<PAGE>
- --------------------------------------------------------------------------------
600 FIFTH AVENUE
BACK BAY FUNDS, INC. NEW YORK, NY 10020
(212) 830-5220
================================================================================
Dear Shareholder:
With U.S. GDP growth on track to post an 'above trend" 4% pace through the first
part of 1999 (spurred by continued strong consumer spending, as well as from
rebounding US and global manufacturing activity), investors backed away from the
fixed income market, pushing Treasury yields another 35-55 basis points higher
across the yield curve by the end of the second quarter. Year-to-date, Treasury
yields have risen by 88-110 basis points, with the worst damage occurring in
intermediate maturities. By late June (but before the FOMC meeting), investors
had priced into the market as many as three 25 basis point Fed tightenings by
the end of 1999. Uncertainty in the Treasury market flowed over in to the spread
market, pushing swap spreads back towards the wides of last fall. This, combined
with record new issuance supply in the agency, mortgage, corporate and yankee
sectors thus far this year, caused non-Treasury spreads to widen sharply in May
and June, exacerbating the negative performance in these sectors during the
second quarter. However, investors got some modest relief from the Federal
Reserve at the June FOMC meeting when the Fed chose to raise the Fed Funds rate
by (the widely anticipated) 25 basis points, but to switch from a tightening
bias to an asymmetric bias - indicating that the Federal Reserve intends to take
a more "gradualist" approach to monetary policy, so long as inflation remains
benign.
On a duration-neutral basis, corporates and mortgages underperformed Treasuries
by 27 basis points in the second quarter, while Agencies underperformed by only
5 basis points. However, on an absolute (non-duration adjusted) basis,
corporates significantly underperformed all other broad fixed income sectors due
to their longer relative duration, with industrials performing worst among the
corporate sectors and single "A" securities performing worst among the different
quality sectors. Yankee securities, and in particular, Asian Yankees, and
financial service companies were among the best performing investment grade
corporate bond sectors. "BB" rated higher yield securities held in relatively
better than their investment grade counterparts, but significantly
underperformed lower quality (single "B" and below) high yield securities. The
emerging market sector also performed very well, despite a sharp down draft in
May, extending its YTD gains.
The portfolio underperformed the benchmark index during the second quarter due
to its longer than index duration and its greater than market exposure to
corporate spread product. In particular, its exposure to long duration telecom,
cable and media holdings, as well as certain longer-dated industrial credits
(sectors which performed very strongly during the first quarter), hurt the
relative performance of the portfolio as the liquidity and supply-related
widening in credit spreads exacerbated the adverse price performance from the
back-up in Treasury rates. In contrast, our exposure to certain Asian Yankees as
well as to lower grade, more cyclical credits (including energy, manufacturing
and forest products companies) helped the portfolio's relative performance
during the quarter as general economic conditions in the US and overseas
improved. In addition, our allocation to Canadian pay securities contributed to
our overall performance due to the 3% appreciation of the currency on the
quarter and the superior spread performance versus U.S. Treasury over the
period. The portfolio's maturity structure is relatively barbelled, with an
underweight position in short-to-intermediate securities and an overweight
position in spread product maturing beyond 7 years. This reflects our belief
that the interest rates are likely to be range bound over the next several
months, and that spread product supply will diminish in the fourth quarter. We
expect this to create a favorable backdrop for spread product performance during
the second half of the year.
Sincerely,
\s\Edgar M. Reed
Edgar M. Reed
Executive Vice President and Chief Investment Officer
Back Bay Advisors, L.P.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
BACK BAY FUNDS, INC.
