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

                                  Form 10-QSB/A


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

                  For the quarterly period ended September 30, 2000

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

        For the transition period ended ______________to________________


                        Commission file number: 333-35063



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


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

                    7800 Cooper Road, Cincinnati, Ohio 45242
                    (Address of principal executive offices)

                                 (513) 936-3408
                           (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  953,131 common
shares  of  beneficial  interest  ("Common  Shares"),  its only  class of common
equity.


<PAGE>



                                EXPLANATORY NOTE

As a result of certain  adjustments in connection with the Trust's  consolidated
financial statements for the year ended December 31, 2000, management determined
to  restate  its  Form  10-QSB  for the  quarter  ended  September  30,  2000 as
previously  filed on March 1,  2001.  The  amounts  contained  in the  financial
statements  included in this Form 10-QSB/A reflect these changes.  See NOTE 1 to
the consolidated  financial  statements under "Basis of Presentation" for a more
detailed  explanation as to the restatement.  Certain subsequent events are also
reflected in this Form 10-QSB/A.



                         PART I - FINANCIAL INFORMATION


Item 1. Financial Statements

     See following pages.



                                       2
<PAGE>



                          INDEX TO FINANCIAL STATEMENTS



                                                                         PAGE
                                                                         ----

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

   Balance Sheets                                                        F-2

   Statements of Operations                                              F-3

   Statement of Shareholders' Equity                                     F-4

   Statements of Cash Flows                                              F-5

   Notes to Financial Statements                                       F-6-F-18



                                      F-1
<PAGE>


                                  BARON CAPITAL TRUST
                         CONSOLIDATED CONDENSED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                                 September 30,          December 31,
                                                                                                      2000                 1999
                                                                                                  ------------          -----------
                                                                                                   RESTATED
                                                                                                  ------------
<S>                                                                                               <C>                   <C>
                                        ASSETS
Land                                                                                              $  6,632,871          $ 1,178,693
Depreciable property                                                                                29,654,386            6,189,095
                                                                                                  ------------          -----------
                                                                                                    36,287,257            7,367,788
Less accumulated depreciation                                                                       (2,100,668)          (1,453,177)
                                                                                                  ------------          -----------
                                                                                                    34,186,589            5,914,611

Investment In Partnerships                                                                             475,775              930,970

Cash and Cash Equivalents                                                                              193,465               33,774
Restricted Cash                                                                                        864,959               52,089
Accrued Interest Receivable, Affiliates                                                              1,325,169               36,997
Other Receivables                                                                                       79,103                3,724
Due from Managing Shareholder                                                                               --               14,783
Advances to Affiliates                                                                               6,072,921                5,141
Other Property and Equipment                                                                           272,720              134,981
Other Assets                                                                                           759,016              209,128
                                                                                                  ------------          -----------
      Total Assets                                                                                $ 44,229,716          $ 7,336,198
                                                                                                  ============          ===========


                           LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgages payable                                                                                 $ 25,144,421          $ 4,278,117
Accounts payable and accrued liabilities                                                             2,441,518            1,295,092
Note payable                                                                                           115,000              100,000
Notes payable, affiliates                                                                            3,813,313               50,000
Capital lease obligation                                                                                40,775               42,369
Security deposits                                                                                      195,515               40,308
                                                                                                  ------------          -----------
      Total Liabilities                                                                             31,750,542            5,805,886
                                                                                                  ------------          -----------

Shareholders' Equity:
Common Shares of beneficial interest, no par value, 25,000,000 shares
authorized; 3,276,504 and 675,086 shares issued and outstanding or assumed
to be issued as of September 30, 2000 and December 31, 1999, respectively                           18,821,023            6,616,806
Distributions                                                                                         (342,507)            (342,507)
Deficit                                                                                             (5,999,342)          (4,743,987)
                                                                                                  ------------          -----------
     Total Shareholders' Equity                                                                     12,479,174            1,530,312
                                                                                                  ------------          -----------
                                                                                                  $ 44,229,716          $ 7,336,198
                                                                                                  ============          ===========
</TABLE>

            See notes to consolidated condensed finanical statements

                                      F-2
<PAGE>


                               BARON CAPITAL TRUST
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                                    UNAUDITED

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

Real Estate Expenses:
  Depreciation                                               647,491           107,361           306,264            34,454
  Amortiation                                                110,100                --            52,119
  Interest                                                 1,045,039           230,534           489,524            86,043
  Repairs and maintenance                                    502,951            61,092           222,387            23,365
  Personnel                                                  442,644            89,576           177,268            32,105
  Property Taxes                                             274,838            61,484           127,020            20,208
  Property Insurance                                          68,504            15,418            30,474             4,700
  Utilities                                                  283,151            50,621           138,997            21,020
  Other                                                      187,843           143,948            98,475            12,378
                                                         -----------       -----------       -----------       -----------
                                                           3,562,561           760,034         1,642,528           234,273
                                                         -----------       -----------       -----------       -----------

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

     Total expenses                                        4,931,812         2,043,552         2,012,656           545,650
                                                         -----------       -----------       -----------       -----------

Net Loss                                                 $(1,255,355)      $(1,171,514)      $  (370,098)      $  (236,061)
                                                         ===========       ===========       ===========       ===========

Net Loss per Common Share Basic and Diluted              $     (1.78)      $     (1.97)      $     (0.50)      $     (0.36)
                                                         ===========       ===========       ===========       ===========

Weighted Average Number of Common Shares Oustanding          706,793           594,677           739,406           655,725
                                                         ===========       ===========       ===========       ===========
</TABLE>


            See notes to consolidated condensed finanical statements

                                      F-3
<PAGE>

                               BARON CAPITAL TRUST
            CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
                                    RESTATED


<TABLE>
<CAPTION>
                                                   SHARES          AMOUNT      DISTRIBUTIONS      DEFICIT         TOTAL
                                                 ------------   ------------   -------------   ------------    ------------
<S>                                                 <C>         <C>            <C>             <C>             <C>
Balance, December 31, 1999                            675,086   $  6,616,806   ($   342,507)   ($ 4,743,987)   $  1,530,312

Proceeds from sale of Common Shares of
    beneficial interest, net of offering costs         26,990        248,308             --              --         248,308

Common Shares issued in connection with
    Exchange Offering                               2,449,525     11,793,159             --              --      11,793,159

Shares issued as commission to broker-dealers
    in connection with Exchange Offering              124,903                                                            --

Credit for estimated fair value of services
     performed by officer                                  --        162,750             --              --         162,750

Net Loss (Unaudited)                                       --             --             --      (1,255,355)     (1,255,355)
                                                 ------------   ------------   ------------    ------------    ------------

Balance, September 30, 2000 (Unaudited)             3,276,504   $ 18,821,023   $   (342,507)   $ (5,999,342)   $ 12,479,174
                                                 ============   ============   ============    ============    ============
</TABLE>




