BACK BAY FUNDS INC, 485APOS, 1999-01-29

BACK BAY FUNDS INC
485APOS, 1999-01-29

Previous: ENERGYNORTH NATURAL GAS INC, 10-Q, 1999-01-29

Next: BACK BAY FUNDS INC, NSAR-B, 1999-01-29

As filed with the Securities and Exchange Commission on January 29, 1999
Registration No. 333-33831

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]

Pre-Effective Amendment No. [ ]

Post-Effective Amendment No. 1 [X]

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]

Amendment No. 2 [X]

BACK BAY FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)

c/o Reich & Tang Asset Management L.P.
600 Fifth Avenue
New York, New York 10020
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: (212) 830-5220

BERNADETTE N. FINN
Reich & Tang Asset Management L.P.
600 Fifth Avenue
New York, New York 10020
(Name and Address of Agent for Service)

Copy to: MICHAEL R. ROSELLA, Esq.
Battle Fowler LLP
75 East 55th Street
New York, New York 10022

Approximate Date of Proposed Public Offering:
----------------------

It is proposed that this filing will become effective: (check appropriate box)

[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (Date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485

If appropriate, check the following box:

[ ] this post-effective amendment designates a new effective date for
a previously filed post-effective amendment

<PAGE>

BACK BAY FUNDS, INC.
Registration Statement on Form N-1A

-----------------------

CROSS REFERENCE SHEET -
Pursuant to Rule 404(c)
-----------------------

Part A
Item No. Prospectus Heading
- -------- ------------------

<S> <C>

1. Front and Back Cover Pages Cover Page; Back Page

2. Risk/Return Summary: Risk/Return Summary:
Investments, Risks and Performance Investments, Risks and Performance

3. Risk/Return Summary:
Fee Table Fee Table

4. Investment Objectives, Principal Investment Objectives, Principal
Investment Strategies and Related Risks Investment Strategies and Related Risks

5. Management's Discussion of
Fund Performance Not Applicable

6. Management, Organization and Management, Organization and
Capital Structure Capital Structure

7. Shareholder Information Shareholder Information

8. Distribution Arrangements Distribution Arrangements

9. Financial Highlights Information Financial Highlights

</TABLE>

<PAGE>

Part B
Item No. Caption in Statement of Additional Information
- -----------------------------------------------------------------------------------------------

<S> <C>
10. Cover Page and Table of Contents Cover Page and Table of Contents

11. Fund History Fund History

12. Description of the Fund and Its Description of the Fund and Its
Investments and Risks Investments and Risks

13. Management of the Fund Management of the Fund

14. Control Persons and Principal Holders Control Persons and Principal Holders
of Securities of Securities

15. Investment Advisory and Investment Advisory and
Other Services Other Services

16. Brokerage Allocation and Brokerage Allocation and
Other Practices Other Practices

17. Capital Stock and Other Capital Stock and Other
Securities Securities

18. Purchase, Redemption and Purchase, Redemption and
Pricing of Shares Pricing of Shares

19. Taxation of the Fund Taxation of the Fund

20. Underwriters Underwriters

21. Calculation of Performance Data Calculation of Performance Data

22. Financial Statements Financial Statements

</TABLE>

<PAGE>

- --------------------------------------------------------------------------------

BACK BAY FUNDS, INC. PROSPECTUS
Class A Shares; Class B Shares; Class C Shares March 30, 1999

================================================================================

The investment objective of the Total Return Bond Fund is to maximize
total return. The generation of income is a secondary objective. The
minimum initial purchase is $1,000,000.

The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

Contents
- --------

<S> <C>
Risk/Return Summary: Investments, Risks, Management, Organization and
and Performance................................. 2 Capital Structure.............................. 12
Fee Table........................................ 5 Shareholder Information........................ 12
Investment Objectives, Principal Tax Consequences................................. 18
Investment Strategies Distribution Arrangements........................ 20
and Related Risks.............................. 6 Financial Highlights............................. 22

</TABLE>

- --------------------------------------------------------------------------------

794232.3

<PAGE>

I. RISK/RETURN SUMMARY: INVESTMENTS, RISKS, AND PERFORMANCE

Investment Objectives

The Fund is currently comprised of the Total Return Bond Fund. The objective of
the Portfolio is to seek to maximize total return. The generation of income is a
secondary objective. There is no assurance that the Portfolio will achieve its
investment objective.

Principal Investment Strategies

The Portfolio will seek to achieve its objectives by investing primarily in
higher quality, fixed and floating-rate debt instruments. Since the Fund was
created for tax-exempt retirement plans, the tax consequences of portfolio
activity are not an investment consideration. A minimum of 80% of the
Portfolio's total assets will be invested in investment grade debt instruments
issued by corporations based in the United States and abroad. No more than 20%
of the total assets of the Portfolio may be invested in instruments which are
below investment grade quality. With respect to the investment allocation of the
below investment grade quality securities of the Portfolio, as a percentage of
the total net assets, at least 15% of the Portfolio must be invested in
instruments which are rated by a nationally recognized statistical rating
organization with the highest below investment grade rating ("BB" or "Ba",
respectively). Further, no more than 5% of the total assets may have a split
rating of "B/BB" or "Ba/B" and no instrument may be rated below "B" at the time
of investment. However, under normal market conditions the Manager anticipates
purchasing instruments that are rated at least "BB" or "Ba".

No more than 10% of the Portfolio's total assets may be invested in non-dollar
denominated foreign obligations issued by corporations and/or governments and
agencies thereof. Additionally, no more than 5% of the total net assets may be
invested in dollar denominated emerging market debt. Also, the Manager expects
to maintain a duration to within one and one half years of the duration of the
Lehman Aggregate Index.

The percentage limitations referred to above apply at the time an investment is
made by the Portfolio. If a security is downgraded subsequent to its purchase by
the Portfolio, the Manager will consider whether the investment remains
appropriate for the Portfolio, even if retention would cause the Portfolio to
exceed these percentage limitations.

Principal Risks

The primary risk associated with an investment in fixed and floating-rate debt
instruments is that the issuer of the instrument will default on principal
and/or interest payments when due on the instrument. Such a default would have
the effect of lessening the return of the Portfolio and/or the value of the
Portfolio's shares. Also, rising interest rates will generally have the effect
of decreasing the value of fixed-income debt instruments and falling interest
rates will decrease the amount of income generated by floating-rate debt
instruments. Additionally, rising interest rates will have a greater adverse
affect on the value of "stripped" securities and zero coupon securities than
such rising rates would have on coupon bonds, and large increases in interest
raises may cause a substantial loss of the value of these instruments. The value
of the Portfolio's shares and the securities held by the Portfolio can each
decline in value and the loss of money is a risk of investing in the Portfolio.

-2-

794232.3

<PAGE>

Fixed-income securities rated BB or lower by S&P or Ba or lower by Moody's (and
comparable unrated securities) are of below "investment grade" quality and are
considered high yield, high risk securities. They are commonly known as "junk
bonds." Lower quality fixed-income securities are considered predominantly
speculative with respect to the ability of the issuer to meet principal and
interest payments. They generally provide higher yields, but are subject to
greater credit and market risk than higher quality fixed-income securities.

The Portfolio may lend its portfolio securities to qualified institutions as
determined by the Manager. By lending its portfolio securities, the Portfolio
attempts to increase its income through the receipt of interest on the loan. The
Portfolio will not lend its portfolio securities without deposit by the borrower
with the Fund's custodian of collateral equal to at least the market value of
the securities loaned plus any accrued interest on such securities. Any gain or
loss in the market price of the securities loaned that may occur during the term
of the loan will be for the account of the Portfolio. Although relevant facts
and circumstances, including the creditworthiness of the qualified institution,
will be monitored by the Manager and will be considered in making decisions with
respect to lending of securities, the party borrowing from the Portfolio may
default on payment of interest due on the loan and it is possible that the loan
will not be repaid. The Manager is unable to predict whether a borrower from the
Portfolio will default on its loan obligations. The Portfolio will not lend
portfolio securities if, as a result, the aggregate of such loan exceeds 33% of
the value of the Portfolio's total assets (including such loans).

The Portfolio may contain securities issued by foreign governments, or any of
their political subdivisions, agencies or instrumentalities, and by foreign
branches of domestic banks, foreign subsidiaries of domestic banks, domestic and
foreign branches of foreign banks, and commercial paper issued by foreign
issuers. Securities issued by foreign issuers may be subject to additional
investment risks compared to an investment in securities of United States
domestic issuers. Such additional risks include future adverse political or
economic developments in a foreign jurisdiction, sudden changes in foreign laws
regarding the regulation of and rights attached with such investments and
unfavorable changes in currency exchange rates or exchange control regulations.

The Portfolio may also invest in the securities of emerging markets. Investments
in emerging markets include investments in countries whose economies and/or
securities markets are not yet highly developed. Special considerations
associated with these investments (in addition to the considerations regarding
foreign investments as discussed above) may include, among others, greater
political uncertainties, an economy's dependence on revenues from particular
commodities or on international aid or development assistance, currency transfer
restrictions, highly limited numbers of potential buyers for such securities and
delays and disruptions in security settlement procedures. An investment in the
securities of emerging market issuers is considered predominantly speculative
with respect to the ability of the issuer to meet principal and interest
payments.

Risk/Return Bar Chart and Table

The following bar chart and table may assist in your decision to invest in the
Portfolio. The bar chart shows the average annual returns of the Portfolio for
the life of the Portfolio. The table shows how the Portfolio's average annual
returns for a one year period compare with that of the Lehman Aggregate Index.
While analyzing this information, please note that the Portfolio's past
performance is not an indication of how the Portfolio will perform in the
future.

-3-

794232.3

<PAGE>

GRAPHIC OMITTED

(1) As of December 31, 1998, the Fund's Portfolio had a year-to-date return of
___________%.

(2) The Fund's Portfolio's highest quarterly return was _______% for the quarter
ended _______ ___, 19__; the lowest quarterly return was ____% for the
quarter ended _______ __, 19__.

(3) Investors purchasing or redeeming shares through a Participating
Organization may be charged a fee in connection with such service and,
therefore, the net return to such investors may be less than the net return
by investing in the Fund directly.

Average Annual Total Returns
Total Return Bond Fund
- ----------------------------
Class A Class B Class C
------- ------- -------

<S> <C> <C> <C>
For the period ended
December 31, 1998

One Year _____% _____% _____%

Average Annual Total Returns
Lehman Aggregate Index
- ----------------------------

For the period ended
December 31, 1998

One Year _____%

</TABLE>

-4-

794232.3

<PAGE>

FEE TABLE

This table describes the fees and expenses that you may pay if you buy and hold
shares in any of the Fund's portfolios.

Total Return Bond Fund
-------------------------------------------------------------------------------
Class A Class B Class C
------- ------- -------

<S> <C> <C> <C>
Management Fees .085% .085% .085%
Distribution and Service (12b-1) Fees None .25% .25%
Other Expenses .315% .315% .465%
Administration Fees .15% _____ .15% _____ .15% _____
Total Fund Operating Expenses .40% .65% .80%

</TABLE>

[The Manager voluntarily waived a portion of the Administrative Fees with
respect to Class A, B and C shares. After such waivers the Administrative Fees
for the Total Return Bond Fund for Class A were ___%, for Class B were ___% and
for Class C were ___%, and the actual Total Fund Operating Expenses for Class A
were ___%, for Class B were ___% and for Class C were __%.]

Example
- -------

This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>

1 year 3 years 5 years 10 years

<S> <C> <C> <C> <C> <C>
Class A: $______ $______ $_______ $_______
Total Return Bond Fund Class B: $______ $______ $_______ $_______
Class C: $______ $______ $_______ $_______

</TABLE>

-5-

794232.3

<PAGE>

II. INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS

Investment Objectives

The objective of the Portfolio is to seek to maximize total return. The
generation of income is a secondary objective. There can be no assurance that
the Fund will achieve its investment objective.

The investment objectives of the Portfolio described in this section may only be
changed upon the approval of the holders of a majority of the outstanding shares
of the portfolio that would be affected by such a change. The investment
strategies of a portfolio are not fundamental and may be changed without
shareholder approval.

Principal Investment Strategies and Related Risks

The Total Return Bond Fund is to attain its investment objectives through
investments in the following securities and transactions.

(i) Fixed Income Securities: The Portfolio invests principally in fixed-income
securities. Because interest rates vary, it is impossible to predict the income
of the Portfolio for any particular period. The net asset value of the Portfolio
shares will vary as a result of changes in the value of the bonds and other
securities in the Portfolio.

Fixed-income securities include a broad array of short, medium and long term
obligations issued by the U.S. or foreign governments, government or
international agencies and instrumentalities, and corporate issuers of various
types. Some fixed-income securities represent uncollateralized obligations of
their issuers. Fixed-income securities may also be backed by specific assets
(such as mortgages or other receivables) that have been

-6-

794232.3

<PAGE>

set aside as collateral for the issuer's obligation. Fixed-income securities
generally involve an obligation of the issuer to pay interest or dividends on
either a current basis or at the maturity of the securities, as well as the
obligation to repay the principal amount of the security at maturity.

Fixed-income securities are subject to market and credit risk. Credit risk
relates to the ability of the issuer to make payments of principal and interest.
In the case of municipal bonds, the issuer may make these payments from money
raised through a variety of sources, including (1) the issuer's general taxing
power, (2) a specific type of tax such as a property tax, or (3) a particular
facility or project such as a highway. The ability of an issuer of municipal
bonds to make these payments could be affected by litigation, legislation or
other political events, or the bankruptcy of the issuer. U.S. Government
Securities do not involve the credit risks associated with other types of
fixed-income securities; as a result, the yields available from U.S. Government
Securities are generally lower than the yields available from corporate
fixed-income securities. Market risk is the risk that the value of the security
will fall because of changes in market rates of interest. (Generally, the value
of fixed-income securities falls when market rates of interest are rising.) Some
fixed-income securities also involve prepayment or call risk. Prepayment or call
risk both involve the risk that the issuer will repay the Portfolio the
principal on the security before it is due, thus depriving the Portfolio of a
favorable stream of future interest payments.

Because interest rates vary, it is impossible to predict the income of a fund
that invests in fixed-income securities for any particular period. Fluctuations
in the value of the Portfolio's investments in fixed-income securities will also
cause the Portfolio's net asset value to increase or decrease.

(ii) Convertible Securities: The convertible securities in which the Portfolio
may invest include any debt securities or preferred stock which may be converted
into common stock or which carry the right to purchase common stock. Convertible
securities entitle the holder to exchange the securities for a specified number
of shares of common stock, usually of the same company, at specified prices
within a certain period of time. Convertible securities generally have paid
dividends or interest at rates higher than common stocks but lower than
non-convertible securities. They usually participate to a lesser degree in the
appreciation or other depreciation of the underlying stock into which they are
convertible.

(iii) United States Government Securities: The United States securities in which
the Portfolio may invest include short-term obligations issued or guaranteed by
the United States Government, its agencies or instrumentalities. These include
issues of the United States Treasury, such as bills, certificates of
indebtedness, notes and bonds, and issues of agencies and instrumentalities
established under the authority of an act of Congress. Some of these securities
are supported by the full faith and credit of the United States Treasury, others
are supported by the right of the issuer to borrow from the Treasury, and still
others are supported only by the credit of the agency or instrumentality.
Although obligations of federal agencies and instrumentalities are not debts of
the United States Treasury, in some cases payment of interest and principal on
such obligations is guaranteed by the United States Government, e.g.,
obligations of the Federal Housing Administration, the Export-Import Bank of the
United States, the Small Business Administration, the Government National
Mortgage Association, the General Services Administration and the Maritime
Administration; in other cases payment of interest and principal is not
guaranteed, e.g., obligations of the Federal Home Loan Bank System and the
Federal Farm Credit Bank.

-7-

794232.3

<PAGE>

(iv) Foreign and Emerging Market Securities: Foreign Government Securities and
foreign corporate securities present risks not associated with investments in
U.S. Government or corporate securities.

Since most foreign securities are denominated in foreign currencies or traded
primarily in securities markets in which settlements are made in foreign
currencies, the value of these investments and the net investment income
available for distribution to shareholders of a Fund may be affected favorably
or unfavorably by changes in currency exchange rates or exchange control
regulations. Because the Portfolio may purchase securities denominated in
foreign currencies, a change in the value of any such currency relative to the
U.S. dollar will result in a change in the U.S. dollar value of the Fund's
assets and the Fund's income available for distribution.

In addition, although the Portfolio's income may be received or realized in
foreign currencies, the Portfolio will be required to compute and distribute its
income in U.S. dollars. Therefore, if the value of a currency relative to the
U.S. dollar declines after the Portfolio's income has been earned in that
currency, translated into U.S. dollars and declared as a dividend, but before
payment of such dividend, the Portfolio could be required to liquidate portfolio
securities to pay such dividend. Similarly, if the value of a currency relative
to the U.S. dollar declines between the time the Portfolio incurs expenses in
U.S. dollars and the time such expenses are paid, the amount of such currency
required to be converted into U.S. dollars in order to pay such expenses in U.S.
dollars will also increase.

There may be less information publicly available about a foreign corporate or
government issuer than about an U.S. issuer, and foreign corporate issuers are
not generally subject to accounting, auditing and financial reporting standards
and practices comparable to those in the United States. The securities of some
foreign issuers are less liquid and at times more volatile than securities of
comparable U.S. issuers. Foreign brokerage commission and other fees in some
circumstances may be higher than in the United States. With respect to certain
foreign countries, there is a possibility of expropriation of assets,
confiscatory taxation, political or financial instability and diplomatic
developments that could affect the value of investments in those countries. The
receipt of interest on foreign government securities may depend on the
availability of tax or other revenues to satisfy the issuer's obligations. The
Portfolio may have limited legal recourse should a foreign government be
unwilling or unable to repay the principal or interest owed.

