<PAGE>
--------------------------------------------------------------------------------
600 FIFTH AVENUE
BACK BAY FUNDS, INC. NEW YORK, NY 10020
(212) 830-5220
================================================================================
Dear Shareholder:
Even with 100 basis points of tightening by the Federal Reserve in the first
half of the year, intermediate and long Treasury yields declined by
approximately 35 and 50 basis points, respectively. The Treasury yield curve
actually inverted by 50 basis points, reflecting an unprecedented Treasury
buyback program funded from accelerating budget surpluses and investor
confidence in the Federal Reserve's aggressive monetary strategy. Although new
issue supply in the corporate, Yankee, and high yield sectors has declined
nearly 15% versus the same period last year, corporate yield spreads have
widened sharply during the first six months of the year, leading to the
significant under-performance of these sectors. Interestingly, corporate spreads
have widened to very attractive levels during a period of positive GDP growth,
an environment that usually infers stable or narrowing spreads. The causes of
this recent spread-widening phenomenon include aggressive Federal Reserve
tightening, high equity market volatility, reduced capital allocation by Wall
Street dealers to fixed income spread product, a decline in hedge fund
participation in the fixed income markets, and the evolution of Libor-based
buyers as the marginal corporate-sector investor.
Through May 31, mortgage pass-through securities under-performed Treasuries by
80 basis points on a duration-adjusted basis, U.S. Agencies under-performed
Treasuries by 155 basis points, investment grade corporate bonds under-performed
Treasuries by 335 basis points, and high yield bonds under-performed Treasuries
by 586 basis points. However, emerging market debt actually out-performed
Treasuries by 3 basis points. Through this period, Treasury securities benefited
not only from a traditional investor flight to quality in the face of central
bank tightening, but also from strong technical support generated by the
government's $30 billion buyback program. Since the beginning of the year
through May 31, the Total Return Bond Fund returned -0.32%, before expenses,
versus +1.87% for the Lehman Aggregate Index. This under-performance was
primarily a function of the Fund's underweight exposure to the long end of the
Treasury sector, and its overweight exposure to the long end of the credit
sector, particularly long maturity domestic corporates. The Fund's 8.5% exposure
to certain non-dollar markets also negatively impacted performance. The sharp
decline in the Canadian, Australian and Euro currencies versus the dollar
outweighed the positive relative performance of the bonds underlying these
non-dollar positions. However, subsequent to the end of the May 31 reporting
period, there has been a 100 basis point rebound in June's performance relative
to the Lehman benchmark, due primarily to a partial recovery in the Fund's
positions in spread product and non-dollar issues.
The Fund's maturity structure remains concentrated in five- to ten-year
governments and longer maturity spread product. These positions should prove
beneficial in a period of corporate spread compression and modestly lower
interest rates, should the economy slow in the second half as anticipated.
Currently, ten-year, single-A rated corporate bonds are yielding around 8%. This
is particularly attractive relative to the year-over-year CPI inflation rate of
3.0% given that the Federal Reserve appears to be achieving another "soft
landing" for the U. S. economy. In relation to benchmark Treasury levels, this
bond yield / inflation spread is at historically high levels, even greater than
during the third quarter of 1998 when Russia defaulted and hedge funds were
experiencing significant liquidity risks. At present, the corporate sector
represents the most attractive portion of the bond market. Furthermore, the
Fund's 55% exposure to that sector is concentrated in traditionally defensive
industries including cable, media, and telecom, which are expected to outperform
as the U. S. economy slows to a more sustainable growth rate.
Sincerely,
/s/J. Michael Gaffney
J. Michael Gaffney
President and Chief Executive Officer
Back Bay Advisors, L. P.
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
BACK BAY FUNDS, INC.