            See notes to consolidated condensed finanical statements

                                      F-4
<PAGE>



                               BARON CAPITAL TRUST
                 CONSOLIDATED CONDENSED STATEMENTS OF CASHFLOWS
                                    UNAUDITED


<TABLE>
<CAPTION>
                                                                         Nine Months Ended
                                                                           September 30,
                                                                       2000           1999
                                                                    -----------    -----------
                                                                     RESTATED
                                                                    -----------
<S>                                                                 <C>            <C>
Cash Flows from Operating Activities:
   Net loss                                                         $(1,255,355)   ($1,171,514)
   Adjustments to reconcile net loss to net cash
           used in operating activities:
         Provision for officer's compensation                           162,750             --
         Depreciation and Amortization                                  647,491        132,662
         Amortization of loan costs                                     110,100             --
         Equity in net loss of unconsolidated partnership              (113,915)            --
        (Increase) Decrease in operating assets:
            Other receivables                                            37,579         62,254
            Accrued Interest Receivable, Affiliate                       13,394         87,132
            Other assets                                                 (9,450)       (39,295)
         Increase (Decrease) in operating liabilities:
            Accounts payable and accrued liabilities                    (17,893)       259,489
            Security deposits                                           (28,092)         3,560
                                                                    -----------    -----------
               Net cash used in operating activities                   (453,391)      (665,712)
                                                                    -----------    -----------

Cash Flows from Investing Activities:
   Additions to rental apartments                                      (196,277)            --
   Investment in partnerships                                             1,203       (820,121)
   Purchases of other property and equipment                             (4,979)         6,311
   Increase in Restricted Cash                                         (101,990)      (118,773)
                                                                    -----------    -----------
               Net cash used in investing activities                   (302,043)      (932,583)
                                                                    -----------    -----------

Cash Flows from Financing Activities:
   Proceeds from the sale of common shares of beneficial interest       248,308      1,845,666
   Distributions paid                                                        --       (269,947)
   Proceeds from mortgage financing                                          --        236,273
   Proceeds from notes payable affiliates                               210,791             --
   Proceeds from note payable                                           105,000             --
   Payments on notes payable                                            (90,000)      (256,000)
   Payments on notes payable, affiliates                                (90,644)            --
   Payments on mortgages payable                                       (157,928)            --
   Payments on capital lease obligation                                  (4,980)       (20,325)
   Increase in advances to/from affiliates, net                         694,578         10,750
                                                                    -----------    -----------
               Net cash provided by financing activities                915,125      1,546,417
                                                                    -----------    -----------

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

Cash and Cash Equivalents, Beginning                                     33,774        177,299
                                                                    -----------    -----------

Cash and Cash Equivalents, Ending                                   $   193,465    $   125,421
                                                                    ===========    ===========

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


            See notes to consolidated condensed finanical statements

                                      F-5
<PAGE>


                               BARON CAPITAL TRUST

              NOTES TO CONDENSED CONSOLIDATED FINANICAL STATEMENTS


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          Basis of Presentation

          The consolidated balance sheet as of September 30, 2000,  consolidated
          statements of operations for the nine months ended  September 30, 2000
          and 1999 and three  months  ended  September  30,  2000 and 1999,  the
          consolidated  statements  of cash  flows  for the  nine  months  ended
          September  30,  2000  and  1999,  and the  consolidated  statement  of
          shareholders' equity for the nine months ended September 30, 2000 have
          been  prepared  by  the  Trust.  In the  opinion  of  management,  all
          adjustments  (which  include  reclassifications  and normal  recurring
          adjustments)  necessary  to  present  fairly the  financial  position,
          results of operations and cash flows at September 30, 2000 and for the
          period  presented,  have been made.  The results of operations for the
          three and nine months  ended  September  30, 2000 are not  necessarily
          indicative of the operating results for the full year.

          As a result of certain  adjustments  in  connection  with the  Trust's
          consolidated  financial  statements  for the year ended  December  31,
          2000, management determined to restate its Form 10-QSB for the quarter
          ended September 30, 2000 as previously  filed March 1, 2001. The Trust
          included in its original  September  30, 2000  financial  statements a
          provision for property impairment of $8,356,638, which was a result of
          writing  off  the  excess  of  the  recorded  value  of  the  Exchange
          Partnerships  acquired in the  Exchange  Offering  over the  estimated
          current value of the Exchange Partnerships. The provision for property
          impairment was a result of calculating  the recorded value at the date
          of the  exchange  (April 1, 2000) with  incomplete  information.  As a
          result,   adjustments  were  made  to  the  recorded  value  based  on
          information not previously  available to the Trust. Had the Trust been
          aware of this information at the time of filing the September 30, 2000
          Form 10-QSB, the provision for property impairment of $8,356,638 would
          not have been  recorded.  Instead an adjustment of  $11,005,924  would
          have been recorded to the consolidated  balance sheet as an adjustment
          to the recorded  amounts of land,  depreciable  property,  advances to
          affiliates  and  shareholders'  equity to reflect the  estimated  fair
          value  of  such  assets.   The  amounts  contained  in  the  financial
          statements  included  in this Form  10-QSB/A  reflect  those  changes.
          Certain subsequent events are also reflected herein.

          Certain information and footnote  disclosures normally included in the
          financial  statements  prepared in accordance with generally  accepted
          accounting  principles have been condensed or omitted. It is suggested
          that these  condensed  consolidated  financial  statements  be read in
          conjunction  with the Trust's  financial  statements and notes thereto
          included in the Trust's December 31, 1999 Form 10-KSB.

          Organization and Capitalization

          Baron Capital Trust (the "Trust") was organized as a business trust in
          Delaware on July 31, 1997. The Trust and its affiliate,  Baron Capital
          Properties,  L.P. (the "Operating  Partnership"),  a Delaware  limited
          partnership,  have been  organized  to  acquire  equity  interests  in
          residential  apartment  properties located in the United States and to
          provide or acquire mortgage loans secured by such types of property.


                                      F-6
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONDENSED CONSOLIDATED FINANICAL STATEMENTS


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

          Organization and Capitalization (Continued)

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

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

NOTE 2.   LIQUIDITY AND PROFITABILITY CONSIDERATIONS

          The accompanying  consolidated financial statements have been prepared
          in conformity  with generally  accepted  accounting  principles  which
          assume  that  the  Trust  will  continue  on a  going  concern  basis,
          including the  realization of assets and liquidation of liabilities in
          the ordinary  course of business.  For the nine months ended September
          30, 2000 and the year ended  December 31, 1999 the Trust  incurred net
          losses of  $1,255,355  and  $3,166,927  and  negative  cash flows from
          operations of $453,391 and  $1,022,587.  The auditors'  report for the
          year ended  December  31, 1999 was  qualified  to express  substantial
          doubt about the Trust's ability to continue as a going concern.

