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 March 31, 2001

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

        For the transition period ended ______________to________________


                        Commission file number 333-35063


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


                    Delaware                               31-1574856
          (State or other jurisdiction                   (IRS Employer
        of incorporation or organization)              Identification No.)

                    7826 Cooper Road, Cincinnati, Ohio 45242
                    (Address of principal executive offices)

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

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

Yes [X]  No [ ]

As of the date of this Report, the Registrant has outstanding  824,378 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>
                                                                                  March 31,      December 31,
                                                                                    2001             2000
                                                                                    ----             ----
                                                                                (Unaudited)
<S>                                                                            <C>               <C>
                                     ASSETS
Rental Apartments:
   Land                                                                        $  5,643,600      $  5,643,600
   Rental property held for sale                                                  3,609,931         3,635,000
   Depreciable property                                                          26,091,407        26,091,407
                                                                               ------------      ------------
                                                                                 35,344,938        35,370,007
   Less accumulated depreciation                                                  2,578,322         2,304,148
                                                                               ------------      ------------
                                                                                 32,766,616        33,065,859

Cash                                                                                489,454            20,908
Restricted Cash                                                                     423,042           359,894
Reimbursed Administrative Expenses Receivable, Affiliates                                --                --
Due from Managing Shareholder                                                            --                --
Other Receivables                                                                        --                --
Receivables from Affiliates                                                       6,717,368         6,580,099
Other Property and Equipment                                                         97,460           105,960
Other Assets                                                                        809,234           910,162
                                                                               ------------      ------------
                                                                               $ 41,303,174      $ 41,042,882
                                                                               ============      ============

                      LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
   Mortgages payable                                                           $ 25,796,222      $ 23,540,172
   Accounts payable and accrued liabilities                                       1,425,004         2,129,615
   Notes payable                                                                  2,086,473         2,482,498
   Payables to affiliates                                                         2,087,089         2,237,762
   Security deposits                                                                214,376           208,406
                                                                               ------------      ------------
         Total liabilities                                                       31,609,164        30,598,453
                                                                               ------------      ------------

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

Shareholders' Equity:
   Common shares of beneficial interest, no par value; 2,500,000
      shares authorized; 940,891 shares issued and outstanding                   18,875,273        18,875,273
   Deficit                                                                       (8,838,756)       (8,088,337)
   Distributions                                                                   (342,507)         (342,507)
                                                                               ------------      ------------
         Total shareholders' equity                                               9,694,010        10,444,429
                                                                               ------------      ------------
                                                                               $ 41,303,174      $ 41,042,882
                                                                               ============      ============
</TABLE>

           See notes to consolidated condensed financial statements.


                                      F-1
<PAGE>

                               BARON CAPITAL TRUST

                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                       Three Months Ended
                                                                             March 31,
                                                                             ---------
                                                                       2001              2000
                                                                       ----              ----
<S>                                                                <C>               <C>
Revenues:
   Property:
      Rental                                                       $ 1,569,482       $   267,668
      Equity in net loss of unconsolidated partnership                      --           (37,840)
   Interest and other income                                           255,359            25,540
                                                                   -----------       -----------
                                                                     1,824,841           255,368
                                                                   -----------       -----------
Real Estate Expenses:
   Depreciation                                                        299,244            40,825
   Amortization of loan costs                                           18,205                --
   Interest                                                            522,692            85,459
   Repairs and maintenance                                             165,380            25,809
   Personnel                                                           208,207            16,672
   Property taxes                                                      140,977            19,904
   Property insurance                                                   30,155             5,360
   Utilities                                                           153,459            13,374
   Other                                                                27,291             5,860
                                                                   -----------       -----------
                                                                     1,565,610           213,263
                                                                   -----------       -----------
Administrative Expenses:
   Personnel, including officer's compensation                         155,290           159,618
   Professional services                                                66,083           161,120
   Other                                                               105,972           (22,151)
                                                                   -----------       -----------
                                                                       327,345           298,587
                                                                   -----------       -----------

Net Loss Before Other Expenses                                         (68,114)         (256,482)
                                                                   -----------       -----------

Other Expenses:
   Prepayment penalties                                                534,075                --
   Write-off of loan costs on refinanced loans                         148,230                --
                                                                   -----------       -----------
                                                                       682,305                --
                                                                   -----------       -----------

Net Loss                                                           $  (750,419)      $  (256,482)
                                                                   ===========       ===========

Net Loss Per Share - Basic and Diluted                             $     (0.92)      $     (0.37)
                                                                   ===========       ===========
</TABLE>

           See notes to consolidated condensed financial statements.


                                      F-2
<PAGE>

                               BARON CAPITAL TRUST

            CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                Common Shares of
                                                               Beneficial Interest
                                                               -------------------
                                                               Shares        Amount        Deficit     Distributions       Total
                                                               ------        ------        -------     -------------       -----
<S>                                                          <C>          <C>            <C>             <C>           <C>
Balance, December 31, 1999                                     675,086    $ 6,616,806    $(4,743,987)    $(342,507)    $  1,530,312
                                                             ---------    -----------    -----------     ---------     ------------

Year Ended December 31, 2000:
   Proceeds from sale of common shares of
      beneficial interest, net of offering costs                26,990        248,308             --            --          248,308
   Common shares issued in connection with
      Exchange Offering                                      2,449,492     11,793,159             --            --       11,793,159
   Conversion of Operating Partnership units
      for shares of beneficial interest                        113,912             --             --            --               --
   Shares issued as commissions to broker-dealers
      in connection with Exchange Offering                     124,903             --             --            --               --
   Credit for estimated fair value of
      services performed by officer                                 --        217,000             --            --          217,000
   Net loss                                                         --             --     (3,344,350)           --       (3,344,350)
                                                             ---------    -----------    -----------     ---------     ------------

Balance, December 31, 2000                                   3,390,383     18,875,273     (8,088,337)     (342,507)      10,444,429
                                                             ---------    -----------    -----------     ---------     ------------

Net Loss (Unaudited)                                                --             --       (750,419)           --         (750,419)
                                                             ---------    -----------    -----------     ---------     ------------

Balance, March 31, 2001(Unaudited)                           3,390,383    $18,875,273    $(8,838,756)    $(342,507)    $  9,694,010
                                                             =========    ===========    ===========     =========     ============
</TABLE>

           See notes to consolidated condensed financial statements.