TOTAL RETURN BOND FUND
STATEMENT OF INVESTMENTS
MAY 31, 2000
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Face Value
Amount* (Note 1)
------- ------
Foreign Non-Convertible Corporate Bonds (28.99%)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dollar Denominated (21.12%)
Banking/Financial Services (3.19%)
Merita Bank, 7.500%, due 12/29/49 625,000 $ 574,019
Merita Bank, 7.150%, due 12/29/49 625,000 603,125
-----------
1,177,144
-----------
Cable/Media (1.95%)
British Sky Broadcast, 8.200%, due 07/15/09 230,000 209,875
Multicanal, SA, 13.125%, 04/15/09 500,000 466,250
Shaw Communications, 8.250%, due 4/11/10 45,000 44,100
-----------
720,225
-----------
Forest Products (3.13%)
Abitibi Consolidated, 6.950%, due 04/01/08 750,000 664,687
Abitibi Consolidated, 7.500%, due 04/01/28 180,000 147,150
Kimberly Clark de Mexico, 8.875%, due 08/01/09 355,000 343,019
-----------
1,154,856
-----------
Government (5.28%)
Endesa Chile, 8.500%, due 04/01/09 655,000 614,062
Republic of Columbia, 9.750%, due 04/23/09 240,000 211,800
Republic of Korea, 8.875%, due 04/15/08 310,000 310,000
Republic of Panama, 8.875%, due 09/30/27 425,000 326,187
Republic of Panama, 9.375%, due 04/01/29 125,000 114,531
Republic of Philippines, 9.875%, due 01/15/19 380,000 304,950
United Mexican States Global, 9.875%, due 02/01/10 70,000 69,650
-----------
1,951,180
-----------
Oil & Gas Production (3.99%)
Gulf Canada, 8.375%, due 11/15/05 250,000 242,500
Gulf Canada, 8.350%, due 08/01/06 80,000 77,800
PDVSA Finance, 8.750%, due 02/15/04 450,240 422,100
PDVSA Finance, 6.650%, due 02/15/06 385,000 315,219
Petro Mexicano (Pemex), 9.150%, due 11/15/18 100,000 102,597
YPF Sociedad Anonima, 9.125%, due 02/24/09 320,000 312,400
-----------
1,472,616
-----------
Telecommunication (3.58%)
KPN Qwest, 8.125%, due 06/01/09 590,000 539,850
Orange PLC, 8.750%, due 06/01/06 375,000 378,750
SK Telecom, 7.750%, due 04/29/04 415,000 401,513
-----------
1,320,113
-----------
Total Dollar Denominated $ 7,796,134
-----------
</TABLE>
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------------------------------------------------------------------
================================================================================
<TABLE>
<CAPTION>
Face Value
Amount* (Note 1)
------- ------
Foreign Non-Convertible Corporate Bonds (Continued)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Non-Dollar Denominated (7.87%)
Corning, 5.625%, due 02/18/05 (E) 215,000 $ 198,978
Government of Canada, 7.500%, due 12/01/03 (C) 1,186,000 821,881
International Bank of Reconciliation and Development, 5.500%, due 05/14/03 (A) 1,385,000 771,369
KPN Qwest, 7.125%, due 06/01/09 (E) 615,000 527,755
Providence of Ontario, 4.875%, due 06/02/04 (C) 927,000 585,236
-----------
Total Non-Dollar Denominated 2,905,219
-----------
Total Foreign Non-Convertible Corporate Bonds (Cost $11,435,348) $10,701,353
-----------
<CAPTION>
Domestic Non-Convertible Corporate Bonds (36.41%)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Banking/Financial Services (5.11%)
Americredit 2000-A Tranch A3, 7.150%, due 08/12/04 270,000 $ 267,975
Bankers Trust Preferred Capital Trust II, 7.875%, due 02/25/27 825,000 694,031
Conseco Inc., 9.000%, due 10/15/06 190,000 129,200
Mellon Capital I, 7.720%, due 12/01/26 505,000 434,300
State Street Institution Trust, 7.940%, due 12/30/26 410,000 359,775
-----------
1,885,281
-----------
Cable/Media (3.91%)
Cablevision Systems Corporation, 7.875%, due 02/15/18 765,000 661,725
Comcast Cable Communications, 9.125%, due 10/15/06 300,000 311,250
Comcast Cable Communications, 8.875%, due 05/01/17 455,000 469,219
-----------
1,442,194
-----------
Electric Utilities (6.24%)
Arizona Public Service (PVNGS II), 8.000%, due 12/30/15 475,000 457,781
Cleveland Electric (Beaver Valley), 9.000%, due 06/01/17 625,000 616,406
East Coast Power, 7.066%, due 03/31/12 160,000 143,200
East Coast Power, 7.536%, due 06/30/17 120,000 105,300
PECO 2000-A Tranch A4, 7.650%, due 03/01/10 310,000 305,339
Texas Utility Electric Capital Trust Prefund, 8.175%, due 01/30/37 765,000 677,025
-----------
2,305,051
-----------
Manufacturing/Industrial (5.93%)
American Standard, 7.375%, due 04/15/05 430,000 397,750
Ford Holdings, Inc., 9.300%, due 03/01/30 820,000 899,950
Lockheed Martin, 8.200%, due 12/01/09 175,000 171,500
Lockheed Martin, 8.500%, due 12/01/29 105,000 102,638
Owens Illinois, 7.800%, due 05/15/18 720,000 614,700
-----------
2,186,538
-----------
</TABLE>
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------------------------------------------------------------------
BACK BAY FUNDS, INC.