          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  consolidated   condensed  financial
          statements  for the first six months  ended June 30, 2001  included in
          the Trust's quarterly report on Form 10-QSB for the three-month period
          ended June 30, 2001, the Trust generated Funds From Operations  (Funds
          from  Operations  is a measure of  profitability  in the REIT industry
          measuring  net  income  less  depreciation,  amortization,  and  other
          non-operating expenses and/or income) of approximately $411,000 versus
          negative Funds From Operations of  approximately  $417,000 for the six
          months ended June 30, 2000.

          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  sufficient to
                    cover operating costs or whose  geographic  location creates
                    excessive burden; and

               o    reduce corporate overhead.



                                      F-7
<PAGE>


                               BARON CAPITAL TRUST

              NOTES TO CONDENSED CONSOLIDATED FINANICAL STATEMENTS


NOTE 2.      LIQUIDITY AND PROFITABILITY CONSIDERATIONS (Continued)

          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.  During the first  quarter  of 2001,  the Trust
                    refinanced three of its properties, generating $1,632,000 of
                    cash for the  Trust.  The cash was used to  reduce  accounts
                    payables   owed   by  the   Trust   to   Exchange   Offering
                    professionals  for their  services  in  connection  with the
                    offering,  advance funds for a second round of refinancings,
                    and establish an escrow  account for expected  major repairs
                    to its  Riverwalk  property.  All  three  of the  refinanced
                    properties  were refinanced at interest rates lower than the
                    interest  rate on their  old  loan.  Subsequent  to June 30,
                    2001,  the Trust  refinanced  three  additional  properties,
                    which resulted in cash proceeds of approximately $1,408,000.

               o    In April 2001,  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. Management of the Trust
                    determined  to  sell  the  property  based  on its  lack  of
                    performance  and its need for  substantial and frequent cash
                    infusions.  The sale price was approximately  $3,900,000 and
                    resulted in a loss of $210,854.  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.

          As a result of the  re-financing of the three properties in the second
          quarter of 2001 as discussed above, the Partnership had  approximately
          $265,000 in available cash.

          Management  believes  that the  actions  presently  being taken by the
          Trust,   including  the  cash  realized  upon  refinancing  the  three
          additional properties as described above and its cash on hand, provide
          the opportunity for the Trust to improve liquidity and profitability.

NOTE 3.   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


                                      F-8
<PAGE>



                               BARON CAPITAL TRUST

              NOTES TO CONDENSED CONSOLIDATED FINANICAL STATEMENTS


NOTE 3.   RECENT ACCOUNTING PRONOUNCEMENTS (continued)

          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 1998,  the FASB issued  SFAS 133,  Accounting  for  Derivative
          Instruments  and Hedging  Activities,  which has been deferred by SFAS
          137,  Accounting for Derivative  Instruments and Hedging  Activities -
          Deferral of the Effective  Date of FASB Statement No. 133, and amended
          by the  issuance  in June 2000 of SFAS  138,  Accounting  for  Certain
          Derivative Instruments and Certain Hedging Activities, an amendment of
          FASB  Statement  No.  133.  SFAS 133  requires  that every  derivative
          instrument  be recorded on the balance  sheet as an asset or liability
          measured  at its fair  value  and that  changes  in the fair  value of
          derivative  instruments  be  recognized  currently in earnings  unless
          specific hedge accounting  criteria are met. SFAS 133 is effective for
          fiscal years  beginning after June 15, 2000.  Historically,  the Trust
          has not entered into derivatives  contracts to hedge existing risks or
          for  speculative  purposes.  Accordingly,  the Trust  does not  expect
          adoption  of the  new  standard  on  January  1,  2001 to  affect  its
          financial statements.

NOTE 4.   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 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.  Prior to the completion of the Exchange Offering,  the
          Exchange  Partnerships were managed by corporate general partners (the
          "Corporate  General  Partners"),  which were  controlled by Gregory K.
          McGrath,  who is a founder and former Chief  Executive  Officer of the
          Trust,   a  founder  and  principal   unit  holder  of  the  Operating
          Partnership, and the Chief Executive, sole stockholder and director of
          the Managing Shareholder of the Trust.

          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




                                      F-9
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONDENSED CONSOLIDATED FINANICAL STATEMENTS


NOTE 4.   EXCHANGE OFFERING (Continued)

          nominal  consideration,  assigned to the Trust all of the equity stock
          in 18 of the  Corporate  General  Partners and granted to the Board of
          the Trust a  management  proxy  coupled  with an  interest to vote the
          shares of the remaining five Corporate General Partners; the Corporate
          General Partner of each of the Exchange  Partnerships  assigned to the
          Operating Partnership all of its economic interest in the partnership;
          and Mr.  McGrath caused each  Corporate  General  Partner to waive its
          right to receive  from its  Exchange  Partnership  any  ongoing  fees,
          effective  upon  completion  of  the  exchange.  As a  result  of  the
          foregoing,  the Operating Partnership (and indirectly the Trust) owned
          substantially all of the economic  interest  represented by the equity
          and debt  interests  owned by the  Exchange  Partnerships  and control
          management of such partnerships.

          The Exchange Offering expired on April 7, 2000. Under the terms of the
          Exchange Offering,  Exchange Limited Partners in a particular Exchange
          Partnership  were  entitled to  participate  in the  offering  only if
          limited  partners  holding  at  least  90% of  the  units  of  limited
          partnership  interest  in that  partnership  affirmatively  elected to
          accept the offering.  Exchange Limited Partners holding  approximately
          97.4%  of  the  outstanding  units  of  limited  partnership  in  such
          partnerships   accepted  the  offering,   and  each  of  the  Exchange
          Partnerships exceeded the 90% requirement.  As a result, following the
          completion of the Exchange Offering, the limited partnership interests
          of nine  Exchange  Partnerships  were owned  entirely by the Operating
          Partnership  (in the case of nine  Exchange  Partnership  in which all
          Exchange Limited Partners accepted the offering) and substantially all
          of  the  limited  partnership  interests  in  the  other  14  Exchange
          Partnerships  were  owned  by  the  Operating  Partnership,  with  the
          remaining  limited  partnership  interests  being retained by Exchange
          Limited  Partners  who elected not to accept the offering or failed to
          respond to the offering.

          The  acquisition of the Exchange  Partnership  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  (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,  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, 1999.  The pro forma  amounts  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
          necessarily reflect the actual results that would have occurred nor is
          it  necessarily  indicative  of future  results of  operations  of the
          combined partnerships.



