<PAGE>



                    U. S. Securities and Exchange Commission

                             Washington, D.C. 20549

                                   FORM 10-QSB


     (MARK ONE)

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

                For the quarterly period ended September 30, 1999


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

        For the transition period ended ______________TO________________



                        Commission file number 333-35063



                               BARON CAPITAL TRUST

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



           Delaware                                     31-1574856

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


                    7826 Cooper Road, Cincinnati, Ohio 45242
                    (Address of principal executive offices)
                                 (513) 984-5001
                           (Issuer's telephone number)


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

         Yes  /X/    No / /



<PAGE>

                          PART 1 - FINANCIAL STATEMENTS


ITEM 1.  FINANCIAL STATEMENTS
-----------------------------

                               BARON CAPITAL TRUST
                           Consolidated Balanace Sheet
                    December 31, 1998 and September 30, 1999
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                DECEMBER 31, 1998                  SEPTEMBER 30, 1999
                                                                -----------------                  ------------------
<S>                                                             <C>                                 <C>
                ASSETS
Rental Apartments:
      Land                                                            $ 1,178,693                         $ 1,178,693
      Depreciable Property                                             6 ,189,095                           6,189,094
                                                                       ----------                          ----------
                                                                        7,367,788                           7,367,787
      Less: Accumulated Depreciation                                   (1,246,627)                         (1,379,289)
                                                                      -----------                          ----------
                                                                        6,121,161                           5,988,498
                                                                       ----------                           ---------
Investment in Partnerships                                                709,970                           1,530,091
                                                                       ----------                           ---------
Cash and Cash Equivalents                                                 177,299                             125,421
Restricted Cash                                                            66,199                             184,972
Reimbursed Administrative
Expenses Receivable, Affiliates                                           155,071                              67,941
Other Receivables                                                          80,112                              17,858
Advances to Affiliates                                                     10,750                                   -
Other Property and Equipment                                              168,982                             162,671
Other Assets                                                              212,761                             252,056
                                                                       ----------                          ---------
                                                                          871,174                             810,918
                                                                      -----------                         -----------
Total Assets                                                          $ 7,702,305                         $ 8,329,507
                                                                     ============                         ===========


       LIABILITIES AND SHAREHOLDERS EQUITY

Liabilities:
      Mortgages Payable                                               $ 4,039,718                         $ 4,275,990
      Note Payable                                                        375,000                             119,000
      Accounts Payable and Accrued Liabilities                            388,385                             647,873
      Capital Lease Obligations                                            55,984                              35,659
      Security Deposits                                                    38,336                              41,896
                                                                      -----------                         -----------
Total Liabilities                                                       4,897,423                           5,120,419
                                                                      -----------                         -----------
Shareholders Equity:
       Common Shares of beneficial interest,
         no par value; 2,500,000 shares authorized
           673,141 shares issued and outstanding                        4,454,101                           6,299,768
       Distributions                                                      (72,159)                           (342,107)
       Deficit                                                         (1,577,060)                         (2,748,573)
                                                                       -----------                        -----------
Total Shareholders Equity:                                              2,804,882                           3,209,088
                                                                      -----------                         -----------
Total Liabilities and Shareholders Equity                             $ 7,702,305                         $ 8,329,507
                                                                     ============                         ===========
</TABLE>

<PAGE>


                               BARON CAPITAL TRUST
                          Consolidated Income Statement
 For the Three and Nine Months Ended: September 30, 1998 and September 30, 1999
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                              3 MOS. ENDED        3 MOS. ENDED        9 MOS. ENDED        9 MOS. ENDED
                                           SEPTEMBER 30, 1998  SEPTEMBER 30, 1999  SEPTEMBER 30, 1998  SEPTEMBER 30, 1999
                                           ------------------  ------------------  ------------------  ------------------
<S>                                        <C>                 <C>                 <C>                 <C>
Revenues:
  Property                                 $   509,891         $   260,295         $   665,207         $   772,428
  Rental                                       (30,927)             20,201                  --              98,573
  Equity in Net Loss of
    Uncolsolidated Partnership                      --              29,093                  --                  --
  Other                                        110,156                  --             110,892               1,037
                                           -----------         -----------         -----------         -----------
Total Revenues                                 589,120             309,589             776,099             872,038
                                           -----------         -----------         -----------         -----------

Real Estate Expenses:
  Depreciation                                 104,008              34,454             119,521             107,361
  Interest                                     208,161              86,043             258,378             230,534
  Repairs and Maintenance                       50,436              23,365              62,034              61,092
  Personnel                                     53,793              32,105              83,058              89,576
  Property Taxes                                46,867              20,208              57,878              61,484
  Property Insurance                            12,555               4,700              18,324              15,418
  Utilities                                     20,935              21,020              39,302              50,621
  Other                                         87,728              12,378             112,365             143,948
                                           -----------         -----------         -----------         -----------
Total Real Estate Expenses                     584,483             234,273             750,860             760,034
                                           -----------         -----------         -----------         -----------

