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

                                   Form 10-QSB

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

                  For the quarterly period ended June 30, 2002

  |_|       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.)

               3570 U.S. Highway 98 North, Lakeland, Florida 33809
                    (Address of principal executive offices)

                                 (863) 853-2882
                           (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 978,767 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

                      CONSOLIDATED CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                         June 30,         December 31,
                                                                           2002              2001
                                                                           ----              ----
                                                                       (Unaudited)
<S>                                                                    <C>                <C>
                                ASSETS
Rental Apartments:
   Land                                                                $  4,986,900       $  4,986,900
   Rental property held for sale                                          3,171,564          3,171,564
   Depreciable property                                                  23,968,683         23,968,683
                                                                       ------------       ------------
                                                                         32,127,147         32,127,147
   Less accumulated depreciation                                          3,702,458          3,228,396
                                                                       ------------       ------------
                                                                         28,424,689         28,898,751

Cash and Cash Equivalents                                                   973,486          1,426,375
Restricted Cash                                                             598,809            330,279
Receivables from Affiliates                                               5,773,152          5,783,929
Other Property and Equipment                                                 99,036            106,321
Other Assets                                                                810,918            875,673
                                                                       ------------       ------------
                                                                       $ 36,680,090       $ 37,421,329
                                                                       ============       ============

                   LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
   Mortgages payable                                                   $ 19,896,301       $ 20,049,005
   Mortgages payable - rental property held for sale                      3,085,666          3,112,020
   Accounts payable and accrued liabilities                                 923,930          1,100,426
   Notes payable                                                          1,982,159          1,852,136
   Payables to affiliates                                                 1,117,740          1,173,240
   Security deposits                                                        246,315            221,911
                                                                       ------------       ------------
         Total liabilities                                               27,252,111         27,508,738
                                                                       ------------       ------------

Shareholders' Equity:
   Common shares of beneficial interest, no par value; 25,000,000
      shares authorized; 978,767 shares issued and outstanding           18,982,893         18,950,773
   Deficit                                                               (9,212,407)        (8,695,675)
   Distributions                                                           (342,507)          (342,507)
                                                                       ------------       ------------
         Total shareholders' equity                                       9,427,979          9,912,591
                                                                       ------------       ------------
                                                                       $ 36,680,090       $ 37,421,329
                                                                       ============       ============
</TABLE>

           See notes to consolidated condensed financial statements.


                                      F-1
<PAGE>

                               BARON CAPITAL TRUST

                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                               Six Months Ended                    Three Months Ended
                                                                    June 30,                             June 30,
                                                                    --------                             --------
                                                              2002             2001               2002              2001
                                                              ----             ----               ----              ----
<S>                                                       <C>               <C>               <C>               <C>
Revenues:
   Property:
      Rental                                              $ 2,720,915       $ 2,944,995       $ 1,358,445       $ 1,375,513
   Interest and other income                                  765,336           674,226           366,128           418,867
                                                          -----------       -----------       -----------       -----------
                                                            3,486,251         3,619,221         1,724,573         1,794,380
                                                          -----------       -----------       -----------       -----------

Real Estate Expenses:
   Depreciation                                               474,063           496,091           210,235           196,847
   Amortization of loan costs                                  46,817            39,086            23,408            20,881
   Interest                                                   971,267         1,015,302           507,160           492,610
   Repairs and maintenance                                    450,676           402,739           226,092           237,359
   Personnel                                                  373,712           426,997           194,869           218,790
   Property taxes                                             230,742           263,833           115,962           122,856
   Property insurance                                          78,569            65,555            39,284            35,400
   Utilities                                                  209,415           288,181           105,985           134,722
   Other                                                      171,344           126,510            71,662            99,219
                                                          -----------       -----------       -----------       -----------
                                                            3,006,605         3,124,294         1,494,657         1,558,684
                                                          -----------       -----------       -----------       -----------

Administrative Expenses:
   Personnel, including officer's compensation                201,555           304,528            76,965           149,238
   Professional services                                      172,779            68,945           126,209             2,862
   Other                                                      527,665           245,910           284,891           139,938
                                                          -----------       -----------       -----------       -----------
                                                              901,999           619,383           488,065           292,038
                                                          -----------       -----------       -----------       -----------

Loss Before Other Expenses and Extraordinary Item            (422,353)         (124,456)         (258,149)          (56,342)
                                                          -----------       -----------       -----------       -----------

Other Expenses:
   Provision for loan losses                                   94,379                --           129,501                --
   Mortgage prepayment penalties                                   --           534,075                --                --
   Write-off of loan costs on refinanced loans                     --           148,230                --                --
   Loss on sale of investment held for sale                        --           210,854                --           210,854
                                                          -----------       -----------       -----------       -----------
                                                               94,379           893,159           129,501           210,854
                                                          -----------       -----------       -----------       -----------

Loss Before Extraordinary Item                               (516,732)       (1,017,615)         (387,650)         (267,196)
                                                          -----------       -----------       -----------       -----------

Extraordinary Items - Extinguishment of Debt:
   Affiliates                                                      --         1,132,009                --         1,132,009
   Former chief executive officer                                  --           111,500                --           111,500
                                                          -----------       -----------       -----------       -----------
                                                                   --         1,243,509                --         1,243,509
                                                          -----------       -----------       -----------       -----------

Net Income(Loss)                                          $  (516,732)      $   225,894       $  (387,650)      $   976,313
                                                          ===========       ===========       ===========       ===========

Income (loss) Per Share - Basic and Diluted :
   Before extraordinary item                              $     (0.53)      $     (1.23)      $     (0.40)      $     (0.32)
   Extraordinary item                                              --              1.51                --              1.49
                                                          -----------       -----------       -----------       -----------
   Net Income(Loss)                                       $     (0.53)      $      0.28       $     (0.40)      $      1.17
                                                          ===========       ===========       ===========       ===========

Weighted Average Number of Common Shares Outstanding          970,291           825,017           977,159           833,947
                                                          ===========       ===========       ===========       ===========
</TABLE>

           See notes to consolidated condensed financial statements.


