Baron Health Care Fund | Q1 2026

Dear Baron Health Care Fund Shareholder:

During the quarter ended March 31, 2026, Baron Health Care Fund® (the Fund) declined 6.97% (Institutional Shares), compared with the 4.88% decline for the Russell 3000 Health Care Index (the Benchmark) and the 3.96% decline for the Russell 3000 Index (the Index). Since inception (April 30, 2018), the Fund increased 9.39% on an annualized basis compared with the 8.97% gain for the Benchmark and the 13.26% gain for the Index.

The Fund trailed the Index by 209 basis points due to disappointing stock selection. Stock selection in certain sub-industries, namely pharmaceuticals and biotechnology, was exacerbated by having limited exposure to a handful of larger-cap companies that managed solid gains in a period of general market uncertainty.

Weakness in pharmaceuticals was responsible for most of the underperformance, with the principal headwind being limited exposure to certain large-cap stocks that were up double digits in the period. In particular, having lower exposure to Johnson & Johnson and Merck & Co., Inc. and not owning Pfizer Inc. and Bristol-Myers Squibb Company detracted approximately 275 basis points from relative performance, representing the vast majority of relative losses in the period. We generally have limited exposure to large-cap pharmaceutical companies because we think they are unlikely to meet our growth hurdle of achieving at least double-digit earnings growth over the long term.

Higher exposure to lagging life sciences tools & services stocks and weak stock selection in biotechnology and health care services also contributed to the relative shortfall. Within biotechnology, a handful of holdings weighed on performance, with the principal detractor being argenx SE, a company best known for developing Vyvgart, the leading FcRn inhibitor for the treatment of autoimmune conditions. The stock sold off due to operating expense guidance being above investor expectations and sales guidance for a seasonally weak Q1, neither of which impact our positive long-term investment thesis. Another reason for share price weakness was the unexpected retirement of beloved CEO Tim Van Hauwermeiren, who will become the non-executive Chairman. We think that the new CEO Karen Massey (formerly COO) is highly capable and represents a continuation of the company's strategy. Poor stock selection in biotechnology was exacerbated by not owning Amgen Inc., whose share price increased 8% for the quarter. We think Amgen is fairly valued based on its long-term growth potential and do not believe the company meets our investment return hurdle.

The Fund’s only position in health care services, RadNet, Inc., was down 22% for the quarter, detracting approximately 52 basis points from relative results. We discuss the company in greater detail below.

Somewhat offsetting the above was favorable impact from having minimal exposure to UnitedHealth Group Incorporated and other managed health care companies, which were pressured by lower-than-expected federal Medicare Advantage rate proposals and margin compression from rising medical utilization costs. We sold our two stub positions in managed health care because of lack of earnings visibility given less favorable rate increases and elevated medical cost trends.

Cash exposure in a down market and solid stock selection in the health care equipment and other health care related sub-industries also added value. Strength in health care equipment came from Penumbra Inc., a manufacturer of mechanical thrombectomy devices, which remove blood clots that can cause severe conditions around the body. Penumbra’s shares performed well after the company agreed to be acquired by Boston Scientific Corporation for $374 per share, representing a premium of 19% to the prior closing price. We sold our position.

The Fund’s unique position in Welltower Inc., which is classified as a health care REIT by GICS, was a source of strength in the other health care related sub-industry. Welltower operates senior housing, life science, and medical office real estate properties. Shares rose on robust cash flow growth in the company’s senior housing portfolio, driven by continued strong occupancy and rent trends supporting bottom-line growth, along with a strong initial full-year 2026 outlook and continued execution on accretive external growth opportunities. The company also announced additional initiatives to drive asset-light earnings growth. We are optimistic about the prospects for both cyclical and secular growth in senior housing demand against a backdrop of muted supply, which we believe will support several years of favorable growth. Welltower is a “best-in-class” operator with a luxury portfolio, well positioned to capture outsized organic and inorganic growth opportunities. We retain conviction in the company given its high-quality real estate portfolio, conservative balance sheet, prudent capital allocation, and compelling multi-year earnings growth story.

Our strategy is to identify competitively advantaged growth companies that we can own for years. Similar to other Baron Funds, we remain focused on finding businesses that we believe have secular growth opportunities, durable competitive advantages, and strong management teams. We conduct independent research and take a long-term perspective. We are particularly focused on businesses that solve problems in health care, whether by reducing costs, enhancing efficiency, and/or improving patient outcomes.

We continue to think the Health Care sector will offer attractive investment opportunities over the next decade and beyond. Health Care is one of the largest and most complex sectors in the U.S. economy, accounting for an estimated 18.0% of GDP in 2024 and encompassing a diverse array of sub-industries. Health Care is also a dynamic sector undergoing changes driven by legislation, regulation, and advances in science and technology. We think navigating these changes requires investment experience and sector expertise, which makes the Health Care sector particularly well suited for active management.