Administrative Expenses:
  Personnel                                    291,634             143,215             389,136             642,633
  Management, Investment and
    Administrative                              86,036              23,934             202,911             196,954
  Professional Services                        148,693             138,719             269,358             396,254
  Other                                          2,612               5,509               2,889              47,677
                                           -----------         -----------         -----------         -----------
Total Administrative Expenses                  528,975             311,377             864,294           1,283,518
                                           -----------         -----------         -----------         -----------

Total Expenses                               1,113,458             545,650           1,615,154           2,043,552
                                           -----------         -----------         -----------         -----------

Loss Before Minority Interest                 (524,338)           (236,061)           (839,055)         (1,171,514)

Minority Interest of Unitholders in
  Net Loss of Operating Partnership             27,927                  --             100,000                  --
                                           -----------         -----------         -----------         -----------

Net Loss                                   $  (496,411)        $  (236,061)        $  (739,055)        $(1,171,514)
                                           -----------         -----------         -----------         -----------

Net Loss Per Common Share                  $     (2.07)        $     (0.36)        $     (6.49)        $     (1.97)
                                           -----------         -----------         -----------         -----------
</TABLE>


<PAGE>



                               BARON CAPITAL TRUST
                      Consolidated Statement of Cash Flows
      For the Nine Months Ended: September 30, 1998 and September 30, 1999
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                           SEPTEMBER 30, 1998                    SEPTEMBER 30, 1999
                                                                           ------------------                    ------------------
<S>                                                                        <C>                                <C>

Cash Flows from Operating Activities:
                Net Loss                                                    $ (839,055)                        $ (1,171,512)

Adjustments to Reconcile Net Loss to Net Cash Used by
  Operating Activities:
                Provision for Officer Compensation                             147,750                                    -
                Depreciation and Amortization                                1,205,060                              132,662
        (Increase) decrease in Operating Assets
                Reimbursed Administrative Expenses
                Receivable, Affiliates                                         (16,731)                              87,130
                Other Receivables                                              (90,567)                              62,254
                Advances to Affiliates                                               -                               10,750
                Other Assets                                                  (304,432)                             (39,295)
        Increase (decrease) in Operating Liabilities
                Accounts Payable and Accrued Liabilities                       283,538                              259,489
                Lease Obligations                                                    -                              (20,325)
                Security Deposits                          v                    36,756                                3,560
                                                                            -----------                            ---------
                   Net Cash Used by Operating Activities                      422,319                              (675,287)
                                                                            -----------                            ---------


Cash Flows from Investing Activities:
                Acquisition of Rental Property                              (7,179,916)                                   -
                Investment in Partnerships                                    (341,280)                            (820,121)
                Other Property and Equipment                                  (111,358)                               6,311
                Increase in Restricted Cash                                   (159,196)                            (118,773)
                                                                            -----------                            ---------
                   Net Cash Used in Investing Activities                    (7,791,750)                            (932,583)
                                                                            -----------                            ---------

Cash Flows from Financing Activities:
                Proceeds for the Sale of Common Shares                       3,328,478                            1,845,666
                Distributions Paid                                             (11,000)                            (269,947)
                Initial Capital Contributions                                   41,755                                    -
                Proceeds from Mortgage Financing                             4,052,860                              236,273
                Payments on Notes Payable                                     575,000                              (256,000)
                                                                              --------                             ---------
                   Net Cash Provided by Financing Activities                7,987,093                            1,555,992
                                                                            ----------                           ---------

Net Increase (Decrease) in Cash and Cash Equivalents                           617,662                              (51,878)

Cash and Cash Equivalents, Beginning                                                 -                              177,299
                                                                           ------------                          ------------

Cash and Cash Equivalents, Ending                                            $ 617,662                            $ 125,421
                                                                           ------------                          ------------
                                                                           ------------                          ------------
</TABLE>



<PAGE>


                               BARON CAPITAL TRUST
                 Consolidated Statement of Shareholder's Equity
                  For the Nine Months Ended: September 30, 1999
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                        Common Shares of Beneficial Interest
                                        ------------------------------------
                                               SHARES           AMOUNT         DISTRIBUTIONS          DEFICIT              TOTAL
                                              -------        -----------        -----------         -----------         -----------
<S>                                     <C>                 <C>                <C>                 <C>                 <C>
BALANCE, JANUARY 1, 1999                      463,650        $ 4,454,101        $   (72,159)        $(1,577,060)        $ 2,804,882

PROCEEDS FROM SALE OF COMMON
SHARES OF BENEFICIAL INTEREST                 209,491          1,845,667                 --                  --           1,845,667

DISTRIBUTIONS PAID                                 --                 --           (269,948)                 --            (269,948)

NET LOSS FOR THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1999                           --                 --                 --          (1,171,512)         (1,171,512)
                                              -------        -----------        -----------         -----------         -----------

BALANCE, SEPTEMBER 30, 1999                   673,141        $ 6,299,768        $  (342,107)        $(2,748,572)        $ 3,209,089
                                              -------        -----------        -----------         -----------         -----------

</TABLE>

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1999


NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         ORGANIZATION AND CAPITALIZATION

         Baron Capital Trust (the "Trust") was organized as a business trust in
         Delaware on July 31, 1997. The Trust and its affiliate, Baron Capital
         Properties, L.P. (the "Operating Partnership"), a Delaware limited
         partnership, 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 will manage the operations of the Trust and
         the Operating Partnership subject to the supervisory authority of the
         Board of the Trust over the activities of the Trust and the Operating
         Partnership and the Board's prior approval authority in respect of
         certain actions of the Trust and the Operating Partnership specified in
         the Declaration of Trust of the Trust.



