BAYFUNDS
MONEY
MARKET
PORTFOLIO
ANNUAL REPORT
TO SHAREHOLDERS
JANUARY 31, 1994
(A Portfolio of BayFunds)
[LOGO] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
4020916 (2/94)
Z0317A
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am delighted to communicate with all investors in the BayFunds Money Market
Portfolio (the "Fund") and to present the Annual Report to our shareholders.
This Report contains valuable information about your investment, including
complete Financial Statements and the Portfolio of Investments. I want to point
out that your Fund's portfolio manager prepared the Investment Review, which
describes the strategies used to pursue the Fund's investment objective--and
yours.
If your objective is current income along with the additional advantage of share
price stability*,
I trust that you will be satisfied with the Fund's performance in 1993. The
Fund, which is invested in a diversified portfolio of high-quality money market
securities, provided dividends totalling $0.03 per share to our investors in the
Investment Shares class, and $0.03 per share to investors in the Trust Shares
class this year.
As you may recall, the Fund began accepting shareholder investments on August 1,
1991, and at December 31, 1993 the Fund's net assets stood at $199.7 million. On
January 29, 1993, we expanded the selection of BayFunds offerings. In this short
time the BayFunds family of mutual funds--BayFunds U.S. Treasury Money Market
Portfolio, BayFunds Money Market Portfolio, BayFunds Shares--Massachusetts
Municipal Cash Trust, BayFunds Short Term Yield Portfolio, BayFunds Bond
Portfolio and BayFunds Equity Portfolio--has become the investment array of
choice for our retail, corporate and trust customers. I am gratified that the
BayFunds portfolios were closing in on the $1.2 billion mark at year-end.
On behalf of BayBanks Investment Management, Inc., investment adviser to the
Fund, I want to thank you for your confidence in BayFunds. We remain committed
to understanding your financial goals and providing you with investment advice
to assist you in reaching your target. I urge you to contact your Investment
Specialist or account officer whenever we can be of help.
Sincerely,
John J. Arena
President
BayBanks Investment Management, Inc.
February 10, 1994
* While no money market mutual fund can guarantee that a stable net asset value
will be maintained, the Fund has done so since its inception. Investments in
the Fund are neither insured nor guaranteed by the U.S. government, and are
not obligations of or guaranteed by BayBanks, Inc. or its subsidiaries.
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
ECONOMIC HIGHLIGHTS:
During 1993, BayFunds Money Market Portfolio was managed against the backdrop of
an erratic economic recovery. In the first half of the year, Gross Domestic
Product ("GDP") increased at an anemic 0.7% rate. While there was some
improvement in the third quarter, it was not until the final quarter that the
economy showed signs of more robust growth, primarily in interest rate sensitive
sectors (housing and auto sales). The unemployment rate dropped to 6.4% at year
end, and GDP growth for the fourth quarter came in at a remarkable 5.9%.
Throughout the year, the Federal Reserve remained vigilant in its fight against
inflation by maintaining a 3% target for the federal funds rate. Other short
term rates, which had been declining for most of the year, began to rise in
October due to increased Treasury borrowing in shorter maturities. By the end of
the fourth quarter, rates rose in response to economic statistics signaling a
strong growth profile and a change in investor sentiment concerning the
likelihood that the Federal Reserve would tighten rates.
PORTFOLIO HIGHLIGHTS:
BayBanks Investment Management, Inc., the Fund's investment adviser, believed
that inflationary fears witnessed in the market were premature and viewed higher
rates as an opportunity to lock in attractive yields. Our strategy has been to
maintain a relatively long average maturity--in the 70-day range--for the Fund
by emphasizing obligations with maturities of at least six months. Year-end
pressures caused January maturities to be particularly attractive and liquidity
needs received higher priority due to anticipated stronger redemption activity
in December.