                                      F-3
<PAGE>

                               BARON CAPITAL TRUST

                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                      Three Months Ended
                                                                                           March 31,
                                                                                           ---------
                                                                                     2001              2000
                                                                                     ----              ----
<S>                                                                              <C>               <C>
Cash Flows from Operating Activities:
   Net loss                                                                      $  (750,419)      $  (256,482)
   Adjustments to reconcile net loss to
      net cash used in operating activities:
         Credit for estimated fair value of services performed by officer                 --            54,270
         Depreciation                                                                307,743            40,825
         Amortization of loan costs                                                   18,205                --
         Write-off of loan costs on refinanced loans                                 148,230                --
         Equity in net loss of unconsolidated partnership                                 --            37,840
         Decrease in operating assets:
            Reimbursed administrative expenses receivable                                 --             1,713
            Other assets                                                             132,105            60,825
         Increase (decrease) in operating liabilities:
            Accounts payable and accrued liabilities                                (704,611)          (56,600)
            Security deposits                                                          5,970             2,758
                                                                                 -----------       -----------
               Net cash used in operating activities                                (842,777)         (114,851)
                                                                                 -----------       -----------

Cash Flows from Investing Activities:
   Purchases of other property and equipment                                              --            (7,935)
   Decrease in restricted cash                                                       (63,148)          (28,697)
                                                                                 -----------       -----------
               Net cash used in investing activities                                 (63,148)          (36,632)
                                                                                 -----------       -----------

Cash Flows from Financing Activities:
   Proceeds from sale of common shares of beneficial interest                             --           175,644
   Proceeds from mortgage refinancing                                              2,166,237                --
   Proceeds from notes payable, affiliates                                                --             2,000
   Payments on notes payable                                                        (396,025)               --
   Payments on mortgages payable                                                    (107,799)          (14,637)
   Increase (decrease) in loans payable to affiliates, net                          (287,942)            5,141
                                                                                 -----------       -----------
               Net cash provided by financing activities                           1,374,471           168,148
                                                                                 -----------       -----------

Net Decrease in Cash                                                                 468,546            16,665

Cash, Beginning                                                                       20,908            33,774
                                                                                 -----------       -----------

Cash, Ending                                                                     $   489,454       $    50,439
                                                                                 ===========       ===========

Supplemental Disclosure of Cash Flow Information:
   Cash paid for mortgage and other interest                                     $   522,692       $    85,459
                                                                                 ===========       ===========
</TABLE>

           See notes to consolidated condensed financial statements.


                                      F-4
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

                             MARCH 31, 2001 AND 2000


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          Basis of Presentation

               The unaudited  consolidated  condensed  balance sheet as of March
               31,  2001,   unaudited   consolidated   condensed  statements  of
               operations  for the three  months  ended March 31, 2001 and 2000,
               the unaudited consolidated condensed statements of cash flows for
               the three months ended March 31, 2001 and 2000, and the unaudited
               consolidated condensed statements of shareholders' equity for the
               three  months  ended  March 31,  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 March 31,  2001 and for the period
               presented,  have been made.  The  results of  operations  for the
               three months ended March 31, 2001 are not necessarily  indicative
               of the operating results for the full year.

               Certain information and footnote disclosures normally included in
               the financial  statements  prepared in accordance  with generally
               accepted accounting principles have been condensed or omitted. It
               is suggested that these consolidated financial statements be read
               in conjunction  with the Trust's  financial  statements and notes
               thereto included in the Trust's December 31, 2000 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 Managing Shareholder of the Trust is Baron Advisors,  Inc., a
               Delaware  corporation  which manages the  operations of the Trust
               and  the  Operating   Partnership   subject  to  the  supervisory
               authority  of the Board of the Trust over the  activities  of the
               Trust  and  the  Operating  Partnership  and  the  Board's  prior
               approval authority in respect of certain actions of the Trust and
               the Operating  Partnership  specified in the Declaration of Trust
               of the Trust.

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

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


                                      F-5
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Continued)


NOTE 2.   LIQUIDITY AND PROFITABILITY CONSIDERATIONS

          During  the  years  ended  December  31,  2000  and  1999,  the  Trust
          experienced  certain cash flow  problems  and has,  from time to time,
          experienced  difficulties  meeting  obligations  as they  became  due.
          However,  as  reflected  in the  accompanying  consolidated  condensed
          financial  statements,  during the first  quarter  of 2001,  the Trust
          generated a net profit of approximately $249,000, before depreciation,
          amortization and other expenses versus a prior year first quarter loss
          of approximately $216,000.

          During the first quarter of 2001,  management  refinanced three of its
          properties, which generated $1,632,000 of cash to the Trust. This cash
          was used to reduce accounts  payable owed by the Trust,  advance funds
          for a second  round of  refinancings,  and  establish  an  escrow  for
          expected major repairs to its Riverwalk  property.  Management's plans
          to  continue  improving  liquidity  and  profitability  encompass  the
          following four strategies:

            o  increase  property cash  collections  through  implementation  of
               utility billings, rent increases and property enhancements;

            o  refinance selected well performing assets;

            o  dispose of assets which do not generate  cash to cover  operating
               costs or whose geographic location creates excessive burden; and

            o  reduce corporate overhead.