TOTAL RETURN BOND FUND
STATEMENT OF INVESTMENTS
MAY 31, 1999
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Face Value
Amount* (Note 1)
------- ------
Foreign Non-Convertible Corporate Bonds (28.97%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cable/Media (1.43%)
Multicanal, SA, 13.125%, 04/15/09 700,000 $ 661,500
-----------
Finance & Banking (6.21%)
Merita Bank, 7.500%, due 12/29/49 1,000,000 988,217
Merita Bank, 7.150%, due 12/29/49 800,000 760,000
PDVSA Finance, 8.750%, due 02/15/04 750,000 755,625
PDVSA Finance, 6.650%, due 02/15/06 420,000 367,500
-----------
2,871,342
-----------
Forest Products (2.59%)
Abitibi Consolidated, 6.950%, due 04/01/08 1,000,000 963,750
Abitibi Consolidated, 7.500%, due 04/01/28 250,000 235,313
-----------
1,199,063
-----------
Government (17.38%)
Endesa Chile, 8.500%, due 04/01/09 890,000 894,450
Government of Canada, 7.500%, due 12/01/03 1,096,000 CAD 804,737
Government of Canada, 10.250%, due 03/15/14 1,200,000 CAD 1,201,424
Gulf of Canada, 8.375%, due 11/15/05 350,000 352,188
Gulf of Canada, 8.350%, due 08/01/06 225,000 225,281
Malaysia, 8.750%, due 06/01/09 500,000 504,940
Providence of Ontario, 4.875%, due 06/02/04 1,237,000 CAD 811,925
Republic of Argentina - Warrants, 0.000%, due 12/03/99 500 4,562
Republic of Argentina - Warrants, 0.000%, due 02/25/00 355 2,529
Republic of Columbia, 7.625%, due 02/15/07 1,225,000 927,937
Republic of Korea - Global Notes, 8.875%, due 04/15/08 785,000 824,250
Republic of Panama, 8.875%, due 09/30/27 985,000 856,950
Republic of Panama, 9.375%, due 04/01/29 175,000 172,156
YPF Sociedad Anonima, 9.125%, due 02/24/09 435,000 455,663
-----------
8,038,992
-----------
Oil & Gas Production (1.36%)
Petro Mexicano (Pemex), 9.150%, due 11/15/18 150,000 145,313
Petro Mexicano (Pemex), 9.500%, due 09/15/27 520,000 483,600
-----------
628,913
-----------
Total Foreign Non-Convertible Corporate Bonds (Cost $13,687,382) $13,399,810
-----------
</TABLE>
- --------------------------------------------------------------------------------
See Notes To Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
<TABLE>
<CAPTION>
Face Value
Amount* (Note 1)
------- ------
Domestic Non-Convertible Corporate Bonds (53.09%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Banking (7.20%)
Bankers Trust Preferred Capital Trust II, 7.875%, due 02/25/27 1,000,000 $ 988,750
Lehman Brothers Holding, 6.125%, due 07/15/03 500,000 485,625
Mellon Capital I, 7.720%, due 12/01/26 1,000,000 998,750
Paine Webber Group, 6.375%, due 05/15/04 350,000 343,438
State Street Institution Trust, 7.940%, due 12/30/26 500,000 515,000
-----------
3,331,563
-----------
Cable/Media (7.64%)
Cablevision Systems Corporation, 7.875%, due 12/15/07 800,000 823,000
Cablevision Systems Corporation, 7.875%, due 02/15/18 300,000 303,000
Comcast Cable Communications, 9.125%, due 10/15/06 490,000 524,912
Comcast Cable Communications, 9.500%, due 05/01/07 1,000,000 1,121,250
Comcast Cable Communications, 8.875%, due 05/01/17 650,000 760,500
-----------
3,532,662
-----------
Electric Utilities (10.44%)
Arizona Public Service (PVNGS II), 8.000%, due 12/30/15 600,000 641,250
Calenergy Co Inc., 7.230%, due 09/15/05 800,000 810,000
Calenergy Co Inc., 7.630%, due 10/15/07 400,000 411,500
Calenergy Co Inc., 7.520%, due 09/15/08 400,000 409,000
Cleveland Electric (Beaver Valley), 9.000%, due 06/01/17 750,000 832,500
CE Generating (Project Finance 144A), 7.416%, due 12/15/18 150,000 147,829
East Coast Power, 7.066%, due 03/11/12 500,000 480,000
East Coast Power, 7.536%, due 06/30/17 170,000 164,050
Texas Utility Electric Capital Trust Prefund, 8.175%, due 01/30/37 900,000 931,500
-----------
4,827,629
-----------
Industrial (10.60%)
American Standard, 7.375%, due 04/15/05 445,000 429,425
Aramark, 7.000%, due 07/15/06 475,000 468,469
Federated Department Stores, 6.790%, due 07/15/27 365,000 368,194
Ford Holdings, Inc., 9.300%, due 03/01/30 900,000 1,113,750
Ford Motor Company, 8.900%, due 01/15/32 200,000 238,750
Great Atlantic & Pacific Tea Company, 7.750, due 04/15/07 835,000 819,344
J.C. Penney Co., Inc., 9.750%, due 06/15/21 280,000 306,250
Norfolk Southern Corporation, 7.050%, due 05/01/37 900,000 914,625
Union Pacific Resources, 7.950%, due 04/15/29 245,000 242,550
-----------
4,901,357
-----------
</TABLE>
- --------------------------------------------------------------------------------
See Notes To Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
BACK BAY FUNDS, INC.
