies to recognize all derivatives contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of the gain or loss recognition of the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. 



          8
<PAGE>   9

         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, 2000
         to affect its financial statements.

NOTE 2.  MATERIAL SUBSEQUENT EVENTS  AND CONTINGENCIES

<TABLE>
<S>                                                                      <C>       
          Alexandria Property, net of distributions                      $1,062,050
          Other Limited Partnership Interests                            341,280
                                                                         -------
                                                                         $1,403,330
</TABLE>

         ALEXANDRIA APARTMENTS

         On October 14, 1998, the Operating Partnership acquired an approximate
         12.3% limited partnership interest in Alexandria Development, L.P. (the
         "Alexandria Property"), a Delaware limited partnership which is the
         owner and developer of a 168-unit residential apartment property under
         construction in Alexandria, Kentucky. The Operating Partnership paid
         $400,000 for eight (8) units of limited partnership interest out of a
         total of sixty-five (65) units and retains an option to acquire the
         remaining fifty-seven (57) units of limited partnership interests for
         $50,000 per unit or approximately $2,850,000. The option is exercisable
         as additional apartments are completed and rented and expires on
         October 15, 1999. An affiliate of the Trust, affiliated through common
         ownership, sold the partnership interest in the Alexandria Property to
         the Operating Partnership and also serves as the managing general
         partner of the Alexandria Property. During the construction stage of
         the apartment property, the Operating Partnership's limited partnership
         interest in the Alexandria Property is entitled to an annual 12%
         preferential return, which is senior to the other limited partnership
         interests and the general partner's nominal 1% interest.

         As of March 31, 1999 the Operating Partnership owned twenty-one and
         seven tenths (21.7) units of limited partnership interest for which it
         paid $1,085,000. Subsequent to March 31, 1999, the Operating
         Partnership exercised its option to purchase an additional two and one
         half (2.5) units of limited partnership interest for $125,000. In
         addition, $12,000 was distributed to the Operating Partnership during
         the three (3) months ended March 31, 1999 and $10,000 was distributed
         to the Operating Partnership subsequent to March 31, 1999.

         CONTRACT TO PURCHASE ADDITIONAL PROPERTIES

         In September 1998, the Trust entered in an agreement with three real
         estate development companies to acquire two luxury residential
         apartment properties in the development stage upon the completion of
         construction. The development companies (Brentwood at Southgate, Ltd.,
         Burlington Residential, Ltd. and The Shoppes at Burlington, Ltd.) are
         controlled by one of the Trust's founders and chief executive officer.
         The properties are scheduled to have a total of 652 units, comprised of
         one, two and three bedroom/one or two bathroom apartments. Construction
         of one of the properties, located in Louisville, Kentucky, is expected
         to be 

               9

<PAGE>   10

         completed prior to the end of 2000, and construction of the other
         property, located in Burlington, Kentucky (part of the Cincinnati
         metropolitan area), is expected to be completed by the end of 2001. The
         aggregate purchase price for the two properties is in the range of
         approximately $41,000,000 to $43,000,000. The closing of each
         acquisition, which is expected to occur shortly following the
         completion of construction, is conditioned on, among other things, the
         completion of the respective apartment property, the availability of
         first mortgage financing and the Trust's raising the balance of the
         funds necessary for the acquisition in its ongoing Cash Offering or
         otherwise have funds available to make the acquisition.

         In connection with the transaction and in exchange for certain benefits
         described below, the Trust agreed to co-guarantee (along with the chief
         executive officer), up to 35% (or approximately $12,500,000) of the
         development portion of long-term construction loans with an aggregate
         principal amount of up to $36,000,000 to be provided by a bank to the
         development companies. As of March 31, 1999, approximately $4,850,000
         of such loans had been drawn down, resulting in outstanding guarantees
         of approximately $1,700,000. Subject to the fulfillment of certain
         closing and funding conditions, the construction loans will be made to
         the development companies in connection with the development and
         construction of the two apartment properties and of an 111,000 square
         foot shopping center being developed in Burlington, Kentucky. The
         interest rates on the construction loans range from 7.36% to 7.52%. The
         Trust also agreed that, if the loans are not repaid prior to the
         expiration of the guarantee, it will either buy out the bank's position
         on the entire amount of the construction loans or arrange for a third
         party to do so. The construction loans are expected to be replaced by a
         long-term credit facility.