                                      F-10
<PAGE>


                               BARON CAPITAL TRUST

              NOTES TO CONDENSED CONSOLIDATED FINANICAL STATEMENTS


NOTE 4.   EXCHANGE OFFERING (Continued)

                                                      For the Nine Months Ended
                                                           September 30
                                                        2000           1999
                                                     -----------    -----------
          Total Revenues                             $ 5,100,000    $ 4,400,000
          Cost and expenses                           (6,400,000)    (6,400,000)
                                                     -----------    -----------
          Net Loss                                   $(1,300,000)   $(2,000,000)
                                                     ===========    ===========

          Weighted average number of common shares       706,793        594,677
                                                     ===========    ===========

          Net loss per common share                  ($     1.84)   ($     3.36)
                                                     ===========    ===========

NOTE 5.   COMMITMENTS AND CONTINGENCIES

          Contract to Purchase Additional Properties

          In September 1998, the Trust entered into an agreement with three real
          estate development companies (Brentwood at Southgate, Ltd., Burlington
          Residential,  Ltd. and The Shoppes at Burlington, Ltd.) to acquire two
          luxury residential  apartment properties in the development stage upon
          the completion of construction.  The three  development  companies are
          controlled by Mr. McGrath. One of the residential  properties has been
          sold to a third party with the Trust's consent. The remaining property
          is scheduled  to have a total of 396 units,  comprised of one, two and
          three  bedroom/one  or two bathroom  apartments.  Construction  of the
          property  (the  "Burgundy  Hills  Property"),   located  in  Florence,
          Kentucky (part of the Cincinnati metropolitan area), is expected to be
          completed  by the end of the first  quarter  of 2004.  The Trust has a
          right  of  first   negotiation  to  purchase  the  property  from  the
          development  company upon  completion  and a right of first refusal to
          purchase the property on the same terms offered by a third party.  The
          purchase  price is expected  to be  approximately  $30,000,000.  It is
          contemplated  that a  significant  portion  of that  amount  would  be
          covered by first  mortgage  financing.  At the current  time the Trust
          does not have adequate  resources to close on the transaction  even if
          it were  interested in doing so 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 former
          Chief  Executive  Officer)  agreed  to  co-guarantee  long-term  first
          mortgage   construction   financing   provided  by  KeyBank   National
          Association ("KeyBank") to Burlington Residential,  Ltd. ("Borrower"),
          the owner of the  Burgundy  Hills  Property.  As of  August  1,  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  6.75%) or the LIBOR rate plus 2%.  The Trust  also  agreed
          that,  if the Borrower  failed to comply with the  repayment and other
          obligations under the loan agreements, 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



                                      F-11
<PAGE>


                               BARON CAPITAL TRUST

              NOTES TO CONDENSED CONSOLIDATED FINANICAL STATEMENTS


NOTE 5.   COMMITMENTS AND CONTINGENCIES (Continued)

          Contract to Purchase Additional Properties (Continued)

          the former Chief Executive  Officer,  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
          the former 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 seeking a new
          long-term  construction  facility with another institutional lender to
          replace the KeyBank loan (and the BankOne loan described below).

          In December 2000,  BankOne acquired KeyBank's position in the Burgundy
          Hills first  mortgage  loan. The loan is subject to the same terms and
          conditions  as that of the  original  first  mortgage  loan.  Earlier,
          BankOne  had  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,  BankOne 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  of the two loans will be
          available or will be available on commercially  reasonable terms, that
          BankOne  will not seek to enforce  its right to  accelerate  the first
          mortgage loan and begin foreclosure  proceedings  against the Burgundy
          Hills  Property  in  respect  of the first  mortgage  loan or elect to
          require the Trust to buy out its  position  on the entire  outstanding
          amount of the first  mortgage  loan,  or that BankOne will not seek to
          enforce  its right  under the other  loan to take over  control of the
          Borrower.

          Officers' Compensation

          Gregory  K.  McGrath,  a  founder  of  the  Trust  and  the  Operating
          Partnership,  formerly served as Chief Executive Officer of the Trust.
          He agreed  to serve as Chief  Executive  Officer  of the Trust for the
          first year in exchange for  compensation  in the form of Common Shares
          or Units in an  amount  not to  exceed  25,000  shares  or  units,  as
          applicable,  to be determined by the Executive  Compensation Committee
          of the Board of the Trust based upon his  performance,  in addition to
          benefits  and  eligibility  for  participation  in any option plan and
          bonus  incentive  compensation  plan which may be  implemented  by the
          Trust.  During 1998 and 1999 and the first three  quarters of 2000, no
          Common  Shares or Units were  issued to Mr.  McGrath as  compensation.
          However, in order to reflect all appropriate  administrative  expenses
          of the Operating Partnership, a provision of $162,750 has been made in
          the accompanying  financial statements for the estimated fair value of
          the services  rendered by Mr. McGrath as Chief  Executive  Officer for
          the first  three  quarters of 2000.  This  amount has been  charged to
          compensation expense, with corresponding credits to partners' capital.
          This  estimate of the fair value of such  services was  determined  by
          management  based  upon an  analysis  of  compensation  paid to  chief
          executive  officers of a number of comparable  real estate  investment
          trusts.  Compensation and benefits for the Chief Executive Officer are
          determined  annually by the  Executive  Compensation  Committee of the
          Board of the Trust.  Effective  December  31,  2000,  no  compensation
          expense will be charged for the services  provided by the former Chief
          Executive Officer, as these



                                      F-12
<PAGE>


                               BARON CAPITAL TRUST

              NOTES TO CONDENSED CONSOLIDATED FINANICAL STATEMENTS


NOTE 5.   COMMITMENTS AND CONTINGENCIES (Continued)

          Officers' Compensation (Continued)

          services are minimal to the Trust's operations. In May 2001, Robert L.
          Astorino replaced Mr. McGrath as Chief Executive Officer.

          Robert S.  Geiger,  the  other  founder  of the  Trust  and  Operating
          Partnership,  formerly  served as the Chief  Operating  Officer of the
          Trust and the Operating Partnership. His initial annual salary was set
          at  $100,000,   in  addition  to   benefits,   and   eligibility   for
          participation  in any Common  Share  option  plan and bonus  incentive
          compensation  plan implemented by the Trust.  Mr. Geiger's  employment
          has been  terminated  and since  August 1, 2000,  he has  received  no
          compensation.

          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
          (see "Note 7.  Shareholders'Equity")  and pursuant to an  Underwriting
          Agreement,  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 on a best efforts 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 former
          Chief  Executive  Officer of the Trust),  the former  Chief  Executive
          Officer of the Trust,  and  Alexandria  Development,  L.P., a Delaware
          limited  partnership  controlled by the former Chief Executive Officer
          of which the  Operating  Partnership  owns a 40%  limited  partnership
          interest (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  Apartments  property,  a
          residential apartment property under construction that is owned



                                      F-13
<PAGE>


                               BARON CAPITAL TRUST

              NOTES TO CONDENSED CONSOLIDATED FINANICAL STATEMENTS


NOTE 5.   COMMITMENTS AND CONTINGENCIES (Continued)

          Pending Litigation (continued)

          by the Alexandria  Partnership.  The Alexandria Partnership guaranteed
          Wakul, Inc.'s lease payments under the leasing agreement.