                                      F-2
<PAGE>

                               BARON CAPITAL TRUST

                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                   Six Months Ended
                                                                                                       June 30,
                                                                                                       --------
                                                                                                 2002             2001
                                                                                                 ----             ----
<S>                                                                                          <C>               <C>
Cash Flows from Operating Activities:
   Net (Loss) Income                                                                         $  (516,732)      $   225,894
   Adjustments to reconcile net (loss) Income to net cash and cash
      equivalents provided by (used in) operating activities:
         Provision for loan losses                                                                94,379                --
         Extinguishment of debt                                                                       --        (1,379,254)
         Depreciation                                                                            474,063           479,684
         Loss on sale of asset held for investment                                                    --           210,854
         Amortization of loan costs                                                               46,817            39,086
         Write-off of loan costs on refinanced mortgages                                              --           148,230
         (Increase) decrease in operating assets:
            Other assets                                                                         (65,664)          (89,585)
         Increase (decrease) in operating liabilities:
            Accounts payable and accrued liabilities                                            (144,376)         (784,018)
            Accrued interest on notes and affiliate payable                                       98,244                --
            Security deposits                                                                     24,404            (7,931)
                                                                                             -----------       -----------
               Net cash and cash equivalents provided by (used in) operating activities           11,135        (1,157,040)
                                                                                             -----------       -----------

Cash Flows from Investing Activities:
   Proceeds from the sale of investment held for sale, net                                            --         3,424,146
   Additions to rental apartments                                                                     --           (72,195)
   Purchases of other property and equipment                                                       7,285            (4,700)
   Increase in restricted cash                                                                  (268,530)         (192,053)
                                                                                             -----------       -----------
               Net cash and cash equivalents (used in) provided by investing activities         (261,245)        3,155,198
                                                                                             -----------       -----------

Cash Flows from Financing Activities:
   Proceeds from mortgage refinancings                                                                --         6,500,000
   Payments on mortgages payable                                                                (179,058)       (7,173,805)
   Proceeds from sale of common shares of beneficial interest                                         --                --
   Payments on notes payable                                                                      42,771          (507,471)
   Increase in loans payable to affiliates, net                                                  (66,492)         (571,951)
                                                                                             -----------       -----------
               Net cash and cash equivalents used in financing activities                       (202,779)       (1,753,227)
                                                                                             -----------       -----------

Net (Decrease) Increase in Cash and Cash Equivalents                                            (452,889)          244,931

Cash and Cash Equivalents, Beginning                                                           1,426,375            20,908
                                                                                             -----------       -----------

Cash and Cash Equivalents, Ending                                                            $   973,486       $   265,839
                                                                                             ===========       ===========

Supplemental Disclosure of Cash Flow Information:
   Cash paid for mortgage and other interest                                                 $   971,267       $ 1,015,302
                                                                                             ===========       ===========

Non-Cash Investing and Financing Activities
   Shares issued to settle debt                                                              $    32,120       $        --
                                                                                             ===========       ===========
</TABLE>

           See notes to consolidated condensed financial statements.


                                      F-3
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Basis of Presentation

            The unaudited consolidated condensed balance sheet as of June 30,
            2002, and the related unaudited consolidated condensed statements of
            operations for the three and six months ended June 30, 2002 and
            2001, and the unaudited consolidated condensed statements of cash
            flows for the six months ended June 30, 2002 and 2001 have been
            prepared by the Trust. In the opinion of management, all adjustments
            (which include reclassifications and normal recurring adjustments)
            necessary to present fairly the financial position, results of
            operations and cash flows at June 30, 2002 and for the periods
            presented, have been made. The results of operations for the three
            and six months ended June 30, 2002 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 accounting
            principles generally accepted in the United States have been
            condensed or omitted. It is suggested that these consolidated
            financial statements be read in conjunction with the Trust's
            financial statements and notes thereto included in the Trust's
            December 31, 2001 Annual Report on 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" or the
            "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 debt mortgage
            loans secured by such types of property.

            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 Board of Trustees of 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.

            The Trust is the general partner of the Operating Partnership and
            owns approximately 24% of the limited partnership units of the
            Operating Partnership. The consolidated accounts of the Operating
            Partnership include the accounts of 25 controlled limited
            partnerships that at June 30, 2002 had an indirect equity and/or
            debt interest in 27 apartment communities.

            All significant intercompany transactions and balances have been
            eliminated in consolidation.


                                      F-4
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE 2. ADOPTION OF ACCOUNTING PRONOUNCEMENTS

            In August 2001, the FASB issued Statement No. 144, "Accounting for
            the Impairment or Disposal of Long-Lived Assets" (SFAS 144), which
            addresses financial accounting and reporting for the impairment or
            disposal of long-lived assets. SFAS 144 supersedes Statement No.
            121, "Accounting for the Impairment of Long-Lived Assets and for
            Long-Lived Assets to Be Disposed Of", and the accounting and
            reporting provisions of APB Opinion No. 30, "Reporting the Results
            of Operations - Reporting the Effects of Disposal of a Segment of a
            Business, and Extraordinary, Unusual and Infrequently Occurring
            Events and Transactions", for the disposal of a segment of a
            business. SFAS 144 retains the requirement in Opinion No. 30 to
            report separately discontinued operations and extends that reporting
            to a component of an entity that either has been disposed of or is
            classified as held for sale. The Trust adopted the provisions of
            SFAS 144 in the first quarter ending March 31, 2002. The adoption of
            SFAS 144 did not have a material effect on the financial position or
            results of operations of the Trust.

            In July 2001, the FASB issued SFAS No. 141, "Business Combinations",
            and SFAS No. 142, "Goodwill and Other Intangible Assets" which
            replace Accounting Principles Board Opinion Nos. 16, "Business
            Combinations" and 17, "Intangible Assets", respectively. SFAS No.
            141 requires that the purchase method of accounting be used for all
            business combinations initiated after June 30, 2001, and that the
            use of the pooling-of-interests method be prohibited. SFAS No. 142
            changes the accounting for goodwill from an amortization method to
            an impairment-only method. Amortization of goodwill, including
            goodwill recorded in past business combinations, will cease upon
            adoption of SFAS No. 142. The Trust adopted SFAS 141 and 142 on
            January 1, 2002. After December 31, 2001, goodwill can only be
            written down upon impairment discovered during annual tests for fair
            value, or discovered during tests taken when certain triggering
            events occur. The adoption of SFAS 141 and 142 did not have a
            material effect on the financial position or results of operations
            of the Trust.

NOTE 3. MORTGAGE PAYABLE - RENTAL PROPERTY HELD FOR SALE

            In April 2002, the Operating Partnership ceased funding one of the
            partnerships whose limited partnership units it acquired as part of
            the April 2000 Exchange Offering. The partnership owns Stadium Club
            Apartments. Since that time, the partnership has been unable to
            generate sufficient cash flow to make the required mortgage payments
            and therefore the April, May, June and July 2002 payments are
            currently outstanding. The partnership is currently negotiating with
            the first mortgage lender, and also has a potential purchaser for
            the Stadium Club Apartments. The mortgage is non-recourse with
            regard to the Trust and the Operating Partnership. Both the
            property's carrying value and related first mortgage loan
            balance at June 30, 2002 is $1,642,000 and is included in "Rental
            property held for sale" and "Mortgages payable - rental property
            held for sale", respectively, in the accompanying condensed
            consolidated financial statements.