         The Trust expects to receive significant benefits from the transaction
         in addition to the acquisition of two large luxury apartment properties
         located in attractive communities. In exchange for the guarantee of the
         development portion of the construction loans, the Trust will receive a
         discount of approximately $212,500 (representing a one-half of one
         percent reduction) on the purchase price of the properties. The Trust
         and the development companies are negotiating a further price reduction
         which would apply if the development portion of the loans is not repaid
         prior to the expiration of the guarantee period and the Trust is
         required to buy out or arrange for the buyout of the lender's position
         on the loans.

NOTE 3.  SHAREHOLDERS' EQUITY

         CASH OFFERING

         On May 15, 1998, pursuant to a registration statement on Form SB-2, the
         Trust commenced an initial public offering of a maximum of 2,500,000
         common shares of beneficial interest in the Trust at $10 per common
         share, which is payable in full upon subscription, for proposed total
         gross proceeds of $25,000,000 (the Cash Offering). All of the common
         shares to be issued or sold by the Trust in the offering will be
         tradable without restriction under the Securities Act, but will be
         subject to certain restrictions designed to permit the Trust to qualify
         and maintain its 


               10

<PAGE>   11


status as a Real Estate Investment Trust under the Internal Revenue Code. The
Cash Offering will terminate no later than November 30, 1999.

EXCHANGE OFFERING

The Operating Partnership has filed a registration statement on Form S-4 with
the Securities and Exchange Commission covering up to 2,500,000 units of limited
partnership interest ("Units") to be registered under the Securities Act of
1933, as amended (the "Act") ("Exchange Offering").

It is proposed that these units would be exchanged for units of limited
partnership interest in 23 limited partnerships (the "Exchange Partnerships"),
which directly or indirectly own equity and/or mortgage interests in one or more
residential apartment properties. The Exchange Partnerships are managed by
corporate general partners which are affiliated with one of the founders of the
Operating Partnership, who is the sole stockholder and director of the Managing
Shareholder of the Trust. This registration statement has not yet become
effective.

The number of Units being offered in exchange for the limited partnership
interests in the Exchange Partnerships will be based on appraisals of the
respective real property prepared by qualified and licensed independent
appraisal firms for each underlying residential apartment property. For purposes
of the Exchange Offering, each Unit has been arbitrarily assigned an initial
value of $10, which corresponds to the offering price of each Trust Common Share
currently being offered to the public pursuant to the Cash Offering. The value
of each Unit and Common Share outstanding will be substantially identical since
Unit holders, including recipients of Units in the Exchange Offering, will be
entitled to exchange all or a portion of their Units at any time and from time
to time for an equivalent number of Trust Common Shares, 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 shares in
the Trust, subject to the Trust's right to cash out any holder of Units who
requests an exchange and subject to certain other exceptions. To facilitate such
exchanges of Units into Common Shares, 2,500,000 Common Shares (in addition to
the 2,500,000 Common Shares being offered by the Trust in the Cash Offering)
have been registered with the Commission.

As its initial investment targets in the Exchange Offering, the Operating
Partnership is offering to acquire equity and/or subordinated mortgage interests
in 26 properties (the "Exchange Properties") directly or indirectly owned by the
23 Exchange Partnerships. The Operating Partnership will acquire interests in a
particular property and/or mortgages by acquiring from limited partners their
units of limited partnership interest in the respective Exchange Partnership.
Each of the Exchange Partnerships directly or indirectly owns equity and/or
mortgage interests in one or more properties. Certain of the Exchange
Partnerships directly or indirectly own equity interests in 16 properties which
consist of an aggregate of 1,012 residential units (comprised of studio, one,
two, three and four bedroom units). Certain of the Exchange Partnerships
directly or indirectly own mortgage interests in 10 properties, which consist of
an aggregate of 813 existing residential units (studio and one and two bedroom
units) and 168 units (two and three bedroom units) under development. Of the
Exchange 

          11

<PAGE>   12

Properties, 21 properties are located in Florida , three properties in Ohio and
one property each in Georgia and Indiana.