          In implementing these strategies, management has adopted the following
          action plans:

            o  In many  locations,  the market  for  apartments  has  started to
               include re-billing of property water costs to tenants.  The Trust
               has initiated  billing of tenants for their water used at several
               locations and intends to continue  implementation of the strategy
               at other  properties  as the markets  permit.  The Trust has also
               started a program of enhancing the aesthetics of the  properties,
               which  is  allowing  the  Trust to  increase  rents  while  still
               improving occupancy.

            o  The Trust has  identified  certain  of its  properties  which are
               performing  well and have loans  which are small  relative to the
               value of the property,  given their excellent performance.  Three
               properties were refinanced in the first quarter of 2001 (see Note
               6),  generating  sufficient  cash for the  Trust  to  enter  into
               negotiations with all of its Exchange Offering professionals, and
               still  have a  small  amount  in  reserve.  All  three  of  these
               properties  were  refinanced  at  interest  rates  lower than the
               interest rate on their old loan.  The Trust has  identified  four
               additional properties,  which it believes can support higher debt
               levels and provide  cash for  general  corporate  purposes.  As a
               result,  the  Trust  has  refinancing  proposals  on  these  four
               properties  that, if accepted by the Trust,  would result in cash
               proceeds of approximately $1,500,000.

            o  The  Trust  entered  into  a  contract  for  sale  of  one of its
               properties  that,  in the  past,  has  required  substantial  and
               frequent  cash  infusions.  The sale  closed on April  30,  2001.
               Additional   properties   are  being   evaluated   for  potential
               disposition.


                                      F-6
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Continued)


NOTE 2.   LIQUIDITY AND PROFITABILITY CONSIDERATIONS (Continued)

            o  During  2000,  the Trust  terminated  the  services of one of its
               executive  officers  and  entered  into an  arrangement  with two
               outside  businesses  to allow  officers  of the Trust to work for
               those  businesses.  The salaries of those officers  needing to be
               funded by the Trust  were  reduced  because  of the  income  they
               received from the outside businesses.

            o  For the three months ending March 31, 2001,  the Trust  generated
               positive  cash  flow  from  operations  in an amount in excess of
               budget.  As a  result  of  this  and  the  re-financing  of the 3
               properties  discussed in Note 6, on or about March 31, 2001,  the
               Trust had approximately $490,000 in available cash.

          Management  believes  that the  actions  presently  being taken by the
          Trust,  including  the cash to be realized upon  refinancing  the four
          properties  previously  mentioned  and its cash on hand,  provide  the
          opportunity for the Trust to improve liquidity and profitability.


NOTE 3.   EXCHANGE OFFERING

          On April 7, 2000,  pursuant to a  registration  statement on Form S-4,
          the Operating  Partnership completed the Exchange Offering under which
          it acquired additional interests in residential  apartment properties.
          In the Exchange Offering,  the Operating  Partnership issued 2,449,492
          registered Operating Partnership Units (with an initial assigned value
          of $24,494,920) in exchange for substantially all outstanding units of
          limited  partnership  interest  owned by individual  limited  partners
          ("Exchange  Limited   Partners")  in  23  limited   partnerships  (the
          "Exchange  Partnerships"),  which directly or indirectly  owned equity
          and/or  debt  interests  in one or  more of 26  residential  apartment
          properties located in the southeast and mid-west United States.

          The acquisition of the Exchange  Partnerships  was accounted for under
          the purchase  method of accounting,  effective as of April 1, 2000 for
          accounting  purposes.  The cost of acquisition  approximated  the fair
          value of the net assets  acquired  (principally  the  appraised  value
          determined  by  management  based on  actual  1998  appraisals  of the
          underlying residential apartment properties less related liabilities),
          which amounted to $11,793,159.  Therefore, no goodwill was recorded in
          this   transaction.   The  results  of   operations  of  the  Exchange
          Partnerships are included in the consolidated  financial statements as
          of April 1, 2000.

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

          The  following  unaudited  pro  forma  summary  presents  consolidated
          financial  information  as  if  the  Exchange  Partnerships  had  been
          acquired effective January 1, 2000. The pro forma amounts


                                      F-7
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Continued)


NOTE 3.   EXCHANGE OFFERING (Continued)

          include  adjustments for depreciation as a result of the adjustment to
          fair  value  of the  residential  apartment  properties  and  interest
          associated with the related mortgages.  The pro forma information does
          not necessary  reflect the actual results that would have occurred nor
          is it  necessarily  indicative of future  results of operations of the
          combined partnerships.

                                                         Three Months Ended
                                                              March 31
                                                              --------
                                                         2001            2000
                                                         ----            ----

            Total revenues                           $1,825,000      $1,406,000
            Cost and expenses                         2,575,000       1,516,000
                                                     ----------      ----------
            Net loss                                 $ (750,000)     $ (110,000)
                                                     ----------      ----------

            Weighted average number of shares           816,316         694,156
                                                        =======         =======

            Net loss per share                            $(.92)          $(.16)
                                                          =====           =====


NOTE 4.   RECENT ACCOUNTING PRONOUNCEMENTS

          In September  2000,  Statement of Financial  Accounting  Standards No.
          140,  Accounting  for Transfers and Servicing of Financial  Assets and
          Extinguishments  of  Liabilities  (SFAS  140)  was  issued.  SFAS  140
          provides   accounting  and  reporting   standards  for  transfers  and
          servicing of financial assets and extinguishments of liabilities. SFAS
          140 is effective for  recognition and  reclassification  of collateral
          and  for  disclosures  relating  to  securitization  transactions  and
          collateral  for fiscal  years  ending  after  December 15, 2000 and is
          effective  for  transfers  and  servicing  of  financial   assets  and
          extinguishments  of  liabilities  occurring  after March 31, 2001. The
          Trust  anticipates  that  the  adoption  of SFAS  140  will not have a
          material effect on its financial position or results of operations.

          In December 1999, the Securities and Exchange  Commission (SEC) issued
          Staff Accounting  Bulletin No. 101,  Revenue  Recognition in Financial
          Statements (SAB 101). SAB 101 summarizes certain of the SEC's views in
          applying   generally   accepted   accounting   principles  to  revenue
          recognition  in financial  statements.  SAB 101 is  effective  for the
          fourth  quarter of fiscal years  beginning  after  December  1999. The
          Trust believes that it is in compliance  with the guidelines set forth
          in SAB 101.