                                      F-5
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONSOLIDATED CONDENSED 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, at the Trust's option, two luxury residential apartment
            properties in the development stage upon the completion of
            construction. The three development companies were previously
            controlled by Gregory K. McGrath, a founder and the former Chief
            Executive Officer of the Trust and the Operating Partnership. In
            September 2001, Mr. McGrath assigned all of the outstanding
            partnership interests in the three partnerships to Sigma Pool
            Management, Inc., a Michigan corporation controlled by Jerome S.
            Rydell, a member of the Board of Trustees of the Trust. One of the
            residential apartment properties has been sold to a third party with
            the Trust's consent. The remaining residential property (the
            "Burgundy Hills Property"), located in Florence, Kentucky (part of
            the Cincinnati metropolitan area), is scheduled to have a total of
            396 units, comprised of one, two and three bedroom/one or two
            bathroom apartments. Due to events described below, the anticipated
            date of completion of construction of the Burgundy Hills Property,
            and whether it will ever be completed as planned, are uncertain.

            In connection with the transaction, the Trust obtained a right of
            first negotiation to purchase the Burgundy Hills Property from its
            owner, Burlington Residential, Ltd., upon completion and a right of
            first refusal to purchase the property on the same terms offered by
            any interested 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 even if it were interested in doing so and
            if construction were completed and it is uncertain whether the Trust
            will have adequate resources to complete the transaction upon
            completion of construction. In addition, as described below, because
            the owner of the first mortgage on the property has assumed control
            of the management of the Borrower and the development of the
            property, the exercisability of the Trust's rights is currently
            uncertain.

            In connection with the transaction, the Trust (along with Mr.
            McGrath) agreed to co-guarantee long-term first mortgage
            construction financing provided by KeyBank National Association
            ("KeyBank") to Burlington Residential, Ltd. ("Borrower"), the owner
            of the Burgundy Hills Property. As of June 30, 2002, approximately
            $6,478,000 of the first mortgage loan had been drawn down. The
            interest rate on the first mortgage loan is KeyBank's prime rate
            (currently 4.75%) or the LIBOR rate plus 2%. The Trust also agreed
            that, if the Borrower failed to comply with the repayment and other
            obligations under the loan documents, KeyBank could require the
            Trust to buy out the bank's position on the entire amount of the
            loan.

            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 it was exercising its right to
            accelerate the loan. According to Mr. McGrath, KeyBank agreed to
            forego further action


                                      F-6
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE 4. COMMITMENTS AND CONTINGENCIES

      Contract to Purchase Additional Properties (Continued)

            for at least 60 days while the parties attempted to reach an
            arrangement. The extension expired in November 2000 and, according
            to Mr. McGrath, has been extended on a month-to- month basis. The
            Borrower paid down the outstanding accrued interest and a portion of
            the principal and, subject to the rights of the owner of the first
            mortgage loan and the mezzanine loan described below, it intends to
            seek a new long-term construction facility with another
            institutional lender to replace the first mortgage loan and the
            mezzanine loan.

            In December 2000, an affiliate of BankOne acquired KeyBank's
            position in the Burgundy Hills first mortgage loan. The loan is
            subject to the same terms and conditions as that of the original
            KeyBank loan. Earlier, the BankOne affiliate had provided mezzanine
            financing (subordinated to the first mortgage loan) in the principal
            amount of $1,576,000 to the Borrower. That loan is secured by a
            security interest in partnership interests in the Borrower. When the
            Borrower defaulted on its interest payment obligations on the loan,
            the BankOne affiliate filed a legal action to levy on the security
            interest and was awarded control of all of the equity interests in
            the Borrower and rental payments from the Burgundy Hills property
            and took over day-to-day management of the property.

            The BankOne affiliate recently sold the first mortgage loan and
            mezzanine loan to Burgundy-Boone, LLC, an Illinois limited liability
            company, according to the latter's counsel. As a result,
            Burgundy-Boone, LLC has assumed control of management of the
            Borrower and of the development of the Burgundy Hills Property.
            According to its counsel, Burgundy-Boone, LLC and its construction
            partner, Wallick Management Company (a construction and property
            management firm in Central Ohio), intend to complete construction of
            the Burgundy Hills project and then sell it. They appear to have
            completed construction on the last building in the first phase of
            the development.

            The Trust, as guarantor of the first mortgage loan, currently has a
            contingent liability for its full outstanding amount. Due to the
            uncertainty as to the status of the first mortgage loan and
            mezzanine loan and as to the actions and intentions of
            Burgundy-Boone, LLC, and due to the Trust's inability to verify all
            information it has received from other parties, the Trust's exposure
            on the guaranty is currently uncertain.

            According to its principal, in December 2001, Century Construction
            Inc., the general contractor which performed construction services
            on the Burgundy Hills Property and had held a mechanic's lien on the
            property in the amount of approximately $1,300,000, settled its
            claims with Burgundy-Boone, LLC, acting on behalf of the Borrower.

      Warrants

            The Trust has outstanding warrants to purchase 59,676 common shares
            in the Trust at an exercise price of $13.00 per warrant share. The
            warrants may be exercised at anytime and from time to time through
            May 15, 2003.


                                      F-7
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE 4. COMMITMENTS AND CONTINGENCIES (Continued)

      Pending Litigation

            The Trust is a party to various legal actions resulting from its
            operating activities. These actions are routine litigation and
            administrative proceedings arising in the ordinary course of
            business, some of which are covered by liability insurance, and none
            of which are expected to have a material adverse effect on the
            consolidated financial condition or results of operations of the
            Trust taken as a whole.

NOTE 5. NET INCOME (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 income (loss) per share equals net income (loss) divided
            by the weighted average shares outstanding during the period. The
            computation of diluted net income (loss) per share that includes
            dilutive common share equivalents in the weighted average shares
            outstanding has not been presented, as it is anti-dilutive for the
            three and six months ended June 30, 2002 and 2001.