         The Trust's Declaration authorizes it to issue up to 25,000,000 shares
         of beneficial interest, no par value per share, consisting of common
         shares and of preferred shares of such classes with such preferences,
         conversion or other rights, voting powers, restrictions, limitations as
         to dividends, qualifications, or terms or conditions of redemption as
         the Managing Shareholder may create and authorize from time to time in
         accordance with Delaware law and the Declaration. The Trust commenced
         operations on February 3, 1998, at which time it received its initial
         capital contribution.


         BASIS OF PRESENTATION

         The accompanying consolidated financial statements include the
         consolidated accounts of the Trust and the Operating Partnership. The
         Trust is the general partner of the Operating Partnership and owns
         approximately 81% of the limited partner units of the Operating
         Partnership. The consolidated accounts of the Operating Partnership
         include the accounts of three limited partnerships in which the
         Operating Partnership is the controlling limited partner, by virtue of
         its right to remove the general partner due to its ownership percent of
         the total partnership interest in those limited partnerships. All
         significant inter-company transactions and balances have been
         eliminated in consolidation.

         UNAUDITED FINANCIAL INFORMATION

         The accompanying financial information as of and for the nine months
         ended September 30, 1999 is unaudited. However, in the opinion of
         management, all adjustments, consisting of normal recurring accruals
         and adjustments, necessary for a fair presentation of financial
         position, results of operations and cash flows have been made. The
         results of operations for interim periods are not necessarily
         indicative of results to be expected for a full year.

<PAGE>


         BASIS OF PRESENTATION (CONTINUED)



         The minority interest of unitholders in the Operating Partnership
         represents the 1,202,160 limited partnership units owned by the
         Original Investors of the Operating Partnership, and is stated at the
         amount of the capital contribution by them to the Operating Partnership
         ($100,000), reduced by their proportionate share of the net loss of the
         Operating Partnership. As of December 31, 1998, the 1,202,160 Operating
         Partnership limited partnership units issued to the Original Investors
         are subject to escrow restrictions and 108,757 units are convertible
         into common shares of the Trust.


         CONCENTRATIONS OF CREDIT RISK

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

         CASH

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


         PROPERTY MANAGEMENT REIMBURSEMENTS AND OTHER RECEIVABLES


         Receivables are comprised mainly of (a) administrative expense
         reimbursements due from a number of other partnerships that are related
         to the Operating Partnership and (b) monthly rents due. The Partnership
         monitors exposure to credit losses and does not maintain an allowance
         for these receivables, as it believes that these receivables are fully
         collectible.



         REAL ESTATE RENTAL PROPERTIES AND DEPRECIATION

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

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

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



<PAGE>

REAL ESTATE RENTAL PROPERTIES AND DEPRECIATION (CONTINUED)


         Losses in carrying values of investment assets are provided by
         management when the losses become apparent and the investment asset is
         considered impaired in accordance with Statement of Financial
         Accounting Standards No. 121, "Accounting for the Impairment of
         Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
         Management evaluates its investment properties annually to assess
         whether any impairment indications are present. If any investment asset
         is considered impaired, a loss is provided to reduce the carrying value
         of the property to its estimated fair value. No such losses have been
         required or provided in the accompanying consolidated financial
         statements.

         REVENUE RECOGNITION

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

         CASH AND CASH EQUIVALENTS

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

         INVESTMENTS IN PARTNERSHIPS

         The Trust, through the Operating Partnership, accounts for its
         investments in limited Partnerships in which it is deemed not to have
         the controlling interest, but has more than a minor limited partnership
         interest, utilizing the equity method of accounting. The Operating
         Partnership's investment in Alexandria Development, L.P., which
         represents a 12.3% interest at December 31, 1998, is accounted for
         using the equity method.


         Investments in partnerships in which the Operating Partnership's
         interest is so minor that the Partnership has virtually no influence
         over partnership operating and financial policies are accounted for
         utilizing the cost method. These investments generally represent less
         than 5% of the partnership interest. The investments in certain other
         limited partnerships as of December 31, 1998, which represent less than
         a 4% partnership interest in each case, are accounted for on the cost
         method. The Trust periodically assesses the estimated realizable value
         of these investments in order to ascertain that there has been no
         impairment in their recorded value.


         As of September 30, 1999 the Operating Partnership owned 25.7 units of
         limited partnership interest for which it paid $1,285,000.