In addition, the Portfolio may invest in securities issued by supranational
agencies. Supranational agencies are those agencies whose member nations
determine to make capital contributions to support the agencies' activities, and
include such entities as the International Bank of Reconstruction and
Development (the World Bank), the Asian Development Bank, the European Coal and
Steel Community and the Inter-American Development Bank.

-8-

794232.3

<PAGE>

Portfolio securities which are listed on foreign exchanges may be traded on days
that the Portfolio does not value its securities, such as Saturdays and the
customary United States business holidays on which the New York Stock Exchange
("NYSE") is closed. As a result, the net asset value of the shares of the
Portfolio may be significantly affected on days when shareholders do not have
access to the Fund.

In determining whether to invest in securities of foreign issuers, the Manager
will consider the likely effects of foreign taxes on the net yield available to
the Portfolio and its shareholders. Compliance with foreign tax law may reduce
the Portfolio's net income available for distribution to shareholders.

(v) Lower Rated Fixed-Income Securities: Fixed-income securities rated BB or
lower by S&P or Ba or lower by Moody's (and comparable unrated securities) are
of below "investment grade" quality. Lower quality fixed-income securities
generally provide higher yields, but are subject to greater credit and market
risk, than higher quality fixed-income securities, including U.S. Government and
many Foreign Government Securities. Lower quality fixed-income securities are
considered predominantly speculative with respect to the ability of the issuer
to meet principal and interest payments. Achievement of the investment objective
of a mutual fund investing in lower quality fixed-income securities may be also
more dependent on the fund's adviser's or subadviser's own credit analysis than
for a fund investing in higher quality bonds. The market for lower quality
fixed-income securities may be also more severely affected than some other
financial markets by economic recession or substantial interest rate increases,
by changing public perceptions of this market or by legislation that limits the
ability of certain categories of financial institutions to invest in these
securities. In addition, the secondary market may be less liquid for lower rated
fixed income securities. The lack of liquidity at certain times may affect the
valuation of these securities and may make the valuation and sale of these
securities more difficult. Securities of below investment grade quality are
considered high yield, high risk securities and are commonly known as "junk
bonds." For more information, including a detailed description of the ratings
assigned by S&P, Moody's, Fitch and Duff & Phelps, please refer to the Statement
of Additional Information's Appendix A -- "Description of Bond Ratings."

(vi) Mortgage-Related Securities: Mortgage-related securities, such as GNMA or
FNMA certificates, differ from traditional debt securities. Among the major
differences are that interest and principal payments are made more frequently,
usually monthly, and that principal may be prepaid at any time because the
underlying mortgage loans generally may be prepaid at any time. As a result, if
the Portfolio purchases these assets at a premium, a faster-than-expected
prepayment rate will reduce yield to maturity, and a slower-than-expected
prepayment rate will have the effect of increasing yield to maturity. If the
Portfolio purchases mortgage-related securities at a discount,
faster-than-expected prepayments will increase, and slower-than-expected
prepayments will reduce, yield to maturity. Prepayments, and resulting amounts
available for reinvestment by the Portfolio, are likely to be greater during a
period of declining interest rates and, as a result, are likely to be reinvested
at lower interest rates. Accelerated prepayments on securities purchased at a
premium may result in a loss of principal if the premium has not been fully
amortized at the time of prepayment. Although these securities will decrease in
value as a result of increases in interest rates, they are likely to appreciate
less than other fixed-income securities because of the risk of prepayments. In
addition, an increase in interest rates would also increase the inherent
volatility of the Portfolio by increasing the average life of the portfolio
securities.

(vii) Lending of Securities: The Portfolio may lend its portfolio securities to
qualified institutions as determined by the Manager. By lending its portfolio
securities, the

-9-

794232.3

<PAGE>

Portfolio attempts to increase its income through the receipt of interest on the
loan. Any gain or loss in the market price of the securities loaned that may
occur during the term of the loan will be for the account of the Portfolio.

The Portfolio will not lend portfolio securities if, as a result, the aggregate
of such loan exceeds 33% of the value of the Portfolio's total assets (including
such loans). Repurchase agreements may be considered loans to the seller of the
underlying security. Relevant facts and circumstances, including the
creditworthiness of the qualified institution, will be monitored by the Manager,
and will be considered in making decisions with respect to lending of
securities, subject to review by the Fund's Board of Directors. However, the
party borrowing from the Portfolio may default on payment of interest due on the
loan and it is possible that the loan will not be repaid. The Manager is unable
to predict whether a borrower from the Portfolio will default on its loan
obligations. The Portfolio may pay reasonable negotiated fees in connection with
loaned securities, so long as such fees are set forth in a written contract and
their reasonableness is determined by the Fund's Board of Directors.

Portfolio Turnover

Purchases and sales are made for the Portfolio whenever necessary, in the
Manager's opinion, to meet the Portfolio's objective. The turnover rate of the
Portfolio for the fiscal year ended November 30, 1998 was ___%. Portfolio
turnover may involve the payment by the Portfolio of dealer spreads or
underwriting commissions, and other transactions costs, on the sale of
securities, as well as on the investment of the proceeds in other securities.
The greater the portfolio turnover the greater the transaction costs to the
Portfolio which could have an adverse effect on the Portfolio's total rate of
return. Since the Fund was created for tax-exempt retirement plans, the tax
consequences of Portfolio activity are not an investment consideration.

Buy/Sell Decisions

The Fund's investment manager considers the following factors when buying and
selling securities for each of the Portfolios: (i) availability of cash, (ii)
redemption requests, (iii) total return management, (iv) credit management, and
(v) securities' duration.

Risks

The primary risk associated with an investment in fixed and floating-rate debt
instruments is that the issuer of the instrument will default on principal
and/or interest payments when due on the instrument. Such a default would have
the effect of lessening the income generated by the Portfolio and/or the value
of the Portfolio's shares. Also, rising interest rates will generally have the
effect of decreasing the value of fixed-income debt instruments and falling
interest rates will decrease the amount of income generated by floating-rate
debt instruments. The value of the Portfolio's shares and the securities held by
the Portfolio can each decline in value and the loss of money is a risk of
investing in the Portfolio.

Fixed-income securities rated BB or lower by S&P or Ba or lower by Moody's (and
comparable unrated securities) are of below "investment grade" quality.
Securities of below investment grade quality are considered high yield, high
risk securities and are commonly known as "junk bonds." Lower quality
fixed-income securities generally provide higher yields, but are subject to
greater credit and market risk than higher quality fixed-income securities.
Lower quality fixed-income securities are considered predominantly speculative
with respect to the ability of the issuer to meet principal and interest
payments.

The Portfolio may lend its portfolio securities to qualified institutions as
determined by the Manager. By lending its portfolio securities, the Portfolio
attempts to increase its

-10-

794232.3

<PAGE>

income through the receipt of interest on the loan. Any gain or loss in the
market price of the securities loaned that may occur during the term of the loan
will be for the account of the Portfolio. Although relevant facts and
circumstances, including the creditworthiness of the qualified institution, will
be monitored by the Manager and will be considered in making decisions with
respect to lending of securities, the party borrowing from the Portfolio may
default on payment of interest due on the loan and it is possible that the loan
will not be repaid. The Manager is unable to predict whether a borrower from the
Portfolio will default on its loan obligations. The Portfolio will not lend
portfolio securities if, as a result, the aggregate of such loan exceeds 33% of
the value of the Portfolio's total assets (including such loans).

As the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. Failure to adequately address this issue could have potentially serious
repercussions. The Manager is in the process of working with the Fund's service
providers to prepare for the year 2000. Based on information currently
available, the Manager does not expect that the Fund will incur material costs
to be year 2000 compliant. Although the Manager does not anticipate that the
year 2000 issue will have a material impact on the Fund's ability to provide
service at current levels, there can be no assurance that steps taken in
preparation for the year 2000 will be sufficient to avoid an adverse impact on
the Fund. The Year 2000 Problem may also adversely affect issuers of the
Securities contained in the Portfolio to varying degrees based upon various
factors, and thus may have a corresponding adverse effect on the Portfolio's
performance. The Manager is unable to predict what effect, if any, the Year 2000
Problem will have on such issuers.

-11-

794232.3

<PAGE>

III. MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE

The Fund's investment adviser is Back Bay Advisors, L.P. (the "Manager"). The
Manager is a Delaware limited partnership with its principal office at 399
Boylston Street, Boston Massachusetts 02116-3310. The Manager provides
discretionary investment management services to mutual funds and other
institutional investors. Formed in 1986, the Manager now manages 14 mutual fund
portfolios and as of [June 30, 1997,] was investment manager, adviser or
supervisor with respect to assets aggregating in excess of [$7] billion,
primarily mutual fund and institutional fixed income portfolios. Ms. Catherine
L. Bunting and Mr. Peter W. Palfrey are primarily responsible for the day to day
investment management of the Portfolio. Ms. Bunting has served as Senior Vice
President of the Manager since 1988. Mr. Palfrey has served as Senior Vice
President of the Manager since 1993.

Pursuant to the investment Management Contract for the Portfolio, the Manager
manages the Portfolio's portfolio of securities and makes the decisions with
respect to the purchase and sale of investments, subject to the general control
of the Board of directors of the Portfolio. Under the Investment Management
Contract, the Portfolio will pay an annual management fee of .085% of the
Portfolio's average daily net assets. The management fees are accrued daily and
paid monthly. The Manager, at its discretion, may voluntarily waive all or a
portion of the Management Fee. Any portion of the total fees received by the
Manager and its past profits may be used to provide shareholder services and for
distribution of Portfolio Shares.

IV. SHAREHOLDER INFORMATION

The Fund sells and redeems its shares on a continuing basis at their net asset
value and does not impose a charge for either sales or redemptions. All
transactions in Fund shares are effected through the Fund's transfer agent, who
accepts orders for purchases and redemptions from Participating Organizations
and from investors directly.

Pricing of Fund Shares

The Fund determines the net asset value of the shares of the Portfolio (computed
separately for each Class of shares) of the Portfolio as of 4:00 p.m., New York
City time, by dividing the value of each Fund's net assets (i.e., the value of
its securities and other assets less its liabilities, including expenses payable
or accrued but excluding capital stock and surplus) by the number of shares
outstanding of the Portfolio at the time the determination is made. The
Portfolio determines its net asset value on each Fund Business Day. Fund
Business Day for this purpose means any day on which the New York Stock Exchange
is open for trading. Purchases and redemptions will be effected at the time of
determination of net asset value next following the receipt of any purchase or
redemption order. The Portfolio may have portfolio securities that are primarily
listed on foreign exchanges that trade on weekdays or other days when the Fund
does not price its shares, thus the Portfolio's shares may change on days when
Shareholders will not be able to purchase or redeem the Portfolio's Shares.

Municipal obligations are priced on the basis of valuations provided by a
pricing service approved by the Board of Directors, which uses information with
respect to transactions in bonds, quotations from bond dealers, market
transactions in comparable securities and various relationships between
securities in determining value. The valuations provided by such pricing service
will be based upon fair market value determined on the basis of the factors
listed above. If a pricing service is not used, municipal obligations will be
valued at quotated prices provided by municipal bond dealers. Non-tax-exempt
securities for which transaction prices are readily available are stated at
market value (determined on the basis of the last reported sales price, or a
similar means). Short-term investments that will mature in 60

-12-

794232.3

<PAGE>

days or less are stated at amortized cost, which approximates market value. All
other securities and assets are valued at their fair market value as determined
in good faith by the Board of Directors.

How to Purchase and Redeem Shares

Investors who have accounts with Participating Organizations may invest in the
Fund through their Participating Organizations in accordance with the procedures
established by the Participating Organizations. "Participating Organizations"
are securities brokers, banks and financial institutions or other industry
professionals or organizations which have entered into shareholder servicing
agreements with the Distributor with respect to investment of their customer
accounts in the Fund. Certain Participating Organizations are compensated by the
Distributor from its Shareholder Servicing Fee and by the Manager from its
management fee for the performance of these services. An investor who purchases
shares through a Participating Organization that receives payment from the
Manager or the Distributor will become a Class B or Class C shareholder. All
other investors, and investors who have accounts with Participating
Organizations but who do not wish to invest in the Portfolio through their
Participating Organizations, may invest in the Portfolio directly as Class A
shareholders of the Portfolio and not receive the benefit of the servicing
functions performed by a Participating Organization. Class A shares may also be
offered to investors who purchase their shares through Participating
Organizations who do not receive compensation from the Distributor or the
Manager. The Manager pays the expenses incurred in the distribution of Class A
shares. Participating Organizations whose clients become Class A shareholders
will not receive compensation from the Manager or Distributor for the servicing
they may provide to their clients. With respect to each Class of shares, the
minimum initial investment in the Fund with respect to the Portfolio is
$1,000,000. The minimum amount for subsequent investments is $10,000 for all
shareholders.

The Fund sells and redeems its shares on a continuing basis at their net asset
value and does not impose a sales charge for either sales or redemptions. All
transactions in Fund shares are effected through the Fund's transfer agent which
accepts orders for purchases and redemptions from the Distributor and from
shareholders directly.

In order to maximize earnings on the Portfolio, the Fund normally has its assets
as fully invested as is practicable. Many securities in which the Fund invests
require immediate settlement in Funds of Federal Reserve member banks on deposit
at a Federal Reserve bank (commonly known as "Federal Funds"). Accordingly, the
Fund does not accept a subscription or invest an investor's payment in portfolio
securities until the payment has been converted into Federal Funds.

Shares will be issued as of the first determination of the Fund's net asset
value per share for each Class made after acceptance of the investor's purchase
order. An investor's funds will not be invested by the Fund during the period
before the Fund's receipt of Federal Funds and its issuance of Fund shares. The
Fund reserves the right to reject any purchase order.

Shares are issued as of 4:00 p.m., New York City time, on any Fund Business Day
on which an order for the shares and accompanying Federal Funds are received by
the Fund's transfer agent before 4:00 p.m., New York City time. Fund shares
begin accruing income on the day after the shares are issued to an investor.

-13-

794232.3

<PAGE>

elects to redeem all the shares of the portfolio he/she owns, all dividends
credited to the shareholder through the date of redemption are paid to the
shareholder in addition to the proceeds of the redemption.

The date of payment upon redemption may not be postponed for more than seven
days after shares are tendered for redemption, and the right of redemption may
not be suspended, except for any period during which the NYSE is closed (other
than customary weekend and holiday closings) or during which the SEC determines
that trading thereon is restricted, or for any period during which an emergency
(as determined by the SEC) exists as a result of which disposal by the Fund of
its securities is not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, or for such other period as the SEC may by order permit for the
protection of the shareholders of the Fund.

Redemption requests received by the Fund's transfer agent before 4:00 p.m., New
York City time, on any Fund Business Day become effective at 4:00 p.m. that day.
Shares redeemed are not entitled to participate in dividends declared on the day
or after the day a redemption becomes effective.

The Fund has reserved the right to redeem the shares of any shareholder if the
net asset value of all the remaining shares in his account after a withdrawal is
less than $250,000. Written notice of any such mandatory redemption will be
given at least 30 days in advance to any shareholder whose account is to be
redeemed or the Fund may impose a monthly service charge of $10 on such
accounts. During the notice period any shareholder who receives such a notice
may (without regard to the normal $10,000 requirement for an additional
investment) make a purchase of additional shares to increase his total net asset
value at least to the minimum amount and thereby avoid such mandatory
redemption.

The Fund has reserved the right to charge individual shareholder accounts for
expenses actually incurred by such account for wire transfers and certain other
shareholder expenses, as well as to impose a monthly service charge for accounts
whose net asset value falls below the minimum amount.

Investments Through Participating Organizations

Participant Investors may, if they wish, invest in the Fund through the
Participating Organizations with which they have accounts. "Participating
Organizations" are securities brokers, banks, financial institutions or other
industry professionals or organizations which have entered into shareholder
servicing agreements with the Distributor with respect to investment of their
customer accounts in the Fund. When instructed by its customer to purchase or
redeem Fund shares, the Participating Organization, on behalf of the customer,
transmits to the Fund's transfer agent a purchase or redemption order, and in
the case of a purchase order, payment for the shares being purchased.

Participating Organizations may confirm to their customers who are shareholders
in the Fund each purchase and redemption of Fund shares for the customers'
accounts. Also, Participating Organizations may send their customers periodic
account statements showing the total number of Fund shares owned by each
customer as of the statement closing date, purchases and redemptions of Fund
shares by each customer during the period covered by the statement and the
income earned by Fund shares of each customer during the statement period
(including dividends paid in cash or reinvested in additional Fund shares).
Participant Investors whose Participating Organizations have not undertaken to
provide such statements will receive them from the Portfolio directly.

Participating Organizations may charge Participant Investors a fee in connection
with their use of specialized purchase and redemption procedures offered to

-14-
794232.3

<PAGE>

Participant Investors by the Participating Organizations. In addition,
Participating Organizations offering purchase and redemption procedures similar
to those offered to shareholders who invest in the Fund directly may impose
charges, limitations, minimums and restrictions in addition to or different from
those applicable to shareholders who invest in the Fund directly. Accordingly,
the net yield to investors who invest through Participating Organizations may be
less than by investing in the Portfolio directly. A Participant Investor should
read this Prospectus in conjunction with the materials provided by the
Participating Organization describing the procedures under which Fund shares may
be purchased and redeemed through the Participating Organization.