OPERATING PARTNERSHIP LIMITED PARTNERSHIP UNITS

In connection with the formation of the Trust and the Operating Partnership,
each of the Original Investors subscribed for 601,080 limited partnership units
of the Operating Partnership (a total of 1,202,160 units). In consideration for
the units subscribed for by them, each of the Original Investors made a $50,000
capital contribution to the Operating Partnership. If the Cash Offering and the
Exchange Offering are fully subscribed, those Units would represent 19% of the
total Common Shares outstanding after completion of the Cash Offering and
exchange by the Operating Partnership of 2,500,000 of its Units for units of
limited partnership interest in real estate limited partnerships (including any
exchange pursuant to the Exchange Offering), calculated on a fully diluted basis
assuming all then outstanding Units (other than those acquired by the Trust)
have been exchanged into an equivalent number of Common Shares. If, however, as
of November 30, 1999, the Cash Offering and/or the Exchange Offering has been
completed and the number of Units subscribed for by each Original Investment
represents a percentage greater than 19% of the then outstanding Common Shares,
calculated on a fully diluted basis assuming that all then outstanding Units
(other than those acquired by the Trust) have been exchanged into an equivalent
number of Common Shares, each Original Investor has agreed to return any excess
Units to the Operating Partnership for cancellation. The Original Investors have
deposited Units subscribed for by them into a security escrow account for six to
nine years, subject to earlier release under certain conditions.

Based upon the total Common Shares outstanding as of March 31, 1999, the
Original Investors would be entitled to exchange their limited partnership units
for a net amount of 122,561 Common Shares. These equivalent common shares have
been taken into consideration in the calculation of net loss per share on an
as-converted basis (see Note 4).


          12
<PAGE>   13



NOTE 4.  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 stock equivalents in
         the weighted average shares outstanding has not been presented as it is
         anti-dilutive for the three months ended March 31, 1999.

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

<TABLE>
<CAPTION>

                                                                          Weighted
                                                                           Average                   Loss
                                                 Net Loss                Shares (a)               Per Share
                                                 --------                ----------               ---------
           <S>                                 <C>                        <C>                     <C>    
            Three months ended
            March 31, 1999                      $( 390,545)                645,056                 $(0.61)
                                                 =========                 =======                  =====
</TABLE>

         (a) Weighted average shares are comprised of the following:

<TABLE>
<CAPTION>
                                                                           1998
                                                                           ----
<S>                                                                     <C>    
            Investors                                                   522,495
            Founders (on an as-converted basis)                         122,561
                                                                        -------
               Total                                                    645,056
                                                                        =======
</TABLE>

          13

<PAGE>   14


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         The following discussion should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto.

         FORWARD-LOOKING STATEMENTS

         This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other sections of this Report contains 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 Management's Discussion and Analysis of Financial
Condition and Results of Operations, 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. If the Trust does update one or more forward-looking statements,
investors and others should not conclude that the Trust will make additional
updates with respect thereto or with respect to other forward-looking
statements.

         PLAN OF OPERATION

         The Trust commenced operations on May 17, 1998. Through its Operating
Partnership, it started acquiring interests in properties including the total
limited partnership interests in Heatherwood I Apartments in June, 1998; Crystal
Court II Apartments in July 1998; and Riverwalk Apartments in September, 1998.
In July, 1998 it acquired a limited partnership interest in 20 real estate
limited partnerships managed by affiliates of Gregory K. McGrath (a founder and
Chief Executive Officer of the Registrant and the Operating Partnership). In
October, 1998 it acquired a 12.3 percent interest in Alexandria Apartments (see
Item 2 - Description of Properties).

         The Trust plans to continue raising equity under its current offering
dated May 15, 1998. The current offering is for $25,000,000, and is effective
through November 30, 1999. Through March 31, 1999 the Trust has raised
$5,838,403. The net cash proceeds from the issuance of Common Shares in
connection with this offering and the net cash proceeds of any subsequent
issuance of Common Shares will be contributed by the Trust to the Operating
Partnership in exchange for an equivalent number of Units in the Operating
Partnership. The Operating Partnership will use the net cash proceeds of the
offering, unissued units of limited partnership interest in the operating
partnership or a combination of net cash proceeds and unissued units to acquire
interests in residential apartment properties or interests in other partnerships
substantially all of whose assets consist of residential apartment property
interests, 



          14
<PAGE>   15

and payment of fees and expenses as described in the Prospectus dated May 15,
1998. The Trust has the ability to satisfy its cash requirements for the
foreseeable future. However, 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 Operating Partnership intends to conduct an exchange offering under
which it will offer to issue units ("Units") of limited partnership interest to
be registered, with an initial assigned value of $25,000,000, in exchange for
limited partnership interests in real estate limited partnerships which directly
or indirectly own interests in residential apartments in the United States. The
Registrant and the Operating Partnership intend to investigate making an
additional public or private offering of Common Shares and/or Units within the
next 12 months.

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


          15
<PAGE>   16



                           PART II - OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

         The Registrant is a claimant in the Georgia-Pacific class action
lawsuit.