<PAGE>

              CAPITAL RESERVE

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


         LOAN COSTS

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

         USE OF ESTIMATES

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


         INCOME TAXES

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


         FAIR VALUE OF FINANCIAL INSTRUMENTS

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


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


         RECENT ACCOUNTING PRONOUNCEMENTS

         In June 1997, the Financial Accounting Standards Board issued SFAS No.
         130, "Reporting Comprehensive Income" and No. 131, "Disclosures about
         Segments of an

<PAGE>


         RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

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


         In June 1998, the Financial Accounting Standards Board issued SFAS No.
         133, "Accounting for Derivative Instruments and Hedging Activities."
         SFAS No. 133 requires companies to recognize all derivatives contracts
         as either assets or liabilities in the balance sheet and to measure
         them at fair value. If certain conditions are met, a derivative may be
         specifically designated as a hedge, the objective of which is to match
         the timing of the gain or loss recognition of the hedging derivative
         with the recognition of (i) the changes in the fair value of the hedged
         asset or liability that are attributable to the hedged risk or (ii) the
         earnings effect of the hedged forecasted transaction. For a derivative
         not designated as a hedging instrument, the gain or loss is recognized
         in income in the period of change. SFAS No. 133 is effective for all
         fiscal quarters of fiscal years beginning after June 15, 1999.
         Historically, the Trust has not entered into derivatives contracts to
         hedge existing risks or for speculative purposes. Accordingly, the
         Trust does not expect adoption of the new standard on January 1, 2000
         to affect its financial statements.


NOTE 2. MATERIAL SUBSEQUENT EVENTS AND CONTINGENCIES


         ALEXANDRIA APARTMENTS


         On October 14, 1998, the Operating Partnership acquired an approximate
         12.3% limited partnership interest in Alexandria Development, L.P. (the
         "Alexandria Property"), a Delaware limited partnership which is the
         owner and developer of a 168-unit residential apartment property under
         construction in Alexandria, Kentucky. The Operating Partnership paid
         $400,000 for eight (8) units of limited partnership interest out of a
         total of sixty-five (65) units and retains an option to acquire the
         remaining fifty-seven (57) units of limited partnership interests for
         $50,000 per unit or approximately $2,850,000. The option is exercisable
         as additional apartments are completed and rented and expires on June
         30, 2000. An affiliate of the Trust, affiliated through common
         ownership, sold the partnership interest in the Alexandria Property to
         the Operating Partnership and also serves as the managing general
         partner of the Alexandria Property. During the construction stage of
         the apartment property, the Operating Partnership's limited partnership
         interest in the Alexandria Property is entitled to an annual 12%
         preferential return, which is senior to the other limited partnership
         interests and the general partner's nominal 1% interest.


<PAGE>


         ALEXANDRIA APARTMENTS (CONTINUED)


         As of September 30, 1999 the Operating Partnership owned 25.7 units of
         limited partnership interest for which it paid $1,285,000.


         CONTRACT TO PURCHASE ADDITIONAL PROPERTIES

         In September 1998, the Trust entered in an agreement with three real
         estate development companies to acquire two luxury residential
         apartment properties in the development stage upon the completion of
         construction. The development companies (Brentwood at Southgate, Ltd.,
         Burlington Residential, Ltd. and The Shoppes at Burlington, Ltd.) are
         controlled by one of the Trust's founders and chief executive officer.
         The properties are scheduled to have a total of 652 units, comprised of
         one, two and three bedroom/one or two bathroom apartments. Construction
         of one of the properties, located in Louisville, Kentucky, is expected
         to be completed prior to the end of 2000, and construction of the other
         property, located in Burlington, Kentucky (part of the Cincinnati
         metropolitan area), is expected to be completed by the end of 2001. The
         aggregate purchase price for the two properties is in the range of
         approximately $41,000,000 to $43,000,000. The closing of each
         acquisition, which is expected to occur shortly following the
         completion of construction, is conditioned on, among other things, the
         completion of the respective apartment property, the availability of
         first mortgage financing and the Trust's raising the balance of the
         funds necessary for the acquisition in its ongoing Cash Offering or
         otherwise have funds available to make the acquisition.


         In connection with the transaction and in exchange for certain benefits
         described below, the Trust agreed to co-guarantee (along with the chief
         executive officer), up to 35% (or approximately $12,500,000) of the
         development portion of long-term construction loans with an aggregate
         principal amount of up to $36,000,000 to be provided by a bank to the
         development companies. As of September 30, 1999, approximately
         $7,728,000 of such loans had been drawn down, resulting in outstanding
         guarantees of approximately $2,704,800. Subject to the fulfillment of
         certain closing and funding conditions, the construction loans will be
         made to the development companies in connection with the development
         and construction of the two apartment properties and of an 111,000
         square foot shopping center being developed in Burlington, Kentucky.
         The interest rates on the construction loans range from 7.36% to 7.52%.
         The Trust also agreed that, if the loans are not repaid prior to the
         expiration of the guarantee, it will either buy out the bank's position
         on the entire amount of the construction loans or arrange for a third
         party to do so. The construction loans are expected to be replaced by a
         long-term credit facility.