In the case of qualified Participating Organizations, orders received by the
Fund's transfer agent before 4:00 p.m., New York City time, on a Fund Business
Day, without accompanying Federal Funds will result in the issuance of shares on
that day provided that the Federal Funds required in connection with the orders
are received by the Fund's transfer agent before 4:00 p.m., New York City time,
on that day. Participating Organizations are responsible for instituting
procedures to insure that purchase orders by their respective clients are
processed expeditiously.

Direct Purchase and Redemption Procedures

The following purchase and redemption procedures apply to investors who wish to
invest in the Fund directly. Class B shares purchased by retirement plan
investors may be purchased by check or bank wire. Class A and Class C shares may
be purchased by bank wire only. These investors may obtain the subscription
order form necessary to open an account by telephoning the Fund at either
212-830-5220 (within New York State) or at 800-241-3263 (toll free outside New
York State).

All shareholders will receive from the Fund a monthly statement listing the
total number of shares of the Portfolio owned as of the statement closing date,
purchases and redemptions of shares of the Portfolio during the month covered by
the statement and the dividends paid on shares of the Portfolio of each
shareholder during the statement period (including dividends paid in cash or
reinvested in additional shares of the Portfolio). Certificates for Fund shares
will not be issued to an investor.

Initial Purchase of Shares

Mail
- ----

Class B share investors may send a check made payable to the Fund along with a
completed subscription order form to:

Back Bay Funds, Inc.
c/o Reich & Tang Funds
600 Fifth Avenue-8th Floor
New York, New York 10020

Checks are accepted subject to collection at full value in United States
currency.

Bank Wire
- ---------

To purchase shares of the Fund using the wire system for transmittal of money
among banks, an investor should first obtain a new account number by telephoning
the Fund at either 212-830-5220 (within New York State) or at 800-241-3263
(outside New York State) and then instruct a member commercial bank to wire
money immediately to:

Investors Fiduciary Trust Company

ABA #101003621
Reich & Tang Funds
DDA #890752-955-4
For Back Bay Funds, Inc.
Total Return Portfolio
Account of (Investor's Name)
Portfolio Account # ______________
SS #/Tax I.D.# ____________

-15-

794232.3

<PAGE>

The investor should then promptly complete and mail the subscription order form.

An investor planning to wire the Fund should instruct his bank early in the day
so the wire transfer can be accomplished the same day. There may be a charge by
the investor's bank for transmitting the money by bank wire, and there also may
be a charge for use of Federal Funds. The Fund does not charge investors in the
Fund for its receipt of wire transfers. Payment in the form of a "bank wire"
received prior to 4:00 p.m., New York City time, on a Fund Business Day, will be
treated as a Federal Funds payment received on that day.

Subsequent Purchases of Shares

Subsequent purchases can be made by personal delivery or by bank wire, as
indicated above, or by mailing a check to:

Back Bay Funds, Inc.
Mutual Funds Group
P.O. Box 13232
Newark, New Jersey 07101-3232

There is a $10,000 minimum for subsequent purchases of shares. All payments
should clearly indicate the shareholder's account number.

Provided that the information on the subscription order form on file with the
Fund is still applicable, a shareholder may reopen an account without filing a
new subscription order form at any time during the year the shareholder's
account is closed or during the following calendar year.

Redemption of Shares

A redemption is effected immediately following, and at a price determined in
accordance with, the next determination of net asset value per share of each
Class of the Portfolio following receipt by the Fund's transfer agent of the
redemption order. Normally payment for redeemed shares is made on the Fund
Business Day the redemption is effected, provided the redemption request is
received prior to 4:00 p.m., New York City time. However, redemption requests
will not be effected unless the check (including a certified or cashier's check)
used for investment has been cleared for payment by the investor's bank,
currently considered by the Fund to occur within 15 days after investment.

A shareholder's original subscription order form permits the shareholder to
redeem by written request and to elect one or more of the additional redemption
procedures described below. A shareholder may only change the instructions
indicated on his original subscription order form by transmitting a written
direction to the Fund's transfer agent. Requests to institute or change any of
the additional redemption procedures will require a signature guarantee. When a
signature guarantee is called for, the shareholder should have "Signature
Guaranteed" stamped under his signature and guaranteed by an eligible guarantor
institution which includes a domestic bank, a domestic savings and loan
institution, a domestic credit union, a member bank of the Federal Reserve
System or a member firm of a national securities exchange, pursuant to the
Fund's transfer agent's standards and procedures.

Written Requests
- ----------------

Shareholders may make a redemption in any amount by sending a written request
to:

Back Bay Funds, Inc.
c/o Reich & Tang Funds
600 Fifth Avenue-8th Floor
New York, New York 10020

All written requests for redemption must be signed by the shareholder with
signature guaranteed. Unless the redemption is made in kind, the redemption
proceeds are normally paid by check mailed to the shareholder of

-16-

794232.3

<PAGE>

record.

Telephone
- ---------

The Fund accepts telephone requests for redemption from shareholders who elect
this option. The proceeds of a telephone redemption will be sent to the
shareholder at his address or to his bank account as set forth in the
subscription order form or in a subsequent signature guaranteed written
authorization. Redemptions following an investment by check will not be effected
until the check has cleared, which could take up to 15 days after investment.
The Fund may accept telephone redemption instructions from any person with
respect to accounts of shareholders who elect this service, and thus
shareholders risk possible loss of dividends in the event of a telephone
redemption which was not authorized by them. Telephone requests to wire
redemption proceeds must be for amounts in excess of $10,000. The Fund will
employ reasonable procedures to confirm that telephone redemption instructions
are genuine, and will require that shareholders electing such option provide a
form of personal identification. The failure by the Fund to employ such
reasonable procedures may cause the Fund to be liable for any losses incurred by
investors due to telephone redemptions based upon unauthorized or fraudulent
instructions. The telephone redemption option may be modified or discontinued at
any time upon 60 days written notice to shareholders.

A shareholder making a telephone withdrawal should call the Fund at
212-830-5220; outside New York State at 800-241-3263 and state (i) the name of
the shareholder appearing on the Fund's records, (ii) his account number with
the Fund, (iii) the amount to be withdrawn and (iv) the name of the person
requesting the redemption. Usually, the proceeds are sent to the investor on the
same Fund Business Day the redemption is effected, provided the redemption
request is received prior to 4:00 p.m., New York City time.

RETIREMENT PLANS

The Fund has available a form of Individual Retirement Account ("IRA") for
investment in Fund shares. Fund shares may also be a suitable investment for
other types of qualified pension or profit-sharing plans which are
employer-sponsored, including deferred compensation or salary reduction plans
known as "401(k) Plans" which give participants the right to defer portions of
their compensation for investment on a tax-deferred basis until distributions
are made from the plans.

The minimum initial investment for all such retirement plans is $1,000. The
minimum for all subsequent investments is $100.

Under the Internal Revenue Code of 1986, as amended (the "Code"), individuals
may make wholly or partly tax deductible IRA contributions of up to $2,000
annually (married individuals filing joint returns may each contribute up to
$2000 ($4000 in the aggregate) even where one spouse is not working if certain
conditions are met), depending on whether they are active participants in an
employer sponsored retirement plan and on their income level. Dividends and
distributions held in an IRA account are not taxed until withdrawn in accordance
with the provisions of the Code. Beginning January 1, 1998, investors satisfying
statutory income level requirements may make non-deductible contributions of up
to $2,000 annually to a Roth IRA. Distributions from a Roth IRA are not subject
to tax if a statutory five year holding period requirement is satisfied. Under
certain circumstances, individuals may establish education IRAs which permit
eligible individuals to contribute up to $500 per year per beneficiary under 18
years old. Distributions from an education IRA are generally excluded from
income when used for qualified higher education expenses.

Investors should be aware that they may be subject to penalties or additional
tax on contributions or withdrawals from IRAs or other retirement plans which
are not

-17-

794232.3

<PAGE>

permitted by the applicable provisions of the Code, and, prior to a
withdrawal, shareholders may be required to certify their age and awareness of
such restrictions in writing. Persons desiring information concerning
investments through IRAs or other retirement plans should write or telephone the
Distributor at 600 Fifth Avenue, New York, New York 10020, (212) 830-5200.

Dividends and Distributions

It is the intention of the Fund to distribute to its shareholders substantially
all of each fiscal year's net income and net realized capital gains, although
the amount and timing of any such dividend or distribution depends upon the
realization by the Fund of income and capital gains from investments. Except as
described herein, the Portfolio's net investment income (including net realized
short-term capital gains, if any) will be declared as a dividend on each Fund
Business Day. The Fund declares dividends for Saturdays, Sundays and holidays on
the previous Fund Business Day. The Fund generally pays dividends monthly after
the close of business on the last calendar day of each month or after the close
of business on the previous Fund Business Day if the last calendar day of each
month is not a Fund Business Day. Capital gains distributions, if any, will be
made at least annually, and in no event later than 60 days after the end of the
Fund's fiscal year. There is no fixed dividend rate, and there can be no
assurance that the fund will pay any dividends or realize any capital gains.

Each dividend and capital gain distribution declared by the Fund will, at the
election of each shareholder, be paid either in cash or in additional shares of
the same Class shares of the Portfolio having an aggregate net asset value,
determined as of the payment date of such dividend or distribution, equal to the
cash amount of such dividend or distribution. The election to receive dividends
and distributions in cash or shares is made at the time shares are subscribed
for and may be changed by notifying the Fund in writing at any time prior to the
record date for a particular dividend or distribution. If the shareholder makes
no election, the Fund will make the distribution in shares. There is no sales or
other charge in connection with the reinvestment of dividends and capital gains
distributions.

The Class B shares will bear the Shareholder Servicing Fee under the Plan. As a
result, the net income of and the dividends payable to the Class B shares will
be lower than the net income of and dividends payable to the Class A or Class C
shares of the Portfolio. Dividends paid to each Class of shares of the Fund
will, however, be declared and paid on the same days at the same times and,
except as noted with respect to the Shareholder Servicing Fee payable under the
Plan, will be determined in the same manner and paid in the same amounts.

Tax Consequences

The acquisition of shares in the Fund will generally be treated as a capital
investment. The Fund intends to qualify for and elect special treatment
applicable to a "regulated investment company" under the Internal Revenue Code
of 1986, as amended, for the Portfolio. To qualify as a regulated investment
company, the Portfolio must meet certain complex tests concerning its
investments, income and distributions. For each year in which the Portfolio
qualifies as a regulated investment company, the Portfolio will not be subject
to federal income tax on income or capital gains distributed to its
shareholders.

Distributions of investment company taxable income generally are taxable to
shareholders as ordinary income and will not be eligible for the
dividends-received deduction available to corporations. Distributions designated
by the Portfolio as capital gain dividends are taxable to shareholders as long
term capital gains regardless of the length of time the shareholders have held
their shares. Distributions are taxable to shareholders whether reinvested in
additional shares or

-18-

794232.3

<PAGE>

received in cash. Shareholders receiving distributions in the form of additional
shares will have a cost basis for Federal income tax purposes in each share
received equal to the net asset value of a share of the Portfolio on the
reinvestment date. Shareholders will be notified annually as to the federal tax
status of distributions. The Portfolio intends to invest primarily in fixed and
floating rate debt instrument and accordingly anticipates that a substantial
portion of its distributions to shareholders will constitute ordinary income
rather than capital gains.

Distributions that are derived from interest on certain obligations of the
United States Government and agencies thereof may be exempt from state and local
taxes in certain states. Investors should be careful to consider the tax
implications of buying shares just prior to a distribution by the Portfolio. The
price of shares purchased at such a time includes the amount of the forthcoming
distribution. Distributions by the Portfolio will reduce the net asset value of
the Fund's shares, and even a distribution that reduces net asset value below a
stockholder's cost basis will nevertheless, be taxable to the shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital.

Upon the taxable disposition (including a sale or redemption) of shares of the
Fund, a shareholder may realize a gain or loss depending upon its basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands. Such gain or loss will be
long-term, or short-term, generally depending upon the shareholder's holding
period for the shares. However, a loss realized by a shareholder on the
disposition of shares with respect to which capital gain dividends have been
paid will be treated as long-term capital gain loss, to the extent of such
capital gain dividends, if such shares have been held by the shareholder for six
months or less. Further, a loss realized on a disposition will be disallowed to
the extent the shares disposed of are replaced (whether by reinvestment of
distributions or otherwise) within a period of 61 days beginning 30 days before
and ending 30 days after the shares are disposed of. In such a case, the basis
of the shares acquired will be adjusted to reflect the disallowed loss.
Non-corporate shareholders are subject to tax at a maximum rate of 20% on
capital gains resulting from the disposition of shares held for more than 12
months (10% if the taxpayer is, and would be after accounting for such gains,
subject to the 15% tax bracket for ordinary income).

Certain of the options, future contracts, and forward foreign currency exchange
contracts in which the Portfolio may invest are so-called "section 1256
contracts". With certain exceptions, realized gains or losses on section 1256
contracts generally are considered 60% long-term and 40% short-term capital
gains or losses ("60/40"). Also, section 1256 contracts held by the Portfolio at
the end of each taxable year (and, generally, for purposes of the 4% excise tax,
on October 31 of each year) are "marked-to-market" with the result that
unrealized gains or losses are treated as though they were realized and the
resulting gain or loss is treated as 60/40 gain or loss. Investors should
consult their own tax advisers in this regard.

Generally, the hedging transactions undertaken by the Portfolio may result in
"straddles" for Federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by the Portfolio. In addition, losses
realized by the Portfolio on a position that is part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences to the Portfolio of hedging transactions
are not entirely clear. The hedging transactions may increase the amount of
short-term capital gain realized by the Portfolio that is taxed as ordinary
income when distributed to stockholders.

-19-

794232.3

<PAGE>

The Portfolio may make one or more of the elections applicable to straddles
available under the Code. In that event, the amount, character and timing of the
recognition of gains or losses from the affected straddle positions will be
determined pursuant to the rules applicable to the election(s) made, which may
accelerate the recognition of gains or losses from the affected straddle
positions. Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders, and will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a Portfolio that did not engage in such hedging transactions.

Under the Code, gains or losses attributable to fluctuations in exchange rates
that occur between the time the Portfolio accrues interest or other receivables
or accrues expenses or other liabilities denominated in a foreign currency and
the time the Portfolio actually collects such receivables or pays such
liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a foreign currency
and on disposition of certain forward contracts, gains or losses attributable to
fluctuations in the value of foreign currency between the date of acquisition of
the security or contract and the date of disposition also are treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"section 988" gains or losses, may increase, decrease, or eliminate the amount
of the Portfolio's investment company taxable income to be distributed to its
shareholders as ordinary income.

Income received by the Portfolio from sources within foreign countries may be
subject to withholding and other similar income taxes imposed by the foreign
country. The Portfolio does not expect to be eligible to elect to allow
shareholders to claim such foreign taxes as a credit against their U.S. tax
liability.

The Portfolio is generally required to report to the Internal Revenue Services
("IRS") all distributions to shareholders. Distributions by the Fund generally
subject to withholding of Federal income tax at a rate of 31% ("backup
withholding") if (1) the shareholder fails to certify to the Fund the
shareholder's correct taxpayer identification number or social security number,
(2) the IRS notifies the Fund or a shareholder that the shareholder has failed
to report properly certain interest and dividend income to the IRS and to
respond to notices to that effect, or (3) when required to do so, the
shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any distributions
(whether reinvested in additional shares or taken in cash) will be reduced by
the amounts required to be withheld. The reporting and backup withholding
requirements do not apply to certain exempt shareholders.

The foregoing discussion relates only to Federal income tax law as applicable to
U.S. persons (i.e., U.S. citizens and residents and U.S. domestic corporations,
partnerships, trusts and estates). Distributions by the Portfolio also may be
subject to state and local taxes, and the treatment of distributions under state
and local income tax laws may differ from the Federal income tax treatment.
Shareholders should consult their tax advisors with respect to particular
questions of Federal, state and local taxation. Shareholders who are not U.S.
persons should consult their tax advisors regarding U.S. and foreign tax
consequences of ownership of shares of the Funds, including the likelihood that
distributions to them would be subject to withholding of U.S. tax at a rate of
30% (or at a lower rate under a tax treaty).

V. DISTRIBUTION ARRANGEMENTS

Rule 12b-1 Fees

Investors do not pay a sales charge to purchase shares of the Fund. However, the
Fund pays fees in connection

-20-

794232.3

<PAGE>

with the distribution of shares and for services provided to the Class A
shareholders. The Fund pays these fees from its assets on an ongoing basis and
therefore, over time, the payment of these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.

The Fund's Board of Directors has adopted a Rule 12b-1 distribution and service
plan (the "Plan") and, pursuant to the Plan, the Fund and Reich & Tang
Distributors, Inc. (the "Distributor") have entered into a Distribution
Agreement and a Shareholder Servicing Agreement (with respect to the Class B and
C shares of the Fund only).

Under the Distribution Agreement, the Distributor serves as distributor of the
Fund's shares and, for nominal consideration (i.e., $1.00) and as agent for the
Fund, will solicit orders for the purchase of the Fund's shares, provided that
any orders will not be binding on the Fund until accepted by the Fund as
principal.