TOTAL RETURN BOND FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MAY 31, 1999
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Face Value
Amount* (Note 1)
------- ------
Domestic Non-Convertible Corporate Bonds (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Manufacturing (Containers) (2.35%)
Owens Illinois, 7.800%, due 05/15/18 1,150,000 $ 1,088,187
-----------
Media/Entertainment (6.61%)
News America, 10.125%, due 10/15/12 600,000 674,250
News America, 8.000%, due 10/17/16 1,150,000 1,203,188
Time Warner, 9.125%, due 01/15/13 1,000,000 1,180,000
-----------
3,057,438
-----------
Telephone (8.25%)
AT&T Corporation, 8.625%, due 12/01/31 300,000 325,875
KPN Qwest, 8.125%, due 06/01/09 785,000 780,094
MCI Communications Corporation, 7.125%, due 06/15/27 1,970,000 2,004,475
SK Telecom, 7.750%, due 04/29/04 180,000 174,825
Sprint, 6.900%, due 05/01/19 550,000 527,313
-----------
3,812,582
-----------
Total Domestic Non-Convertible Corporate Bonds (Cost $25,123,566) $24,551,418
-----------
<CAPTION>
U.S. Government Agencies (13.13%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Federal Home Loan Mortgage Corporation, 5.000%, 01/15/04 1,280,000 1,221,594
Federal National Mortgage Association, 6.000%, 05/15/08 1,000,000 985,000
Federal National Mortgage Association, 7.000%, 10/01/28 870,390 870,929
Government National Mortgage Association, 8.000%, 09/15/26 680,281 706,853
Government National Mortgage Association, 7.500%, 12/15/27 660,516 675,378
Government National Mortgage Association, 7.000%, 05/15/28 619,565 619,565
Government National Mortgage Association, 7.000%, 06/15/28 441,159 441,159
Government National Mortgage Association, 6.500%, 10/15/28 563,642 549,725
-----------
Total U.S. Government Agencies (Cost $ 6,218,853) $ 6,070,203
-----------
<CAPTION>
U.S. Government Obligations (6.19%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Note, 5.250%, 08/15/03 1,650,000 1,623,699
U.S. Treasury Note, 6.500%, 08/15/05 386,000 400,112
U.S. Treasury Note, 4.750%, 11/15/08 900,000 837,279
-----------
Total U.S. Government Obligations (Cost $ 2,923,038) $ 2,861,090
-----------
</TABLE>
- --------------------------------------------------------------------------------
See Notes To Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
<TABLE>
<CAPTION>
Face Value
Amount* (Note 1)
------- ------
Short-Term Investments (3.76%)
Commercial Paper (3.76%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
American Express Corporation, 4.650%, 06/1/99 1,741,000 $ 1,741,000
------------
Total Short Term Investments (Cost $1,741,000) $ 1,741,000
------------
Total Investments (105.14%) (Cost $49,693,839+) 48,623,521
Liabilities In Excess of Cash and Other Assets (-5.14%) ( 2,376,770)
------------
Net Assets (100.00%) $ 46,246,751
============
+ Aggregate cost for federal income tax purposes is identical.