         The Trust expects to receive significant benefits from the transaction
         in addition to the acquisition of two large luxury apartment properties
         located in attractive communities. In exchange for the guarantee of the
         development portion of the construction loans, the Trust will receive a
         discount of approximately $212,500 (representing a one-half of one
         percent reduction) on the purchase price of the properties. The Trust
         and the development companies are negotiating a further price reduction
         which would apply if the development

<PAGE>

         CONTRACT TO PURCHASE ADDITIONAL PROPERTIES (CONTINUED)


         portion of the loans is not repaid prior to the expiration of the
         guarantee period and the Trust is required to buy out or arrange for
         the buyout of the lender's position on the loans.

NOTE 3. SHAREHOLDERS' EQUITY

         CASH OFFERING

         On May 15, 1998, pursuant to a registration statement on Form SB-2, the
         Trust commenced an initial public offering of a maximum of 2,500,000
         common shares of beneficial interest in the Trust at $10 per common
         share, which is payable in full upon subscription, for proposed total
         gross proceeds of $25,000,000 (the Cash Offering). All of the common
         shares to be issued or sold by the Trust in the offering will be
         tradable without restriction under the Securities Act, but will be
         subject to certain restrictions designed to permit the Trust to qualify
         and maintain its status as a Real Estate Investment Trust under the
         Internal Revenue Code. The Cash Offering currently terminates on
         November 30, 1999, but is being amended to extend to May 31, 2000.


         EXCHANGE OFFERING

         The Operating Partnership has registered up to 2,500,000 units of
         limited partnership interest ("Units") under the Securities Act of
         1933, as amended (the "Act") for issuance in connection with an
         exchange offering (the "Exchange Offering"). The Commission declared
         the registration effective on November 9, 1999. In the Exchange
         offering, the Operating Partnership will offer to issue the Units,
         which have an initial assigned value of $ 25,000,000 in exchange for
         units of limited partnership interest in 23 limited partnerships (the
         "Exchange Partnerships"), which directly or indirectly own equity
         and/or mortgage interests in one or more residential apartment
         properties. The Operating Partnership will commence the Exchange
         Offering as soon as practicable. The Exchange Partnerships are managed
         by corporate general partners which are affiliated with one of the
         founders of the Operating Partnership, who is the sole stockholder and
         director of the Managing Shareholder of the Trust.


         The number of Units being offered in exchange for the limited
         partnership interests in the Exchange Partnerships is based on
         appraisals prepared by qualified and licensed independent appraisal
         firms for each underlying residential apartment property. For purposes
         of the Exchange Offering, each Unit has been arbitrarily assigned an
         initial value of $10, which corresponds to the offering price of each
         Trust Common Share currently being offered to the public pursuant to
         the Cash Offering. The value of each Unit and Common Share outstanding
         will be substantially identical since Unit holders, including
         recipients of Units in the Exchange Offering, will be entitled to
         exchange all or a portion of their Units at any time and from time to
         time for an equivalent number of Trust Common Shares, so long as the
         exchange would not cause the exchanging party to own (taking into
         account certain ownership attribution rules) in excess of 5% of the
         then

<PAGE>

EXCHANGE OFFERING (CONTINUED)

         outstanding shares in the Trust, subject to the Trust's right to cash
         out any holder of Units who requests an exchange and subject to certain
         other exceptions. To facilitate such exchanges of Units into Common
         Shares, 2,500,000 Common Shares (in addition to the 2,500,000 Common
         Shares being offered by the Trust in the Cash Offering) have been
         registered with the Commission.


         As its initial investment targets in the Exchange Offering, the
         Operating Partnership is offering to acquire equity and/or subordinated
         mortgage interests in 26 properties (the "Exchange Properties")
         directly or indirectly owned by the 23 Exchange Partnerships. The
         Operating Partnership will acquire interests in a particular property
         and/or mortgages by acquiring from limited partners their units of
         limited partnership interest in the respective Exchange Partnership.
         Each of the Exchange Partnerships directly or indirectly owns equity
         and/or mortgage interests in one or more properties. Certain of the
         Exchange Partnerships directly or indirectly own equity interests in 16
         properties which consist of an aggregate of 1,012 residential units
         (comprised of studio, one, two, three and four bedroom units). Certain
         of the Exchange Partnerships directly or indirectly own mortgage
         interests in 10 properties, which consist of an aggregate of 813
         existing residential units (studio and one and two bedroom units) and
         168 units (two and three bedroom units) under development. Of the
         Exchange Properties, 21 properties are located in Florida , three
         properties in Ohio and one property each in Georgia and Indiana.