TOTAL RETURN BOND FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MAY 31, 2000
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Face Value
Amount* (Note 1)
------- ------
====================================================================================================================
Domestic Non-Convertible Corporate Bonds (Continued)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Media/Entertainment (2.48%)
News America, 10.125%, due 10/15/12 375,000 $ 382,031
Time Warner, 9.125%, due 01/15/13 510,000 534,225
-----------
916,256
-----------
Oil & Gas Production (1.50%)
Phillips Petroleum, 8.500%, due 05/25/05 45,000 45,619
Phillips Petroleum, 8.750%, due 05/25/10 50,000 51,188
Pioneer Natural Resource, 9.625%, due 04/01/10 450,000 457,875
-----------
554,682
-----------
Retail (3.69%)
Aramark, 7.000%, due 07/15/06 290,000 264,988
Federated Department Stores, 6.790%, due 07/15/27 260,000 246,675
Great Atlantic & Pacific Tea Company, 7.750%, due 04/15/07 725,000 642,531
J.C. Penney Co., Inc., 9.750%, due 06/15/21 150,000 132,750
Rite Aid Corporation, 7.125%, due 01/15/07 110,000 48,400
Rite Aid Corporation, 7.700%, due 02/15/27 70,000 27,300
-----------
1,362,644
-----------
Telecommunications (5.96%)
AT&T Corporation, 8.625%, due 12/01/31 215,000 216,881
Global Crossing, 9.625%, due 05/15/08 125,000 119,375
MCI Communications Corporation, 7.125%, due 06/15/27 1,430,000 1,401,400
Metromedia Fiber, 10.000%, due 12/15/09 80,000 76,400
Sprint, 6.900%, due 05/01/19 445,000 385,481
-----------
2,199,537
-----------
Transportation (1.59%)
Norfolk Southern Corporation, 7.050%, due 05/01/37 605,000 586,094
-----------
Total Domestic Non-Convertible Corporate Bonds (Cost $14,924,659) $13,438,277
-----------
<CAPTION>
U.S. Government Agencies (23.14%)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Federal Home Loan Mortgage Corporation, 5.000%, 01/15/04 945,000 873,237
Federal Home Loan Mortgage Corporation, 6.500%, 07/01/29 582,225 539,647
Federal National Mortgage Association, 6.500%, 08/15/04 950,000 918,384
Federal National Mortgage Association, 5.250%, 01/15/09 935,000 801,033
Federal National Mortgage Association, 6.500%, 07/01/14 866,130 822,278
Federal National Mortgage Association, 7.500%, 04/01/15 1,195,656 1,178,833
Federal National Mortgage Association, 7.000%, 10/01/28 482,046 458,397
</TABLE>
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------------------------------------------------------------------
================================================================================
<TABLE>
<CAPTION>
Face Value
Amount* (Note 1)
------- ------
U.S. Government Agencies (Continued)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Government National Mortgage Association, 8.000%, 09/15/26 385,739 $ 386,584
Government National Mortgage Association, 7.500%, 12/15/27 413,500 406,132
Government National Mortgage Association, 7.000%, 05/15/28 308,095 295,577
Government National Mortgage Association, 7.000%, 06/15/28 233,225 223,749
Government National Mortgage Association, 6.500%, 10/15/28 390,936 365,771
Government National Mortgage Association, 6.500%, 01/15/29 423,611 396,208
Government National Mortgage Association, 7.500%, 08/15/29 166,341 163,273
Government National Mortgage Association, 7.000%, 09/15/29 743,560 713,118
-----------
Total U.S. Government Agencies (Cost $ 8,784,756) 8,542,221
-----------
<CAPTION>
U.S. Government Obligations (7.46%)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Note, 5.500%, 08/31/01 700,000 $ 689,168
U.S. Treasury Note, 5.250%, 08/15/03 200,000 191,969
U.S. Treasury Note, 6.125%, 08/15/07 120,000 117,441
U.S. Treasury Note, 6.000%, 08/15/09 1,800,000 1,754,576
-----------
Total U.S. Government Obligations (Cost $ 2,797,018) 2,753,154
-----------
<CAPTION>
Short-Term Investments (4.50%)
Commercial Paper (4.50%)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Household Finance, 6.740%, due 06/01/00 1,660,000 1,660,000
-----------
Total Short Term Investments (Cost $ 1,660,000) 1,660,000
-----------
Total Investments (100.50%) (Cost $39,601,781+) 37,095,005
Liabilities in Excess of Cash and Other Assets (-0.50%) ( 185,164)
-----------
Net Assets (100.00%) $36,909,841
===========
+ Aggregate cost for federal income tax purposes is $39,738,518.