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

<TABLE>
<CAPTION>
                                                                                   Net
                                                        Net         Weighted     Income
                                                      Income         Average     (Loss)
                                                      (Loss)         Shares     Per Share
                                                      ------         ------     ---------
<S>                                                  <C>             <C>          <C>
            For the three months ended June 30:
               2002                                  $(387,650)      977,159      $(0.40)
                                                     =========       =======      ======
               2001                                  $ 976,313       833,947      $ 1.17
                                                     =========       =======      ======
            For the six months ended June 30:
               2002                                  $(516,732)      970,291      $(0.53)
                                                     =========       =======      ======
               2001                                  $ 225,894       825,017      $ 0.28
                                                     =========       =======      ======
</TABLE>

NOTE 6. AMENDED AND RESTATED DECLARATION OF TRUST

            On April 25, 2002, Barcap Realty Services Group, Inc. (the Corporate
            Trustee of the Trust), Baron Advisors, Inc. (the former managing
            shareholder of the Trust), and the Board of Trustees (the "Board")
            of the Trust executed the Amended and Restated Declaration of Trust
            (the "Amended Declaration") of the Trust. The Declaration of Trust
            is the agreement that governs the operation and management of the
            Trust and the relationship among, and rights and obligations of, the
            Shareholders and Trustees of the Trust. The Amended Declaration
            amended and restated the prior version of the Declaration of Trust
            of the Trust dated August 11, 1998 (the "Prior Declaration") to (i)
            reflect the resignation of Baron Advisors, Inc. (controlled by
            Gregory K. McGrath, a founder and former Chief Executive Officer of
            the


                                      F-8
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE 6. AMENDED AND RESTATED DECLARATION OF TRUST (Continued)

            Trust) as the managing shareholder of the Trust, (ii) provide for
            the elimination of the role of Baron Advisors, Inc. as the managing
            shareholder of the Trust, (iii) provide for the Board to assume the
            obligations of the former managing shareholder in the management of
            the Trust, (iv) eliminate all provisions of the Prior Declaration
            that related to the Operating Partnership's Exchange Offering and
            the Trust's Cash Offering which were completed in April 2000 and May
            2000, respectively, and (v) correct certain typographical errors and
            other inconsistencies that are immaterial to the operation of the
            Trust and the Operating Partnership and to the rights of the
            Shareholders and Trustees of the Trust.

NOTE 7. SETTLEMENT AGREEMENT

            In May 2002, the Trust and the Operating Partnership entered into a
            settlement agreement with Gregory K. McGrath, a founder and former
            Chief Executive Officer of the Trust and the Operating Partnership.
            Pursuant to the agreement, Mr. McGrath forfeited all 378,873
            Operating Partnership Units he received in connection with the
            formation of the Trust and the Operating Partnership, in exchange
            for a limited release from liability in connection with the
            acquisition and operation of the Alexandria and Riverwalk properties
            and from certain other liabilities. As a result of the agreement,
            Mr. McGrath has no further interest in the Trust or the Operating
            Partnership.


                                      F-9
<PAGE>

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

      The following discussion should be read in conjunction with the
      Consolidated Financial Statements of Baron Capital Trust (the "Registrant"
      or the "Trust") and 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 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. 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.

      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 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.


                                       3
<PAGE>

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

      The Trust contributed the net cash proceeds from the sale of Common Shares
      in the Cash Offering ($5,467,858) to the Operating Partnership in exchange
      for an equivalent number of units ("Units" or "Operating Partnership
      Units") of limited partnership interest in the Operating Partnership. As
      of June 30, 2002, the Trust owned 978,767 Operating Partnership Units,
      representing approximately 24% of the then outstanding Units. Such Units
      are comprised of the Units acquired by the Trust from the Operating
      Partnership with the net proceeds of the Cash Offering and the Units that
      holders of Units have elected to exchange into Common Shares in the manner
      described below. Since the Units held by the Trust comprise substantially
      all of its assets, 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 all or
      substantially all the beneficial interests in 16 residential apartment
      properties, including the Heatherwood Apartments Phase I (67 studio, one
      bedroom and two bedroom units located in Kissimmee, Florida) in June 1998;
      Crystal Court Apartments Phase II (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
      (described below). In the Exchange Offering, the Operating Partnership
      also acquired subordinated mortgage and other debt interests in 10
      properties.

      In July 1998, the Operating Partnership also acquired a small minority
      limited partnership interest in 13 real estate limited partnerships then
      managed by affiliates of Gregory K. McGrath (a founder and former Chief
      Executive Officer of the Trust and the Operating Partnership), including
      certain of the Exchange Partnerships which participated in the Exchange
      Offering and are now controlled and managed by the Trust.

      During 1998 and 1999, the Operating Partnership also acquired a 40%
      limited partnership interest in Alexandria Development, L.P. (the
      "Alexandria Partnership"), a Delaware limited partnership which owns
      Alexandria Apartments, a 168-unit residential apartment property (the
      "Alexandria Property") under development in Alexandria, Kentucky. As of
      December 31, 2001, 112 of the 168 planned residential units (approximately
      67%) had been completed and were in the rent-up stage. Of the completed
      units, 72 units had been rented as of April 30, 2002, the last date for
      which the Trust has information. The aggregate purchase price of the
      Operating Partnership's interest was $1,285,000, and it received an option
      to acquire the remaining limited partnership interests at the same price
      per percentage interest (for an additional option exercise price of
      approximately $1,950,000). The purchase price


                                       4
<PAGE>

      was based on an independent appraisal of the property less all
      liabilities, and was approved by the Board of the Trust. During 2000, the
      Operating Partnership purchased no additional units and the option expired
      in October 2000.

      An affiliate of Mr. McGrath previously controlled the Alexandria
      Partnership. It sold the 40% limited partnership interest in the
      Alexandria Partnership to the Operating Partnership. In September 2001,
      Mr. McGrath's affiliate assigned the remaining 60% limited partnership
      interest in the Alexandria Partnership to Sigma Pool Management, Inc. (a
      Michigan corporation controlled by Jerome S. Rydell, a member of the Board
      of Trustees of the Trust), which also became the managing general partner
      of the Alexandria Partnership.

      In early May 2001, MarCap Corporation filed an action in the United States
      District Court for the Northern District of Illinois against WaKul, Inc.
      (a telecommunications company controlled by Mr. McGrath), Mr. McGrath, and
      the Alexandria Partnership, among other parties, seeking repayment of
      approximately $407,000 of indebtedness (plus unspecified interest,
      attorney's fees and collection costs) under a telecommunication equipment
      leasing agreement. Certain of the equipment was installed at the
      Alexandria Property. The Alexandria Partnership guaranteed WaKul, Inc.'s
      lease payments under the leasing agreement. The telecommunication
      equipment installed on the property is not essential to the operation of
      the property.

      The Alexandria Property is subject to first mortgage construction
      financing with a principal balance as of December 31, 2001 of
      approximately $8,525,000. The first mortgage is held by Fifth Third Bank.
      The Alexandria Partnership defaulted on the first mortgage construction
      loan when it matured in December 2000, and the lender has exercised its
      right to accelerate payment of the loan. In December 2001, a Kentucky
      court appointed a receiver to manage the property. The construction
      contractor is also owed approximately $890,000 for construction costs,
      penalties and interest. Sigma Pool Management, Inc., acting as the
      managing general partner of the Alexandria Partnership, recently caused
      the partnership to file for bankruptcy protection. The lender, however,
      was successful in lifting the automatic stay in the bankruptcy proceeding.
      As a result, it is currently anticipated that the bankruptcy proceeding
      will be dismissed and that the lender will begin foreclosure proceedings
      on the property.