NOTE 6.   RELATED PARTY TRANSACTIONS

          Trust Management Agreement

          Under a Trust Management  Agreement entered into with the Trust, Baron
          Advisors,  Inc.  (the  "Managing  Shareholder")   previously  provided
          management,  administrative  and investment  advisory  services to the
          Trust. The services included,  among other things,  communicating with
          and  reporting to  investors,  administering  accounts,  providing the
          Trust  office  space,  equipment  and  facilities  and other  services
          necessary for the Trust's operation, and representing the Trust in its
          relations  with  custodians,  depositories,   accountants,  attorneys,
          brokers  and  dealers,  corporate  fiduciaries,  insurers,  banks  and
          others, as required. The Managing Shareholder was also responsible for
          determining   which  real  estate   investments  and  non-real  estate
          investments the Trust made (including the temporary  investment of the
          Trust's  available funds prior to their  commitment to particular real
          estate  investments) and for making divestment  decisions,  subject to
          the provisions of the Declaration.  The Trust Management Agreement had
          an  initial  term of one  year,  and was  renewed  for one  additional
          one-year period.  The agreement was terminated as of December 31, 2000
          by the mutual agreement of the Trust and the Managing Shareholder.

          Under the Trust  Management  Agreement,  the  Trust was  obligated  to
          reimburse the Managing Shareholder, on a monthly basis during the term
          of the agreement,  for its operating expenses relating to the business
          of the Trust and the Operating  Partnership in an amount up to the sum
          of 1% of the  gross  proceeds  from  the sale by the  Trust of  Common
          Shares in the Cash Offering,  and 1% of the initial  assigned value of
          each Unit in the Operating  Partnership  issued in connection with the
          Exchange Offering.

          Receivables/Payables, Affiliates

          Certain  of  the  Exchange  Partnerships  acquired  by  the  Operating
          Partnership in the Exchange Offering hold subordinated notes, lines of
          credits, and advances due from/to limited  partnerships  controlled by
          Gregory K. McGrath,  the former Chief Executive  Officer of the Trust.
          These debt instruments have varying interest rates and the interest is
          accrued and/or paid on a monthly basis.  As of September 30, 2000, the
          Trust was due $ 6,072,921 from  affiliates  with $1,325,169 of accrued
          interest.  The Trust  also owes  $3,813,313  to  affiliates  including
          accrued interest as of September 30, 2000.



                                      F-14
<PAGE>


                               BARON CAPITAL TRUST

              NOTES TO CONDENSED CONSOLIDATED FINANICAL STATEMENTS


NOTE 7.  SHAREHOLDERS' EQUITY

          Cash Offering

          On May 15, 1998,  pursuant to a  registration  statement on Form SB-2,
          the Trust  commenced  an  initial  public  offering  of a  maximum  of
          2,500,000 Common Shares of beneficial  interest in the Trust at $10.00
          per Common Share (the "Cash Offering"). The Cash Offering, as amended,
          was  terminated  May 31, 2000. The Trust sold 702,076 Common Shares in
          the offering for an aggregate offering price of $7,020,763. All of the
          Common Shares issued by the Trust in the offering are tradable without
          restriction  under the  Securities  Act,  but are  subject  to certain
          restrictions  designed to permit the Trust to qualify and maintain its
          status as a real estate  investment  trust under the Internal  Revenue
          Code.  The  Common  Shares  are not  listed  for  trading on any stock
          exchange, and no market currently exists for the Common Shares.

          Exchange Offering

          The Operating  Partnership filed a registration  statement on Form S-4
          with  the  Securities  and  Exchange   Commission  (the  "Commission")
          covering  up  to  2,500,000  units  of  limited  partnership  interest
          ("Units")  to be  registered  under the Act.  These units were offered
          (the "Exchange Offering") in exchange for units of limited partnership
          interest in 23 limited  partnerships  (the  "Exchange  Partnerships"),
          which directly or indirectly owned equity and/or mortgage interests in
          one or more residential apartment properties.  Prior to the completion
          of the Exchange  Offering,  the Exchange  Partnerships were managed by
          corporate general partners who are affiliated with one of the founders
          of the Trust and the  Operating  Partnership,  who is also the  former
          Chief  Executive  Officer of the Trust,  and the sole  stockholder and
          director of the Managing  Shareholder of the Trust.  The  registration
          statement was declared effective on November 9, 1999, and the Exchange
          Offering commenced shortly thereafter.

          The number of Units  offered in exchange  for the limited  partnership
          interests  in  the  Exchange  Partnerships  was  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 was arbitrarily assigned an initial value
          of  $10.00,  which  corresponds  to the  offering  price of each Trust
          Common Share that was being offered to the public pursuant to the Cash
          Offering.  The value of each Unit and  Common  Share  outstanding  was
          substantially  identical  since Unit  holders  (other than the Trust),
          including  recipients of Units in the Exchange Offering,  are entitled
          to exchange  all or a portion of their Units at any time and from time
          to time for an equivalent  number of Trust Common  Shares,  so long as
          the exchange would not cause the exchanging  party to own (taking into
          account certain  ownership  attribution  rules) in excess of 5% of the
          then outstanding shares in the Trust,  subject to the Trust's right to
          cash out any holder of Units who  requests an exchange  and subject to
          certain other  exceptions.  To facilitate such exchanges of Units into
          Common Shares,  2,500,000  Common Shares (in addition to the 2,500,000
          Common  Shares  offered by the Trust in the Cash  Offering)  have been
          registered with the Commission.

          By virtue of the  completion of the Exchange  Offering,  the Operating
          Partnership acquired equity and/or subordinated  mortgage interests in
          26  properties  (the  "Exchange  Properties")  that were  directly  or
          indirectly owned by the 23 Exchange Partnerships.  (As described above
          in  "NOTE  2  -  Liquidity  and  Profitability   Considerations,"  the
          Operating  Partnership  sold one of the Exchange  Properties  in April
          2001.) The Operating  Partnership  acquired  interests in a particular
          property and/or mortgages by



                                      F-15
<PAGE>


                               BARON CAPITAL TRUST

              NOTES TO CONDENSED CONSOLIDATED FINANICAL STATEMENTS


NOTE 7.   SHAREHOLDERS' EQUITY (Continued)

          Exchange Offering (Continued)

          acquiring  from limited  partners  their units of limited  partnership
          interest in the respective Exchange Partnership.  Each of the Exchange
          Partnerships   currently  controlled  by  the  Operating   Partnership
          directly or indirectly owns equity and/or mortgage interests in one or
          more  properties.  Certain of such Exchange  Partnerships  directly or
          indirectly own equity interests in 15 properties,  which consist of an
          aggregate of 868  residential  units  (comprised of studio,  one, two,
          three and four bedroom units).  Certain of such 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 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.  See Note 4 regarding the completion of the Exchange Offering
          on April 7, 2000.