         OPERATING PARTNERSHIP LIMITED PARTNERSHIP UNITS

         In connection with the formation of the Trust and the Operating
         Partnership, the Original Investors each subscribed for 601,080 limited
         partnership units of the Operating Partnership (a total of 1,202,160
         units). In consideration for the units subscribed for by them, the
         Original Investors made a $100,000 capital contribution to the
         Operating Partnership. If the Cash Offering and the Exchange Offering
         are fully subscribed, those Units would represent 19% of the total
         Common Shares outstanding after completion of the Cash Offering and
         exchange by the Operating Partnership of 2,500,000 of its Units for
         units of limited partnership interest in real estate limited
         partnerships (including any exchange pursuant to the Exchange
         Offering), calculated on a fully diluted basis assuming all then
         outstanding Units (other than those acquired by the Trust) have been
         exchanged into an equivalent number of Common Shares. If, however, as
         of November 30, 1999 (being amended to extend to May 31, 2000), the
         Cash Offering and/or the Exchange Offering has been completed and the
         number of Units subscribed for by each Original Investment represents a
         percentage greater than 19% of the then outstanding Common Shares,
         calculated on a fully diluted basis assuming that all then outstanding
         Units (other than those acquired by the Trust) have been exchanged into
         an equivalent number of Common Shares, each Original Investor has
         agreed to return any excess Units to the Operating Partnership for
         cancellation. The Original Investors have deposited Units subscribed
         for by them into a security escrow account for six to nine years,
         subject to earlier release under certain conditions.

<PAGE>


         OPERATING PARTNERSHIP LIMITED PARTNERSHIP UNITS (CONTINUED)

         The fair value of the units issued to the Original Investors amounted
         to $100,000, based upon a determination made by the Independent
         Trustees of the Trust as of the date of subscription for these units
         (February 3, 1998). The determination of the fair value took into
         consideration that (a) at the time of the subscription for the units,
         the Trust and the Partnership were development stage companies, with no
         cash or other significant tangible assets, operating history or revenue
         and no certainty of successful offerings or future operations; the
         founders had at risk their initial capital contributions plus certain
         additional unreimbursed advances to cover certain offering and
         operating expenses; the founders have significant experience and
         developed know-how critical to the success of the Trust and the
         Partnership; and the founders' units are subject to significant
         transfer restrictions. The Partnership has accounted for the units as
         being issued and outstanding, but subject to escrow restrictions, in
         the accompanying consolidated financial statements, and has included
         the units as outstanding in determining the weighted average shares
         outstanding for purposes of calculating net loss per partnership unit
         in the accompanying consolidated financial statements. Because the
         release of the units from escrow is not dependent upon the achievement
         of any specified level of profits, the release of the units from escrow
         is not considered to be compensatory and, accordingly, no accounting
         measurement will be given to the release of the units from escrow.


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


         After the exchange with the limited partners and assignment of economic
         rights of the general partner, the Operating Partnership will control
         the Participating Exchange Partnerships by virtue of its ownership of
         at least 90% of the limited partnership interests, which will provide
         the Operating Partnership the ability to remove the general partner
         under the provisions of the limited partnership agreements that limited
         partners holding over 50% of total partnership interest have the right
         to remove the general partner.


         Based upon the total Common Shares outstanding as of September 30,
         1999, the Original Investors would be entitled to exchange their
         limited partnership units for a net amount of 154,056 (three months
         ended September 30, 1999) or 139,314 (nine months ended September 30,
         1999) Common Shares. These equivalent common shares have been taken
         into consideration in the calculation of net loss per share on an
         as-converted basis (see Note 4).

<PAGE>

         NOTE 4.  NET LOSS PER SHARE


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


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

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

<TABLE>
<CAPTION>
                                                                          Weighted
                                                                           Average          Loss
                                                        Net Loss           Shares         Per Share
                                                       ----------          --------       -----------
<S>                                                    <C>                <C>             <C>
                  Three months ended
                  September 30, 1999                  $  (236,061)         656,764          $ (.36)
                                                      ===========          =======         ========
                  Nine months ended
                  September 30, 1999                  $(1,171,514)         593,918          $(1.97)
                                                      ===========          =======         ========
</TABLE>


         Assuming that the Original Investors had exchanged their limited
         partnership units for an equivalent net amount of 154,056 (for the
         three months ended September 30, 1999) or 139,314 (for the nine months
         ended September 30, 1999) Common Shares, the net loss per share on an
         as-converted basis would have been $.29 (for the three months ended
         September 30, 1999) and $1.60 (for the nine months ended September 30,
         1999) per share.



<PAGE>



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


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


         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 Registrant's business, management's beliefs and
         assumptions made by management. Words such as "expects," "anticipates,"
         "intends," "plans," "believes," "seeks," "estimates," and variations of
         such words and similar expressions are intended to identify such
         forward-looking statements. These statements are not guarantees of
         future performance and involve certain risks, uncertainties and
         assumptions that are difficult to predict. Therefore, actual outcomes
         and results may differ materially from what is expressed or forecasted
         in such forward-looking statements due to numerous factors, including,
         but not limited to those discussed in Management's Discussion and
         Analysis or Plan of Operation, as well as those discussed elsewhere in
         this Report and from time to time in the Registrant'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
         Registrant does not undertake any obligation to update any
         forward-looking statement to reflect events or circumstances after the
         date of this Report. If the Registrant does update one or more
         forward-looking statements, investors and others should not conclude
         that the Registrant will make additional updates with respect thereto
         or with respect to other forward-looking statements.