ITEM 2.   CHANGES IN SECURITIES

         There were no material modifications in the instruments defining the
rights of any class of registered securities. There were no sales of any
unregistered securities.

         The Registrant's Form SB-2 Registration Statement (the "Registration
Statement") (Commission file number 333-35063) was declared effective by the
Commission on May 15, 1998. On May 18, 1998, the Registrant commenced its public
offering (the "Offering") of common shares of beneficial interest in the
Registrant ("Common Shares"), the class of securities registered, and the
Offering is currently ongoing. The name of the managing underwriter of the
Offering is Sigma Financial Corporation. The amount of Common Shares registered
is 2,500,000 shares. The offering price per Common Share is $10.00, and the
aggregate price of the offering amount registered is $25,000,000. As of the date
of this report, 614,110 Common Shares have been sold in the Offering, for an
aggregate offering price of $6,141,103.

         From the effective date of the Registration Statement through March 31,
1999, the following expenses have been incurred for the Registrant's account in
connection with the issuance and distribution of the registered Common Shares:

<TABLE>
<S>                                                 <C>                                 
         Underwriting discounts and commissions:     $448,999 (plus five-year warrants to
                                                     Acquire 33,107 Common Shares at an
                                                     exercise price of $13.00 per share)

         Finder's Fees:                              $0

         Expenses Paid to or for Underwriter:        $0

         Other Expenses (reimbursement for
         Advisory and investment expenses):          $374,024

                                    Total Expenses:  $823,023
</TABLE>

         Of such expense payments, $361,233 were made directly to Baron
Advisors, Inc., the Managing Shareholder of the Registrant. The remaining
payments of $316,388 were made directly or indirectly to others. The net
offering proceeds to the Registrant after deducting the foregoing total expenses
were $5,015,380.


          16

<PAGE>   17

         From the effective date of the Registration Statement through March 31,
1999, the net offering proceeds to the Registrant were used for the following
purposes:

<TABLE>
<S>                                                                             <C>
         Improvements to buildings and facilities:                              $0

         Purchase and installation of equipment:                                $0

         Repayment of indebtedness:                                             $0

         Working capital:                                                       $0

         Temporary investments:                                                 $0

         Investment in Baron Capital Properties, L.P.
         (the Operating Partnership) - 3/31/99 value                            $4,707,240

         Other purposes for which 5% or more of net
         offering proceeds or $100,000 (whichever
         is less)  have been used:                                              $0
</TABLE>

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

        None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        None.

ITEM 5. OTHER INFORMATION

        On October 14, 1998, the Operating Partnership acquired an approximate
12.3% limited partnership interest in Alexandria Development, L.P. (the
"Alexandria Property"), a Delaware limited partnership which is the owner and
developer of a 168-unit residential apartment property under construction in
Alexandria, Kentucky. The Operating Partnership paid $400,000 for eight (8)
units of limited partnership interest out of a total of sixty-five (65) units
and retains an option to acquire the remaining fifty-seven (57) units of limited
partnership interests for $50,000 per unit or approximately $2,850,000. The
option is exercisable as additional apartments are completed and rented and
expires on October 15, 1999. An affiliate of the Trust, affiliated through
common ownership, sold the partnership interest in the Alexandria Property to
the Operating Partnership and also serves as the managing general partner of the
Alexandria Property. During the construction stage of the apartment property,
the Operating Partnership's limited partnership interest in the Alexandria
Property is entitled 


          17

<PAGE>   18


to an annual 12% preferential return, which is senior to the other limited
partnership interests and the general partner's nominal 1% interest.

         As of March 31, 1999 the Operating Partnership owned twenty-one and
seven tenths (21.7) units of limited partnership interest for which it paid
$1,085,000. Subsequent to March 31, 1999, the Operating Partnership exercised
its option to purchase an additional two and one half (2.5) units of limited
partnership interest for $125,000. During the three (3) months ended March 31,
1999, $12,000 was distributed to the Operating Partnership from the Alexandria
Property and subsequent to March 31, 1999, $10,000 was distributed to the
Operating Partnership from the Alexandria Property.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibit No.           Description
                  -----------           -----------
                  20.1                  1998 Annual Report to Shareholders
                  27.1*                 Financial Data Schedule (3/31/99)
                  27.2*                 Financial Data Schedule (12/31/98)

                  ----------
                  * Contained in electronic filing only.

         (b)      No reports on Form 8-K were filed during the quarter ended
                  March 31, 1999.

         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.

May 14, 1999                           BARON CAPITAL TRUST

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

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


          18