Aggregate unrealized appreciation and depreciation,
based on cost for federal income tax purposes, are $32,116
and $2,675,629 respectively.
* Securities denominated in U.S. dollars unless otherwise indicated.
CURRENCY ABBREVIATIONS:
A = Australia
C = Canada
E = Euro
</TABLE>
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------------------------------------------------------------------
BACK BAY FUNDS, INC.
TOTAL RETURN BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 2000
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments in securities at value (Cost $39,601,781)................................. $ 37,095,005
Cash.................................................................................. 2,490
Receivables:
Interest.......................................................................... 692,573
Due from Manager...................................................................... 19,170
Deferred organization expenses........................................................ 23,705
---------------
Total assets................................................................ 37,832,943
---------------
<CAPTION>
LIABILITIES
<S> <C>
Payables:
Securities purchased.............................................................. 825,233
Dividends......................................................................... 48,881
Accrued expenses and other liabilities................................................ 48,988
---------------
Total liabilities........................................................... 923,102
---------------
Net assets............................................................................ $ 36,909,841
===============
Net asset value, offering and redemption price per share:
Class A shares, 4,049,451 shares outstanding.......................................... $ 9.11
===============
Class B shares, 104 shares outstanding.......................................... $ 9.11
===============
Class C shares, 104 shares outstanding.......................................... $ 9.11
===============
</TABLE>
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------------------------------------------------------------------
BACK BAY FUNDS, INC.
TOTAL RETURN BOND FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 2000
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C>
Income:
Interest.......................................................................... $ 1,331,921
--------------
Expenses: (Note 2)
Investment management fee......................................................... 62,101
Administration fee................................................................ 48,000
Shareholder servicing fee (Class B)............................................... 1
Shareholder servicing fee (Class C)............................................... 1
Custodian expenses................................................................ 5,787
Shareholder servicing and related shareholder expenses............................ 16,149
Legal, compliance and filing fees................................................. 34,726
Audit and accounting.............................................................. 9,292
Directors' fees................................................................... 3,051
Amortization of organization costs................................................ 4,645
Miscellaneous..................................................................... 1,703
--------------
Total expenses................................................................. 185,456
Less:
Expenses paid indirectly................................................ ( 1,101)
Fees waived and expenses reimbursed..................................... ( 113,420)
--------------
Net expenses................................................................... 70,935
--------------
Net investment income................................................................. 1,260,986
--------------
<CAPTION>
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
<S> <C>
Net realized gain (loss) on:
Investments ...................................................................... ( 205,360)
Foreign currency transactions..................................................... ( -- )
--------------
( 205,360)
Net unrealized appreciation (depreciation) on:
Investments....................................................................... ( 1,195,923)
Translation of assets and liabilities denominated in foreign currencies........... ( 1,157)
--------------
Net unrealized appreciation (depreciation)............................................ ( 1,197,080)
--------------
Net realized and unrealized gain (loss)........................................... ( 1,402,440)
--------------
Net increase (decrease) in net assets resulting from operations....................... $( 141,454)
==============
</TABLE>
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------------------------------------------------------------------
BACK BAY FUNDS, INC.