Under the Shareholder Servicing Agreement, the Distributor receives, with
respect only to the Class B and C shares, a service fee equal to .25% per annum
of the Portfolio's Class B and C shares' average daily net assets (the
"Shareholder Servicing Fee") for providing personal shareholder services and for
the maintenance of shareholder accounts. This fee is accrued daily and paid
monthly and any portion of the fee may be deemed to be used by the Distributor
for payments to Participating Organizations with respect to their provision of
such services to their clients or customers who are shareholders of the Class B
and C shares of each Portfolio. The Class A shareholders will not receive the
benefit of such services from Participating Organizations and, therefore, will
not be assessed a Shareholder Servicing Fee.

The Plan provides that, in addition to the Shareholder Servicing Fee, the Fund
will pay for (i) telecommunications expenses, including the cost of dedicated
lines and CRT terminals, incurred by the Distributor and Participating
Organizations in carrying out their obligations under the Shareholder Servicing
Agreement with respect to Class B and C shares, and (ii) preparing, printing and
delivering the Fund's prospectus to existing shareholders of the Fund and
preparing and printing subscription application forms for shareholder accounts.
These payments are limited to a maximum of 0.05% per annum of the Portfolio's
Class B and C Shares' average daily net assets.

The life insurance companies whose qualified retirement plan clients may
purchase Class C shares of the Portfolio have contracted with the Distributor to
perform certain sub-transfer agent accounting services for the Insurance Company
Investors. In consideration of the provisions of these sub-transfer agency
accounting services, the life insurance companies will receive sub-transfer
agency fees from the Distributor or its affiliate, the Fund's transfer agent. As
a result of the payment of the sub-transfer agency accounting fees to these
insurance companies relating to qualified retirement plan services, Class C
shares will have higher transfer agency charges than the other classes of the
Portfolio.

-21-

794232.3

<PAGE>

VI. FINANCIAL HIGHLIGHTS

This financial highlights table is intended to help you understand the financial
performance of all classes of the Total Return Bond Fund for the life of the
Fund. Certain information reflects financial results for a single Portfolio
share. The total returns in the table represent the rate that an investor would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions).

Total Return Bond Fund
Year ended November 30, 1998
------------------------------------

CLASS A
- -------
Per Share Operating Performance:
(for a share outstanding throughout
the period)
Net asset value, beginning of period.... $
----------
Income from investment operations:
Net Investment income...............
Less distributions:
Dividends from net investment income
----------
Net asset value, end of period......... $
==========

Total Return...........................
Ratios/Supplemental Data
Net assets, end of period (000)........
Ratios to average net assets:
Expenses............................
Net Investment income...............
Management, administration and
shareholder servicing fees
waived
Expenses paid indirectly...............
Portfolio Turnover Rate................ [ ]

Total Return Bond Fund
Year ended November 30, 1998
------------------------------------

CLASS B
- -------
Per Share Operating Performance:
(for a share outstanding throughout
the period)
Net asset value, beginning of period... $
---------
Income from investment operations:
Net Investment income...............
Less distributions:
Dividends from net investment income ( )
---------
Net asset value, end of period......... $
=========

-22-

794232.3

<PAGE>

Total Return Bond Fund
Year ended November 30, 1998
------------------------------------

CLASS C
- -------

Per Share Operating Performance:
(for a share outstanding throughout the
period)
Net asset value, beginning of period.... $
--------
Income from investment operations:
Net Investment income................
Less distributions:
Dividends from net investment income
--------
Net asset value, end of period.......... $
========

Total Return............................
Ratios/Supplemental Data
Net assets, end of period (000).........
Ratios to average net assets:
Expenses.............................
Net Investment income................
Management, administration and
shareholder servicing fees waived
Expenses paid indirectly................
Portfolio Turnover Rate................. [ ]

-23-

794232.3

<PAGE>

A Statement of Additional Information (SAI) dated March 30, 1999, and the Fund's
Annual and Semi-Annual Reports include additional information about the Fund and
its investments and are incorporated by reference into this prospectus. You may
obtain the SAI, the Annual and Semi-Annual Reports and material incorporated by
reference without charge by calling the Fund at 1-800-221-3079. To request other
information, please call your financial intermediary or the Fund.

- --------------------------------------------------------------------------------

A current SAI has been filed with the Securities and Exchange Commission. You
may visit the Securities and Exchange Commission's Internet website
(www.sec.gov) to view the SAI, material incorporated by reference and other
information. These materials can also be reviewed and copied at the Commission's
Public Reference Room in Washington D.C. Information on the operation of the
Public Reference Room may be obtained by calling the Commission at
1-800-SEC-0330. In addition, copies of these materials may be obtained, upon
payment of a duplicating fee, by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-6009.

BACK BAY

FUNDS, INC.

TOTAL RETURN BOND FUND

PROSPECTUS

March 30, 1999

[OBJECT OMITTED]

Back Bay Advisors, L.P.

811-08339

<PAGE>

BACK BAY
FUNDS, INC. 600 Fifth Avenue, New York, NY 10020
(212) 830-5520
================================================================================

STATEMENT OF ADDITIONAL INFORMATION
March 30, 1999
RELATING TO THE BACK BAY FUNDS, INC.
PROSPECTUS DATED MARCH 30, 1999

This Statement of Additional Information (SAI) is not a Prospectus. The SAI
expands upon and supplements the information contained in the current Prospectus
of Back Bay Funds, Inc. (the "Fund"), dated March 30, 1999 and should be read in
conjunction with the Fund's Prospectus.

A Prospectus may be obtained from any Participating Organization or by writing
or calling the Fund toll-free at 1-(800) 221-3079. The Financial Statements of
the Fund have been incorporated by reference to the Fund's Annual Report. The
Annual Report is available, without charge, upon request by calling the
toll-free number provided.

This Statement of Additional Information is incorporated by reference into the
Fund's Prospectus in its entirety.

<TABLE>
<CAPTION>
Table of Contents
- --------------------------------------------------------------------------------

<S> <C>
Fund History....................................... 2 Capital Stock and Other Securities.................. 13
Description of the Fund and its Investments and Purchase, Redemption and Pricing Shares............. 14
Risks........................................... 2 Taxation of the Fund................................ 19
Management of the Fund............................. 7 Underwriters........................................ 19
Control Persons and Principal Holders of Calculation of Performance Data..................... 19
Securities...................................... 9 Financial Statements................................ 20
Investment Advisory and Other Services............. 9 Description of Ratings.............................. 21
Brokerage Allocation and Other Practices........... 13
</TABLE>

- --------------------------------------------------------------------------------

<PAGE>

I. FUND HISTORY

The Fund was incorporated on August 15, 1997 in the state of Maryland.

II. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS

The Fund is an open-end, diversified management investment company. The Fund's
investment objective is to seek to maximize total return. The generation of
income is a secondary objective. No assurance can be given that these objectives
will be achieved. Although not principal strategies, the Manager may enter into
the following types of transactions or invest in the following types of
instruments as part of its investment strategies.

(i) Foreign Currency Exchange Transactions: Since the Portfolio may invest in
securities that are denominated in foreign currencies or traded in foreign
markets, the Portfolio may engage in related foreign currency exchange
transactions to protect the value of specific portfolio positions or in
anticipation of changes in relative values of currencies in which current or
future portfolio holdings are denominated or quoted.

The Portfolio may also engage in transactions in currency forward contracts. A
currency forward contract is a contract that obligates parties to the contract
to exchange specified amounts of different currencies at a specified future
date. For example, a party may agree to deliver a specified number of French
francs, in exchange for a specified number of U.S. dollars on a certain date.

From time to time, a portion of the Portfolio's assets may be invested in
securities that are denominated in foreign currencies or that are traded in
markets where purchase or sale transactions settle in a foreign currency.
Currency forward contracts may be used both to (1) facilitate settlement of the
Portfolio's transactions in these securities and (2) hedge against possible
adverse changes in the relative values of the currencies in which the
Portfolio's holdings (or intended future holdings) are denominated.

Currency forward contracts involve transaction costs and the risk that the banks
with which a fund enters into such contracts will fail financially. The Manager
will, however, monitor the creditworthiness of these banks on an ongoing basis.
Successful use of currency forward contracts for hedging purposes also depends
on the accuracy of the Manager's forecasts as to future changes in the relative
values of currencies. The accuracy of such forecasts cannot be assured. The Fund
will set aside with its custodian certain assets to provide for satisfaction of
its obligations under currency forward contracts.

Although the Portfolio is permitted to use currency forward contracts, it is not
obligated to do so. Thus, the Portfolio will not necessarily be fully (or even
partially) hedged against the risk of adverse currency price movements at any
given time.

(ii) Adjustable Rate Mortgage--Related Securities: An ARM, like a traditional
mortgage security, is an interest in a pool of mortgage loans that provides
investors with payments consisting of both principal and interest as mortgage
loans in the underlying mortgage pool are paid off by the borrowers. ARMs have
interest rates that are reset at periodic intervals, usually by reference to
some interest rate index or market interest rate. Although the rate adjustment
feature may act as a buffer to reduce sharp changes in the value of adjustable
rate securities, these securities are still subject to changes in value based on
changes in market interest rates or changes in the issuer's creditworthiness.
Because the interest rates are reset only periodically, changes in the interest
rate on ARMs may lag behind changes in prevailing market interest rates. Also,
some ARMs (or the underlying mortgages) are subject to caps or floors that limit
the maximum change in interest rate during a specified period or over the life
of the security. As a result, changes in the interest rate on an ARM may not
fully reflect changes in prevailing market interest rates during certain
periods. Because of the resetting of interest rates, ARMs are less likely than
non-adjustable rate securities of comparable quality and maturity to increase
significantly in value when market interest rates fall.

(iii) Commercial Mortgage Backed Securities: Commercial Mortgage Backed
Securities (CMBS) are generally multi-class debt or pass-through securities
backed by a mortgage loan or pool of mortgage loans secured by commercial
property, such as industrial and warehouse properties, office buildings, retail
centers and shopping malls, multi-family properties and cooperative apartments,
hotels and motels, nursing homes, hospitals, senior living centers, manufactured
living communities and mobile home parks. Assets underlying Commercial Mortgage
Backed Securities may relate to many properties, only a few properties, or to a
single property.

Investments in Commercial Mortgage Backed Securities involve the credit risk of
delinquency and default. Delinquency refers to interruptions in the payment of
interest and principal. Default refers to the potential for

<PAGE>

2
798315.2

unrecoverable principal loss from the sale of foreclosed property. These risks
include the risks inherent in the commercial mortgage loans which support such
Commercial Mortgage Backed Securities and the risks associated with direct
ownership of real estate. This may be especially (true in the case of Commercial
Mortgage Backed Securities secured by, or evidencing an interest in, a
relatively small or less diverse pool of commercial mortgage loans. The factors
contributing to these risks include the effects of general and local economic
conditions on real estate values, the conditions of specific industry segments,
the ability of tenants to make lease payments and the ability of a property to
attract and retain tenants, which in turn may be affected by local conditions
such as oversupply of space or a reduction of available space, the ability of
the owner to provide adequate maintenance and insurance, changes in management
of the underlying commercial property, energy costs, government regulations with
respect to environmental, zoning, rent control, bankruptcy and other matters,
real estate and other taxes, and prepayments of the underlying commercial
mortgage loans (although such prepayments generally occur less frequently than
prepayments on residential mortgage loans).

(iv) Collateralized Mortgage Obligations: A CMO is a security backed by a
portfolio of mortgages or mortgage securities held under an indenture. The
underlying mortgages or mortgage securities are issued or guaranteed by the U.S.
Government or an agency or instrumentality thereof. The issuer's obligation to
make interest and principal payments is secured by the underlying portfolio of
mortgages or mortgage securities. CMOs are issued with a number of classes or
series which have different maturities and which may represent interests in some
or all of the interest or principal on the underlying collateral or combination
thereof. CMOs of different classes are generally retired in sequence as the
underlying mortgage loans in the mortgage pool are repaid. In the event of
sufficient early prepayments on such mortgages, the class or series of CMO first
to mature generally will be retired prior to its maturity. Thus, the early
retirement of a particular class or series of CMO held by the Portfolio would
have the same effect as the prepayment of mortgages underlying a mortgage
pass-through security. CMOs may be considered derivatives securities.

(v) "Stripped" Securities: Stripped securities are usually structured with two
or more classes that receive different proportions of the interest and principal
distribution from a pool of U.S. or Foreign Government Securities or mortgage
assets. In some cases, one class will receive all of the interest (the
interest-only or "IO" class), while the other class will receive all of the
principal (the principal-only or "PO" class). Stripped securities commonly have
greater market volatility than other types of fixed-income securities. In the
case of stripped mortgage securities, if the underlying mortgage assets
experience greater than anticipated payments of principal, the Portfolio may
fail to recoup fully its investments in IOs. The cash flows and yields on IO and
PO Classes are extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying mortgage assets. For example, a rapid or
slow rate of principal payments may have a material adverse effect on the yield
to maturity of IOs and POs, respectively. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, an investor may
fail to recoup fully its initial investment in an IO class even if the IO class
is rated AAA or Aaa. Conversely, if the underlying mortgage assets experience
slower than anticipated prepayments of principal, the yield on a PO class will
be affected more severely than would be the case with a traditional
mortgage-backed security. The staff of the SEC has indicated that it views
stripped mortgage securities as illiquid unless the securities are issued by the
U.S. Government or its agencies and are backed by fixed-rate mortgages. The
Portfolio intends to abide by the staff's position. As a result of illiquidity,
the Portfolio may not be able to sell these instruments when the Manager
considers it desirable to do so or may have to sell them at a price lower than
could be obtained if they were more liquid. These factors may have an adverse
impact on net asset value. Also, the sale of illiquid securities may require
more time and result in higher brokerage charges or dealer discounts and other
selling expenses than does the sale of securities eligible for trading on
national securities exchanges or in over-the-counter markets. Stripped
securities may be considered derivative securities.

(vi) Zero Coupon Securities: Zero coupon securities are issued at a significant
discount from face value and pay interest only at maturity, rather than at
intervals during the life of the security. The prices of zero coupon securities
may react more strongly to changes in interest rates than the prices of many
other securities. The Portfolio is required to accrue and distribute income from
zero coupon securities on a current basis, even though the Portfolio will not
receive the income currently in cash. Thus, the Portfolio may have to sell other
investments to obtain cash needed to make income distributions.

(vii) Options, Futures, Swap Contracts and Currency Transactions: The Portfolio
may engage in a variety of transactions involving the use of exchange traded
options and futures with respect to U.S. or Foreign Government Securities,
corporate fixed-income securities or municipal bonds or indices thereof for
purposes of hedging against changes in interest rates.

<PAGE>

798315.2

The Portfolio may buy, sell or write options on securities, securities indexes,
currencies or futures contracts. The Portfolio may buy and sell futures
contracts on securities, securities indexes or currencies. The Portfolio may
also enter into swap contracts. The Portfolio may engage in these transactions
either for the purpose of enhancing investment return only against a "covered"
position of the Portfolio or to hedge against changes in the value of other
assets that the Portfolio owns or intends to acquire. The Portfolio may also
conduct foreign currency exchange transactions on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market. Options,
futures and swap contracts fall into the broad category of financial instruments
known as "derivatives" and involve special risks. Use of options, futures or
swaps for other than hedging purposes may be considered a speculative activity,
involving greater risks than are involved in hedging.

Options can generally be classified as either "call" or "put" options. There are
two parties to a typical options transaction: the "writer" and the "buyer." A
call option gives the buyer the right to buy a security or other asset (such as
an amount of currency or a futures contract) from, and a put option the right to
sell a security or other asset to, the option writer at a specified price, on or
before a specified date. The buyer of an option pays a premium when purchasing
the option, which reduces the return on the underlying security or other asset
if the option is exercised, and results in a loss if the option expires
unexercised. The writer of an option receives a premium from writing an option,
which may increase its return if the option expires or is closed out at a
profit. If the Portfolio, as the writer of an option, is unable to close out an
unexpired option, it must continue to hold the underlying security or other
asset until the option expires, to "cover" its obligations under the option.

A futures contract creates an obligation by the seller to deliver and the buyer
to take delivery of the type of instrument or cash at the time and in the amount
specified in the contract. Although many futures contracts call for the delivery
(or acceptance) of the specified instrument, futures are usually closed out
before the settlement date through the purchase (or sale) of a comparable
contract. If the price of the sale of the futures contract by the Fund exceeds
(or is less than) the price of the offsetting purchase, the Portfolio will
realize a gain (or loss). The Portfolio may not purchase or sell futures
contracts or purchase related options if immediately thereafter the sum of the
amount of deposits for initial margin or premiums on the existing futures and
related options positions would exceed 5% of the market value of the Portfolio's
net assets. Transactions in futures and related options involve the risks of (1)
imperfect correlation between the price movement of the contracts and the
underlying securities, (2) significant price movement in one but not the other
market because of different hours, (3) the possible absence of a liquid
secondary market at any point in time. If the subadviser's prediction on
interest rates or other economic factors is inaccurate, the Fund may be worse
off than if it had not hedged. Futures transactions involve potentially
unlimited risk of loss.

The Portfolio may enter into interest rate, currency and securities index swaps.
The Portfolio will enter into these transactions primarily to seek to preserve a
return or spread on a particular investment or portion of its portfolio, to
protect against currency fluctuations, as a duration management technique, or to
protect against an increase in the price of securities the Portfolio anticipates
purchasing at a later date. Interest rate swaps involve the exchange by the Fund
with another party of their respective commitments to pay or receive interest
(for example, an exchange of floating rate payments for fixed rate payments with
respect to a notional amount of principal). A currency swap is an agreement to
exchange cash flows on a notional amount based on changes in the relative values
of the specified currencies. An index swap is an agreement to make or receive
payments based on the different returns that would be achieved if a notional
amount were invested in a specified basket of securities such as U.S. Treasury
securities or the Standard & Poor's Composite Index of 500 Stocks (the "S&P
500").