          In connection with the Exchange Offering,  124,903 Trust Common Shares
          were  issued  as a  commission  to  broker-dealers  who  assisted  the
          Operating  Partnership  in  consummating  the Exchange  Offering.  The
          shares were issued at a value of $10.00 per share and are reflected at
          a net  zero  value  in  the  accompanying  consolidated  Statement  of
          Shareholders' Equity.

          Operating Partnership Limited Partnership Units

          In  connection  with the  formation  of the  Trust  and the  Operating
          Partnership,  their founders, Gregory K. McGrath and Robert S. Geiger,
          each subscribed for 601,080  Operating  Partnership  Units (a total of
          1,202,160  Units).  In  consideration  for the Units subscribed for by
          them,  they made a  $100,000  capital  contribution  to the  Operating
          Partnership.  The number of Units  subscribed for by them  represented
          19% of the  maximum  Common  Shares  that would have been  outstanding
          after  completion  of the  Cash  Offering  and the  Exchange  Offering
          assuming that the Trust had sold all Common Shares offered in the Cash
          Offering  and that the  Operating  Partnership  had issued the maximum
          number  of  Units  (2,500,000)   offered  in  the  Exchange  Offering,
          calculated  on a fully  diluted  basis  assuming all then  outstanding
          Units (other than those acquired by the Trust) had been exchanged into
          an equivalent number of Common Shares.

          The subscription  agreement entered into by the founders provided that
          if, as of May 31,  2000,  the number of Units  subscribed  for by them
          represented  a  percentage  greater  than 19% of the then  outstanding
          Common Shares  calculated on a fully diluted basis, each founder would
          be required to return any excess  Units to the  Operating  Partnership
          for  cancellation.  Therefore,  as of May  31,  2000,  an  adjustment,
          reducing  the number of Units held in escrow by  444,414,  was made to
          accurately  reflect  the  number of Units  held by the  founders.  The
          founders have deposited  Units  subscribed for by them into a security
          escrow account for six to nine years, subject to earlier release under
          certain conditions.

          The  fair  value of the  Units  issued  to the  founders  amounted  to
          $100,000,  based upon a determination made by the Independent Trustees
          of the Trust as of the date of subscription  for these Units (February
          3, 1998). The determination of the fair value took into  consideration
          that at the time of the  subscription for the Units, the Trust and the
          Operating Partnership were development stage




                                      F-16
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONDENSED CONSOLIDATED FINANICAL STATEMENTS


NOTE 7.   SHAREHOLDERS' EQUITY (Continued)

          Operating Partnership Limited Partnership Units (Continued)

          companies,   with  no  cash  or  other  significant  tangible  assets,
          operating history or revenue and no certainty of successful  offerings
          or future  operations;  the founders had at risk their initial capital
          contributions plus certain additional  unreimbursed  advances to cover
          certain offering and operating expenses; the founders have significant
          experience and developed know-how critical to the success of the Trust
          and the Operating Partnership;  and the founders' Units are subject to
          significant  transfer  restrictions.  The  Operating  Partnership  has
          accounted for the units as being issued and  outstanding,  but subject
          to escrow  restrictions,  in the accompanying  consolidated  financial
          statements,  and has included the Units as  outstanding in determining
          the weighted  average  partnership  units  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 founders agreed to waive future
          administrative   fees  for  managing   Exchange   Partnerships   which
          participated  in  the  Exchange  Offering,  agreed  to  assign  to the
          Operating  Partnership  the right to  receive  all  residual  economic
          rights  attributable  to the  general  partner  interests  in 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  founders  assume  the  property
          management  role in  respect of  properties  in which the Trust or the
          Operating Partnership invest.

          Following the Exchange Offering,  the Operating Partnership controlled
          the Exchange  Partnerships by virtue of its ownership of substantially
          all of the limited partnership  interests therein,  which provided the
          Operating  Partnership the ability to remove the general partner under
          the  provisions of the limited  partnership  agreements  pertaining to
          each Exchange Partnership that authorize limited partners holding over
          50% of total partnership interest to remove the general partner.

          Distributions

          In 1999,  the  Board  of  Trustees  authorized  the  payment  of three
          distributions   aggregating   $270,348   ($.16  per  common  share  of
          beneficial  interest)  from the  surplus of the Trust.  This amount is
          presented in the accompanying  consolidated  financial statements as a
          deduction from shareholders' equity under the caption "Distributions".
          There  were  no  distributions  paid  during  the  nine  months  ended
          September 30, 2000.


                                      F-17
<PAGE>


                               BARON CAPITAL TRUST

              NOTES TO CONDENSED CONSOLIDATED FINANICAL STATEMENTS


NOTE 8.   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 both the three and nine months ended  September
          30, 2000 and 1999.

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

<TABLE>
<CAPTION>
                                                                                   Weighted
                                                                                    Average              Loss
                                                                Net Loss             Shares            Per Share
                                                                --------             ------            ---------
<S>                                                             <C>                 <C>                 <C>
          Three Months Ended September 30, 2000                  ($370,098)         739,406             ($0.50)
          Three Months Ended September 30, 1999                  ($236,061)         655,725             ($0.36)
          Nine Months Ended September 30, 2000                 ($1,255,355)         706,793             ($1.78)
          Nine Months Ended September 30, 1999                 ($1,171,514)         594,677             ($1.97)
</TABLE>

NOTE 9.   SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
          ACTIVITIES

          In April 2000,  in  connection  with the  completion  of the  Exchange
          Offering, the Operating Partnership acquired indirect equity interests
          in 16 rental  properties  and  subordinated  mortgage  interests in 10
          additional  properties  through the acquisition of  substantially  all
          partnership  interests in the Exchange Partnerships which own land and
          depreciable  property,  accrued  interest,   advances,  other  assets,
          mortgages and notes payable, as follows:

          Land and Depreciable Property                    $28,723,196
          Mortgage Notes Receivable, Affiliates              3,292,677
          Receivables and Accrued Interest, Affiliates       3,262,522
          Other Assets                                         848,813
                                                           -----------

          Total Assets                                      36,127,208
                                                           -----------

          Mortgage Payable                                  19,766,015
          Notes Payable and Accrued Interest                 2,320,586
          Payables and Accrued Interest, Affiliates          1,435,548
          Accounts Payable                                     644,266
          Security Deposits                                    167,634
                                                           -----------

          Total Liabilities                                 24,334,049
                                                           -----------

          Equity                                           $11,793,159
                                                           ===========



                                      F-18
<PAGE>


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

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

          Forward-looking Statements

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

          Results of Operations

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

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

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


                                       3
<PAGE>

          proceeds of $25,000,000).  In the Cash Offering,  which expired on May
          31,  2000,  the Trust sold  702,076  Common  Shares  for an  aggregate
          purchase  price of  $7,020,763.  The  Trust  contributed  the net cash
          proceeds  from the  issuance  of Common  Shares  in the Cash  Offering
          ($5,467,858)   to  the  Operating   Partnership  in  exchange  for  an
          equivalent number of units ("Units") of limited  partnership  interest
          in the Operating Partnership.