Arcellx, Inc. is a biotechnology company focused on cellular therapies. In partnership with Gilead, Arcellx is developing anito-cel, a BCMA-targeted CAR-T therapy similar to Legend Biotech and Johnson & Johnson’s Carvykti. Compared to Carvykti, anito-cel appears to demonstrate similar efficacy with a more benign neurological side-effect profile. Shares rose during the quarter as Gilead announced plans to acquire Arcellx for $115 per share, plus a $5 per share contingent value right tied to cumulative revenues through year-end 2029.

Roivant Sciences Ltd. is a biotechnology company that develops novel drugs across a range of therapeutic areas. Often, Roivant will in-license or acquire deprioritized pipeline drug assets from larger pharmaceutical companies. Each program is housed in its own standalone entity, which fosters an entrepreneurial culture while centralizing capital allocation and key resources at the parent level. We are most excited about Priovant (in partnership with Pfizer), where brepocitinib has meaningful potential across a range of rare immunological conditions, and we also see promise in Immunovant, which is developing a next-generation FcRn inhibitor for other immunological conditions. Shares rose during the quarter after Phase 2 results for brepocitinib in cutaneous sarcoidosis showed impressive efficacy, positioning the drug as the new standard of care in this setting. We believe the value of the brepocitinib franchise remains underappreciated.

AstraZeneca PLC is a large, diversified multinational pharmaceutical company with a portfolio of innovative products and a broad pipeline that is driving, and should continue to drive, above-industry growth. Shares increased during the quarter as AstraZeneca's fourth-quarter results and 2026 revenue guidance exceeded consensus expectations, suggesting continued strength from its recently launched products. In March, the company also announced positive Phase 3 data for tozorakimab in chronic obstructive pulmonary disease, showing clinically meaningful reductions in exacerbations and supporting peak sales potential of $3 to $5 billion. We remain positive on AstraZeneca ahead of a number of additional clinical data readouts in the coming years, which should support sustained above-industry growth into the 2030s.

Eli Lilly and Company, a global pharmaceutical company currently best known for its GLP-1 treatments for diabetes and obesity, detracted from performance. Following a robust fourth quarter of 2025, shares declined after competitor Novo Nordisk launched its oral Wegovy ahead of Lilly’s oral launch in April 2026. Early prescription trends for oral Wegovy have been strong, prompting investor concerns about potential cannibalization of injectable obesity medications and the possibility of price cuts from Novo Nordisk igniting a price war. Novo Nordisk currently offers introductory cash-pay rates on the starting doses ($149 for oral, $199 for injectable), but patients can only access these promotional prices for two months, the discounts apply only to low starting doses that do not drive meaningful weight loss, and most patients ultimately titrate to higher-priced maintenance doses. Longer term, we continue to view Lilly’s Mounjaro and Zepbound, along with its oral GLP-1 orforglipron, as best-in-class treatment options for diabetic and obese patients. We expect GLP-1 therapies to become the standard of care and to represent a $150-billion-plus market opportunity.

Thermo Fisher Scientific Inc. is a life sciences company that offers instruments and consumables for research, tools for bioproduction, specialty diagnostics, and contract research and manufacturing services. Shares decreased during the quarter, as life sciences broadly came under pressure following a weak round of fourth-quarter 2025 results. Several areas still need to stabilize, including biotechnology spending, disruptions at the U.S. Food and Drug Administration (FDA), National Institutes of Health funding, and pharmaceutical spending following Most-Favored-Nation-related policy changes under the current administration. We remain positive on Thermo Fisher’s long-term growth outlook, however. The company is dominant across multiple end markets, and its scale provides meaningful resilience. Once the macroeconomic environment normalizes, we expect Thermo Fisher to achieve a high-single-digit organic growth profile along with double-digit earnings-per-share growth.

RadNet, Inc. is the largest U.S. operator of freestanding imaging centers and a leading radiology software provider through its Deep Health subsidiary. Despite a fourth-quarter beat and above-consensus 2026 guidance, shares fell amid widespread investor concerns about the potentially disruptive impact of AI on software companies. This was likely exacerbated by RadNet’s recently announced $270 million acquisition of Gleamer, a Paris-based X-ray-focused software company. The stock was also weighed down by severe weather in the first quarter, which negatively impacted volumes. We think AI will enhance, rather than replace, RadNet’s software solutions and contribute to internal efficiencies that support margin expansion. As a result, we remain positive on RadNet and believe radiology volumes will continue to increase based on favorable demographics, a shift toward lower-cost outpatient settings, and expanded clinical applications driven by newer, more sophisticated modalities such as PET-CT.

We build the portfolio from the bottom up, one stock at a time, using the Baron investment approach. We do not try to mimic an index, and we expect the Fund to look very different than the Benchmark. We loosely group the portfolio into three categories of stocks: earnings compounders, high-growth companies, and biotechnology companies. We define earnings compounders as companies that we believe can grow revenue at least mid-single digits and compound earnings at double-digit rates over the long term. We define high-growth stocks as companies we believe can generate double-digit or better revenue growth. They may not be profitable today, but we believe they can be highly profitable in the future. We expect the portfolio to have a mix of earnings compounders, high-growth, and biotechnology companies.