The value of options purchased by the Portfolio, futures contracts held by the
Portfolio and the Portfolio's positions in swap contracts may fluctuate up or
down based on a variety of market and economic factors. In some cases, the
fluctuations may offset (or be offset by) changes in the value of securities
held in the Portfolio. All transactions in options, futures or swaps involve
costs and the possible risk of loss to the Portfolio of all or a significant
part of the value of its investment. In some cases, the risk of loss may exceed
the amount of the Portfolio's investment. The Portfolio will be required,
however, to set aside with its custodian bank certain assets in amounts
sufficient at all times to satisfy its obligations under options, futures and
swap contracts.

The successful use of options, futures and swaps will usually depend on the
Manager's ability to forecast bond market, currency or other financial market
movements correctly. The Portfolio's ability to hedge against adverse changes in
the value of securities held in its portfolio through options, futures and swap
transactions also depends on the degree of correlation between the changes in
the value of futures, options or swap positions and changes in the values of the
portfolio securities. The successful use of futures and exchange traded options
also depends on the availability of a liquid secondary market to enable the
Portfolio to close its positions on a timely basis. There can be

<PAGE>

798315.2

no assurance that such a market will exist at any particular time. Trading hours
for options may differ from the trading hours for the underlying securities.
Thus, significant price movements may occur in the securities markets that are
not reflected in the options market. The foregoing may limit the effectiveness
of options as hedging devices. Certain provisions of the Code and certain
regulatory requirements may limit the Portfolio's ability to engage in futures,
options and swap transactions.

The options and futures markets of foreign countries are small compared to those
of the United States and consequently are characterized in most cases by less
liquidity than are the U.S. markets. In addition, foreign markets may be subject
to less detailed reporting requirements and regulatory controls than U.S.
markets. Furthermore, investments by the Portfolio in options and futures in
foreign markets are subject to many of the same risks as are the Fund's other
foreign investments.

(viii) When-Issued Securities: The Portfolio may purchase securities on a
when-issued basis. Certain municipal securities are sometimes offered on a
"when-issued" basis, that is, the date for delivery of and payment for the
securities is not fixed at the date of purchase, but is set after the securities
are issued (normally within forty-five days after the date of the transaction).
The payment obligation and the interest rate that will be received on the
securities are fixed at the time the buyer enters into the commitment. The
Portfolio will only make commitments to purchase such municipal securities with
the intention of actually acquiring such securities, but the Portfolio may sell
these securities before the settlement date if it is deemed advisable.

If the Portfolio purchases a when-issued security, the Portfolio will direct the
custodian to place cash or other high grade securities (including municipal
securities) in a separate account of the Portfolio in an amount equal to its
when-issued commitments. If the market value of such securities declines,
additional cash or securities will be placed in the account on a daily basis so
that the market value of the account will equal the amount of the Portfolio's
when-issued commitments. To the extent that funds are in a separate account,
they will not be available for new investment or to meet redemptions. Investment
in securities on a when-issued basis may increase the Portfolio's exposure to
market fluctuation; may increase the possibility that the Portfolio will incur a
short-term gain subject to federal taxation; or may increase the possibility
that the Portfolio will incur a short-term loss, if the Portfolio must engage in
portfolio transactions in order to honor a when-issued commitment. The Portfolio
will employ techniques designed to minimize these risks. No additional
when-issued commitments will be made if more than 10% of the Portfolio's net
assets become so committed.

(ix) Repurchase Agreements: When the Portfolio purchases securities, it may
enter into a repurchase agreement with the seller wherein the seller agrees, at
the time of sale, to repurchase the security at a mutually agreed upon time and
price, thereby determining the yield during the purchaser's holding period. This
arrangement results in a fixed rate of return insulated from market fluctuations
during such period. The Portfolio may enter into repurchase agreements which are
collateralized by obligations issued or guaranteed by the U.S. Government and
the Portfolio may enter into repurchase agreements with member banks of the
Federal Reserve System and with broker-dealers who are recognized as primary
dealers in United States government securities by the Federal Reserve Bank of
New York whose creditworthiness has been reviewed and found to meet the
investment criteria of the Portfolio. The resale price will be in excess of the
purchase price, reflecting an agreed upon market rate effective for the period
of time the Fund's money will be invested in the security, and will not be
related to the coupon rate of the purchased security. At the time a Portfolio
enters into a repurchase agreement the value of the underlying security,
including accrued interest, will be equal to or exceed the value of the
repurchase agreement and, in the case of a repurchase agreement exceeding one
day, the seller will agree that the value of the underlying security, including
accrued interest, will at all times be equal to or exceed the value of the
repurchase agreement. The Portfolio may engage in a repurchase agreement with
respect to any security in which the Portfolio is authorized to invest, even
though the underlying security may mature in more than one year. The collateral
securing the seller's obligation must be of a credit quality at least equal to
the Fund's investment criteria for Portfolio securities and will be held by the
Fund's custodian or in the Federal Reserve Book Entry System. Nevertheless, if
the seller of a repurchase agreement fails to repurchase the obligation in
accordance with the terms of the agreement, the Portfolio may incur a loss to
the extent that the proceeds it realized on the sale of the underlying
obligation are less than the repurchase price. Repurchase agreements may be
considered loans to the seller of the underlying security. If bankruptcy
proceedings are commenced with respect to the seller, the Fund's realization
upon the collateral may be delayed or limited. The Portfolio may invest no more
than 15% of its net assets in illiquid securities including repurchase
agreements maturing in more than seven days. See "Investment Restrictions"
herein. A Portfolio may, however, enter into "continuing contract" or "open"
repurchase agreements under which the seller is under a continuing obligation to

<PAGE>

798315.2

repurchase the underlying obligation from the Portfolio on demand and the
effective interest rate is negotiated on a daily basis.

Securities purchased pursuant to a repurchase agreement are held by the Fund's
custodian and (1) are recorded in the name of the Portfolio with the Federal
Reserve Book Entry System or (2) the Portfolio receives daily written
confirmation of each purchase of a security and a receipt from the custodian.
The Portfolio purchases securities subject to a repurchase agreement only when
the purchase price of the security acquired is equal to or less than its market
price at the time of purchase.

(x) Rule 144A Securities: The Portfolio may invest in securities issued as part
of privately negotiated transactions between an issuer and one or more
purchasers. Except with respect to certain commercial paper issued in reliance
on the exemption from regulations set forth in Section 4(2) of the Securities
Act of 1933 (the "Securities Act") and securities subject to Rule 144A of the
Securities Act which are discussed below, these securities are typically not
readily marketable and are therefore considered illiquid securities. The price
the Portfolio paid for illiquid securities, and any price received upon resale,
may be lower than the price paid or received for similar securities with a more
liquid market. Accordingly, the valuation of privately placed securities
purchased by the Portfolio will reflect any limitations on their liquidity. As a
matter of policy, the Portfolio will not invest more than 15% of the market
value of the net assets of the Portfolio in repurchase agreements maturing in
over seven days and other illiquid investments.

The Portfolio may purchase securities that are not registered ("restricted
securities") under the Securities Act, but can be offered and sold to "qualified
institutional buyers" under Rule 144A of the Securities Act. The Portfolio may
also purchase certain commercial paper issued in reliance on the exemption from
regulations in Section 4(2) of the Securities Act ("4(2) Paper"). However, the
Portfolio will not invest more than 15% of its net assets in illiquid
investments, which include securities for which there is no readily available
market, securities subject to contractual restriction on resale, certain
investments in asset-backed and receivable-backed securities and restricted
securities (unless, with respect to these securities and 4(2) Paper, the Fund's
Directors continuously determine, based on the trading markets for the specific
restricted security, that it is liquid). The Directors may adopt guidelines and
delegate to the Manager the daily function of determining and monitoring
liquidity of restricted securities and 4(2) Paper. The Directors, however, will
retain sufficient oversight and be ultimately responsible for these
determinations.

Investment Restrictions

The Fund has adopted the following fundamental investment restrictions which
apply to the Portfolio. These restrictions may not be changed unless approved by
a majority of the outstanding shares "of each series of the Portfolio's shares
that would be affected by such a change." The term "majority of the outstanding
shares" of the Portfolio means the vote of the lesser of (i) 67% or more of the
shares of the Portfolio present at a meeting, if the holders of more than 50% of
the outstanding shares of the Portfolio are present or represented by proxy, or
(ii) more than 50% of the outstanding shares of the Portfolio. The Portfolio may
not:

(1) Issue senior securities, except insofar as the Portfolio may be deemed
to have issued a senior security in connection with any permitted
borrowing.

(2) Borrow Money. This restriction shall not apply to borrowings from banks
for temporary or emergency (not leveraging) purposes, including the
meeting of redemption requests that might otherwise require the
untimely disposition of securities, in an amount up to 15% of the value
of the Portfolio's total assets (including the amount borrowed) valued
at market less liabilities (not including the amount borrowed) at the
time the borrowing was made. While borrowings exceed 5% of the value of
the Portfolio's total assets, the Portfolio will not make any
investments. Interest paid on borrowings will reduce net income.

(3) Underwrite the securities of other issuers, except insofar as the
Portfolio may be deemed an underwriter under the Securities Act of 1933
in disposing of a portfolio security.

(4) Invest more than 25% of its assets in the securities of "issuers" in
any single industry, provided that there shall be no limitation on the
purchase obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities.

(5) Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or oil and gas interests, but this
shall not prevent the Portfolio from investing obligations secured by
real estate or interests in real estate.

<PAGE>

798315.2

(6) Make loans, except through loans of portfolio securities to qualified
investors, and by entry into repurchase agreements. The Portfolio will
not lend portfolio securities if, as a result, the aggregate of such
loans exceeds 33% of the value of the Portfolio's total assets
(including such loans).

(7) Acquire securities that are not readily marketable or repurchase
agreements calling for resale within more than seven days if, as a
result thereof, more than 15% of the value of its net assets would be
invested in such illiquid securities.

(8) Invest in securities of other investment companies, except the
Portfolio may purchase unit investment trust securities where such unit
trusts meet the investment objectives of the Portfolio and then only up
to 5% of the Portfolio's net assets, except as they may be acquired as
part of a merger, consolidation or acquisition of assets.

(9) Pledge, mortgage, assign or encumber any of the Portfolio's assets
except to the extent necessary to secure a borrowing permitted by
clause (2) made with respect to the Portfolio.

If a percentage restriction is adhered to at the time of an investment a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or in the amount of a Fund's portfolio's assets will not
constitute a violation of such restriction.

III. MANAGEMENT OF THE FUND

The Fund's Board of Directors, which is responsible for the overall management
and supervision of the Fund, has employed the Manager to serve as investment
manager of the Fund. Due to the services performed by the Manager, the Fund
currently has no employees and its officers are not required to devote their
full-time to the affairs of the Fund.

The Directors and Officers of the Fund and their principal occupations during
the past five years are set forth below. Unless otherwise specified, the address
of each of the following persons is 600 Fifth Avenue, New York, New York 10020.

Edgar M. Reed, 51 - Director of the Fund, has been Chief Investment Officer and
Executive Vice President of Back Bay Advisors, L.P. since 1994 and was formerly
Managing Director of Aetna Capital Management's Fixed Income Group from 1972 to
1994. His address is 399 Boylston Street, Boston, MA 02216. Mr. Reed is also a
Director of Back Bay Advisors, L.P. and a Trustee of Bowdoin College.

Dr. W. Giles Mellon, 67 - Director of the Fund, has been Professor of Business
Administration and Area Chairman of Economics in the Graduate School of
Management, Rutgers University which he has been associated with since 1966. His
address is Rutgers University Graduate School of Management, 92 New Street,
Newark, New Jersey 07102. Dr. Mellon is a Director/Trustee of 14 other funds in
the Reich & Tang Fund Complex and a Director of Pax World Money Market Fund,
Inc.

Robert Straniere, 56 - Director of the Fund, has been a member of the New York
State Assembly and a partner with The Straniere Law Firm since 1981. His address
is 182 Rose Avenue, Staten Island, New York 10306. Mr. Straniere is a
Director/Trustee of 14 other funds in the Reich & Tang Fund Complex, a Director
of Pax World Money Market Fund, Inc., and Director of Life Cycle Mutual Funds,
Inc.

Dr. Yung Wong, 59 - Director of the Fund, was Director of Shaw Investment
Management (UK) Limited from 1994 to October 1995 and formerly General Partner
of Abacus Partners Limited Partnership (a general partner of a venture capital
investment firm) from 1984 to 1994. His address is 29 Alden Road, Greenwich,
Connecticut 06831. Dr. Wong has been a Director of Republic Telecom Systems
Corporation (a provider of telecommunications equipment) since January 1989 and
of TelWatch, Inc. (a provider of network management software) since August 1989.
Dr. Wong is also a Director/Trustee of 14 other funds in the Reich & Tang Fund
Complex and a Director of Pax World Money Market Fund, Inc. Dr. Wong is also a
Trustee of Eclipse Financial Asset Trust.

Steven W. Duff, 44 - President of the Fund, has been President of the Mutual
Funds Division of Reich & Tang Asset Management L.P. since September 1994. Mr.
Duff was formerly Director of Mutual Fund Administration at NationsBank which he
was associated with from June 1981 to August 1994. Mr. Duff is also President
and a Director/Trustee of 14 other funds in the Reich & Tang Equity Fund, Inc.,
and President and Chief Executive Officer of Tax Exempt Proceeds Fund, Inc.

Molly Flewharty, 47 - Vice President of the Fund, has been Vice President of the
Mutual Funds Division of the Manager since September 1993. Ms. Flewharty was
formerly Vice President of Reich & Tang, Inc. which she was

<PAGE>

798315.2

associated with from December 1977 to September 1993. Ms. Flewharty is also Vice
President of 16 other funds in the Reich & Tang Fund Complex.

Lesley M. Jones, 50 - Vice President of the Fund, has been Senior Vice President
of the Mutual Funds Division of the Manager since September 1993. Ms. Jones was
formerly Senior Vice President of Reich & Tang, Inc. which she was associated
with from April 1973 to September 1993. Ms. Jones is also a Vice President of 14
other funds in the Reich & Tang Fund Complex.

Dana E. Messina, 41 - Vice President of the Fund, has been Executive Vice
President of the Mutual Funds Division of the Manager since January 1995 and was
Vice President from September 1993 to January 1995. Ms. Messina was formerly
Vice President of Reich & Tang, Inc. with which she was associated with from
December 1980 to September 1993. Ms. Messina is also Vice President of 15 other
funds in the Reich & Tang Fund Complex.

Bernadette N. Finn, 51 - Vice President and Secretary of the Fund, has been Vice
President of the Mutual Funds Division of the Manager since September 1993. Ms.
Finn was formerly Vice President and Assistant Secretary of Reich & Tang, Inc.
which she was associated with from September 1970 to September 1993. Ms. Finn is
also Secretary of 14 other funds in the Reich & Tang Fund Complex, and a Vice
President and Secretary of 4 funds in the Reich & Tang Fund Complex. Ms. Finn is
Secretary of Pax World Money Market Fund, Inc.

Richard De Sanctis, 41 - Treasurer of the Fund, has been Assistant Treasurer of
NEIC since September 1993. Mr. De Sanctis was formerly Controller of Reich &
Tang, Inc., from January 1991 to September 1993 and Vice President and Treasurer
of Cortland Financial Group, Inc. and Vice President of Cortland Distributors,
Inc. from 1989 to December 1990. Mr. De Sanctis is also Treasurer of 16 other
funds in the Reich & Tang Fund Complex and is Vice President and Treasurer of
Cortland Trust, Inc.

Rosanne Holtzer, 33 - Assistant Treasurer of the Fund, has been Vice President
of the Mutual Funds division of the Manager since December 1997. Ms. Holtzer was
formerly Manager of Fund Accounting for the Manager with which she has been
associated with from June 1986. Ms. Holtzer is also Assistant Treasurer of 17
other funds in the Reich & Tang Fund Complex.

The Fund paid an aggregate remuneration of $15,600 to its directors with respect
to the period ended November 30, 1999, all of which consisted of directors' fees
paid to the three disinterested directors, pursuant to the terms of the
Investment Management Contract (see "Manager" herein.)

Compensation Table

Aggregate Pension or Retirement Estimated Annual Total Compensation from
Name of Person, Compensation from Benefits Accrued as Part Benefits upon Fund and Fund Complex
Position the Fund Part of Fund Expenses Retirement Paid to Directors*

<S> <C> <C> <C> <C>
Dr. W. Giles Mellon, $5,200 0 0 [$53,000 (15 Funds)
Director

Robert Straniere, $5,200 0 0 $53,000 (15 Funds)
Director

Dr. Yung Wong, $5,200 0 0 $53,000 (15 Funds)]
Director

</TABLE>

* The total compensation paid to such persons by the Fund and Fund Complex for
the fiscal year ending November 30, 1999 (and, with respect to certain of
the funds in the Fund Complex, estimated to be paid during the fiscal year
ending November 30, 1999). The parenthetical number represents the number of
investment companies (including the Fund) from which such person receives
compensation that are considered part of the same Fund complex as the Fund,
because, among other things, they have a common investment advisor.