      In 2000, the Trust reduced to zero on its records the value of its
      investment in the Alexandria Partnership due to the defaults on
      indebtedness, recurring losses incurred by the Alexandria Property, a
      partners' deficiency, and an updated appraisal that valued the property at
      an amount less than the total liabilities owed.

      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, at the
      Trust's option, two luxury residential apartment properties in the
      development stage upon the completion of construction. The three
      development companies were previously controlled by Mr.


                                       5
<PAGE>

      McGrath. In September 2001, Mr. McGrath assigned all of the outstanding
      partnership interests in the three partnerships to Sigma Pool Management,
      Inc. One of the residential apartment properties has been sold to a third
      party with the Trust's consent. The remaining residential property (the
      "Burgundy Hills Property"), located in Florence, Kentucky (in the
      Cincinnati metropolitan area), is scheduled to have a total of 396 units,
      comprised of one, two and three bedroom/one or two bathroom apartments.
      Due to events described below, the anticipated date of completion of
      construction of the Burgundy Hills Property, and whether it will ever be
      completed as planned, are uncertain.

      In connection with the transaction, the Trust obtained a right of first
      negotiation to purchase the Burgundy Hills Property from its owner,
      Burlington Residential, Ltd., upon completion and a right of first refusal
      to purchase the property on the same terms offered by any interested 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 even if it were interested
      in doing so and if construction were completed and it is uncertain whether
      the Trust will have adequate resources to complete the transaction upon
      completion of construction. In addition, as described below, because the
      owner of the first mortgage on the property has assumed control of the
      management of the Borrower and the development of the property, the
      exercisability of the Trust's purchase rights is currently uncertain.

      In connection with the transaction, the Trust (along with Mr. McGrath)
      agreed to co-guarantee long-term first mortgage construction financing
      provided by KeyBank National Association ("KeyBank") to Burlington
      Residential, Ltd. ("Borrower"), the owner of the Burgundy Hills Property.
      As of June 30, 2002, approximately $6,478,000 of the first mortgage loan
      had been drawn down. The interest rate on the first mortgage loan is
      KeyBank's prime rate (currently 4.75%) or the LIBOR rate plus 2%. The
      Trust also agreed that, if the Borrower failed to comply with the
      repayment and other obligations under the loan documents, KeyBank could
      require the Trust to buy out the bank's position on the entire amount of
      the construction loan.

      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 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, has been extended on a
      month-to-month basis. The Borrower paid down the outstanding accrued
      interest and a portion of the principal and, subject to the rights of the
      owner of the first mortgage loan and the mezzanine


                                       6
<PAGE>

      loan described below, it intends to seek a new long-term construction
      facility with another institutional lender to replace the first mortgage
      loan and the mezzanine loan.

      In December 2000, an affiliate of BankOne acquired KeyBank's position in
      the Burgundy Hills first mortgage loan. The loan is subject to the same
      terms and conditions as that of the original KeyBank loan. Earlier, the
      BankOne affiliate had provided mezzanine financing (subordinated to the
      first mortgage loan) in the principal amount of $1,576,000 to the
      Borrower. That loan is secured by a security interest in partnership
      interests in the Borrower. When the Borrower defaulted on its interest
      payment obligations on the loan, the BankOne affiliate filed a legal
      action to levy on the security interest and was awarded control of all of
      the equity interests in the Borrower and rental payments from the Burgundy
      Hills Property and took over day-to-day management of the property.

      The BankOne affiliate recently sold the first mortgage loan and mezzanine
      loan to Burgundy-Boone, LLC, an Illinois limited liability company,
      according to the latter's counsel. As a result, Burgundy-Boone, LLC has
      assumed control of management of the Borrower and of the development of
      the Burgundy Hills Property. According to its counsel, Burgundy-Boone, LLC
      and its construction partner, Wallick Management Company (a construction
      and property management firm in Central Ohio), intend to complete
      construction of the Burgundy Hills project and then sell it. They appear
      to have completed construction on the last building in the first phase of
      the development.

      The Trust, as guarantor of the first mortgage loan, currently has a
      contingent liability for its full outstanding amount. Due to the
      uncertainty as to the status of the first mortgage loan and mezzanine loan
      and as to the actions and intentions of Burgundy-Boone, LLC, and due to
      the Trust's inability to verify all information it has received from other
      parties, the Trust's exposure on the guaranty is currently uncertain.

      According to its principal, in December 2001 Century Construction Inc.,
      the general contractor which performed construction services on the
      Burgundy Hills Property and had held a mechanic's lien on the property in
      the amount of approximately $1,300,000, settled its claims with
      Burgundy-Boone, LLC, acting on behalf 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 and one condominium apartment property. In the
      Exchange Offering, the Operating Partnership issued 2,449,492 registered
      Operating Partnership Units 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 owned
      equity and/or debt interests in one or more of 25 residential apartment
      properties and


                                       7
<PAGE>

      one condominium apartment property (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 continued to own the same property interests they owned prior
      to the offering; substantially all of the limited partnership interests in
      the 23 Exchange Partnerships were owned by the Operating Partnership; Mr.
      McGrath, for nominal consideration, assigned to the Trust all of the
      equity stock in 23 of the corporate general partners of the Exchange
      Partnerships ("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 owned
      substantially all of the economic interest represented by the equity and
      debt interests owned by the Exchange Partnerships and controlled
      management of such partnerships.

      In April 2001, the Operating Partnership sold its equity interest in one
      of the Exchange Properties, Glen Lake Apartments, a 144-unit residential
      apartment property located in St. Petersburg, Florida. Management of the
      Trust determined to sell the property based on its lack of performance and
      its need for substantial and frequent cash infusions.

      In April 2002, the Operating Partnership ceased funding one of the
      Exchange Partnerships whose limited partnership units it acquired as part
      of the Exchange Offering. The Exchange Partnership owns Stadium Club
      Apartments. Since that time, the Exchange Partnership has been unable to
      generate sufficient cash flow to make the required mortgage payments and
      therefore the April, May, June and July 2002 payments are currently
      outstanding. The Exchange Partnership is currently negotiating with the
      first mortgage lender, and also has a potential purchaser for the Stadium
      Club Apartments. The mortgage is non-recourse with regard to the Operating
      Partnership and the Trust. Both the property's carrying value and related
      first mortgage loan balance at June 30, 2002 is $1,642,000 and is included
      in "Rental property held for sale" and "Mortgages payable - rental
      property held for sale", respectively, in the accompanying consolidated
      condensed financial statements.