Aggregate unrealized appreciation and depreciation, based on cost for
federal income tax purposes, are $258,412 and $1,328,730 respectively.
* Securities denominated in U.S. dollars unless otherwise indicated.
CURRENCY ABBREVIATIONS:
CAD-Canada
</TABLE>
- --------------------------------------------------------------------------------
See Notes To Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
BACK BAY FUNDS, INC.
TOTAL RETURN BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1999
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments in securities at value (Cost $49,693,839)................................. $ 48,623,521
Receivables:
Securities sold................................................................... 1,938,985
Dividends and interest............................................................ 790,843
Due from Manager...................................................................... 32,474
Deferred organization expenses........................................................ 32,994
--------------
Total assets................................................................ 51,418,817
--------------
<CAPTION>
LIABILITIES
<S> <C>
Payables:
Due to Custodian.................................................................. 2,334,947
Securities purchased.............................................................. 2,740,656
Dividends......................................................................... 41,582
Accrued expenses and other liabilities................................................ 54,881
--------------
Total liabilities........................................................... 5,172,066
--------------
Net Assets............................................................................ $ 46,246,751
==============
Net asset value, offering and redemption price per share:
Class A shares, 4,735,914 shares outstanding.......................................... $ 9.76
==============
Class B shares, 104 shares outstanding.......................................... $ 9.76
==============
Class C shares, 104 shares outstanding.......................................... $ 9.76
==============
</TABLE>
- --------------------------------------------------------------------------------
See Notes To Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
BACK BAY FUNDS, INC.
TOTAL RETURN BOND FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1999
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C>
Income:
Interest.......................................................................... $ 1,558,155
---------------
Expenses: (Note 2)
Investment management fee......................................................... 82,379
Administration fee................................................................ 48,000
Shareholder servicing fee (Class B)............................................... 1
Shareholder servicing fee (Class C)............................................... 1
Custodian expenses................................................................ 8,386
Shareholder servicing and related shareholder expenses............................ 13,905
Legal, compliance and filing fees................................................. 50,422
Audit and accounting.............................................................. 11,000
Directors' fees................................................................... 3,025
Amortization of organization costs................................................ 4,619
Miscellaneous..................................................................... 1,304
---------------
Total expenses................................................................. 223,042
Less:
Expenses paid indirectly................................................ ( 44)
Fees waived and expenses reimbursed..................................... ( 128,876)
---------------
Net expenses................................................................... 94,122
---------------
Net investment income................................................................ 1,464,033
---------------
<CAPTION>
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
<S> <C>
Net realized gain (loss) on investments.............................................. ( 261,842)
---------------
Net unrealized appreciation (depreciation) on:
Investments....................................................................... ( 1,575,481)
Translation of assets and liabilities denominated in foreign currencies........... 1,468
---------------
Net unrealized appreciation (depreciation)........................................... ( 1,574,013)
---------------
Net realized and unrealized gain.................................................. ( 1,835,855)
---------------
Net decrease in net assets resulting from operations................................. $( 371,822)
===============
</TABLE>
- --------------------------------------------------------------------------------
See Notes To Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
BACK BAY FUNDS, INC.
TOTAL RETURN BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
Six Months
Ended December 22, 1997
May 31, 1999 (Commencement of Sales)
(Unaudited) to November 30, 1998
--------- --------------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C>
Operations:
Net investment income................................... $ 1,464,033 $ 1,674,059
Net realized gain....................................... ( 261,842) 649,056
Net unrealized appreciation (depreciation).............. ( 1,574,013) 504,776
--------------- --------------
Increase (decrease) in net assets from operations....... ( 371,822) 2,827,891
Dividends to shareholders from:
Net investment income:
Class A.............................................. ( 1,463,971) ( 1,673,943)
Class B.............................................. ( 31) ( 58)
Class C.............................................. ( 31) ( 58)
Distributions to shareholders from:
Net realized gain (loss) on investments:
Class A.............................................. ( 649,243) -0-
Class B.............................................. ( 17) -0-
Class C.............................................. ( 17) -0-
Capital share transactions (Note 3)
Class A.............................................. 7,628,842 39,847,135
Class B.............................................. -0- 37
Class C.............................................. -0- 37
--------------- --------------
Total increase (decrease)............................... 5,143,710 41,001,041
Net assets:
Beginning of period..................................... 41,103,041 102,000
--------------- --------------
End of period........................................... $ 46,246,751 $ 41,103,041
=============== ==============
</TABLE>
- --------------------------------------------------------------------------------
See Notes To Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
BACK BAY FUNDS, INC.