TOTAL RETURN BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
Six Months
Ended Year
May 31, 2000 Ended
(Unaudited) November 30, 1999
--------- -----------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C>
Operations:
Net investment income................................... $ 1,260,986 $ 2,804,261
Net realized gain (loss)................................ ( 205,360) ( 1,500,422)
Net unrealized appreciation (depreciation).............. ( 1,197,080) ( 1,816,197)
--------------- --------------
Increase (decrease) in net assets from operations....... ( 141,454) ( 512,358)
Dividends to shareholders from:
Net investment income:
Class A.............................................. ( 1,260,920) ( 2,792,021)
Class B.............................................. ( 33) ( 63)
Class C.............................................. ( 33) ( 63)
Distributions to shareholders from:
Net realized gain (loss) on investments:
Class A.............................................. -0- ( 649,243)
Class B.............................................. -0- ( 17)
Class C.............................................. -0- ( 17)
Return of capital, Class A.............................. -0- ( 11,993)
Capital share transactions (Note 3)
Class A.............................................. 4,538,963 ( 3,363,948)
Class B.............................................. -0- -0-
Class C.............................................. -0- -0-
--------------- --------------
Total increase (decrease)............................... 3,136,523 ( 7,329,723)
Net assets:
Beginning of period..................................... 33,773,318 41,103,041
--------------- --------------
End of period........................................... $ 36,909,841 $ 33,773,318
=============== ==============
</TABLE>
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these 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 accounting
principles generally accepted in the United States 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 on 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, 2000, the Manager and the Distributor
voluntarily waived investment management fees and Shareholder servicing fees of
$62,101 and $2, respectively, and reimbursed other operating expenses of
$51,317.
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 captions "Custodian expenses"
and "Shareholder servicing and related shareholder expenses" are expense offsets
of $1,101. 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.
During the period the Manager reimbursed the Fund $71,315, including interest of
$3,738, to adjust the effect of realized and unrealized loss of certain trading
compliance deficiencies.
3. Capital Stock.
At May 31, 2000, 20,000,000,000 shares of $.001 par value
stock were authorized and capital paid in amounted to $41,112,231. Transactions
in capital stock were as follows:
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
May 31, 2000 November 30, 1999
----------------------------------- -------------------------------------
Shares Amount Shares Amount
------ ------ ------ ------
Class A
-------
<S> <C> <C> <C> <C>
Sold................................ 417,978 $ 3,927,304 1,613,850 $ 15,953,554
Issued on reinvestment of dividends. 104,433 973,747 273,357 2,695,239
Redeemed............................ ( 38,544) ( 362,088) ( 2,304,842) ( 22,012,741)
-------------- -------------- -------------- ---------------
Net increase (decrease)............. 483,867 4,538,963 ( 417,635) ( 3,363,948)
============== ============== ============== ===============
Class B
-------
Sold................................ -- -- -- --
Issued on reinvestment of dividends. -- -- -- --
Redeemed............................ -- -- -- --
-------------- -------------- -------------- ---------------
Net increase (decrease)............. -0- -0- -0- -0-
============== ============== ============== ===============
Class C
-------
Sold................................ -- -- -- --
Issued on reinvestment of dividends. -- -- -- --
Redeemed............................ -- -- -- --
-------------- -------------- -------------- ---------------
Net increase (decrease)............. -0- -0- -0- -0-
============== ============== ============== ===============
</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 $11,429,790 and $6,897,827, respectively. Accumulated undistributed net
realized losses on May 31, 2000 amounted to $1,693,889. At May 31, 2000, the
Fund had tax basis capital losses of $1,371,842 which may be carried forward to
offset future gains. Such losses expire on November 30, 2007.
5. Financial Highlights.
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------
Six Months
Ended Year December 22, 1997
May 31, 2000 Ended (Commencement of Sales) to
(Unaudited) November 30, 1999 November 30, 1998
--------- ----------------- -----------------
<S> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period........... $ 9.47 $ 10.32 $ 10.00
------- ------- --------
Income from investment operations:
Net investment income.......................... 0.33 0.64 0.59
Net realized and unrealized
gains (losses) on investment................... ( 0.36) ( 0.69) 0.32
------ ------ --------
Total from investment operations................. ( 0.03 ) ( 0.05) 0.91
------ ------ --------
Less distributions:
Dividends from net investment income........... ( 0.33) ( 0.64) ( 0.59)
Distributions from net realized gains.......... -- ( 0.16) --
------ ------ -------
Total distributions............................ ( 0.33 ) ( 0.80) ( 0.59)
------ ------ -------
Net asset value, end of period................. $ 9.11 $ 9.47 10.32
======= ======= ========
Total Return (not annualized).................. ( 0.33%) ( 0.45%) 9.42%
Ratios/Supplemental Data
Net assets, end of period (000)................ $ 36,908 $ 33,771 $ 41,101
Ratios to average net assets:
Expenses (net of fees waived and reimbursed)+.. 0.40%* 0.40% 0.41%*
Net investment income.......................... 7.11%* 6.52% 6.22%*
Management and shareholder servicing fees waived 0.35%* 0.35% 0.35%*
Expenses reimbursed............................ 0.29%* 0.17% 0.58%*
Expense offsets................................ 0.01%* 0.00% 0.01%*
Portfolio turnover rate........................ 19.49% 165.41% 220.55%
* Annualized
+ Includes expense offsets.