We identified further yield-enhancing opportunities in the purchase of
asset-backed commercial paper. As of December 31, 1993, 24% of the assets in the
Fund were committed to these issues. As of December 31, 1993, the Fund's 7-day
net annualized yield was 2.69% for Investment Shares and 2.69% for Trust
Shares.*
OUTLOOK:
Our long term expectations are that economic growth experienced in the fourth
quarter will not continue and that inflation is not a major threat in the coming
year. Real GDP forecasts have been revised downward to a milder 2.5%-3.0% for
the first half of the year. In the shorter term, however, the Federal Reserve
may need to manage to the perception of inflationary pressures and we would not
be surprised by any pre-emptive moves to raise short term rates throughout the
first quarter. Therefore, our strategy will be to shorten slightly the average
maturity of the Fund in an effort to capture favorable yields.
* Past performance is not indicative of future results. Yield will vary.
BAYFUNDS MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- ---------------
BANKERS ACCEPTANCE--5.9%
- ------------------------------------------------------------------------------------------------
$ 1,599,699 Bank of New York, 3.19%, 2/28/94 $ 1,591,478
---------------------------------------------------------------------------------
6,500,000 CoreStates Bank, N.A., 3.22%-3.35%, 1/4/94-3/22/94 6,481,028
---------------------------------------------------------------------------------
3,835,902 Republic National Bank of New York, 3.28%, 6/28/94 3,773,692
--------------------------------------------------------------------------------- ---------------
TOTAL BANKERS ACCEPTANCE 11,846,198
--------------------------------------------------------------------------------- ---------------
*CERTIFICATES OF DEPOSIT--19.5%
- ------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT-EURO--15.5%
---------------------------------------------------------------------------------
3,000,000 Algemene Bank Nederland, N.V., 3.95%, 1/12/94 3,000,626
---------------------------------------------------------------------------------
5,000,000 Barclays Bank, 3.23%, 1/7/94 4,999,545
---------------------------------------------------------------------------------
9,000,000 Deutsche Bank, 3.46%, 1/25/94 9,000,610
---------------------------------------------------------------------------------
5,000,000 Lloyds Bank PLC, 3.49%, 8/18/94 4,999,606
---------------------------------------------------------------------------------
4,000,000 National Bank of Detroit, 3.49%, 7/28/94 4,001,984
---------------------------------------------------------------------------------
5,000,000 Rabobank Nederland, N.V., 3.45%, 5/25/94 5,000,877
--------------------------------------------------------------------------------- ---------------
Total 31,003,248
--------------------------------------------------------------------------------- ---------------
CERTIFICATES OF DEPOSIT-YANKEE--4.0%
---------------------------------------------------------------------------------
8,000,000 Banque Nationale de Paris, 3.35%-3.40%, 5/23/94-7/7/94 7,998,862
--------------------------------------------------------------------------------- ---------------
TOTAL CERTIFICATES OF DEPOSIT 39,002,110
--------------------------------------------------------------------------------- ---------------
*COMMERCIAL PAPER--61.7%
- ------------------------------------------------------------------------------------------------
BANKING--7.9%
---------------------------------------------------------------------------------
2,150,000 Abbey National North America Corporation, 3.22%-3.33%, 4/5/94 2,131,880
---------------------------------------------------------------------------------
5,000,000 Cheltenham & Gloucester Building Society, 3.22%, 1/7/94-1/18/94 4,994,365
---------------------------------------------------------------------------------
2,500,000 Halifax Building Society, 3.27%, 1/5/94 2,499,092
---------------------------------------------------------------------------------
4,500,000 Rabobank Nederland, 3.21%-3.25%, 3/11/94-3/28/94 4,471,508
---------------------------------------------------------------------------------
1,750,000 Toronto Dominion Holdings, 3.30%, 3/11/94 1,738,931
--------------------------------------------------------------------------------- ---------------
Total 15,835,776
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CONTAINER & PACKAGING--2.6%