                                       8
<PAGE>

      Certain of the Exchange Partnerships currently controlled by the Operating
      Partnership own direct or indirect equity interests in 15 Exchange
      Properties, which consist of an aggregate of 868 residential apartment
      units (comprised of studio, one, two, three and four-bedroom units).
      Certain of the Exchange Partnerships currently controlled by the Operating
      Partnership own direct or indirect subordinated mortgage and other debt
      interests in 10 Exchange Properties, which consist of an aggregate of 590
      existing residential apartment units (studio and one and two bedroom
      units) and 152 condominium apartment units (two and three bedroom units)
      under development. Of the Exchange Properties in which the Operating
      Partnership continues to own an interest, 20 properties are located in
      Florida, three properties in Ohio and one property each in Georgia and
      Indiana.

      Operations for the Six Months Ended June 30, 2002 Compared to the Six
      Months Ended June 30, 2001

      Revenues decreased by $132,970 from $3,619,221 for the six months ended
      June 30, 2001 to $3,486,251 for the six months ended June 30, 2002. The
      decrease in revenues is the result of the general downturn in the U.S.
      economy, which has translated into a softer apartment rental market, the
      sale of the Glen Lakes property in April 2001 and a decrease in interest
      income caused by a reduction of cash available for investment and interest
      rates. Real Estate Expenses for the properties owned by the Operating
      Partnership decreased from $3,124,294 for the six months ended June 30,
      2001 to $3,006,605 for the six months ended June 30, 2002. The reduction
      in Real Estate Expenses was principally due to a reduction in interest
      expense resulting from the refinancing activity in 2001 and a reduction in
      personnel expenses in 2002. Administrative Expenses increased by $282,616
      from $619,383 for the six months ended June 30, 2001 to $901,999 for the
      six months ended June 30, 2002, primarily due to expenses associated with
      the settlement of a property lawsuit, expenses relating to the relocation
      of the corporate offices, and an increase in directors and officers
      insurance. Other Expenses for the six months ended June 30, 2002 was
      $94,379. This expense is the result of an adjustment in the provision for
      loan losses on mortgage notes receivable. The Trust's Net Loss for the six
      months ended June 30, 2002 was $516,732 compared to Net Income of $225,894
      for the six months ended June 30, 2001.

      Operations for the Three Months Ended June 30, 2002 Compared to the Three
      Months Ended June 30, 2001

      Revenues decreased by $69,807 from $1,794,380 for the three months ended
      June 30, 2001 to $1,724,573 for the three months ended June 30, 2002. The
      decrease in revenues is the result of the general downturn in the U.S.
      economy, which has translated into a softer apartment rental market, the
      sale of the Glen Lakes property in April 2001 and a decrease in interest
      income caused by a reduction of cash available for investment and interest
      rates. Real Estate Expenses for the properties owned by the Operating
      Partnership decreased from $1,558,684 for the three months ended June 30,
      2001 to $1,494,657 for the three months ended June 30, 2002. The reduction
      in


                                       9
<PAGE>

      Real Estate Expenses was principally due to decreases in various operating
      expenses which were partially offset by adjustments to depreciation
      expense. Administrative Expenses increased by $196,027 from $292,038 for
      the three months ended June 30, 2001 to $488,065 for the six months ended
      June 30, 2002, primarily due to expenses associated with the settlement of
      a property lawsuit, expenses relating to the relocation of the corporate
      offices, and an increase in directors and officers insurance. Other
      Expenses for the three months ended June 30, 2002 was $129,501. This
      expense is the result of an adjustment in the provision for loan losses on
      mortgage notes receivable. The Trust's Net Loss for the three months ended
      June 30, 2002 was $387,650 compared to Net Income of $976,313 for the
      three months ended June 30, 2001.

      Liquidity and Capital Resources

      Net Cash Used in Operating Activities decreased by $1,168,175 from
      $1,157,040 cash used in the six months ended June 30, 2001 to $11,135 cash
      provided in the six months ended June 30, 2002. The decrease in Net Cash
      Used in Operating Activities was principally due to the recognition of
      extinguishment of debt associated with the Glen Lakes sale in 2001. Net
      Cash Used in Investing Activities decreased $3,416,443 from $3,155,198
      cash provided for the six months ended June 30, 2001 to $261,245 cash used
      for the six months ended June 30, 2002. The decrease was principally due
      to the recognition of cash proceeds associated with the sale of Glen Lakes
      in 2001. Net Cash Used in Financing Activities decreased by $1,550,448
      from $1,753,227 cash used in the six months ended June 30, 2001 to
      $202,779 cash used in the six months ended June 30, 2002. The cash
      proceeds of the refinancings in the first half of 2001 provided
      substantial cash from Financing Activities, allowing for the repayment of
      significant mortgage obligations and notes payable. There was no such
      activity in the first half of 2002, resulting in the decrease in cash
      used.

      During the first six months of 2002, the Trust generated Funds From
      Operations (Funds from Operations is a measure of profitability in the
      REIT industry, which is measured as net income less depreciation,
      amortization, and other non-operating expenses and/or income) of
      approximately $100,000 versus Funds From Operations of approximately
      $760,000 during the first six months of 2001. The 2001 Funds from
      Operations were positively impacted by the sale of the Glen Lakes
      property. There were no such sales in 2002.

      In September 2000, following a change in executive leadership of the Trust
      and the Operating Partnership (collectively, the "Company"), management
      offered a plan to reduce negative cash flow and increase profitability.
      That plan encompassed six strategies and was successfully executed over
      the next nine months. In implementing these strategies, management
      undertook the following actions:

      o     In many locations, the market for apartments has started to include
            re-billing of property water costs to tenants. The Operating
            Partnership has initiated billing of


                                       10
<PAGE>

            tenants for their water used at several locations and intends to
            continue implementation of the strategy at other properties as the
            markets permit.

      o     In the second quarter of 2001, the Operating Partnership sold one of
            its properties (Glen Lake Apartments) that, in the past, required
            substantial and frequent cash infusions. Additional properties are
            being evaluated for potential disposition.

      o     The Operating Partnership has identified certain of its properties,
            which are performing well and have loans which are small relative to
            the value of the properties, given their excellent performance. Four
            properties were refinanced in the first three quarters of 2001,
            generating sufficient cash for the Operating Partnership to pay
            accounts payable, including those owed to professionals for services
            performed in connection with the Exchange Offering, and still have
            an amount in reserve. All four of these properties were refinanced
            at interest rates lower than the prior interest rate on the loans.
            The Operating Partnership received cash proceeds of approximately
            $1,875,000 as a result of refinancing these four properties.