          As of August 1, 2001,  the Trust owned 825,528  Operating  Partnership
          Units, representing approximately 21.6% of the then outstanding Units.
          Such Units are  comprised of the Units  acquired by the Trust with the
          net proceeds of the Cash  Offering and the Units that holders of Units
          have elected to exchange  into Common  Shares in the manner  described
          below in this  section.  Since the Units  owned by the Trust  comprise
          substantially  all of its assets,  the operating  results of the Trust
          are primarily  dependent  upon the operating  results of the Operating
          Partnership.

          Through   the   Operating   Partnership,   the  Trust   has   acquired
          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 former Chief  Executive  Officer of
          the  Trust,  a  founder  and  principal  unitholder  of the  Operating
          Partnership,  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.  On  February  7,  2001,  the  Independent
          Trustees of the Trust and the Managing Shareholder agreed to terminate
          the Trust Management Agreement effective December 31, 2000.

          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 August 1,
          2001, 112 of the 168 residential  units  (approximately  67%) had been
          completed and were in the rent-up stage.  Of the completed  units,  93
          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  former  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

                                       4
<PAGE>

          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.

          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  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  even if
          it were  interested in doing so 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 Mr. McGrath,
          its former Chief Executive  Officer) agreed to co-guarantee  long-term
          first mortgage  construction  financing  provided by KeyBank  National
          Association ("KeyBank") to Burlington Residential,  Ltd. ("Borrower"),
          the owner of the  Burgundy  Hills  Property.  As of  August  1,  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  6.75%) or the LIBOR rate plus 2%.  The Trust  also  agreed
          that,  if the Borrower  failed to comply with the  repayment and other
          obligations under the loan documents,  KeyBank 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.


                                       5
<PAGE>

          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 first  mortgage loan (and
          the BankOne loan described below).

          In December 2000,  BankOne acquired KeyBank's position in the Burgundy
          Hills first  mortgage  loan.  The BankOne  loan is subject to the same
          terms and  conditions as that of the original  KeyBank loan.  Earlier,
          BankOne  had  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,  BankOne 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  of the two loans will be
          available or will be available on commercially  reasonable terms, that
          BankOne  will not seek to enforce  its right to  accelerate  the first
          mortgage loan and begin foreclosure  proceedings  against the Burgundy
          Hills  Property  in respect of the first  mortgage  loan,  or elect to
          require the Trust to buy out its  position  on the entire  outstanding
          amount of the first  mortgage  loan,  or that BankOne will not seek to
          enforce  its right  under the other  loan to take over  control of the
          Borrower.

          In April 2000,  pursuant to a registration  statement on Form S-4, the
          Operating  Partnership  completed an exchange  offering (the "Exchange
          Offering") under which it acquired additional interests in residential
          apartment  properties.   In  the  Exchange  Offering,   the  Operating
          Partnership issued 2,449,525 registered Operating Partnership Units in
          exchange  for   substantially   all   outstanding   units  of  limited
          partnership  interest owned by individual limited partners  ("Exchange
          Limited   Partners")  in  23  limited   partnerships   (the  "Exchange
          Partnerships"). The Exchange Partnerships directly or indirectly owned
          equity  and/or  debt  interests  in  one  or  more  of 26  residential
          apartment  properties  (the  "Exchange  Properties")  located  in  the
          southeast and mid-west United States.  (See NOTE 4 "Exchange Offering"
          in the  accompanying  notes to the  consolidated  condensed  financial
          statements.)

          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.



                                       6
<PAGE>

          Prior  to  the  completion  of the  Exchange  Offering,  the  Exchange
          Partnerships   were  managed  by  corporate   general   partners  (the
          "Corporate General Partners"), which were controlled by Mr. McGrath.

          Following  the  completion  of the  Exchange  Offering,  the  Exchange
          Partnerships  continued to own the same property  interests they owned
          prior to the offering;  substantially  all of the limited  partnership
          interests in the 23 Exchange  Partnerships were owned by the Operating
          Partnership;  Mr. McGrath, for nominal consideration,  assigned to the
          Trust all of the equity stock in 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
          represented  by the equity and debt  interests  owned by the  Exchange
          Partnerships and controlled management of such partnerships.

          In April 2001, the Operating  Partnership  sold its equity interest in
          one of the  Exchange  Properties,  Glen Lakes  Apartments,  a 144-unit
          residential  apartment  property located in St.  Petersburg,  Florida.
          Management of the Trust  determined to sell the property  based on its
          lack of  performance  and its need for  substantial  and frequent cash
          infusions.  (See Note 2 "Liquidity  and  Profitability  Considerations
          -Subsequent   Transactions"   in  the   accompanying   notes   to  the
          consolidated condensed financial statements.)

          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  September  30,  2000  Compared  to
          December 31, 1999

          Due to the completion of the Exchange Offering,  the balance sheet for
          the  Trust  reflects  large  increases  in  assets,   liabilities  and
          shareholders' equity. During the nine months ended September 30, 2000,
          total assets increased to $44.2 million while liabilities increased to
          $31.8 million. As described above, the Exchange Offering increased the
          number of  properties in which the  Operating  Partnership  indirectly

                                       7
<PAGE>

          owned an  equity  and/or  mortgage  interest  by  adding  26  Exchange
          Properties.  The Operating Partnership now has rental apartment assets
          of approximately $36.3 million,  which are subject to $25.1 million in
          first mortgage debt.

          Shareholders' equity increased to $12.5 million due to the issuance in
          the Exchange  Offering of more than  2,449,525  Operating  Partnership
          Units (each such Unit  exchangeable into one Common Share of the Trust
          at the election of holders  thereof)  with an exchange  value of $11.8
          million  less a net  loss of  $1,255,355  for the  nine  months  ended
          September 30, 2000.

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

          Revenues,   real  estate  expenses  and  administrative  expenses  all
          increased  substantially  for the nine months ended September 30, 2000
          in comparison  to the nine months ended  September 30, 1999 due to the
          completion of the Exchange  Offering  described above and the addition
          of the 26 Exchange Properties and their related operating costs.