---------------------------------------------------------------------------------
$ 3,266,000 Bemis Company, Inc., 3.35%, 1/5/94 $ 3,264,784
---------------------------------------------------------------------------------
1,900,000 WMX Technologies, Inc., 3.25%, 4/27/94 1,880,103
--------------------------------------------------------------------------------- ---------------
Total 5,144,887
--------------------------------------------------------------------------------- ---------------
DIVERSIFIED--0.6%
---------------------------------------------------------------------------------
100,000 Cooper Industries, Inc., 3.25%, 2/1/94 99,720
---------------------------------------------------------------------------------
1,045,000 Procter & Gamble Co., 3.14%, 1/14/94 1,043,815
--------------------------------------------------------------------------------- ---------------
Total 1,143,535
--------------------------------------------------------------------------------- ---------------
FINANCE-COMMERCIAL--9.3%
---------------------------------------------------------------------------------
2,500,000 Associates Corp. North America, 3.37%, 1/5/94 2,499,064
---------------------------------------------------------------------------------
6,500,000 CIT Group Holdings, Inc., 3.25%-3.35%, 4/29/94-5/31/94 6,426,154
---------------------------------------------------------------------------------
5,000,000 General Electric Capital Corp., 3.25%, 6/30/94 4,918,750
---------------------------------------------------------------------------------
4,782,000 Xerox Credit Corp., 3.20%-3.50%, 1/12/94-5/11/94 4,749,159
--------------------------------------------------------------------------------- ---------------
Total 18,593,127
--------------------------------------------------------------------------------- ---------------
FINANCE-CONSUMER--2.3%
---------------------------------------------------------------------------------
4,500,000 Norwest Financial, Inc., 3.25%-3.36%, 1/6/94-1/19/94 4,494,897
--------------------------------------------------------------------------------- ---------------
FINANCIAL SERVICES--9.5%
---------------------------------------------------------------------------------
9,500,000 Dean Witter Discover & Co., 3.24%-3.40%, 1/4/94-1/31/94 9,492,871
---------------------------------------------------------------------------------
9,550,000 Merrill Lynch & Co., Inc., 3.23%-3.25%, 3/8/94-6/10/94 9,447,043
--------------------------------------------------------------------------------- ---------------
Total 18,939,914
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FOOD & BEVERAGE--1.3%
---------------------------------------------------------------------------------
1,500,000 Anheuser Busch Cos., Inc., 3.20%, 2/8/94 1,494,933
---------------------------------------------------------------------------------
1,200,000 Quaker Oats Co., 3.25%, 1/10/94 1,199,025
--------------------------------------------------------------------------------- ---------------
Total 2,693,958
--------------------------------------------------------------------------------- ---------------
FOREST PRODUCTS--0.3%
---------------------------------------------------------------------------------
660,000 Kimberly Clark Corp., 3.15%, 1/13/94 659,307
--------------------------------------------------------------------------------- ---------------
FUNDING CORPORATIONS--24.1%
---------------------------------------------------------------------------------
350,000 Asset Securitization Cooperative Corp., 3.25%, 2/25/94 348,263
---------------------------------------------------------------------------------
$ 5,000,000 Ciesco, L.P., 3.20%-3.23%, 1/10/94-1/11/94 $ 4,995,757
---------------------------------------------------------------------------------
8,804,000 Corporate Asset Funding Co., Inc., 3.15%-3.50%, 1/14/94-3/2/94 8,776,103
---------------------------------------------------------------------------------
8,900,000 Corporate Receivables Corp., 3.20%-3.37%, 1/19/94-5/10/94 8,852,859
---------------------------------------------------------------------------------
9,437,000 Delaware Funding Corp., 3.22%-3.35%, 1/14/94-2/16/94 9,411,504
---------------------------------------------------------------------------------
6,500,000 Falcon Asset Securitization Corp., 3.33%-3.35%, 2/14/94-2/22/94 6,471,597
---------------------------------------------------------------------------------