         PLAN OF OPERATION


         The Registrant and Baron Capital Properties, L.P. (the "Operating
         Partnership") (which conducts all of the Registrant's real estate
         operations and holds title to all of its real estate assets and of
         which the Registrant is the sole general partner and a limited partner)
         commenced operations in February 1998. Since June 1998, the Operating
         Partnership has applied net proceeds of the Registrant's Cash Offering
         to acquire property interests. In June 1998, the Operating Partnership
         acquired beneficial ownership of a 67-unit residential apartment
         property located in Kissimmee, Florida known as the Heatherwood
         Apartments - Phase I. The purchase price for the acquisition was
         $830,000. In July 1998, the Operating Partnership acquired beneficial
         ownership of an 80-unit residential apartment property located in
         Lakeland, Florida



                                       2

<PAGE>

         known as the Crystal Court Apartments - Phase II. The purchase price
         for the acquisition was $704,000.


         In July 1998, the Operating Partnership also acquired a limited
         partnership interest (less than 4% in each case) in 13 real estate
         limited partnerships, including certain of the Exchange Partnerships,
         managed by affiliates of Mr. McGrath (a founder and Chief Executive
         Officer of the Registrant and the Operating Partnership) in
         consideration of a capital contribution ranging from $2,900 to $83,300
         in each such partnership (aggregate amount approximately $341,000).
         These various partnerships will be accounted for on the cost method
         since their respective ownership interests represent less than 20% of
         the equity ownership therein. In addition, the partnerships will
         periodically assess the realizable value of these investments in order
         to ascertain that there has been no impairment in their recorded value.


         In September 1998, the Operating Partnership acquired beneficial
         ownership of a 50-unit residential apartment property located in New
         Smyrna Beach, Florida known as the Riverwalk Apartments. The purchase
         price for the acquisition was $700,000. In September 1998, the
         Registrant entered into an agreement to acquire two luxury residential
         apartment properties (total 652 units) in Louisville and Burlington,
         Kentucky upon the completion of construction for an aggregate purchase
         price in the range of approximately $41,000,000 to $43,000,000. In
         connection therewith, the Registrant agreed to co-guarantee (along with
         Mr. McGrath), for a period of 60 days (plus any extensions which may be
         granted), up to $3,000,000 of the development portion of long-term
         construction loans to be made by an institutional lender to three
         development companies controlled by Mr. McGrath in connection with the
         development and construction of the two residential apartment
         properties and a shopping center in Burlington, Kentucky.


         Between October 1998, and September 1999, the Operating Partnership
         acquired an approximately 40% limited partnership interest in a limited
         partnership which is the owner and developer of a 168-unit residential
         apartment property under construction in Alexandria, Kentucky known as
         Alexandria Apartments. The aggregate purchase price for the acquired
         partnership interest was $1,285,000. An affiliate of Mr. McGrath sold
         the partnership interest to the Operating Partnership and also serves
         as the limited partnership's managing general partner. One hundred
         twelve of the 168 residential units (approximately 67%) have been
         completed and are in the rent-up stage.


         The Registrant and the Operating Partnership intend to continue to
         acquire similar property interests using proceeds from the Registrant's
         Cash Offering, securities of the Registrant and the Operating
         Partnership, including Units registered in connection with


                                       3
<PAGE>

         the Operating Partnership's proposed Exchange Offering described below,
         and available operating cash flow and financing from other sources.


         The operating results of the Registrant and the Operating Partnership
         will depend primarily upon income from the residential apartment
         properties in which they directly or indirectly acquire an equity or
         Subordinated Mortgage Interest. Operating results in respect of equity
         interests will be substantially influenced by the demand 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 Registrant 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 Registrant 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.


         The Registrant 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 Registrant
         and the Operating Partnership include the performance of the economy
         and the building of new apartment communities. Although the Registrant
         cannot reliably predict the effects of these trends, events and
         uncertainties on the property investments of the Registrant and the
         Operating Partnership as a whole, some of the reasonably anticipated
         effects might include downward pressure on rental rates and occupancy
         levels.


         Generally, there are no seasonal aspects of the operations of the
         Registrant or the Operating Partnership which might have a material
         effect on their financial condition 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 proposed


                                       4

<PAGE>

         Exchange Offering has had an average occupancy rate of 93% for nine
         months of the year and 40% for the remaining three months of the year.


         The Registrant and the Operating Partnership have the ability to
         satisfy their cash requirements for the foreseeable future. However, it
         will be necessary to raise additional capital during the next 12 months
         to make acquisitions and to meet management's revenue and cash flow
         goals. The Registrant and the Operating Partnership intend to
         investigate making an additional public or private offering of Common
         Shares and/or Units within the 12-month period following the
         commencement of the proposed Exchange Offering.