          In June 1999, the Financial Accounting Standards Board issued SFAS No.
          137,  "Accounting for Derivative  Instruments and Hedging Activities -
          Deferral of the  Effective  Date of SFAS No. 133 an  Amendment of SFAS
          No. 133",  which deferred the effective date to all fiscal quarters of
          all fiscal  years  beginning  after June 15, 2000.  Historically,  the
          Trust has not entered into  derivatives  contracts  to hedge  existing
          risks or for speculative  purposes.  Accordingly,  the adoption of the
          new standard on January 1, 2001 had no effect on the Trust's financial
          statements.


                                      F-8
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Continued)


NOTE 5.   RENTAL APARTMENT HELD FOR SALE

          On December 7, 2000, the Independent Trustees of the Trust accepted an
          offer to sell  Glen  Lake  Arms  Apartments  (Glen  Lake),  a 144 unit
          apartment building located in St. Petersburg,  Florida for $3,900,000.
          The  decision  to sell Glen Lake was based on the  property's  lack of
          performance and its continuing need for cash to operate.  On April 30,
          2001, the Partnership consummated the sale of Glen Lake resulting in a
          gain of $68,070.

          The  results of  operations  of Glen Lake for the three  months  ended
          March 31, 2001 were as follows:

            Rental and other income                                $275,000
            Expenses                                                188,000
                                                                   --------
               Net Income                                          $ 87,000
                                                                   ========


NOTE 6.   MORTGAGE REFINANCING

          On February 5, 2001, the Trust refinanced the first mortgages on three
          rental properties.  The new information pertaining to the mortgages is
          as follows:

<TABLE>
<CAPTION>
                                                  Interest       Term           Maturity           Monthly
           Property                Mortgage         Rate        (Years)           Date            Payments
           --------                --------         ----        -------           ----            --------
<S>                               <C>               <C>           <C>       <C>                    <C>
           Pineview               $2,700,000        7.51%         25        February 5, 2011       $19,970
           Heatherwood            $1,900,000        7.51%         30        February 5, 2011       $13,298
           Eagle Lake             $1,900,000        7.51%         25        February 5, 2011       $14,053
</TABLE>

          The Trust  received  approximately  $2,200,000  in  proceeds  from the
          refinancing   of  the  first   mortgages.   In  connection   with  the
          refinancings,   the  Trust  paid  a  one-time  prepayment  penalty  of
          approximately $534,000, which is included under other expenses for the
          three month period ended March 31, 2001.


NOTE 7.   COMMITMENTS AND CONTINGENCIES

          Contract to Purchase Additional Properties

               In September 1998, the Trust entered into an agreement with three
               real  estate   development   companies   to  acquire  two  luxury
               residential  apartment  properties in the development  stage upon
               the completion of construction.  The three development  companies
               are  controlled  by one of the  Trust's  founders  and its  Chief
               Executive Officer.  One of the residential  apartment  properties
               has been sold to a third  party  with the  Trust's  consent.  The
               remaining  property  is  scheduled  to have a total of 396 units,
               comprised  of one,  two and  three  bedroom/one  or two  bathroom
               apartments.  Construction  of the property (the  "Burgundy  Hills
               Property"), located in Florence, Kentucky (part of the Cincinnati
               metropolitan area), is expected to be completed


                                      F-9
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Continued)


NOTE 7.   COMMITMENTS AND CONTINGENCIES (Continued)

          Contract to Purchase Additional Properties (Continued)

               by the end of the first quarter of 2004. The Trust has a right of
               first  negotiation to purchase the property from the  development
               company upon  completion and a right of first refusal to purchase
               the  property  on the same terms  offered by a third  party.  The
               purchase price is expected to be approximately $30,000,000. It is
               contemplated  that a significant  portion of that amount would be
               covered by first mortgage  financing.  Currently,  the Trust does
               not have adequate resources to close on the transaction and it is
               uncertain  whether  the Trust  will have  adequate  resources  to
               complete the transaction upon completion of construction.

               In  connection  with the  transaction,  the Trust (along with its
               Chief Executive  Officer) agreed to co-guarantee  long-term first
               mortgage construction  financing provided by a bank to Burlington
               Residential,  Ltd. ("Borrower"),  the owner of the Burgundy Hills
               Property. As of March 31, 2001,  approximately  $6,478,000 of the
               construction  loan had been drawn down.  The interest rate on the
               construction  loan is the bank's prime rate  (currently  8.5%) 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,  the bank could  elect to
               require  the Trust to buy out the bank's  position  on the entire
               outstanding amount of the construction loan.

               In September  2000, the Trust received notice from counsel to the
               bank 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  condition  of the  Borrower  and  the  Trust,  and the
               Trust's  failure to meet  certain  tangible  net worth  tests set
               forth in the loan  agreements.  The  bank  indicated  that it was
               exercising  its right to  accelerate  the loan.  According to the
               Trust's  Chief  Executive  Officer,  the bank  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 the Chief Executive Officer, is currently being
               extended on a  month-to-month  basis.  The Borrower paid down the
               outstanding  accrued  interest and a portion of the principal and
               is currently pursuing a new long-term  construction facility with
               another  institutional  lender to replace  the bank loan (and the
               loan from another bank described below).

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

               There can be no assurance that  refinancing  will be available or
               will be  available on  commercially  reasonable  terms,  that the
               first  mortgage bank  (described  above) will not seek to enforce
               its  right  to   accelerate   the  loan  and  begin   foreclosure
               proceedings  against  the  Burgundy  Hills  Property  or elect to
               require  the  Trust  to  buy  out  its  position  on  the  entire
               outstanding  amount of the  construction  loan, or that the other
               bank will not seek to enforce  its right to take over  control of
               the Borrower.