9,300,000 Preferred Receivables Funding, 3.25%-3.32%, 1/3/94-1/28/94 9,286,343
--------------------------------------------------------------------------------- ---------------
Total 48,142,426
--------------------------------------------------------------------------------- ---------------
INSURANCE--0.9%
---------------------------------------------------------------------------------
1,850,000 AIG Funding, 3.25%-3.28%, 1/3/94-2/4/94 1,848,653
--------------------------------------------------------------------------------- ---------------
MACHINERY, EQUIPMENT AND AUTO--1.3%
---------------------------------------------------------------------------------
2,500,000 Xerox Corp., 3.45%, 1/5/94 2,499,042
--------------------------------------------------------------------------------- ---------------
TELECOMMUNICATIONS--1.6%
---------------------------------------------------------------------------------
2,400,000 Ameritech Corp., 3.20%, 2/11/94 2,391,253
---------------------------------------------------------------------------------
750,000 American Telephone & Telegraph Co., 3.30%-3.33%, 2/9/94-2/14/94 747,188
--------------------------------------------------------------------------------- ---------------
Total 3,138,441
--------------------------------------------------------------------------------- ---------------
TOTAL COMMERCIAL PAPER 123,133,963
--------------------------------------------------------------------------------- ---------------
**CORPORATE BOND--0.5%
- ------------------------------------------------------------------------------------------------
1,000,000 Northern Trust Co., 9.125%, 8/1/94 1,031,130
--------------------------------------------------------------------------------- ---------------
CORPORATE NOTES--4.8%
- ------------------------------------------------------------------------------------------------
BANKING--1.0%
---------------------------------------------------------------------------------
2,000,000 Abbey National Bank PLC, 3.40%, 2/25/94 2,000,088
--------------------------------------------------------------------------------- ---------------
FINANCE-CONSUMER--1.3%
---------------------------------------------------------------------------------
1,000,000 Beneficial Corp., 5.65%, 2/8/94 1,002,384
---------------------------------------------------------------------------------
1,500,000 Norwest Financial Inc., 8.25%, 2/1/94 1,506,101
--------------------------------------------------------------------------------- ---------------
Total 2,508,485
--------------------------------------------------------------------------------- ---------------
TELECOMMUNICATION--2.5%
---------------------------------------------------------------------------------
$ 5,000,000 U.S. West Communication, Inc., 3.80%, 4/4/94 $ 5,005,073
--------------------------------------------------------------------------------- ---------------
TOTAL CORPORATE NOTES 9,513,646
--------------------------------------------------------------------------------- ---------------
U.S. GOVERNMENT AGENCIES--5.4%
- ------------------------------------------------------------------------------------------------
100,000 Federal Farm Credit Bank, 3.25%, 1/28/94 99,756
---------------------------------------------------------------------------------
2,280,000 Federal Home Loan Bank, 3.14%-3.18%, 1/26/94-1/31/94 2,274,897
---------------------------------------------------------------------------------
2,000,000 Federal Home Loan Mortgage Corp., 3.10%, 1/13/94 1,997,933
---------------------------------------------------------------------------------
6,490,000 Federal National Mortgage Association, 3.12%-3.36%,
1/13/94-8/31/94 6,398,596
--------------------------------------------------------------------------------- ---------------
TOTAL U.S. GOVERNMENT AGENCIES 10,771,182
--------------------------------------------------------------------------------- ---------------
U.S. TREASURY OBLIGATIONS--2.0%
- ------------------------------------------------------------------------------------------------
4,048,375 U.S. Treasury Receipts, 3.331%-3.40%, 2/15/94-5/15/94 4,015,539
--------------------------------------------------------------------------------- ---------------
TOTAL INVESTMENTS, AT AMORTIZED COST $ 199,313,768\
--------------------------------------------------------------------------------- ---------------
</TABLE>
* Each issue shows the coupon rate, where applicable.