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


         EXCHANGE OFFERING


         The Operating Partnership has registered up to 2,500,000 units of
         limited partnership interest ("Units") under the Securities Act of
         1933, as amended for issuance in connection with an exchange offering
         (the "Exchange Offering"). The Commission declared the registration
         effective on November 9, 1999. In the Exchange Offering, the Operating
         Partnership will offer to issue the Units, which have an initial
         assigned value of $25,000,000, in exchange for units of limited
         partnership interest in 23 limited partnerships (the "Exchange
         Partnerships"), which directly or indirectly own equity and/or mortgage
         interests in one or more residential apartment properties. The
         Operating Partnership will commence the Exchange Offering as soon as
         practicable. The Exchange Partnerships are managed by corporate general
         partners which are affiliated with one of the founders of the
         Registrant and the Operating Partnership, who is the sole stockholder
         and director of the Managing Shareholder of the Registrant.


         Offerees who accept the Exchange Offering will receive Units of the
         Operating Partnership. The holders of such Units will be entitled to
         exchange all or a portion of their Units for an equivalent number of
         Common Shares in the Registrant at any time and from time to time, so
         long as the exchange would not cause the seller to own in excess of
         5.0% of the then outstanding Common Shares. Instead of the exchange,
         the Registrant has the right to cash out any holder of Units who
         requests an exchange. To facilitate these exchanges, the Registrant has
         registered 2,500,000 additional Common Shares (in addition to the
         2,500,000 Common Shares being offered in the Cash Offering) for
         issuance to holders of Units who in the future request the Registrant
         to issue Common Shares in exchange for Units.

                                       5

<PAGE>

         YEAR 2000


         The computer systems of the Registrant and the Operating Partnership
         have been tested for year 2000 problems and the Registrant and the
         Operating Partnership believe that such systems are year 2000
         compatible. It is possible, however, that certain computer systems or
         software products of their suppliers may experience year 2000 problems
         and that such problems could adversely affect them. The Registrant and
         the Operating Partnership are in the process of inquiring as to the
         progress of its principal suppliers in identifying and addressing
         problems that their computer systems will face in correctly processing
         date information as the year 2000 approaches. However, there can be no
         assurance that the Registrant and the Operating Partnership will
         identify the future date-handling problems of their suppliers in
         advance of the occurrence of such problems, or that such parties will
         be able to successfully remedy any problems that are discovered. With
         respect to their own computer systems, the Registrant and the Operating
         Partnership intend to upgrade their principal operating computer
         software to the most recent available revision sold by their software
         supplier, which the supplier has represented to be year 2000 compliant.
         The Registrant and the Operating Partnership believe that such upgrade
         will identify and solve those year 2000 problems that could affect
         their operating software and can be accomplished before the year 2000
         at a reasonable cost. 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
         Registrant and the Operating Partnership.



                                       6

<PAGE>


                           PART II - OTHER INFORMATION


ITEM 1.       LEGAL PROCEEDINGS

              The Registrant is a claimant in the Georgia Pacific class action
              law suit.


ITEM 2.       CHANGES IN SECURITIES AND USE OF PROCEEDS

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

              The name of the managing underwriter of the Offering is Sigma
              Financial Corporation. The amount of Common Shares registered is
              2,500,000 shares. The offering price per Common Share is $10.00,
              and the aggregate price of the offering amount registered is
              $25,000,000. As of the date of this report, 673,441 Common Shares
              have been sold in the Offering, for an aggregate offering price of
              $6,734,413.

              From the effective date of the Registration Statement through
              September 30, 1999, the following expenses have been incurred for
              the Registrant's account in connection with the issuance and
              distribution of the registered Common Shares:

<TABLE>
<S>                                                                      <C>
              Underwriting discounts and commissions:                    $531,745 (plus five-year warrants to
                                                                         acquire 34,568 Common Shares at an
                                                                         exercise price of $13.00 per share)

             Finder's Fees:                                              $0

             Expenses Paid to or for Underwriter:                        $0

             Other Expenses (reimbursement for advisory
             and investment expenses):                                   $426,256

                    Total Expenses:                                      $958,001

</TABLE>


              Of such expense payments, $407,019 were made directly to Baron
              Advisors, Inc., the Managing Shareholder of the Registrant. The
              remaining payments of $550,982 were


                                       7
<PAGE>

              made directly or indirectly to others. The net offering proceeds
              to the Registrant after deducting the foregoing total expenses
              were $5,773,412.


              From the effective date of the Registration Statement through
              September 30, 1999, the net offering proceeds to the Registrant
              were used for the following purposes:


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

              Purchase and installation of equipment:                      $0

              Repayment of indebtedness:                                   $0

              Working capital:                                             $696,172

              Temporary investments:                                       $0

              Investment in Baron Capital Properties, L.P. (the
              Operating Partnership)                                       $5,077,240

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


              Of such net proceeds, $5,077,240 was directly contributed to the
              Operating Partnership in exchange for Units of limited partnership
              interest therein. The Operating Partnership will conduct all of
              the real estate operations of the Registrant and hold all of its
              real property assets. In September 1999, the Registrant made a
              return of capital to Shareholders in the amount of $102,351.

ITEM 3.       DEFAULTS UPON SENIOR SECURITIES

              None


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

              None


ITEM 5.       OTHER INFORMATION

              None

ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K

              (a) No exhibits attached.

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

                                       8

<PAGE>

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

November 12, 1999

                                          BARON CAPITAL TRUST

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


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





                                       9