      In December 2001, management proposed a 12-month operating plan for the
      year 2002 which, when implemented, would optimize cash from operations,
      reposition certain assets in the inventory of the Company, consolidate the
      Company's operations in central Florida, and reorganize corporate staffing
      along a more efficient structural line. That plan was adopted by the Board
      of Trustees and has been effectively and successfully carried out during
      the first two quarters of 2002. Financial targets identified in the plan
      have been achieved through the second quarter of 2002. Management believes
      that these actions presently being taken by the Operating Partnership and
      the Trust provide the long term opportunity to improve their profitability
      and liquidity.

      The Trust and the Operating Partnership intend to use their securities
      (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 Operating Partnership and the Trust 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 from 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 Operating Partnership and the Trust will also
      depend upon the pace and price at which they can acquire and improve
      additional property interests.


                                       11
<PAGE>

      The target metropolitan markets and sub-markets initially benefited from
      demographic trends (including population and job growth) which increase
      the demand for residential apartment units, while financing constraints
      (specifically, reduced availability of development capital) have limited
      new construction to levels significantly below construction activity in
      prior years. Expense levels also influence operating results, and rental
      expenses (other than real estate taxes) for residential apartment
      properties have generally held at approximately the rate of inflation for
      the past three years. 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 Operating Partnership and the
      Trust 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 Operating Partnership and the Trust as a whole, some of
      the reasonably anticipated effects might include downward pressure on
      rental rates and occupancy levels.

      Three recent developments could have a material impact on the performance
      of the Trust and the Operating Partnership. First is the general downturn
      in the U.S. economy due in large part to the collapse of the technological
      sector. This translated into a significantly softer 2001 summer apartment
      rental market, particularly in Florida. Occupancies and collections have
      been negatively impacted for the last 12 months, and management does not
      anticipate any improvement in the near term. The second development is the
      increasing lack of confidence of investors in the public securities
      markets due to recent well-publicized events at Enron Corp., Arthur
      Andersen, Adelphia Communications, Global Crossing, Tyco International,
      ltd., and WorldCom Inc. This development will hamper, for the foreseeable
      future, companies' access to the public markets and financial institutions
      for capital. The third development arises out of the horrible events of
      September 11, 2001. While management believes it is still too early to
      understand how deeply this event will impact the confidence of Americans
      and their way of life, it is likely to result in a more cash conscientious
      consumer, which could result in downward pressure on rental rates.

      Consistent with the philosophy of the Trust's new Chief Executive Officer,
      a series of informal communications to registered Shareholders of the
      Trust and Unit holders of the Operating Partnership was begun in late
      2000. The favorable response generated by these communications has
      resulted in management organizing a regular quarterly informal
      communication beginning in the second quarter of 2002.

      Generally, there are no seasonal aspects of the operations of the
      Operating Partnership or the Trust that might have a material effect on
      their financial conditions


                                       12
<PAGE>

      or results of operation. However, for the last 36 months, one 60-unit
      student housing property controlled by the Operating Partnership has had
      an average occupancy rate of 55% for nine months of the year and 30% for
      the remaining three months of the year.

      Subject to the foregoing discussion, management believes that the
      Operating Partnership and the Trust 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 necessary to increase the Trust's size
      and cash flow, and position it for possible public listing.

      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 materially negatively impacts the
      Trust's operating results are being evaluated for possible sale. Certain
      properties have already 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 of its Common Shares on a recognized securities exchange.
      Additional size is desirable to give the Operating Partnership and the
      Trust the operating margin necessary to support the professional
      management team necessary for ensuring an optimum level of performance.

      The Trust and the Operating Partnership expect no material change in the
      number of employees over the next 12 months now that the consolidation of
      corporate offices in Florida has been accomplished.

      In February 2002, the Board of Trustees of the Trust received the
      preliminary findings of a report prepared by an independent auditing firm
      in which the firm opined that certain transactions of the Trust and the
      Operating Partnership (including the Alexandria and Riverwalk property
      investments) entered into by prior management involved improper conduct.
      The Board has used the preliminary findings for discussions with former
      management of the Trust concerning the transactions and to investigate the
      rights and obligations of the Trust and the Operating Partnership in
      connection therewith. In May 2002, the Trust and the Operating Partnership
      entered into a settlement agreement with Gregory K. McGrath, a founder and
      former Chief Executive Officer of the Trust and the Operating Partnership.
      Pursuant to the agreement, Mr. McGrath forfeited all 378,873 Operating
      Partnership Units he received in connection with the formation of the
      Trust and the Operating Partnership, in exchange for a limited release
      from liability in connection with the acquisition and operation of the
      Alexandria and Riverwalk properties and from certain other liabilities. As
      a result of the agreement, Mr. McGrath has no further interest in the
      Trust or the Operating Partnership.


                                       13
<PAGE>

                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings

      During the second quarter of 2002, the Trust obtained a judgment against
      several companies affiliated with Gregory K. McGrath, one of the Trust's
      founders and its former Chief Executive Officer. The judgment was for
      approximately $50,000 and has been placed with a collections attorney for
      satisfaction.

      The Trust is also a claimant in the Georgia Pacific class action lawsuit.
      It is also a party to various legal actions resulting from its operating
      activities. These actions are routine litigation and administrative
      proceedings arising in the ordinary course of business, some of which are
      covered by liability insurance, and none of which are expected to have a
      material adverse effect on the consolidated financial condition or results
      of operations of the Trust taken as a whole.

Item 2. Changes in Securities and Use of Proceeds

      Not Applicable.

Item 3. Defaults upon Senior Securities

      There were no defaults upon senior securities of the Trust in the second
      quarter of 2002.

      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 former Chief Executive Officer)
      agreed to co-guarantee 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. As of June 30, 2002, approximately $6,478,000 of the
      construction loan had been drawn down. The Borrower was previously
      controlled by Gregory K. McGrath, a founder and the former Chief Executive
      Officer of the Trust. In September 2001, Mr. McGrath assigned all of the
      outstanding partnership interest in the Borrower to Sigma Pool Management,
      Inc., a Michigan corporation controlled by Jerome S. Rydell, a member of
      the Board of Trustees of the Trust. The interest rate on the construction
      loan is KeyBank's prime rate (currently 4.75%) or the LIBOR rate plus 2%.
      The Trust also agreed that, if the Borrower failed to comply with the
      repayment and other obligations under the loan documents, KeyBank could
      require the Trust to buy out the bank's position on the entire amount of
      the construction loan.

      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


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<PAGE>

      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, has been
      extended on a month-to-month basis. The Borrower paid down the outstanding
      accrued interest and a portion of the principal and, subject to the rights
      of the owner of the first mortgage loan and the mezzanine loan described
      below, it intends to seek a new long-term construction facility with
      another institutional lender to replace the first mortgage loan and the
      mezzanine loan.