                                      F-10
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Continued)


NOTE 7.   COMMITMENTS AND CONTINGENCIES (Continued)

          Officers' Compensation

               Prior  to  January  1,  2001,  a  founder  of the  Trust  and the
               Operating  Partnership  had  agreed  to serve as Chief  Executive
               Officer in exchange for  compensation in the form of Trust common
               shares or Operating  Partnership units in an amount not to exceed
               25,000 shares or units,  as  applicable,  to be determined by the
               Executive Compensation  Committee based upon his performance.  As
               of  December  31,  2000,  no Trust  common  shares  or  Operating
               Partnership units of the Partnership had been issued to the Chief
               Executive Officer as compensation.  However,  in order to reflect
               all appropriate  administrative  expenses of the  Partnership,  a
               provision of $217,000 was made in the  financial  statements  for
               the  estimated  fair value of the services  rendered by the Chief
               Executive  Officer for 2000.  Effective  December  31,  2000,  no
               compensation expense will be charged for the services provided by
               the Chief Executive Officer, as these services are minimal to the
               Partnership's operations.

               On August 28, 2000, the Trust entered into employment  agreements
               with the President and Chief Operating Officer (COO) and with the
               Chief Financial  Officer (CFO) through  December 31, 2001.  Under
               the terms of the  agreement,  the  Trust  through  the  Operating
               Partnership  will pay the COO and the CFO  $175,000  and $110,000
               per annum,  respectively.  In addition,  the COO and the CFO will
               receive   $90,000  and   $60,000,   respectively,   if  they  are
               involuntarily   terminated   for  any  reason  other  than  gross
               misconduct.

          Underwriting Agreement

               In connection with the Cash Offering, which terminated on May 31,
               2000,  the  Trust  issued  to Sigma  Financial  Corporation  (the
               "Underwriter"),  warrants to purchase  common shares in an amount
               equal to 8.5% of the number of common shares sold in the offering
               on a best effort  basis,  by the  Underwriter  and  participating
               broker-dealers  selected by the  Underwriter  and the Trust.  The
               warrants  may be  exercised  at any time  and  from  time to time
               through May 15,  2003 at an exercise  price of $13.00 per warrant
               share.  The Trust has  reserved  59,676  common  shares under the
               Underwriting  Agreement,  which  is  equivalent  to  8.5%  of the
               702,076 common shares sold in the Cash Offering.

          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.

               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 the Chief  Executive  Officer of the  Trust),  the
               Chief Executive Officer of the Trust, and Alexandria Development,
               L.P.,  a Delaware  limited  partnership  controlled  by the Chief
               Executive  Officer of which the Operating  Partnership owns a 40%
               limited  partnership  interest  (the  "Alexandria  Partnership"),
               among other parties, seeking repayment of


                                      F-11
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Continued)


NOTE 7.   COMMITMENTS AND CONTINGENCIES (Continued)

          Pending Litigation (Continued)

               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  Apartments property, a
               residential  apartment  property under construction that is owned
               by  the  Alexandria   Partnership.   The  Alexandria  Partnership
               guaranteed  Wakul,   Inc.'s  lease  payments  under  the  leasing
               agreement.


NOTE 8.   RELATED PARTY TRANSACTIONS

          Trust Management Agreement

               In 1998, the Trust entered into a Trust Management Agreement with
               the Managing Shareholder under which the Managing Shareholder was
               obligated to provide  management,  administrative  and investment
               advisory  services  to the Trust.  The  services  to be  rendered
               included, among other things, communicating with and reporting to
               investors,  administering  accounts,  providing  to the  Trust of
               office  space,   equipment  and  facilities  and  other  services
               necessary for the Trust's  operation,  and representing the Trust
               in its  relations  with  custodians,  depositories,  accountants,
               attorneys, brokers and dealers, corporate fiduciaries,  insurers,
               banks and others, as required.  The Managing Shareholder was also
               responsible  for  determining  which real estate  investments and
               non-real estate investments  (including the temporary  investment
               of the  Trust's  available  funds  prior to their  commitment  to
               particular real estate  investments) the Trust would make and for
               making  divestment  decisions,  subject to the  provisions of the
               Declaration.  The Trust Management  Agreement had an initial term
               of one year and was subject to extension on a year-to-year  basis
               on  approval  of the  Board  or a  majority  of the  stockholders
               entitled to vote on such matter or a majority of the  Independent
               Trustees.

               On February 7, 2001,  the  Independent  Trustees of the Trust and
               the  Managing  Shareholder  agreed  to  terminate  the  agreement
               effective  December 31, 2000. At December 31, 2000, the Trust had
               accrued approximately $303,000, which represented all unpaid fees
               earned by the Managing Shareholder through December 31, 2000. The
               $303,000 in unpaid fees as of December  31, 2000 were paid during
               the three months ended March 31, 2001.

          Loans from Executive Officers

               In connection with the  refinancings  described in Note 6, two of
               the executive  officers of the Trust loaned  $49,250 each, to the
               Trust.  These  funds  were  used  for the  deposits  required  to
               initiate  processing  of the new  mortgages.  Since  there was no
               guarantee  that  the  mortgages  would  be  granted,  and thus no
               guarantee that the loans would be repaid in a timely manner,  the
               loans called for  interest to be paid equal to ten percent  (10%)
               of the amount of the loan plus eighteen  percent (18%) per annum.
               The two executive officers received  approximately $6,800 each as
               interest on their loans.


                                      F-12
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Continued)


NOTE 9.   NET LOSS PER SHARE

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

          Basic net loss per  share  equals  net loss  divided  by the  weighted
          average shares outstanding during the year. The computation of diluted
          net loss per share that includes  dilutive common share equivalents in
          the weighted average shares outstanding has not been presented,  as it
          is anti-dilutive for the three months ended March 31, 2001 and 2000.

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

<TABLE>
<CAPTION>
                                                                           Weighted        Net
                                                                           Average         Loss
                                                             Net Loss       Shares      Per Share
                                                             --------       ------      ---------
<S>                                                         <C>            <C>            <C>
            For the three months ended March 31:
               2001                                         $(750,419)     816,316        $(.92)
                                                            =========      =======        =====
               2000                                         $(256,482)     694,156        $(.37)
                                                            =========      =======        =====
</TABLE>


                                      F-13
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Continued)


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

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

          Forward-looking Statements

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

          Results of Operations

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

          The Trust is the sole general  partner of the  Operating  Partnership,
          and,  in such  capacity,  the Trust  controls  the  activities  of the
          Operating  Partnership.  The Trust has  elected  to be taxed as a real
          estate investment trust for federal income tax purposes.