We may invest in stocks of any market capitalization and may hold both domestic and international stocks. As of March 31, 2026, we held 41 stocks. This compares with 494 stocks in the Benchmark. International stocks represented 13.6% of the Fund’s net assets. The Fund’s 10 largest holdings represented 45.5% of net assets. Compared with the Benchmark, the Fund was overweight in biotechnology, life sciences tools & services, and other health-care-related companies, roughly equal weight in health care technology, services, and supplies, and underweight in managed health care, health care equipment, pharmaceuticals, health care facilities, and health care distributors. The market cap range of the investments in the Fund was $2.1 billion to $869.0 billion with a weighted average market cap of $189.5 billion. This compared with the Benchmark’s weighted average market cap of $267.1 billion.

We continue to invest in multiple secular growth themes in Health Care, such as genomics/genetic testing/genetic medicine, innovative medical devices that endeavor to improve outcomes and/or lower costs, minimally invasive surgery, anti-obesity medications, picks and shovels life sciences tools providers, the shift to lower cost sites of care, beneficiaries of AI, and animal health care, among others. To be clear, this list is not exhaustive: we own stocks in the portfolio that do not fit neatly into these themes and there are other themes not mentioned here that are in the portfolio. We evaluate each stock on its own merits.

* Individual weights may not sum to the displayed total due to rounding.

During the quarter, we added 9 new positions and exited 11 positions, bringing the number of positions in the Fund to 41. Below we discuss some of our top net purchases and sales.

We reduced the position in argenx SE to manage risk after the position size had increased from multi-year share price appreciation, though we maintain a high level of conviction in the investment. We sold Penumbra, Inc. after the company agreed to be acquired. We sold McKesson Corporation due to valuation after strong multi-year performance. We took a tax loss in Danaher Corporation and sold Boston Scientific Corporation due to concerns about market share losses in the company’s electrophysiology business, which has been a key growth driver for the company.

The positive momentum for the Health Care sector that began in the second half of 2025 stalled in Q1, with pronounced weakness in life sciences tools, medical technology, and managed care stocks. Tools stocks had risen in Q4 in anticipation of growth acceleration after several years of challenges, but stocks sold off due to tepid Q1 guidance and fears that AI would reduce wet lab work in drug discovery and reduce demand for clinical trial services provided by Contract Research Organizations. Medical device stocks suffered from investor concerns about weak procedure volumes in Q1 due to bad weather, inflation concerns related to rising oil prices, and the potential impact of people losing insurance coverage from the expiration of Affordable Care Act subsidies and/or stricter Medicaid requirements. Managed care stocks sold off on a disappointing Medicare Advantage rate increase and broader concerns about government policies for Medicare and Medicaid.

Trends within pharmaceuticals and biotechnology were much more positive. Biotechnology funding continued to be strong. M&A activity was robust, with eight deals announced in the first quarter for $33 billion, according to a Bank of America report dated April 1. We think M&A activity will continue given that 23 blockbuster drugs, representing nearly $150 billion in 2025 sales, are expected to go off patent by 2030, according to the same report. The regulatory environment is also favorable for the biopharmaceutical industry - the Food and Drug Administration has introduced new pathways to accelerate drug development, including through the policy proposal to make one pivotal Phase 3 trial, supported by other evidence, the new default requirement for new drug approvals, and through the Commissioner’s National Priority Voucher Program, which accelerates review and approval of products that meet certain national health priorities.

With all our investments, we consider how AI will impact their businesses. Here are a few examples of how we think our holdings will benefit from AI. For Thermo Fisher Scientific Inc., a leading life sciences tools company, we think AI will enable more efficient drug discovery, speed development timelines, and result in more overall R&D investment with more drugs approved at a faster pace, which will drive more demand for Thermo Fisher’s products and services. For RadNet, Inc., an owner and operator of diagnostic imaging centers, we think AI will reduce the time required to conduct and review a scan and enhance the accuracy of diagnosis, which will increase RadNet’s capacity to perform more cases while enabling earlier cancer detection. Welltower Inc., an owner and operator of senior housing, has built a data science platform (encompassing AI and machine learning) which it uses to direct capital to the highest risk-adjusted returns across acquisitions, developments, dispositions, and lending. Recently, Welltower began monetizing its data science platform with the recent announcement of inaugural partnerships with Public Storage and a prominent private equity firm, creating an additional growth lever for the company.

Overall, we continue to believe the long-term outlook for health care is positive given favorable secular growth drivers, including the aging population, rising incidence of chronic diseases, advances in biotechnology, medical technology and diagnostics, and increased health care spending. Many health care stocks look cheaper now than at any time since the launch of the Fund. We continue to follow our process for identifying attractive long-term investment opportunities and creating a portfolio of competitively advantaged growth companies with strong management teams. Thank you for investing in the Fund. I remain an investor in the Fund, alongside you.

Sincerely,