      In December 2000, an affiliate of BankOne acquired KeyBank's position in
      the Burgundy Hills first mortgage loan. The loan is subject to the same
      terms and conditions as that of the original KeyBank loan. Earlier, the
      BankOne affiliate had provided mezzanine financing (subordinated to the
      first mortgage loan) in the principal amount of $1,576,000 to the
      Borrower. That loan was secured by a security interest in partnership
      interests in the Borrower. When the Borrower defaulted on its interest
      payment obligations on the loan, the BankOne affiliate filed a legal
      action to levy on the security interest and was awarded control of all of
      the equity interests in the Borrower and rental payments from the Burgundy
      Hills Property and took over day-to-day management of the property.

      The BankOne affiliate recently sold the first mortgage loan and mezzanine
      loan to Burgundy-Boone, LLC, an Illinois limited liability company,
      according to the latter's counsel. According to its counsel,
      Burgundy-Boone, LLC and its construction partner, Wallick Management
      Company (a construction and property management firm in Central Ohio),
      intend to complete construction of the Burgundy Hills project and then
      sell it. They appear to have completed construction on the last building
      in the first phase of the development.

      The Trust, as guarantor of the first mortgage loan, currently has a
      contingent liability for its full outstanding amount. Due to the
      uncertainty as to the status of the first mortgage loan and mezzanine loan
      and as to the actions and intentions of Burgundy-Boone, LLC, and due to
      the Trust's inability to verify all information it has received from other
      parties, the Trust's exposure on the guaranty is currently uncertain.

      In addition, in April 2002, the Operating Partnership ceased funding one
      of the Exchange Partnerships whose limited partnership units it acquired
      as part of the Exchange Offering. The Exchange Partnership owns Stadium
      Club Apartments.


                                       15
<PAGE>

      Since that time, the Exchange Partnership has been unable to generate
      sufficient cash flow to make the required mortgage payments and therefore
      the April, May, June and July 2002 payments are currently outstanding. The
      Exchange Partnership is currently negotiating with the first mortgage
      lender, and also has a potential purchaser for the Stadium Club
      Apartments. The mortgage is non-recourse with regard to the Operating
      Partnership and the Trust. Both the property's carrying value and related
      first mortgage loan balance at June 30, 2002 is $1,642,000 and is included
      in "Rental property held for sale" and "Mortgages payable - rental
      property held for sale", respectively, in the accompanying consolidated
      condensed financial statements.

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

      On May 29, 2002, the Trust held its annual meeting of shareholders. At the
      meeting, shareholders voted to (i) elect all three nominees to serve as
      Trustees on the Board of the Trust, (ii) ratify the selection of Rachlin
      Cohen & Holtz, Miami, Florida, as the independent auditors of the Trust
      and the Operating Partnership, and (iii) ratify the amendment and
      restatement of the Declaration of Trust of the Trust (the "Amended
      Declaration") approved by the Board of Trustees of the Trust to (1)
      reflect the resignation of Baron Advisors, Inc. (controlled by Gregory K.
      McGrath, a founder and former Chief Executive Officer of the Trust) as the
      managing shareholder of the Trust, (2) provide for the elimination of the
      role of Baron Advisors, Inc. as the managing shareholder of the Trust, (3)
      provide for the Board to assume the obligations of the former managing
      shareholder in the management of the Trust, (4) eliminate all provisions
      of the prior Declaration of Trust that related to the Operating
      Partnership's Exchange Offering and the Trust's Cash Offering which were
      completed in April 2000 and May 2000, respectively, and (5) correct
      certain typographical errors and other inconsistencies that are immaterial
      to the operation of the Trust and the Operating Partnership and to the
      rights of the Shareholders and Trustees of the Trust.

      Set forth below is the number of votes cast for and against, as well as
      the number of abstentions and broker non-votes, as to each such matter.

                                          No. Votes  No. Votes     Abstained/
      Matter Presented                       For      Against   Broker Non-Votes
      ----------------                       ---      -------   ----------------

      Election of Trustees
          James H. Bownas                  273,293    97,450
          Peter M. Dickson                 272,543    98,200
          Jerome S. Rydell                 273,093    97,650
      Amendment of Declaration of Trust    146,339     5,000        106,726
      Ratify Auditors                      263,293     2,000        105,450


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<PAGE>

Item 5. Other Information

      None

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 April 25, 2002 (incorporated herein by reference to
                  Exhibit 3.1 to the Current Report on Form 8-K of Baron Capital
                  Trust filed with the Securities and Exchange Commission on May
                  6, 2002).

         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).

      (b)   On May 6, 2002, the Registrant filed with the Securities and
            Exchange Commission a Current Report on Form 8-K that included a
            copy of the Amended and Restated Declaration of Trust. In April
            2002, the Board of Trustees of the Trust (the "Board") amended and
            restated the prior version of the Declaration of Trust of the Trust
            (the "Prior Declaration"). The Declaration of Trust is the agreement
            that governs the operation and management of the Trust and the
            relationship among, and rights and obligations of, the Shareholders
            and Trustees of the Trust. The Amended and Restated Declaration of
            Trust (the "Amended Declaration") (i) reflects the resignation of
            Baron Advisors, Inc. (controlled by Gregory K. McGrath, a founder
            and former Chief Executive Officer of the Trust) as the managing
            shareholder of the Trust, (ii) provides for the elimination of the
            role of Baron Advisors, Inc. as the managing shareholder of the
            Trust, (iii) provides for the Board to assume the obligations of the
            former managing shareholder in the management of the Trust, (iv)
            eliminates all provisions of the Prior Declaration that related to
            the Operating Partnership's Exchange Offering and the Trust's Cash
            Offering which were completed in April 2000 and May 2000,
            respectively, and (v) corrects certain typographical errors and
            other


                                       17
<PAGE>

            inconsistencies that are immaterial to the operation of the Trust
            and the Operating Partnership and to the rights of the Shareholders
            and Trustees of the Trust.

            Due to the ministerial nature of the amendments and in order to
            minimize printing costs, the Amended Declaration was not included in
            the Company's Proxy Statement delivered to its Shareholders in
            connection with its annual meeting of Shareholders held in May 2002.
            Instead, on May 6, 2002, the Company filed a Current Report on Form
            8-K that included a copy of the Amended Declaration (together with a
            version that highlighted the revisions made to the Prior
            Declaration) so that such documents would be available to
            Shareholders on the Internet at the website of the Securities and
            Exchange Commission ("SEC") ("http//:www.sec.gov").

            The Registrant did not file any other Current Reports on Form 8-K
            during the second quarter of 2002.

            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.

August 2, 2002

                                               BARON CAPITAL TRUST


                                               By: /s/ Robert L. Astorino
                                                   -----------------------------
                                                   Robert L. Astorino
                                                   Chief Executive Officer


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


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