          As described below in this Report, in May 1998, the Trust commenced an
          offering  (the "Cash  Offering")  of up to 2,500,000  common shares of
          beneficial interest ("Common Shares") in the Trust at a purchase price
          of $10.00 per share (maximum


                                       3
<PAGE>

          proceeds of $25,000,000).  In the Cash Offering,  which expired on May
          31,  2000,  the Trust sold  702,076  Common  Shares  for an  aggregate
          purchase price of $7,020,763.

          The Trust  contributed  the net cash  proceeds  from the  issuance  of
          Common  Shares  in the Cash  Offering  ($5,467,858)  to the  Operating
          Partnership in exchange for an equivalent  number of units ("Units" or
          "Operating  Partnership Units") of limited partnership interest in the
          Operating  Partnership.  As of May 15, 2001,  the Trust owned  702,076
          Operating Partnership Units,  representing  approximately 18.5% of the
          then outstanding Units. Since such Units comprise substantially all of
          the  assets  of the  Trust,  the  operating  results  of the Trust are
          primarily  dependent  upon  the  operating  results  of the  Operating
          Partnership.

          Through   the   Operating   Partnership,   the  Trust   has   acquired
          substantially all the beneficial interests in 16 residential apartment
          properties,  including the  Heatherwood I Apartments  (67 studio,  one
          bedroom and two bedroom units  located in Kissimmee,  Florida) in June
          1998;  Crystal  Court II  Apartments  (80 studio,  one bedroom and two
          bedroom  units located in Lakeland,  Florida) in July 1998;  Riverwalk
          Apartments  (50 two bedroom units  located in New Smyrna,  Florida) in
          September  1998;  and 13  properties  acquired as part of the Exchange
          Offering in April 2000 (discussed  below).  In July 1998 the Operating
          Partnership also acquired a minority limited  partnership  interest in
          13 real estate  limited  partnerships  then managed by  affiliates  of
          Gregory  K.  McGrath  (a founder  and Chief  Executive  Officer of the
          Trust,   a  founder  and   principal   unitholder   of  the  Operating
          Partnership,  and the President, sole shareholder and sole director of
          Baron  Advisors,  Inc.,  a  Delaware  corporation  that  serves as the
          Managing  Shareholder  and a  trustee  of the  Board  of  the  Trust),
          including certain of the Exchange  Partnerships  which participated in
          the Exchange Offering and which are now managed by the Trust.

          During 1998 and 1999,  the Operating  Partnership  acquired a total of
          40% of the limited  partnership  interests in Alexandria  Development,
          L.P. (the "Alexandria  Partnership"),  a Delaware limited  partnership
          controlled by Mr. McGrath. The Alexandria  Partnership owns Alexandria
          Apartments, a 168-unit residential apartment property (the "Alexandria
          Property") under construction in Alexandria,  Kentucky.  As of May 15,
          2001, 112 of the 168 residential  units  (approximately  67%) had been
          completed and were in the rent-up stage. Of the completed  units,  109
          units have been rented.

          In 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 Gregory K.
          McGrath,  the Chief Executive Officer of the Trust), 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.


                                       4
<PAGE>

          Due to  recurring  losses  incurred  by  the  Alexandria  Property,  a
          partners' deficiency and a recent appraisal that valued the Alexandria
          Property at an amount less than the  liabilities  owed,  management of
          the  Trust  determined  to write  off the  Trust's  investment  in the
          Alexandria  Property,  resulting in a charge to  operations in 2000 of
          approximately $355,000.

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

          In connection  with the  transaction,  the Trust (along with its Chief
          Executive  Officer)  agreed to  co-guarantee  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  May  15,  2001,  approximately
          $6,478,000 of the construction  loan had been drawn down. The interest
          rate on the construction loan is KeyBank's prime rate (currently 8.5%)
          or the LIBOR rate plus 2%. The Trust also agreed that, if the Borrower
          failed to comply with the  repayment and other  obligations  under the
          loan documents,  KeyBank would 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,
          is currently being extended on a  month-to-month  basis.  The Borrower
          paid  down the  outstanding  accrued  interest  and a  portion  of the
          principal  and  is  currently  seeking  a new  long-term  construction
          facility with another


                                       5
<PAGE>

          institutional  lender to replace  the  KeyBank  loan (and the Bank One
          loan described below).

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

          In April 2000,  pursuant to a registration  statement on Form S-4, the
          Operating  Partnership  completed an exchange  offering (the "Exchange
          Offering") under which it acquired additional interests in residential
          apartment  properties.   In  the  Exchange  Offering,   the  Operating
          Partnership issued 2,449,492  registered  Operating  Partnership Units
          (with an  initial  assigned  value of  $24,494,920)  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 26 residential  apartment  properties (the "Exchange
          Properties") located in the southeast and mid-west United States.

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

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


                                       6
<PAGE>

          represented  by the equity and debt  interests  owned by the  Exchange
          Partnerships and controlled management of such partnerships.

          In April 2000, the Operating  Partnership  sold its equity interest in
          one of the  Exchange  Properties,  Glen Lakes  Apartments,  a 144-unit
          residential apartment property located in St. Petersburg, Florida, for
          $3,900,000.  Management  of the Trust  determined to sell the property
          based on its lack of  performance  and its  need for  substantial  and
          frequent cash infusions.

          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
          units  (comprised  of studio  and one,  two,  three  and  four-bedroom
          units).  Certain  of  the  Exchange  Partnerships  controlled  by  the
          Operating  Partnership own direct or indirect mortgage interests in 10
          Exchange  Properties,  which  consist of an  aggregate of 813 existing
          residential  units (studio and one and two bedroom) and 168 units (two
          and three bedroom) under  development.  Of the Exchange  Properties 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.