TOTAL RETURN BOND FUND
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
1. Summary of Accounting Policies.
Back Bay Funds, Inc. (the "Fund") is an open-end, diversified management
investment company currently comprised of the Total Return Bond Fund (the
"Portfolio"). The Portfolio's investment objective is to seek to maximize total
return by investing primarily in higher quality, fixed and floating-rate debt
instruments. The generation of income is a secondary objective. The Portfolio
has three classes of stock authorized, Class A, Class B and Class C. The Class A
shares of the Portfolio are available to corporate, institutional and individual
investors ("Institutional Investors") and either are sold directly to
Institutional Investors or are sold through financial intermediaries that do not
receive compensation from the Manager or Distributor. The Class B shares of the
Portfolio are subject to a service fee pursuant to the Portfolio"s Rule 12b-1
Distribution and Service Plan and are sold through financial intermediaries who
provide servicing to Class B shareholders for which they receive compensation
from the Manager or the Distributor. The Class C shares of the Portfolio are
available to qualified retirement plan clients of life insurance companies
("Insurance Company Investors") and, as are the Class B shares, the Class C
shares are subject to a service fee pursuant to the Portfolio's 12b-1 Plan and
either are sold directly to Insurance Company Investors or are sold through
financial intermediaries who provide servicing to Class C shareholders for which
they receive compensation from the Manager or Distributor. Unlike the Class B
and Class C shares, the Class A shares are not subject to a service fee. In all
other respects, the Class A, Class B and Class C shares represent the same
interest in the income and assets of the Portfolio.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles for investment companies as follows:
a) Valuation of Securities -
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). All other securities for which market prices are not
readily available 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 most likely on the
basis of the factors listed above. 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.
b) Foreign Currency Translation -
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollars based on the exchange
rate of such currencies against U.S. dollars on the date of valuation.
Purchases and sales of securities and income items denominated in foreign
currencies are translated into U.S. dollars at the exchange rate in effect
on the transaction date. When the Portfolio purchases or sells foreign
securities it will customarily enter into a foreign exchange contract to
minimize foreign exchange risk from the trade date to the settlement date
of such transactions.
The Fund does not separately report the effect of changes in foreign
exchange rates from changes in market prices on securities held. Such
changes are included in net realized and unrealized gain or loss from
investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
recorded amounts of interest, and foreign withholding taxes, and the U.S.
dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in foreign exchange
rates of foreign currency denominated assets and liabilities other than
investments in securities held at the end of the reporting period.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
BACK BAY FUNDS, INC.
TOTAL RETURN BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
================================================================================
1. Summary of Accounting Policies. (Continued)
c) Federal Income Taxes -
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
all of its taxable income to its shareholders. Therefore, no provision for
federal income tax is required.
d) Dividends and Distributions -
Dividends from investment income are declared daily and paid monthly.
Capital gains distributions if any, will be made at least annually and in
no event later than sixty days after the end of the Fund's fiscal year.
e) Organization Costs -
Organization expenses are being deferred and amortized on a staight line
basis over a period of five years from the Fund's commencement of
operations. The proceeds of any redemptions by the original shareholder of
the initial shares will be reduced by a pro rata portion of any then
unamortized organizational expenses, based on the ratio of the shares
redeemed to the total initial shares outstanding immediately prior to the
redemption.
f) Use of Estimates -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results
could differ from those estimates.
g) General -
Securities transactions are recorded on a trade date basis. Interest income
is accrued as earned. Realized gains and losses from securities
transactions are recorded on the identified cost basis. Discounts and
premiums on securities purchased are amortized using the effective interest
method over their respective lives. It is the Fund's policy to take
possession of securities as collateral under repurchase agreements and to
determine in a daily basis that the value of such securities are sufficient
to cover the value of the repurchase agreements.