          Liquidity and Capital Resources

          Net  cash  used in  operating  activities  for the nine  months  ended
          September  30, 2000 was  $453,391  compared  to $665,712  for the nine
          months  ended  September  30,  1999.  The  decrease  in  cash  used in
          operating activities was mainly due to increased depreciation expense,
          amortization  expense and provision for officer's  compensation offset
          by  an   increase   in  the  net  loss  and  equity  in  net  loss  of
          unconsolidated  partnership  for the nine months ended  September  30,
          2000 compared to the nine months ended  September 30, 1999.  Increases
          were mainly due to the  completion  of the Exchange  Offering in April
          2000.

          Net  cash  used in  investing  activities  for the nine  months  ended
          September  30, 2000 was  $302,043  compared  to $932,583  for the nine
          months  ended  September  30,  1999.  The  decrease  in  cash  used in
          investing  activities  for 2000 was due  primarily  to a  decrease  in
          investments in partnerships.

          Net cash  provided by financing  activities  for the nine months ended
          September 30, 2000 was $915,125  compared to  $1,546,417  for the nine
          months ended  September  30,  1999.  The decrease in cash was due to a
          decrease  in the sale of Trust  Common  Shares  in the Cash  Offering,
          which expired in May 2000.

          Because  of the net loss of  $3,166,927  incurred  by the Trust in the
          period ended December 31, 1999 and the $1,123,000 in accounts  payable
          owed to professionals  in connection with the Exchange  Offering as of
          December 31, 1999, and its limited liquid resources as of December 31,
          1999,  the Trust's  independent  auditors  qualified  their  auditors'
          report to reflect a going concern contingency.



                                       8
<PAGE>

          The completion in April 2000 of the Exchange Offering  described above
          has  completed  the first  effort,  in the opinion of  management,  to
          provide the critical mass  necessary for  profitable  operations.  The
          Company is negotiating  with the firms which are owed accounts payable
          in order to extend  payment  terms  and,  where  possible,  reduce the
          amounts  due.  Distributions  will be made by the  Trust as cash  flow
          allows,  but will be  negatively  impacted  until  the  open  accounts
          payable are reduced.  Management  does not  anticipate  that the Trust
          will  make  distributions  to its  shareholders  for the next  several
          quarters.

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

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

          The target  metropolitan  markets and  sub-markets  have  benefited in
          recent periods from demographic  trends (including  population and job
          growth) which  increase the demand for  residential  apartment  units,
          while financing  constraints  (specifically,  reduced  availability of
          development   capital)  have  limited  new   construction   to  levels
          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


                                       9
<PAGE>

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

          Generally,  there are no  seasonal  aspects of the  operations  of the
          Trust or the Operating  Partnership  that might have a material effect
          on their financial  conditions or results of operation.  However,  for
          the last 36 months,  one 60-unit student housing property owned by one
          of the Exchange Partnerships involved in the Exchange Offering has had
          an average  occupancy  rate of 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.

          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.

          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  consolidated   condensed  financial
          statements  for the first six months  ended June 30, 2001  included in
          the Trust's quarterly report on Form 10-QSB for the three-month period
          ended June 30, 2001, the Trust generated Funds From Operations  (Funds
          from  Operations  is a measure of  profitability  in the REIT industry
          measuring  net  income  less  depreciation,  amortization,  and  other
          non-operating expenses and/or income) of approximately $411,000 versus
          negative Funds From Operations of  approximately  $417,000 for the six
          months ended June 30, 2000.

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



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<PAGE>

          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  sufficient 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.  During
               the first  quarter  of 2001,  the Trust  refinanced  three of its
               properties, generating $1,632,000 of cash for the Trust. The cash
               was  used  to   reduce   amounts   owed  to   Exchange   Offering
               professionals for their services in connection with the offering,
               advance funds for a second round of  refinancings,  and set up an
               escrow   account  for  expected  major  repairs  to  the  Trust's
               Riverwalk   Property.   All  three  refinanced   properties  were
               refinanced  at  interest  rates lower than the  interest  rate on
               their old loan. Subsequent to June 30, 2001, the Trust refinanced
               three additional  properties,  which resulted in cash proceeds of
               approximately $1,408,000.

          o    In April 2001, 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.  Management of the Trust determined to sell
               the property  based on its lack of  performance  and its need for
               substantial  and  frequent  cash  infusions.  The sale  price was
               approximately  $3,900,000  and  resulted  in a loss of  $210,854.
               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.

          As a result of the  re-financing of the three properties in the second
          quarter of 2001 as discussed above, the Partnership had  approximately
          $265,000 in available cash.



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<PAGE>

          Management  believes  that the  actions  presently  being taken by the
          Trust,   including  the  cash  realized  upon  refinancing  the  three
          additional properties as described above and its cash on hand, provide
          the opportunity for the Trust to improve liquidity and profitability.

                           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

          There were no  defaults  upon  senior  securities  of the Trust in the
          third quarter of 2000.

          In connection with a transaction  described above at "Part I - Item 2.
          Management's  Discussion  and Analysis or Plan of Operations - Results
          of  Operations,"  the Trust  (along  with its former  Chief  Executive
          Officer) agreed to co-guarantee  long-term first mortgage construction
          financing  provided by KeyBank  National  Association  ("KeyBank")  to
          Burlington Residential, Ltd. ("Borrower"),  the owner of a residential
          apartment  property (the "Burgundy Hills Property") under  development
          in  Boone  County,  Kentucky.  As of  August  1,  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 former Chief
          Executive  Officer of the Trust. The interest rate on the construction
          loan is KeyBank's prime rate (currently  6.75%) or the LIBOR rate plus
          2%. The Trust also agreed that, if the Borrower  failed to comply with
          the repayment and other obligations under the loan documents,  KeyBank
          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


                                       12
<PAGE>

          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 BankOne loan described below).

          In December 2000,  BankOne  acquired  KeyBank's  position in the first
          mortgage  loan.  The  BankOne  loan is  subject  to the same terms and
          conditions  as that of the original  KeyBank  loan.  Earlier,  BankOne
          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,  BankOne 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  of the two loans will be
          available or will be available on commercially  reasonable terms, that
          BankOne  will not seek to enforce  its right to  accelerate  the first
          mortgage loan and begin foreclosure  proceedings  against the Burgundy
          Hills  Property  in  respect  of the first  mortgage  loan or elect to
          require the Trust to buy out its  position  on the entire  outstanding
          amount of the first  mortgage  loan,  or that BankOne will not seek to
          enforce  its right  under the other  loan 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).

           27            Financial Data Schedule


     (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.

August 27, 2001

                                  BARON CAPITAL TRUST

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

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




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