          Consolidated  Balance  Sheet as of March 31, 2001 Compared to December
          31, 2000

          During the three months ended March 31, 2001,  total assets  increased
          to $41.3 million while  liabilities  increased to $31.6  million.  The
          Operating  Partnership  now has rental  apartment  assets in excess of
          $35.3  million,  which are subject to $25.8 million in first  mortgage
          debt.

          Shareholders'  equity  decreased to $9.7 million due to a net loss for
          the three months ended March 31, 2001 of approximately $750,000.

          Operations for the Three Months Ended March 31, 2001 Compared to Three
          Months Ended March 31, 2000

          Revenues  increased by $1,569,473  from $255,368 for the quarter ended
          March 31, 2000 to  $1,824,841  for the quarter  ended March 31,  2001.
          Real Estate  Expenses for the properties  owned by the Trust increased
          by  $1,352,347  from  $213,263 for the quarter ended March 31, 2000 to
          $1,565,610  for the quarter  ended March 31,  2001.  The  increases in
          Revenues  and  Real  Estate  Expenses  were  principally  due  to  the
          completion in April 2000 of the Exchange  Offering  (described  above)
          and the  addition  of the 26  Exchange  Properties  and their  related
          operating revenue and costs. Administrative expenses increased $28,758
          from $298,587 for the quarter ended March 31, 2000 to $327,345 for the
          quarter  ended March 31, 2001.  Other  non-recurring  expenses for the
          quarter ended March 31, 2001 were $682,305.  These expenses related to
          the  refinancing of three  properties  completed in the first quarter.
          The Trust's Net Loss for the quarter ended March 31, 2001 was $750,419
          compared to $256,482 for the quarter ended March 31, 2000.

          In the  financial  statements  included in its Form  10-QSB  quarterly
          report  for the  second  quarter of 2000,  the Trust  accounted  for a
          one-time  charge of $8.4  million to  operations  as a  provision  for
          property impairment to reflect a write-off of the excess amount of the
          exchanged value of the Exchange Partnerships over the estimated equity
          value of the Exchange  Properties.  Upon further  review,  the Trust's
          independent accountants have determined that the write-off should have
          been accounted for as a direct  reduction  from its retained  earnings
          rather  than as an expense  deduction.  The Trust will  promptly  file
          amendments to its second and third quarter 2000 Form 10-KSB  quarterly
          reports (including  restatement of the financial  statements  included
          therein)  to  reflect  the  change  in   accounting   treatment.   The
          restatement  of the Trust's  financial  statements  for the second and
          third  quarters  of 2000  will  not have any  effect  on its  retained
          earnings or shareholders' equity.


                                       7
<PAGE>

          Liquidity and Capital Resources

          Net cash used by operating  activities in the three months ended March
          31, 2001 was  $842,777  compared to $114,851 in the three months ended
          March 31,  2000.  A number of items,  including an decrease in certain
          liabilities  (primarily accounts payable) contributed to the increased
          use of cash by operating activities.

          Net cash used by investing  activities in the three months ended March
          31, 2001 was $63,148  compared  to $36,632 in the three  months  ended
          March 31, 2000.  The increase in cash used for the first  quarter 2001
          was due primarily to an increase in restricted cash held by properties
          for escrows and security deposits.

          Net cash  provided by financing  activities  in the three months ended
          March 31,  2001 was  $1,374,471  compared  to  $168,148  for the three
          months  ended  March 31,  2001.  The  increase  in cash was due to the
          proceeds from the mortgage refinancing of three properties.

          During  the  years  ended  December  31,  2000  and  1999,  the  Trust
          experienced  certain cash flow  problems  and has,  from time to time,
          experienced  difficulties  meeting  obligations  as they  became  due.
          However,  as  reflected  in the  accompanying  consolidated  condensed
          financial  statements,  during the first  quarter  of 2001,  the Trust
          generated a profit of  approximately  $249,000,  before  depreciation,
          amortization  and  other  expenses,  compared  to a prior  year  first
          quarter loss of approximately $216,000.

          During the first quarter of 2001,  the Trust  refinanced  three of its
          properties, which generated $1,632,000 of cash to the Trust. This cash
          was used to reduce accounts  payable owed by the Trust,  advance funds
          for a second  round of  refinancings,  and  establish  an  escrow  for
          expected major repairs to its Riverwalk property.

          Management's plans to continue  improving  liquidity and profitability
          encompass the following four strategies:

          o    increase  property cash  collections  through  implementation  of
               utility billings, rent increases and property enhancements;

          o    refinance selected well performing assets;

          o    dispose of assets which do not generate  cash to cover  operating
               costs or whose geographic location creates excessive burden; and

          o    reduce corporate overhead.

          In implementing these strategies, management has adopted the following
          action plans:

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


                                       8
<PAGE>

               water  used  at  several   locations   and  intends  to  continue
               implementation of the strategy at other properties as the markets
               permit.  The Trust has also  started a program of  enhancing  the
               aesthetics  of the  properties  which is  allowing  the  Trust to
               increase rents while still improving occupancy.

          o    The Trust has  identified  certain  of its  properties  which are
               performing  well and have loans  which are small  relative to the
               value of the property,  given their excellent performance.  Three
               properties   were  refinanced  in  the  first  quarter  of  2001,
               generating   sufficient   cash  for  the  Trust  to  enter   into
               negotiations  with all of the  professionals  owed  for  services
               performed in  connection  with the Exchange  Offering,  and still
               have a small  amount in  reserve.  All three of these  properties
               were refinanced at interest rates lower than the interest rate on
               their  old  loan.  The  Trust  has  identified   four  additional
               properties  which it believes can support  higher debt levels and
               provide cash for general  corporate  purposes.  As a result,  the
               Trust has refinancing proposals on these four properties that, if
               accepted  by  the  Trust,   would  result  in  cash  proceeds  of
               approximately $1,500,000.