2. Investment Management Fees and Other Transactions with Affiliates.
Under the Investment Management Contract, the Portfolio pays an investment
management fee to Back Bay Advisors, L.P. (the "Manager") equal to .35% of the
Portfolio's average daily net assets.
Pursuant to an Administrative Services Agreement, the Portfolio pays to Reich &
Tang Asset Management L.P. (the "Administrator") an annual fee equal to .15% of
the Portfolio's average 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.
Pursuant to a Distribution and Service Plan adopted under Securities and
Exchange Commission Rule 12b-1, the Portfolio and Reich & Tang Distributors,
Inc. (the "Distributor") have entered into a Shareholder Servicing Agreement
(with respect to the Class B and Class C shares of the Fund only). For its
services under the Shareholder Servicing Agreement, the Distributor receives
from the Portfolio with respect only to Class B and Class C shares, a service
fee equal to .25% per annum of the average daily net assets.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
2. Investment Management Fees and Other Transactions with Affiliates.
(Continued)
The Manager and the Administrator at their discretion may voluntarily waive all
or a portion of the Management Fees and Administration Fees and to voluntarily
reimburse the Portfolio's other operating expenses to the extent necessary to
maintain the Total Portfolio Operating Expenses at not more than .40%, .65% and
.80% of the Portfolio's average net assets with respect to the Class A, B and C
shares, respectively.
During the period ended May 31, 1999, the Manager and the Distributor
voluntarily waived investment management fees and Shareholder servicing fees of
$82,379 and $2, respectively, and reimbursed other operating expenses of
$46,495.
Fees are paid to Directors who are unaffiliated with the Manager on the basis of
$1,000 per annum plus $250 per meeting attended.
Included in the statement of operations under the caption "Custodian expenses"
are expense offsets of $44. Included under the caption "Shareholder servicing
and related shareholder expenses" are fees of $12,500 paid to Reich & Tang
Services, L.P. an affiliate of the Administrator as servicing agent for the
Fund.
3. Capital Stock.
At May 31, 1999, 20,000,000,000 shares of $.001 par value stock were authorized
and capital paid in amounted to $47,578,051. Transactions in capital stock were
as follows:
<TABLE>
<CAPTION>
Six Months December 22, 1997
Ended (Commencement of Sales) to
May 31, 1999 November 30, 1998
-------------------------------- ------------------------------------
Shares Amount Shares Amount
------ ------ ------ ------
Class A
-------
<S> <C> <C> <C> <C>
Sold................................ 1,004,463 $ 10,135,939 4,723,139 $ 47,413,044
Issued on reinvestment of dividends. 169,325 1,702,493 137,847 1,398,689
Redeemed............................ ( 421,093) ( 4,209,590) ( 887,767) ( 8,964,598)
------------ -------------- -------------- ---------------
Net increase (decrease)............. 752,695 7,628,842 3,973,219 $ 39,847,135
============ ============== ============== ===============
Class B
-------
Sold................................ -- -- -- --
Issued on reinvestment of dividends. -- -- 4 37
Redeemed............................ -- -- -- --
------------ -------------- -------------- ---------------
Net increase (decrease)............. -0- -0- 4 37
============ ============== ============== ===============
Class C
-------
Sold................................ -- -- -- --
Issued on reinvestment of dividends. -- -- 4 37
Redeemed............................ -- -- -- --
------------ -------------- -------------- ---------------
Net increase (decrease)............. -0- -0- 4 37
============ ============== ============== ===============
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
BACK BAY FUNDS, INC.
TOTAL RETURN BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDTED)
================================================================================
4. Investment Transactions.
Purchases and sales of investment securities, other than short-term investments,
totaled $46,005,212 and $35,436,599, respectively. Accumulated undistributed net
realized losses on May 31, 1999 amounted $262,063.