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
================================================================================
<TABLE>
<CAPTION>
5. Financial Highlights. (Continued)
CLASS B
--------------------------------------------------------------------
Six Months
Ended Year December 22, 1997
May 31, 2000 Ended (Commencement of Sales) to
(Unaudited) November 30, 1999 November 30, 1998
--------- ----------------- ---------------------
<S> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period........... $ 9.47 $ 10.32 $ 10.00
--------- ------- --------
Income from investment operations:
Net investment income.......................... 0.32 0.61 0.56
Net realized and unrealized
gains (losses) on investment............... ( 0.36) ( 0.69) 0.32
------ ------ --------
Total from investment operations............... ( 0.04 ) ( 0.08) 0.88
Less distributions: ------ ------ --------
Dividends from net investment income........... ( 0.32 ) ( 0.61) ( 0.56)
Distributions from net realized gains.......... -- ( 0.16) --
------ ------ -------
Total distributions............................ ( 0.32 ) ( 0.77) ( 0.56)
------ ------ -------
Net asset value, end of period................. $ 9.11 $ 9.47 $ 10.32
======= ======= ========
Total Return (not annualized).................. ( 0.49%) ( 0.76%) 9.09%
Ratios/Supplemental Data
Net assets, end of period (000)................ $ 1 $ 1 $ 1
Ratios to average net assets:
Expenses (net of fees waived and reimbursed)+.. 0.65%* 0.65% 0.66%*
Net investment income.......................... 6.77%* 6.20% 5.91%*
Management and shareholder servicing fees waived 0.35%* 0.35% 0.60%*
Expenses reimbursed............................ 0.29%* 0.17% 0.58%*
Expense offsets................................ 0.01%* 0.00% 0.01%*
Portfolio turnover rate........................ 19.49% 165.41% 220.55%
* Annualized
+ Includes expense offsets.
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
BACK BAY FUNDS, INC.
TOTAL RETURN BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
5. Financial Highlights. (Continued)
CLASS C
--------------------------------------------------------------------
Six Months
Ended Year December 22, 1997
May 31, 2000 Ended (Commencement of Sales) to
(Unaudited) November 30, 1999 November 30, 1998
--------- ----------------- -----------------
<S> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period........... $ 9.47 $ 10.32 $ 10.00
------- ------- --------
Income from investment operations:
Net investment income.......................... 0.32 0.61 0.56
Net realized and unrealized
gains (losses) on investment............... ( 0.36) ( 0.69) 0.32
------ ------ --------
Total from investment operations............... ( 0.04) ( 0.08) 0.88
------ ------ --------
Less distributions:
Dividends from net investment income........... ( 0.32 ) ( 0.61) ( 0.56)
Distributions from net realized gains.......... -- ( 0.16) --
------ ------ -------
Total distributions............................ ( 0.32 ) ( 0.77) ( 0.56)
------ ------ -------
Net asset value, end of period................. $ 9.11 $ 9.47 $ 10.32
======= ======= ========
Total Return (not annualized).................. ( 0.49%) ( 0.76%) 9.09%
Ratios/Supplemental Data
Net assets, end of period (000)................ $ 1 $ 1 $ 1
Ratios to average net assets:
Expenses (net of fees waived and reimbursed)+.. 0.80%* 0.80% 0.81%*
Net investment income.......................... 6.77%* 6.20% 5.91%*
Management and shareholder servicing fees waived 0.35%* 0.35% 0.60%*
Expenses reimbursed............................ 0.29%* 0.17% 0.58%*
Expense offsets................................ 0.01%* 0.00% 0.01%*
Portfolio turnover rate........................ 19.49% 165.41% 220.55%
* Annualized
+ Includes expense offsets.
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
------------------------------------------------------
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, 2000
Semi-Annual Report
(Unaudited)
[GRAPHIC OMITTED]
Back Bay Advisors, L.P.
-----------------------
--------------------------------------------------------------------------------
<PAGE>