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

          o    During  2000,  the Trust  terminated  the  services of one of its
               executive  officers  and  entered  into an  arrangement  with two
               outside  businesses  to allow  officers  of the Trust to work for
               those  businesses.  The salaries of those officers  needing to be
               funded by the Trust  were  reduced  because  of the  income  they
               received from the outside businesses.

          o    For the  three  months  ending  March  31,  2001,  the  Operating
               Partnership  generated  positive cash flow from  operations in an
               amount in excess of  budget.  As a result of  operations  and the
               refinancings  of three  properties,  at March 31, 2001, the Trust
               had approximately $490,000 in available cash.

          Management  believes  that the  actions  presently  being taken by the
          Trust,  including  the cash to be realized upon  refinancing  the four
          properties  previously  mentioned  and its cash on hand,  provide  the
          opportunity for the Trust to improve liquidity and profitability.

          The completion in April 2000 of the Exchange Offering  described above
          has  completed  the first  effort,  in the opinion of  management,  to
          provide the critical mass  necessary  for  profitable  operations.  As
          described  above, the Company has entered into agreements with certain
          professional  firms  involved in the Exchange  Offering which are owed
          for their services,  and continues to negotiate with other such firms,
          to receive  extended  payment terms and reductions of the amounts due,
          where possible.  Distributions  will be made by the Trust as cash flow
          allows,  but will be negatively  impacted as the open accounts payable
          are reduced.  Management  does not anticipate that the Trust will make
          distributions to its shareholders for the next several quarters.


                                       9
<PAGE>

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

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

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

          The Trust believes that known trends,  events or  uncertainties  which
          will or are  reasonably  likely to affect the short-term and long-term
          liquidity  and  current  and  future  prospects  of the  Trust and the
          Operating  Partnership  include the performance of the economy and the
          building  of new  apartment  communities.  Although  the Trust  cannot
          reliably predict the effects of these trends, events and uncertainties
          on the property investments of the Trust and the Operating Partnership
          as a whole, some of the reasonably  anticipated  effects might include
          downward pressure on rental rates and occupancy levels.


                                       10
<PAGE>

          Generally,  there are no  seasonal  aspects of the  operations  of the
          Trust or the Operating  Partnership  that might have a material effect
          on their financial  conditions or results of operation.  However,  for
          the last 36 months,  one 60-unit student housing property owned by one
          of the Exchange Partnerships involved in the Exchange Offering has had
          an average  occupancy  rate of 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
          Trust and the Operating  Partnership have the ability to satisfy their
          cash requirements for the foreseeable future.  However,  management of
          the  Trust  believes  that it will be  necessary  to raise  additional
          capital  during  the next 12 months to make  acquisitions  and to meet
          management's  revenue and cash flow goals. The Trust and the Operating
          Partnership  intend  to  investigate  making an  additional  public or
          private  offering of Common  Shares  and/or  Units  during the next 12
          months.

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

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

          In an effort to  increase  profitability,  the Trust has also  entered
          into agreements with WaKuL, Inc. (formerly Rapid Transmit  Technology,
          Inc.),  a provider of  integrated  communications  services to owners,
          property managers and residents of residential  apartment  properties,
          including  discounted  local and long distance phone service,  digital
          cable TV, high speed  Internet  access,  monitored  security  systems,
          utility sub-metering and various property management  services.  WaKuL
          will provide these  services at no capital cost to the Trust,  and has
          entered into revenue sharing  relationships with the Trust.  (WaKuL is
          an affiliate of the Trust by virtue of the overlapping  management and
          ownership capacities in the Trust, the Operating Partnership and WaKuL
          of  Gregory  K.  McGrath,  a  founder  of  the  Trust,  the  Operating
          Partnership,  and WaKul.) The WaKuL  services  are expected to provide
          the Trust's properties with a significant marketing advantage over its
          competitors, and to provide significant rental and other revenues that
          the properties otherwise would not have generated.


                                       11
<PAGE>

          Year 2000

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


                           PART II - OTHER INFORMATION

Item 1.   Legal Proceedings

          The Trust is 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

          In connection with a transaction  described above at "Part I - Item 2.
          Management's  Discussion  and Analysis or Plan of Operations - Results
          of  Operations,"  the Trust (along with its Chief  Executive  Officer)
          agreed to co-guarantee 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 May 15, 2001, approximately $6,478,000 of the
          construction  loan had been drawn down.  The Borrower is controlled by
          Gregory K. McGrath,  a founder and the Chief Executive  Officer of the
          Trust. The interest rate on the  construction  loan is KeyBank's prime
          rate (currently 8.5%) or the LIBOR rate


                                       12
<PAGE>

          plus 2%. The Trust also agreed that, if the Borrower  failed to comply
          with the repayment  and other  obligations  under the loan  documents,
          KeyBank would 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 since the default had not been cured within  applicable
          grace periods under the loan agreement, it was exercising its right to
          accelerate the loan and demanded payment of the outstanding  principal
          balance  of the loan,  together  with all  interest  due  thereon  and
          amounts  owed to  KeyBank  for  charges,  fees  and  expenses,  in the
          aggregate  amount  of  $5,633,135,  and  that it was  relieved  of any
          commitment  to loan  any  additional  funds  to the  Borrower  for the
          existing phase and additional phases of the construction project.

          According to Mr. McGrath,  KeyBank agreed to forego further action for
          at least 60 days while the parties  attempted to reach an arrangement.
          The extension expired in November 2000 and,  according to Mr. McGrath,
          is currently being extended on a  month-to-month  basis.  The Borrower
          paid  down the  outstanding  accrued  interest  and a  portion  of the
          principal  and  is  currently  seeking  a new  long-term  construction
          facility with another institutional lender to replace the KeyBank loan
          (and the Bank One loan described below).

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

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

          None.

Item 5.   Other Information

          None


                                       13
<PAGE>

Item 6.   Exhibits and Reports on Form 8-K

          (a)

          Exhibit
          Number             Description
          ------             -----------

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

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

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

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


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


May 24, 2001

                                            BARON CAPITAL TRUST

                                            By:  /s/ Robert L. Astorino
                                                 ----------------------------
                                                 Robert L. Astorino
                                                 President

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


                                       14