5. Financial Highlights.
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------
Six Months
Ended December 22, 1997
May 31, 1999 (Commencement of Sales) to
(Unaudited) November 30, 1998
--------- -----------------
<S> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period.................. $ 10.32 $ 10.00
--------- ---------
Income from investment operations:
Net investment income.............................. 0.31 0.59
Net realized and unrealized
gains (losses) on investment....................... ( 0.42) 0.32
--------- ---------
Total from investment operations...................... 0.05 0.91
--------- ---------
Less distributions:
Dividends from net investment income............... ( 0.31) ( 0.59)
Distributions from net realized gains.............. ( 0.14) --
--------- ---------
Total distributions................................... ( 0.61) ( 0.59)
--------- ---------
Net asset value, end of period........................ $ 9.76 $ 10.32
========= =========
Total Return (not annualized)......................... ( .88%) 9.42%
Ratios/Supplemental Data
Net assets, end of period (000)....................... $ 46,245 $ 41,101
Ratios to average net assets:
Expenses (net of fees waived and reimbursed)+...... 0.40%* 0.41%*
Net investment income.............................. 6.22%* 6.22%*
Management and shareholder servicing fees waived... 0.35%* 0.35%*
Expenses reimbursed................................ 0.20%* 0.58%*
Expense offsets.................................... 0.00% 0.01%*
Portfolio turnover rate............................ 77.53% 220.55%
* Annualized
+ Includes expense offsets.
</TABLE>
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<TABLE>
<CAPTION>
5. Financial Highlights. (Continued)
CLASS B CLASS C
--------------------------------------- --------------------------------------
Six Months Six Months
Ended December 22, 1997 Ended December 22, 1997
May 31, 1999 (Commencement of Sales) to May 31, 1999 (Commencement of Sales) to
(Unaudited) November 30, 1998 (Unaudited) November 30, 1998
--------- ----------------- --------- -----------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period.............. $ 10.32 $ 10.00 $ 10.32 $ 10.00
--------- --------- -------- --------
Income from investment operations:
Net investment income.......................... 0.30 0.56 0.30 0.56
Net realized and unrealized
gains (losses) on investment................... ( 0.39 ) 0.32 ( 0.39 ) 0.32
--------- --------- -------- --------
Total from investment operations.................. 0.07 0.88 0.07 0.88
--------- --------- -------- --------
Less distributions:
Dividends from net investment income........... ( 0.30 ) ( 0.56 ) ( 0.30 ) ( 0.56 )
Distributions from net realized gains.......... ( 0.17 ) -- ( 0.17 ) --
--------- --------- -------- --------
Total distribution................................ ( 0.63 ) ( 0.56 ) ( 0.63 ) ( 0.56 )
--------- --------- -------- --------
Net asset value, end of period.................... $ 9.76 $ 10.32 $ 9.76 $ 10.32
========= ========= ======== ========
Total Return (not annualized)..................... ( 1.03%) 9.09% ( 1.03%) 9.09%
Ratios/Supplemental Data
Net assets, end of period (000)................... $ 1 $ 1 $ 1 $ 1
Ratios to average net assets:
Expenses (net of fees waived and reimbursed)+.. 0.72%* 0.66%* 0.72%* 0.66%*
Net investment income.......................... 5.91%* 5.91%* 5.91%* 5.91%*
Management and shareholder
servicing fees waived...................... 0.35%* 0.60%* 0.35%* 0.60%*
Expenses reimbursed............................ 0.20%* 0.58%* 0.20%* 0.58%*
Expense offsets................................ 0.00%* 0.01%* 0.00%* 0.01%*
Portfolio turnover rate........................ 77.53% 220.55% 77.53% 220.55%
* Annualized
+ Includes expense offsets.
</TABLE>
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<PAGE>
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- ------------------------------------------------------
This report is submitted for the general information
of the shareholders of the Fund. It is not
authorized for distribution to prospective investors
in the Fund unless preceded or accompanied by an
effective prospectus, which includes information
regarding the Fund's objectives and policies,
experience of its management, marketability of
shares, and other information.
- ------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
BACK BAY
FUNDS, INC.
TOTAL RETURN BOND FUND
May 31, 1999
Semi-Annual Report
[GRAPHIC OMITTED]
Back Bay Advisors, L.P.
-----------------------
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<PAGE>