<PAGE>

798315.2

IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

On December 31, 1998 there were _________shares of the Fund outstanding. As of
December 31, 1998, the amount of shares owned by all officers and directors of
the Fund, as a group, was less than 1% of the outstanding shares. Set forth
below is certain information as to persons who owned 5% or more of the Fund's
outstanding shares as of December 31, 1998:

Name and Address % of Class Nature of Ownership
---------------- ---------- -------------------
Total Return Bond Fund - Class A

Reich & Tang Services, Inc. [93.44%] Record
as Agent for Various
Beneficial Owners
600 Fifth Avenue
New York, N.Y. 10020

Total Return Bond Fund - Class B

Reich & Tang Services, Inc. [42.66%] Record
as Agent for Various
Beneficial Owners
600 Fifth Avenue
New York, N.Y. 10020

Total Return Bond Fund - Class C

Reich & Tang Services, Inc. [96.67%] Record
as Agent for Various
Beneficial Owners
600 Fifth Avenue
New York, N.Y. 10020

V. INVESTMENT ADVISORY AND OTHER SERVICES

The Manager is a Delaware limited partnership with its principal office at 399
Boylston Street, Boston, Massachusetts 02116-3310. The Manager provides
discretionary investment management services to mutual funds and other
institutional investors. Formed in 1986, the Manager now manages 14 mutual fund
portfolios and as of [June 30, 1997,] was investment manager, adviser or
supervisor with respect to assets aggregating in excess of [$7] billion,
primarily mutual fund and institutional fixed-income portfolios.

Effective January 1, 1998, NEIC Operating Partnership, L.P. ("NEICOP") was the
limited partner and owner of a 99.5% interest in the Manager replacing New
England Investment Companies, L.P. ("NEICLP") as the limited partner and owner
of such interest in the Manager due to a restructuring by New England Investment
Companies, Inc. ("NEIC"). Subsequently, effective March 31, 1998, Nvest
Companies, L.P. ("Nvest Companies") due to a change in name of NEICOP, replaces
NEICOP as the limited partner and owner of a 99.5% interest in the Manager.

Reich & Tang Asset Management, Inc. (an indirect wholly-owned subsidiary of
Nvest Companies) is the sole general partner and owner of the remaining 0.5%
interest of the Manager. Nvest Corporation, a Massachusetts Corporation
(formerly known as New England Investment Companies, Inc.), serves as the
managing general partner of Nvest Companies.

Reich & Tang Asset Management, Inc. is an indirect subsidiary of Metropolitan
Life Insurance Company ("MetLife"). Also, MetLife directly and indirectly owns
approximately 47% of the outstanding partnership interests of Nvest Companies
and may be deemed a "controlling person" of the Manager. Reich & Tang, Inc.
owns, directly and indirectly, approximately 13% of the outstanding partnership
interests of Nvest Companies.

MetLife is a mutual life insurance company with assets of $330.6 billion at
December 31, 1997. MetLife provides a wide range of insurance and investment
products and services to individuals and groups and is the leader among

<PAGE>

798315.2

United States life insurance companies in terms of total life insurance in
force, which totaled $1.7 trillion at December 31, 1997 for MetLife and its
insurance affiliates.

Nvest Companies is a holding company offering a broad array of investment styles
across a wide range of asset categories through thirteen subsidiaries, divisions
and affiliates offering a wide array of investment styles and products to
institutional clients. Its business units, in addition to the Manager, include
AEW Capital Management, L.P., Capital Growth Management Limited Partnerships;
Greystone Partners; L.P. Harris Associates; L.P. Jurikat Voyles, L.P., Loomis,
Sayles & Company, L.P., New England Funds, L.P., Nvest Associates, Inc., Reich &
Tang Asset Management, L.P., Snyder Capital Management, L.P., Vaughan, Nelson,
Scarborough & McCullough, L.P., and Westpeak Investment Advisors, L.P. These
affiliates in the aggregate are investment advisors or managers to 80 other
registered investment companies.

The recent name change did not result in a change of control of the Manager and
has no impact upon the Manager's performance of its responsibilities and
obligations.

On November 28, 1997, the Board of Directors, including a majority of the
directors who are not interested persons (as defined in the 1940 Act) of the
Fund or the Manager, approved a new Investment Management Contract effective May
1, 1998, which has been which extended to April 30, 1999. The contract is
continued in force thereafter for successive twelve-month periods beginning each
May 1, provided that such majority vote of the Fund's outstanding voting
securities or by a majority of the directors who are not parties to the
Investment Management Contract or interested persons of any such party, by votes
cast in person at a meeting called for the purpose of voting on such matter.

Pursuant to the Investment Management Contract, the Manager manages the Fund's
portfolio of securities and makes decisions with respect to the purchase and
sale of investments, subject to the general control of the Board of Directors of
the Fund.

The Manager provides persons satisfactory to the Board of Directors of
the Fund to serve as officers of the Fund. Such officers, as well as certain
other employees and directors of the Fund, may be directors or officers of NEIC,
the sole general partner of the Manager, or employees of the Manager or its
affiliates.

The Investment Management Contract is terminable without penalty by
the Fund on sixty days' written notice when authorized either by majority vote
of its outstanding voting shares or by a vote of a majority of its Board of
Directors, or by the Manager on sixty days written notice, and will
automatically terminate in the event of its assignment. The Investment
Management Contract provides that in the absence of willful misfeasance, bad
faith or gross negligence on the part of the Manager, or of reckless disregard
of its obligations thereunder, the Manager shall not be liable for any action or
failure to act in accordance with its duties thereunder.

Under the Investment Management Contract, (i) the Portfolio will pay an annual
management fee of [.085%] of the Portfolio's average daily net assets. The
Manager, at its discretion, may voluntarily waive all or a portion of the
management fee. The fees are accrued daily and paid monthly. Any portion of the
total fees received by the Manager may be used by the Manager to provide
shareholder services and for distribution of Fund shares. For the Fund's fiscal
year ended November 30, 1998 the Manager received investment management fees
totaling $________.

The Manager at its discretion may waive its rights to any portion of the
management fee and may use any portion of the management fee for purposes of
shareholder and administrative services and distribution of the Fund's shares.

Investment management fees and operating expenses which are attributable to all
Classes of the Portfolio will be allocated daily to each Class based on the
percentage of outstanding shares at the end of the day. Additional shareholder
services provided by Participating Organizations to Class B and C shareholders
pursuant to the Plan shall be compensated by the Distributor from its
shareholder servicing fee, the Manager from its management fee. Expenses
incurred in the distribution of Class A shares and the servicing of Class A
shares shall be paid by the Manager.

Expense Limitation

The Manager has agreed, pursuant to the Investment Management Contract, to
reimburse the Fund for its expenses (exclusive of interest, taxes, brokerage and
extraordinary expenses) which in any year exceed the limits on investment
company expenses prescribed by any state in which the Fund's shares are
qualified for sale. For the purpose of this obligation to reimburse expenses,
the Fund's annual expenses are estimated and accrued daily, and any appropriate
estimated payments are made to it on a monthly basis. Subject to the obligations
of the Manager to reimburse the Fund for its excess expenses as described above,
the Fund has, under the Investment Management

<PAGE>

798315.2

Contract, confirmed its obligation for payment of all its other expenses. This
includes all operating expenses, taxes, brokerage fees and commissions,
commitment fees, certain insurance premiums, interest charges and expenses of
the custodian, transfer agent and dividend disbursing agent's fees,
telecommunications expenses, auditing and legal expenses, bookkeeping agent
fees, costs of forming the corporation and maintaining corporate existence,
compensation of directors, officers and employees of the Fund and costs of other
personnel performing services for the Fund who are not officers of the Manager
or its affiliates, costs of investor services, shareholders' reports and
corporate meetings, SEC registration fees and expenses, state securities laws
registration fees and expenses, expenses of preparing and printing the Fund's
prospectus for delivery to existing shareholders and of printing application
forms for shareholder accounts, and the fees and reimbursements payable to the
Manager under the Investment Management Contract and the Distributor under the
Shareholder Servicing Agreement.

The Fund may from time to time hire its own employees or contract to have
management services performed by third parties (including Participating
Organizations) as discussed herein. The management of the Fund intends to do so
whenever it appears advantageous to the Fund. The Fund's expenses for employees
and for such services are among the expenses subject to the expense limitation
described above. As a result of the passage of the National Securities
Improvement Act of 1996, all state expense limitations have been eliminated.

Distribution And Service Plan

The Fund's distributor is Reich & Tang Distributors, Inc., a Delaware
corporation with principal officers at 600 Fifth Avenue, New York, New York
10020. Pursuant to Rule 12b-1 under the 1940 Act, the SEC has required that an
investment company which bears any direct or indirect expense of distributing
its shares must do so only in accordance with a plan permitted by the Rule. The
Fund's Board of Directors has adopted a distribution and service plan (the
"Plan") and, pursuant to the Plan, the Fund has entered into a Distribution
Agreement and a Shareholder Servicing Agreement (with respect to Class B and C
shares only) with Reich & Tang Distributors, Inc., (the "Distributor"), as
distributor of the Fund's shares.

Under the Plan, the Portfolios and the Distributor will enter into a Shareholder
Servicing Agreement with respect to the Class B and C shares. Under the
Shareholder Servicing Agreement, the Distributor receives from the Portfolio a
service fee equal to .25% per annum of the Portfolio's Class B and C shares
average daily net assets (the "Service Fee"). The service fee is in exchange for
providing personal shareholder services and for the maintenance of shareholder
accounts. The Service Fee is accrued daily and paid monthly and any portion of
the Service Fee may be deemed to be used by the Distributor for payments to
Participating Organizations with respect to servicing their clients or customers
who are shareholders of the Fund. The Class A shareholders will not receive the
benefit of such services from Participating Organizations and, therefore, will
not be assessed a Shareholder Servicing Fee.

The following information applies to the Class B and C shares of the Portfolio.
For the fiscal year ended November 30,1998, the Portfolio paid a Service Fee for
expenditures pursuant to the Plan in amounts aggregating $_________ with respect
to the Class B Shares and $_________ with respect to the Class C Shares. During
such period, the Manager and Distributor made payments pursuant to the Plan to
or on behalf of Participating Organizations of $_________ with respect to the
Class B Shares and $________ with respect to the Class C Shares. Of the payments
made pursuant to the Plan by the Portfolio, $_____ was spent on advertising,
$_____ on printing and mailing of prospectuses to other than current
shareholders, $_______ on compensation to underwriters, $______ on compensation
to broker-dealers, $______ on compensation to sales personnel, and $_____ on
interest, carrying or other financial charges. The excess of such payments over
the total payments the Distributor received from the Portfolio represents
distribution and servicing expenses funded by the Distributor from its own
resources.

Under the Distribution Agreement, the Distributor, for nominal consideration
(i.e., $1.00) and as agent for the Fund, will solicit orders for the purchase of
the Fund's shares, provided that any subscriptions and orders will not be
binding on the Fund until accepted by the Portfolio as principal.

The Plan and the Shareholder Servicing Agreement provide that, in addition to
the Shareholder Servicing Fee, the Fund will pay for (i) telecommunications
expenses, including the cost of dedicated lines and CRT terminals, incurred by
the Participating Organizations and Distributor in carrying out their
obligations under the Shareholder Servicing Agreement with respect to the Class
B and C shares and (ii) preparing, printing and delivering the Fund's prospectus
to existing shareholders of the Fund and preparing and printing subscription
application forms for shareholder accounts.

The Plan provides that the Manager may make payments from time to time from
their own resources, which may include the management fee, and past profits for
the following purposes: (i) to defray the costs of, and to compensate others,
including Participating Organizations with whom the Distributor has entered into
written

<PAGE>

798315.2

agreements for performing shareholder servicing and related administrative
functions on behalf of the Class B and C shares of the Fund; (ii) to compensate
certain Participating Organizations for providing assistance in distributing the
Fund's shares; and (iii) to pay the costs of printing and distributing the
Fund's prospectus to prospective investors, and to defray the cost of the
preparation and printing of brochures and other promotional materials, mailings
to prospective shareholders, advertising, and other promotional activities,
including the salaries and/or commissions of sales personnel in connection with
the distribution of the Fund's shares. The Distributor may also make payments
from time to time from its own resources, which may include the Shareholder
Servicing Fee with respect to Class B and C shares and past profits for the
purpose enumerated in (i) above. The Distributor will determine the amount of
such payments made pursuant to the Plan, provided that such payments will not
increase the amount which the Fund is required to pay to the Manager or the
Distributor for any fiscal year under the Investment Management Contract or the
Shareholder Servicing Agreement in effect for that year.

In accordance with the Rule, the Plan provides that all written agreements
relating to the Plan entered into between either the Fund or the Distributor and
Participating Organizations or other organizations must be in a form
satisfactory to the Fund's Board of Directors. In addition, the Plan requires
the Fund and the Distributor to prepare, at least quarterly, written reports
setting forth all amounts expended for distribution purposes by the Fund and the
Distributor pursuant to the Plan and identifying the distribution activities for
which those expenditures were made.

The Plan provides that it will remain in effect until ______ __, 1999.
Thereafter it may continue in effect for successive annual periods commencing
_____1, provided it is approved by the Class B and C shareholders or by the
Board of Directors. This includes a majority of directors who are not interested
persons of the Fund and who have no direct or indirect interest in the operation
of the Plan or in the agreements related to the Plan. The Plan further provides
that it may not be amended to increase materially the costs which may be spent
by the Fund for distribution pursuant to the Plan without Class B and C
shareholder approval, and the other material amendments must be approved by the
directors in the manner described in the preceding sentence. The Plan may be
terminated at any time by a vote of a majority of the disinterested directors of
the Fund or the Fund's Class B and C shareholders.

Reich & Tang Asset Management L.P. with its principal office at 600 Fifth
Avenue, New York, NY 10020 is the administrator of the Fund (the
"Administrator"). Pursuant to an Administrative Services Agreement for the
Portfolio, the Administrator performs clerical, accounting supervision and
office service functions for the Portfolio and provides the Portfolio with
personnel to (i) supervise the performance of bookkeeping and related services
by Investors Fiduciary Trust Company, the Fund's bookkeeping agent; (ii) prepare
reports to and filings with regulatory authorities; and (iii) perform such other
administrative services as the Portfolio may from time to time request of the
Administrator. The personnel rendering such services may be employees of the
Administrator or its affiliates. The Administrator, at its discretion, may
voluntarily waive all or a portion of the administrative services fee. For its
services under the Administrative Services Agreement, the Administrator receives
an annual fee equal to .15% of the Portfolio's average daily net assets up to
$100 million, .125% of the next $150 million of such assets, .10% of the next
$250 million of such assets and .075% of such assets over $500 million, with a
minimum monthly fee of $8,000. Any portion of the total fees received by the
Administrator and its past profits may be used to provide shareholder services
and for distribution of Portfolio shares. The fees are accrued daily and paid
monthly.

Custodian And Transfer Agent

Investors Fiduciary Trust Company, 801 Pennsylvania, Kansas City, Missouri
64105, is custodian for the Fund's cash and securities. Reich & Tang Services,
Inc., an affiliate of the Fund's Manager, located at 600 Fifth Avenue, New York,
NY 10020, is transfer agent and dividend agent for the shares of the Fund. The
custodian and transfer agent do not assist in, and are not responsible for,
investment decisions involving assets of the Fund.

Counsel and Auditors

Legal matters in connection with the issuance of shares of stock of the Fund are
passed upon by Battle Fowler LLP, 75 East 55th Street, New York, New York 10022.

McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017, independent
certified public accountants, have been selected as auditors for the Fund.

<PAGE>

798315.2

VI. BROKERAGE ALLOCATION AND OTHER PRACTICES

The Manager makes the Fund's portfolio decisions and determines the broker to be
used in each specific transaction with the objective of negotiating a
combination of the most favorable commission and the best price obtainable on
each transaction (generally defined as best execution). When consistent with the
objective of obtaining best execution, brokerage may be directed to persons or
firms supplying investment information to the Manager or portfolio transactions
may be effected by the Manager. Neither the Fund nor the Manager has entered
into agreements or understandings with any brokers regarding the placement of
securities transactions because of research services they provide. To the extent
that such persons or firms supply investment information to the Manager for use
in rendering investment advice to the Fund, such information may be supplied at
no cost to the Manager and, therefore, may have the effect of reducing the
expenses of the Manager in rendering advice to the Fund. While it is impossible
to place an actual dollar value on such investment information, its receipt by
the Manager probably does not reduce the overall expenses of the Manager to any
material extent. Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., and subject to seeking best execution,
the Manager may consider sales of shares of the Fund as a factor in the
selection of brokers to execute portfolio transactions for the Fund.

The investment information provided to the Manager is of the type described in
Section 28(e) of the Securities Exchange Act of 1934 and is designed to augment
the Manager's own internal research and investment strategy capabilities.
Research services furnished by brokers through which the Fund effects securities
transactions are used by the Manager in carrying out its investment management
responsibilities with respect to all its clients' accounts. There may be
occasions where the transaction cost charged by a broker may be greater than
that which another broker may charge if the Manager determines in good faith
that the amount of such transaction cost is reasonable in relation to the value
of brokerage and research services provided by the executing broker.

The Fund may deal in some instances in securities which are not listed on a
national securities exchange but are traded in the over-the-counter market. It
may also purchase listed securities through the third market. Where transactions
are executed in the over-the counter market or the third market, the Fund will
seek to deal with the primary market makers; but when necessary in order to
obtain best execution, it will utilize the services of others. In all cases the
Fund will attempt to negotiate best execution.

The Distributor may from time to time effect transactions in the Fund's
portfolio securities. In such instances, the placement of orders with the
Distributor would be consistent with the Fund's objective of obtaining best
execution. With respect to orders placed with the Distributor for execution on a
national securities exchange, commissions received must conform to Section
17(e)(2)(A) of the Investment Company Act of 1940 (the "1940 Act"), as amended,
and Rule 17e-1 thereunder, which permit an affiliated person of a registered
investment company (such as the Fund) to receive brokerage commissions from such
registered investment company provided that such commissions are reasonable and
fair compared to commissions received by other brokers in connection with
comparable transactions involving similar securities during a comparable period
of time. In addition, pursuant to Section 11(a) of the Securities Exchange Act
of 1934, the Distributor is restricted as to the nature and extent of the
brokerage services it may perform for the Fund. The Securities and Exchange
Commission has adopted rules under Section 11(a) which permit a distributor to a
registered investment company to receive compensation for effecting, on a
national securities exchange, transactions in portfolio securities of such
investment company, including causing such transactions to be transmitted,
executed, cleared and settled and arranging for unaffiliated brokers to execute
such transactions. To the extent permitted by such rules, the Distributor may
receive compensation relating to transactions in portfolio securities of the
Fund provided that the Fund enters into a written agreement, as required by such
rules, with the Distributor authorizing it to retain compensation for such
services. Transactions in portfolio securities placed with the Distributor which
are executed on a national securities exchange must be effected in accordance
with procedures adopted by the Board of Directors of the Fund pursuant to Rule
17e-1.

No portfolio transactions are executed with the Manager or its affiliates acting
as principal. In addition, the Fund will not buy bankers' acceptances,
certificates of deposit or commercial paper from the Manager or its affiliates.

For the fiscal year ended November 30, 1998, the Fund did not pay any brokerage
commissions.

VII. CAPITAL STOCK AND OTHER SECURITIES

The authorized capital stock of the Fund consists of twenty billion shares of
stock having a par value of one tenth of one cent ($.001) per share. The Fund's
Board of Directors is authorized to divide the shares into separate series of
stock, one for each of the portfolios that may be created. Except as noted
below, each share when issued will have

<PAGE>

798315.2

equal dividend, distribution and liquidation rights within the series for which
it was issued, and each fractional share has rights in proportion to the
percentage it represents of a whole share. Generally, all shares will be voted
in the aggregate, except if voting by Class is required by law or the matter
involved affects only one Class, in which case shares will be voted separately
by Class. Shares of all series have identical voting rights, except where, by
law, certain matters must be approved by a majority of the shares of the
affected series. There are no conversion or preemptive rights in connection with
any shares of the Portfolio. All shares when issued in accordance with the terms
of the offering will be fully paid and non-assessable. Shares of the Fund are
redeemable at net asset value, at the option of the shareholders.

The Portfolio is subdivided into three classes of common stock, Class A, Class B
and Class C. Each share, regardless of class, will represent an interest in the
same portfolio of investments and will have identical voting, dividend,
liquidation and other rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions, except that: (i) the
Class A, Class B and Class C shares will have different class designations; (ii)
only the Class B and C shares will be assessed a service fee of .25% of the
average daily net assets of the Class B and C shares of the Portfolio pursuant
to the Rule 12b-1 Distribution and Service Plan of the Portfolio; and (iii) only
the holders of the Class B and C shares would be entitled to vote on matters
pertaining to the Plan and any related agreements in accordance with provisions
of Rule 12b-1. Payments that are made under the Plan will be calculated and
charged daily to the appropriate class prior to determining daily net asset
value per share and dividend/distributions.

Under its Articles of Incorporation the Fund has the right to redeem, for cash,
shares of the Fund owned by any shareholder to the extent and at such times as
the Fund's Board of Directors determines to be necessary or appropriate to
prevent any concentration of share ownership which would cause the Fund to
become a "personal holding company" for Federal income tax purposes. In this
regard, the Fund may also exercise its right to reject purchase orders.

The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares outstanding voting for the election of
directors can elect 100% of the directors if the holders choose to do so, and,
in that event, the holders of the remaining shares will not be able to elect any
person or persons to the Board of Directors. The Fund's By-laws provide the
holders of one-third of the outstanding shares of the Fund present at a meeting
in person or by proxy will constitute a quorum for the transaction of business
at all meetings.

VIII. PURCHASE, REDEMPTION AND PRICING SHARES

<PAGE>

798315.2

accept a subscription or invest an investor's payment in portfolio securities
until the payment has been converted into Federal Funds.

Shares are issued as of 4:00 p.m., New York City time, on any Fund Business Day,
on which an order for the shares and accompanying Federal Funds are received by
the Fund's transfer agent before 4:00 p.m., New York City time. Fund shares
begin accruing income on the day after the shares are issued to an investor.

There is no redemption charge, no minimum period of investment and no
restriction on frequency of withdrawals. The Fund may make any redemption in
kind. In all other cases, proceeds of redemptions are paid by check or bank
wire. Unless other instructions are given in proper form to the Fund's transfer
agent, a check for the proceeds of a redemption will be sent to the
shareholder's address of record. If a shareholder elects to redeem all the
shares of the Portfolio he/she owns, all dividends credited to the shareholder
through the date of redemption are paid to the shareholder in addition to the
proceeds of the redemption.

Investments Through Participating Organizations

<PAGE>

798315.2

Participating Organizations may charge Participant Investors a fee in connection
with their use of specialized purchase and redemption procedures offered to
Participant Investors by the Participating Organizations. In addition,
Participating Organizations offering purchase and redemption procedures similar
to those offered to shareholders who invest in the Fund directly may impose
charges, limitations, minimums and restrictions in addition to or different from
those applicable to shareholders who invest in the Fund directly. Accordingly,
the net yield to investors who invest through Participating Organizations may be
less than by investing in the Portfolio directly. A Participant Investor should
read this Prospectus in conjunction with the materials provided by the
Participating Organization describing the procedures under which Fund shares may
be purchased and redeemed through the Participating Organization. \

Direct Purchase and Redemption Procedures

Initial Purchase of Shares

Mail
- ----

Class B share investors may send a check made payable to the Fund along with a
completed subscription order form to:

Back Bay Funds, Inc.
c/o Reich & Tang Funds
600 Fifth Avenue-8th Floor
New York, New York 10020

Checks are accepted subject to collection at full value in United States
currency.

Bank Wire
- ---------

To purchase shares of the Fund using the wire system for transmittal of money
among banks, an investor should first obtain a new account number by telephoning
the Fund at either [212-830-5220] (within New York State) or at 800-241-3263
(outside New York State) and then instruct a member commercial bank to wire
money immediately to:

Investors Fiduciary Trust
Company
ABA #101003621
Reich & Tang Funds
DDA #890752-955-4
For Back Bay Funds, Inc.
Total Return Portfolio
Account of (Investor's Name)
Portfolio Account #_____________________
SS #/Tax I.D.#__________________________

<PAGE>

798315.2

The investor should then promptly complete and mail the subscription order form.

An investor planning to wire the Fund should instruct his bank early in the day
so the wire transfer can be accomplished the same day. There may be a charge by
the investor's bank for transmitting the money by bank wire, and there also may
be a charge for use of Federal Funds. The Fund does not charge investors in the
Fund for its receipt of wire transfers. Payment in the form of a "bank wire"
received prior to 4:00 p.m., New York City time, on a Fund Business Day will be
treated as a Federal Funds payment received on that day.

Subsequent Purchases of Shares

Subsequent purchases can be made by personal delivery or by bank wire, as
indicated above, or by mailing a check to:

Back Bay Funds, Inc.
Mutual Funds Group
P.O. Box 13232
Newark, New Jersey 07101-3232

There is a $10,000 minimum for subsequent purchases of shares. All payments
should clearly indicate the shareholder's account number.

Redemption of Shares

Written Requests
- ----------------

Shareholders may make a redemption in any amount by sending a written request
to:

Back Bay Funds, Inc.
c/o Reich & Tang Funds
600 Fifth Avenue-8th Floor
New York, New York 10020

Telephone
- ---------

<PAGE>

798315.2

The Fund may accept telephone redemption instructions from any person with
respect to accounts of shareholders who elect this service, and thus
shareholders risk possible loss of dividends in the event of a telephone
redemption which was not authorized by them. Telephone requests to wire
redemption proceeds must be for amounts in excess of $10,000. The Fund will
employ reasonable procedures to confirm that telephone redemption instructions
are genuine, and will require that shareholders electing such option provide a
form of personal identification. The failure by the Fund to employ such
reasonable procedures may cause the Fund to be liable for any losses incurred by
investors due to telephone redemptions based upon unauthorized or fraudulent
instructions. The telephone redemption option may be modified or discontinued at
any time upon 60 days' written notice to shareholders.

Retirement Plans

The minimum initial investment for all such retirement plans is $1,000. The
minimum for all subsequent investments is $100.

Under the Internal Revenue Code of 1986, as amended (the "Code"), individuals
may make wholly or partly tax deductible IRA contributions of up to $2,000
annually (married individuals filing joint returns may each contribute up to
$2,000 ($4,000 in the aggregate) even where one spouse is not working if certain
conditions are met), depending on whether they are active participants in an
employer sponsored retirement plan and on their income level. Dividends and
distributions held in an IRA account are not taxed until withdrawn in accordance
with the provisions of the Code. Beginning January 1, 1998, investors satisfying
statutory income level requirements may make non-deductible contributions of up
to $2,000 annually to Roth IRA, distributions from a Roth IRA are not subject to
tax if a statutory five year holding period requirement is satisfied. Under
certain circumstances, individuals may establish education IRAs. Education IRAs
permit eligible individuals to contribute up to $500 per year per beneficiary
under 18 years old. Distributions from an education IRA are generally excluded
from income when used for qualified higher education expenses.

Investors should be aware that they may be subject to penalties or additional
tax on contributions or withdrawals from IRAs or other retirement plans which
are not permitted by the applicable provisions of the Code, and, prior to a
withdrawal, shareholders may be required to certify their age and awareness of
such restrictions in writing. Persons desiring information concerning
investments through IRAs or other retirement plans should write or telephone the
Distributor at 600 Fifth Avenue, New York, New York 10020, (212) 830-5200.

Net Asset Value

The Fund determines the net asset value of the shares of the Portfolio (computed
separately for each Class of shares) of the Portfolio as of 4:00 p.m., New York
city time, by dividing the value of each Fund's net assets (i.e., the value of
its securities and other assets less its liabilities, including expenses payable
or accrued but excluding capital stock and surplus) by the number of shares
outstanding of the Portfolio at the time the determination is made. The
Portfolio determines its net asset value on each Fund Business Day. Fund
Business Day for this purpose means any day on which the New York Stock Exchange
is open for trading. Purchases and redemptions will be effected at the time of
determination of net asset value next following the receipt of any purchase or
redemption order. The Portfolio may have portfolio securities that are primarily
listed on foreign exchanges that trade on weekdays or other days when the Fund
does not price its shares, and thus the Portfolio's shares may change on days
when Shareholders will not be able to purchase or redeem the Portfolio's Shares.

<PAGE>

798315.2

factors listed above. If a pricing service is not used, municipal obligations
will be valued at quoted prices provided by municipal bond dealers.
Non-tax-exempt securities for which transaction prices are readily available are
stated at market value (determined on the basis of the last reported sales
price, or a similar means). Short-term investments that will mature in 60 days
or less are stated at amortized cost, which approximates market value. All other
securities and assets are valued at their fair market value as determined in
good faith by the Board of Directors.

IX. TAXATION OF THE FUND

Federal Income Taxes

The Fund intends to cause the Portfolio to qualify and elect to be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). To qualify as a regulated investment company, the
Portfolio must distribute to shareholders at least 90% of its investment company
taxable income (which includes, among other items, taxable interest, dividends
and the excess of net short-term capital gains over net long-term capital
losses), and meet certain sources of income, diversification of assets and other
requirements of the Code. If the Portfolio meets these requirements and elects
to be treated as a regulated investment company, the Portfolio generally will
not be subject to Federal income tax on its investment company taxable income or
on its net capital gains (the excess of net long-term capital gains over net
short-term capital losses) designated by the Portfolio as capital gain dividends
and distributed to shareholders. If the Portfolio does not meet all of these
Code requirements, it will be taxed as an ordinary corporation and its
distributions will generally be taxed to shareholders as ordinary income. In
determining the amount of net capital gains to be distributed, any capital loss
carryover from prior years will be applied against capital gains to reduce the
amount to be distributed. In addition, any losses incurred in the taxable year
subsequent to October 31 will be deferred to the next taxable year and used to
reduce distributions in the subsequent year.

Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement may be subject to a nondeductible 4% excise tax. To
avoid the imposition of the excise tax, for each calendar year the Portfolio
must distribute for the calendar year an amount equal to the sum of (1) at least
98% of its ordinary income (excluding any capital gains or losses) for the
calendar year, (2) at least 98% of its capital gain net income (the excess of
its capital gains over capital losses, reduced by certain ordinary losses) for
the one-year period ending October 31 of such year, and (3) all ordinary income
and capital gain net income for previous years that were not distributed during
such years. A distribution will be treated as paid on December 31 of a calendar
year if it is declared by the Portfolio during October, November or December of
that year to shareholders of record on a date in such a month and paid during
January of the following year. Such distributions will be taxable to
shareholders in the calendar year in which the distributions are declared,
rather than the calendar year in which the distributions are received.

X. UNDERWRITERS

The Fund sells and redeems its shares on a continuing basis at their net asset
value and does not impose a sales charge. The Distributor does not receive an
underwriting commission. In effecting sales of Fund shares under the
Distribution Agreement, the Distributor, for nominal consideration (i.e., $1.00)
and as agent for the Fund, will solicit orders for the purchase of the Fund's
shares, provided that any subscriptions and orders will not be binding on the
Fund until accepted by the Fund as principal.

The Glass-Steagall Act and other applicable laws and regulations prohibit banks
and other depository institutions from engaging in the business of underwriting,
selling or distributing most types of securities. In the opinion of the Manager,
however, based on the advice of counsel, these laws and regulations do not
prohibit such depository institutions from providing other services for
investment companies such as the shareholder servicing and related
administrative functions referred to above. The Fund's Board of Directors will
consider appropriate modifications to the Fund's operations, including
discontinuance of any payments then being made under the Plan to banks and other
depository institutions, in the event of any future change in such laws or
regulations which may affect the ability of such institutions to provide the
above-mentioned services. It is not anticipated that the discontinuance of
payments to such an institution would result in loss to shareholders or change
in the Fund's net asset value. In addition, state securities laws on this issue
may differ from the interpretations of Federal law expressed herein and banks
and financial institutions may be required to register as dealers pursuant to
state law.

XI. CALCULATION OF PERFORMANCE DATA

Average annual total return is a measure of the average annual compounded rate
of return of $1,000,000 invested at the maximum public offering price over a
specified period, which assumes that any dividends or capital gains

<PAGE>

798315.2

distributions are automatically reinvested in the Portfolio rather than paid to
the investor in cash. Total return is calculated with the same assumptions and
shows the aggregate return on an investment over a specified period.

The formula for total return used by the Portfolio includes three steps: (1)
adding to the total number of shares purchased by the hypothetical investment in
the portfolio all additional shares that would have been purchased if all
dividends and distributions paid or distributed during the period had been
automatically reinvested; (2) calculating the value of the hypothetical initial
investments as of the end of the period by multiplying the total number of
shares owned at the end of the period by the net asset value per share on the
last trading day of the period; and (3) dividing this account value for the
hypothetical investor by the amount of the initial investment and annualizing
the result for periods of less than one year.

The Portfolio computes yield by annualizing net investment income in a
particular class per share for a recent 30-day period and dividing that amount
by a Portfolio's share's maximum public offering price (reduced by any
undeclared earned income expected to be paid shortly as a dividend) on the last
trading day of that period. The Portfolio's yield will vary from time to time
depending upon market conditions, the composition of the Portfolio and operating
expenses of the Portfolio.

Total return and yield may be stated with or without giving effect to any
expense limitations in effect for the Portfolio.

The Fund's Annual Report to shareholders will contain information regarding the
Fund's Performance and, when available, will be provided without charge, upon
request.

XII. FINANCIAL STATEMENTS

[The audited financial statements for the Fund for the fiscal year ended
November 30, 1998 and the report therein of McGladrey & Pullen, LLP are herein
incorporated by reference to the Fund's Annual Report. The Annual Report is
available upon request and without charge.]

<PAGE>

798315.2

DESCRIPTION OF RATINGS*

Moody's Investors Service, Inc. ("Moody's")

Aaa: Bonds which are rated Aaa are judged to be the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.

A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa: Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B: Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

Unrated: Where no rating has been assigned or where a rating has been suspended
or withdrawn, it may be for reasons unrelated to the quality of the issue.

Should no rating be assigned, the reason may be one of the following:

An application for rating was not received or accepted.

1. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy.

2. There is a lack of essential data pertaining to the issue or issuer.

3. The issue was privately placed, in which case the rating is not published in
Moody's publications.

Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.

Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa-1,
A-1, Baa-1 and B-1.

* As described by the rating agencies.

<PAGE>

798315.2

Standard & Poor's Rating Services, a division of the McGraw-Hill Companies
("S&P")

AAA: Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.

A: Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in the highest rated
categories.

BBB: Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.

BB, B, CCC, CC, C: Bonds rated BB, B, CCC, CC and C are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of this obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, they are
outweighed by large uncertainties of major risk exposures to adverse conditions.

C1: The rating C1 is reserved for income bonds on which no interest is being
paid.

D: Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.

Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.

Fitch Investors Service, Inc.

AAA: Securities in this category are considered to be investment grade and of
the highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.

AA: Securities in this category are considered to be investment grade and of
very high credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as securities rated
"AAA." As securities rated in the "AAA" and "AA" categories are not
significantly vulnerable to foreseeable future developments, short-term debt of
these issuers is generally rated "F-1+."

A: Securities in this category are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than securities with higher ratings.

BBB: Securities in this category are considered to be investment grade and of
satisfactory quality. The obligor's ability to pay interest and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore, impair timely payment.

BB: Securities are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified, which could
assist the obligor in satisfying its debt service requirements.

B: Securities are considered highly speculative. While securities in this class
are currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.

CCC: Securities have certain identifiable characteristics that, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

CC: Securities are minimally protected. Default in payment of interest and/or
principal seems probable over time.

<PAGE>

798315.2

C: Securities are in imminent default in payment of interest or principal.

DDD, DD, and D: Securities are in default on interest and/or principal payments.
Such securities are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the obligor.
"DDD" represents the highest potential for recovery on these securities, and "D"
represents the lowest potential for recovery.

Plus (+) or Minus (-): The ratings from AA to C (i.e. five categories below BBB)
may be modified by the addition of a plus or minus sign to indicate the relative
position of a credit within the rating category.

NR: Indicates that Fitch does not rate the specific issue.

Conditional: A conditional rating is premised on the successful completion of a
project or the occurrence of a specific event.

Duff & Phelps Credit Rating Co.

AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.

AA: High credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions.

A: Protection factors are average but adequate. However, risk factors are more
variable and greater in periods of economic stress.

BBB: Below-average protection factors but within the definition of investment
grade securities but still considered sufficient for prudent investment.
Considerable variability in risk during economic cycles.

BB+, BB, BB-: Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.

B+, B, B-: Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher or
lower rating grade.

CCC: Well below investment-grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.

DD: Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.

DP: Preferred stock with dividend arrearages.

798315.2

<PAGE>

PART C - OTHER INFORMATION
Item 23. Exhibits

* (a) Articles of Incorporation of the Registrant.

* (b) By-Laws of the Registrant.

(d) Form of Investment Management Contract between the
Registrant and Back Bay Advisors, L.P. (Filed as Exhibit (5)
to Pre-Effective Amendment No. 1 to the registration Statement
on December 11, 1997 and incorporated herein by reference).

(e) Form of Distribution Agreement (Filed as Exhibit (15.2) to
Pre-Effective Amendment No. 1 to the registration Statement on
December 11, 1997 and incorporated herein by reference).

(f) Not applicable.

(g) Form of Custody Agreement between the Registrant and
Investors Fiduciary Trust Company. (Filed as Exhibit (8) to
Pre-Effective Amendment No. 1 to the registration Statement on
December 11, 1997 and incorporated herein by reference).

(h) Form of Administrative Services Agreement between the
Registrant and Reich & Tang Asset Management L.P. (Filed as
Exhibit (9.11) to Pre-Effective Amendment No. 1 to the
registration Statement on December 11, 1997 and incorporated
herein by reference).

(i) Opinion of Messrs. Battle Fowler LLP and Consent as to the
use of their name under the headings "Federal Income Taxes" in
the Prospectus and "Counsel and Auditors" in the Statement of
Additional Information. (Filed as Exhibit (10) to
Pre-Effective Amendment No. 1 to the registration Statement on
December 11, 1997 and incorporated herein by reference).

(j) Consent of Independent Auditors.

(k) Audited Financial Statements for the fiscal year ended
November 30, 1998 (filed with the annual report) and
incorporated herein by reference).

(l) Written assurance of New England Investment Companies,
L.P. that its purchase of shares of the Registrant was for
investment purposes without any present intention of redeeming
or reselling. (Filed as Exhibit (13) to Pre-Effective
Amendment No. 1 to the registration Statement on December 11,
1997 and incorporated herein by reference).

(m) Form of Distribution and Service Plan pursuant to Rule
12b-1 under the Investment Company Act of 1940. (Filed as
Exhibit (15.1) to Pre-Effective Amendment No. 1 to the
registration Statement on December 11, 1997 and incorporated
herein by reference).

(m.1) Form of Distribution Agreement between the Registrant
and Reich & Tang Distributors L.P. (Filed as Exhibit (15.2) to
Pre-Effective Amendment No. 1 to the registration Statement on
December 11, 1997 and incorporated herein by reference).

(m.2) Form of Shareholder Servicing Agreements (with respect
to Class B and C only) between the Registrant and Reich & Tang
Distributors L.P. (Filed as Exhibit (15.3) to Pre-Effective
Amendment No. 1 to the registration Statement on December 11,
1997 and incorporated herein by reference).

(n) Financial Data Schedule (For EDGAR Filing Only)

(o) 18f-3 Multi-Class Plan. (Filed as Exhibit (1) to
Pre-Effective Amendment No. 18 to the registration Statement
on December 11, 1997 and incorporated herein by reference).

(p) Powers of Attorney. (Filed as Exhibit (16) to
Pre-Effective Amendment No. 1 to the registration Statement on
December 11, 1997 and incorporated herein by reference).

C-1

* Filed with Registration Statement No. 333-33831 on August 18, 1997, and
incorporated by reference herein.

<PAGE>

Item 24. Persons controlled by or Under Common Control with Registrant.

None.

Item 25. Indemnification.

The registrant incorporates by reference the response to Item 25
of Part II of the Registrants Registration Statement on Form N-1A filed with the
Commission on December 11, 1997.

Item 26. Business and Other Connections of Investment Adviser.

The description of the Back Bay Advisors, L.P. ("BBALLP") under
the caption "Management of the Fund" in the Statement of Additional Information
constituting part B of the Registration Statement is incorporated herein by
reference.

The Manager is a Delaware limited partnership and a registered investment
adviser under the 1940 Act, with its principal office at 399 Boylston Street,
Boston, Massachusetts 02116-3310. The Manager provides discretionary investment
management services to mutual funds and other institutional investors. Formed in
1986, the Manager now manages 14 mutual fund portfolios and as of June 30, 1997,
was investment manager, adviser or supervisor with respect to assets aggregating
in excess of $7 billion, primarily mutual fund and institutional fixed-income
portfolios. Ms. Catherine L. Bunting and Mr. Peter W. Palfrey are primarily
responsible for the day-to-day investment management of the Portfolio. Ms.
Bunting has served as Senior Vice President of the Manager since 1988. Mr.
Palfrey has served as Vice President of the Manager since 1993. Prior to 1993,
Mr. Palfrey was employed by Mutual of New York Capital Management as a Vice
President.

Peter S. Voss, President, Chief Executive Officer and a Director of NVEST
Corporation (formerly New England Investment Companies, Inc.) since October
1992, Chairman of the Board of NVEST Corporation since December 1992, Group
Executive Vice President, Bank of America, responsible for the global asset
management private banking businesses, from April 1992 to October 1992,
Executive Vice President of Security Pacific Bank, and Chief Executive Officer
of Security Pacific Hoare Govett Companies, a wholly owned subsidiary of
Security Pacific Corporation, from April 1988 to April 1992, Director of The New
England since March 1993, Chairman of the Board of Directors of NVEST
Corporation's subsidiaries other than Loomis, Sayles & Company, Incorporated
("Loomis") and Back Bay Advisors, Inc. ("Back Bay"), where he serves as a
Director, and Chairman of the Board of Trustees of all of the mutual funds in
the TNE Fund Group and the Zenith Funds. G. Neal Ryland, Executive Vice
President, Treasurer and Chief Financial Officer NVEST Corporation since July
1993, Executive Vice President and Chief Financial Officer of The Boston
Company, a diversified financial services company, from March 1989 until July
1993; from September 1985 to December 1988, Mr. Ryland was employed by Kenner
Parker Toys, Inc. as Senior Vice President and Chief Financial Officer. Edward
N. Wadsworth, Executive Vice President, General Counsel, Clerk and Secretary of
NVEST Corporation since December 1989, Senior Vice President and Associate
General Counsel of The New England from 1984 until December 1992, and Secretary
of Westpeak and Draycott and the Treasurer of NVEST Corporation. During the past
two fiscal years, Charles T. Wallis has served as President and Chief Executive
Officer of the Manager and a Director for NEF Corporation. Charles G. Glueck has
served as Senior Vice President of the Manager. Scott A. Milliment has served as
Executive Vice President of the Manager and also as Senior Vice President and
manager of Carroll, McEntee & McGinley which is located at Chicago Board of
Trade, 141 West Jackson Boulevard, Chicago, IL 60634. Edgar M. Reed has served
as Executive Vice President and Chief Investment Officer of the Manager and also
as head of the Fixed Income Management Group at Aetna Capital Management, 151
Farmington Avenue, Hartford, CT 06156. J. Scott Nicholson has served as Senior
Vice President of the Manager. Catherine Bunting has served as Senior Vice
President of the Manager. Nathan R. Wentworth, Peter Palfrey, Harold B. Bjornson
and Eric Gutterson have all served as Vice President of the Manager. Paul
Zamagni has served as Vice President and Treasurer of the Manager. Peter Hanson
has served as Secretary and Clerk of the Manager.

C-2

<PAGE>

Item 27. Principal Underwriters.

(a) Reich & Tang Distributors, Inc., the Registrant's Distributor is
also distributor for California Daily Tax Free Income Fund, Inc., Connecticut
Daily Tax Free Income Fund, Inc., Cortland Trust, Inc., Daily Tax Free Income
Fund, Inc., Delafield Fund, Inc., Florida Daily Municipal Income Fund, Georgia
Daily Municipal Income Fund, Inc., Institutional Daily Income Fund, Michigan
Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc.,
New York Daily Tax Free Income Fund, Inc., North Carolina Daily Municipal
Income, Inc., Pax World Money Market Fund, Inc., Pennsylvania Daily Municipal
Income Fund, Reich & Tang Equity Fund, Inc., Short Term Income Fund, Inc., Tax
Exempt Proceeds Fund, Inc. and Virginia Daily Municipal Income Fund, Inc.

(b) The following are the directors and officers of Reich & Tang Asset
Distributors, Inc. The principal business address of Messrs. Voss, Ryland, and
Wadsworth is 399 Boylston Street, Boston, Massachusetts 02116. For all other
persons the principal address is 600 Fifth Avenue, New York, New York 10020.

Positions and Offices
With the General Partner Positions and Offices
Name of the Distributor With Registrant
- -----------------------------------------------------------------------------

<S> <C> <C>
Peter S. Voss Director None
G. Neal Ryland Director None
Edward N. Wadsworth Executive Officer None
Richard E. Smith III President & Director None
Steven W. Duff Director President and Director
Bernadette N. Finn Vice President Secretary
Lorraine C. Hysler Secretary None
Richard De Sanctis Vice President and Treasurer Treasurer
Richard I. Weiner Vice President None
Peter DeMarco Executive Vice President None

</TABLE>

Item 28. Location of Accounts and Records.

Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained in the physical possession of Registrant at Back Bay
Advisors, L.P., 399 Boylston Street, Boston, Massachusetts 02116-3310, the
Registrant's Manager; Reich & Tang Services, Inc., 600 Fifth Avenue, New York,
New York, the Registrant's transfer agent and dividend agent; and at Investors
Fiduciary Trust Company, 801 Pennsylvania, Kansas City, Missouri 64105, the
Registrant's custodian.

Item 29. Management Services.

Not Applicable.

Item 30. Undertakings.

Not applicable.

C-3

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement under Rule 485(a) of the Securities Act of 1933 and has
duly caused this Post-Effective Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, and State of New York, on the 29th day of January, 1999

BACK BAY FUNDS, INC.

By:/s/ Bernadette N. Finn
----------------------
Bernadette N. Finn, Secretary

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to the Registration Statement has been signed
below by the following persons in the capacities and on the date indicated
below.

Signature Title Date

<S> <C> <C>
(1) Principal Executive Officer: Chairman and President January 29, 1999
Edgar M. Reed

By: /s/ Bernadette N. Finn
-----------------------
Bernadette N. Finn
Attorney-in-Fact*

(2) Principal Financial and Treasurer January 29, 1999
Accounting Officer

By: /s/ Richard De Sanctis
----------------------
Richard De Sanctis

(3) Majority of Directors

Edgar M. Reed Director January 29, 1999
W. Giles Mellon Director
Yung Wong Director
Robert Straniere Director

By: /s/ Bernadette N. Finn
----------------------
Bernadette N. Finn
Attorney-in-Fact*

</TABLE>

- ------------------
*
Powers of Attorney, filed as Exhibit (16) with Pre-Effective Amendment No. 1 to
the Registration Statement on December 11, 1997 and incorporated herein by
reference.

EXHIBIT J

McGLADREY & PULLEN L.L.P.
Certified Public Accountants & Consultants

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the use of our report dated December 28, 1998, on the
financial statements referred to therein in Post-Effective Amendment No. 1 on
Form N-1A File No. 333-33831, as filed with the Securities and Exchange
Commission.

We also consent to the reference to our Firm in the Statement of Additional
Information under the captions "Counsel and Auditors" and "Financial
Statements."

/s/McGLADREY & PULLEN, LLP
McGladrey & Pullen, LLP

New York, New York
January 27, 1999

<ARTICLE> 6
<LEGEND> The schedule contains summary financial information
extracted from the financial statements and supporting
schedules as of the end of the most current period and is
qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0001043342
<NAME> Back Bay Funds, Inc. - Total Return Bond Fund
<SERIES>
<NUMBER> 1
<NAME> Class A

<S> <C>
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> NOV-30-1998
<PERIOD-TYPE> 12-MOS
<INVESTMENTS-AT-COST> 39939464
<INVESTMENTS-AT-VALUE> 40444627
<RECEIVABLES> 2534508
<ASSETS-OTHER> 935
<OTHER-ITEMS-ASSETS> 37613
<TOTAL-ASSETS> 43017683
<PAYABLE-FOR-SECURITIES> 1783295
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 131347
<TOTAL-LIABILITIES> 1914642
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 39949209
<SHARES-COMMON-STOCK> 3983427
<SHARES-COMMON-PRIOR> 10200
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 649056
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 504776
<NET-ASSETS> 41103041
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1781376
<OTHER-INCOME> 0
<EXPENSES-NET> 107317
<NET-INVESTMENT-INCOME> 1674059
<REALIZED-GAINS-CURRENT> 649056
<APPREC-INCREASE-CURRENT> 504776
<NET-CHANGE-FROM-OPS> 2827891
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1674059
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 47413044
<NUMBER-OF-SHARES-REDEEMED> 8964598
<SHARES-REINVESTED> 1398763
<NET-CHANGE-IN-ASSETS> 41001041
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 94245
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 361287
<AVERAGE-NET-ASSETS> 29383446
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .59
<PER-SHARE-GAIN-APPREC> .32
<PER-SHARE-DIVIDEND> .59
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.32
<EXPENSE-RATIO> .41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<S> <C>
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> NOV-30-1998
<PERIOD-TYPE> 12-MOS
<INVESTMENTS-AT-COST> 39939464
<INVESTMENTS-AT-VALUE> 40444627
<RECEIVABLES> 2534508
<ASSETS-OTHER> 935
<OTHER-ITEMS-ASSETS> 37613
<TOTAL-ASSETS> 43017683
<PAYABLE-FOR-SECURITIES> 1783295
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 131347
<TOTAL-LIABILITIES> 1914642
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 39949209
<SHARES-COMMON-STOCK> 3983427
<SHARES-COMMON-PRIOR> 10200
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 649056
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 504776
<NET-ASSETS> 41103041
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1781376
<OTHER-INCOME> 0
<EXPENSES-NET> 107317
<NET-INVESTMENT-INCOME> 1674059
<REALIZED-GAINS-CURRENT> 649056
<APPREC-INCREASE-CURRENT> 504776
<NET-CHANGE-FROM-OPS> 2827891
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1674059
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 47413044
<NUMBER-OF-SHARES-REDEEMED> 8964598
<SHARES-REINVESTED> 1398763
<NET-CHANGE-IN-ASSETS> 41001041
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 94245
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 361287
<AVERAGE-NET-ASSETS> 29383446
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .56
<PER-SHARE-GAIN-APPREC> .32
<PER-SHARE-DIVIDEND> .56
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.32
<EXPENSE-RATIO> .72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<S> <C>
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> NOV-30-1998
<PERIOD-TYPE> 12-MOS
<INVESTMENTS-AT-COST> 39939464
<INVESTMENTS-AT-VALUE> 40444627
<RECEIVABLES> 2534508
<ASSETS-OTHER> 935
<OTHER-ITEMS-ASSETS> 37613
<TOTAL-ASSETS> 43017683
<PAYABLE-FOR-SECURITIES> 1783295
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 131347
<TOTAL-LIABILITIES> 1914642
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 39949209
<SHARES-COMMON-STOCK> 3983427
<SHARES-COMMON-PRIOR> 10200
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 649056
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 504776
<NET-ASSETS> 41103041
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1781376
<OTHER-INCOME> 0
<EXPENSES-NET> 107317
<NET-INVESTMENT-INCOME> 1674059
<REALIZED-GAINS-CURRENT> 649056
<APPREC-INCREASE-CURRENT> 504776
<NET-CHANGE-FROM-OPS> 2827891
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1674059
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 47413044
<NUMBER-OF-SHARES-REDEEMED> 8964598
<SHARES-REINVESTED> 1398763
<NET-CHANGE-IN-ASSETS> 41001041
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 94245
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 361287
<AVERAGE-NET-ASSETS> 29383446
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .56
<PER-SHARE-GAIN-APPREC> .32
<PER-SHARE-DIVIDEND> .56
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.32
<EXPENSE-RATIO> .72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>