** Current rate and next demand date shown.
\ Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($199,655,173) at
December 31, 1993.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Investments, at amortized cost and value (Note 2A) $ 199,313,768
- -------------------------------------------------------------------------------------------------
Cash 5,416
- -------------------------------------------------------------------------------------------------
Interest receivable 672,798
- -------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 2,533
- -------------------------------------------------------------------------------------------------
Deferred expenses (Note 2F) 49,319
- ------------------------------------------------------------------------------------------------- ---------------
Total assets 200,043,834
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------------------
Dividends payable $ 345,028
- ------------------------------------------------------------------------------------
Payable for Fund shares repurchased 902
- ------------------------------------------------------------------------------------
Accrued expenses and other liabilities 42,731
- ------------------------------------------------------------------------------------ -----------
Total liabilities 388,661
- ------------------------------------------------------------------------------------------------- ---------------
NET ASSETS 199,655,173 shares of beneficial interest outstanding $ 199,655,173
- ------------------------------------------------------------------------------------------------- ---------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share:
Trust Shares ($168,909,452 / 168,909,452 shares of beneficial interest outstanding) $1.00
- ------------------------------------------------------------------------------------------------- ---------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share:
Investment Shares ($30,745,721 / 30,745,721 shares of beneficial interest outstanding)
$1.00
- ------------------------------------------------------------------------------------------------- ---------------
(See Notes which are an integral part of the Financial Statements)
</TABLE>
BAYFUNDS MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Interest income (Note 2C) $ 7,300,379
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 893,521
- ------------------------------------------------------------------------------------
Administrative personnel and services fees (Note 5) 263,548
- ------------------------------------------------------------------------------------
Custodian, transfer agent and dividend disbursing agent fees 127,960
- ------------------------------------------------------------------------------------
Recordkeeping fees (Note 5) 64,643
- ------------------------------------------------------------------------------------
Printing and postage 44,664
- ------------------------------------------------------------------------------------
Legal fees 66,972
- ------------------------------------------------------------------------------------
Fund share registration costs 41,795
- ------------------------------------------------------------------------------------
Insurance premiums 9,433
- ------------------------------------------------------------------------------------
Trustees' fees 22,743
- ------------------------------------------------------------------------------------
Auditing fees 21,898
- ------------------------------------------------------------------------------------
Miscellaneous 17,785
- ------------------------------------------------------------------------------------ -------------
Total expenses 1,574,962
- ------------------------------------------------------------------------------------
Deduct--
- ------------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 192,825
- -----------------------------------------------------------------------
Waiver of administrative personnel and services fees
(Note 5) 15,149
- -----------------------------------------------------------------------
Reimbursement of other operating expenses (Note 5) 48,336 256,310
- ----------------------------------------------------------------------- ----------- -------------
Net expenses 1,318,652
- --------------------------------------------------------------------------------------------------- -------------
Net investment income $ 5,981,727
- --------------------------------------------------------------------------------------------------- -------------
(See Notes which are an integral part of the Financial Statements)
</TABLE>
BAYFUNDS MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
<S> <C> <C>
1993 1992*
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------
Net investment income $ 5,981,727 $ 6,124,988
- ----------------------------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -----------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- -----------------------------------------------------------------------------
Trust Shares (5,568,374) (6,124,988)
- -----------------------------------------------------------------------------
Investment Shares (413,353) --
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from distributions to shareholders (5,981,727) (6,124,988)
- ----------------------------------------------------------------------------- ---------------- ----------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- -----------------------------------------------------------------------------
Proceeds from sale of shares 488,436,098 398,224,415
- -----------------------------------------------------------------------------
Net asset value of shares issued to shareholders electing to receive payment
of distributions in Fund shares 411,700 --
- -----------------------------------------------------------------------------
Cost of shares redeemed (532,127,430) (436,220,794)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from Fund share transactions (43,279,632) (37,996,379)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets (43,279,632) (37,996,379)
- -----------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------
Beginning of period 242,934,805 280,931,184
- ----------------------------------------------------------------------------- ---------------- ----------------
End of period $ 199,655,173 $ 242,934,805
- ----------------------------------------------------------------------------- ---------------- ----------------
</TABLE>
* For the period from May 1, 1992 to December 31, 1992.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS--TRUST SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, APRIL 30,
<S> <C> <C> <C>
1993 1992** 1992*
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------
Net investment income 0.03 0.02 0.03
- ----------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------
Dividends to shareholders from net investment income (0.03) (0.02) (0.03)
- ---------------------------------------------------------------------- --------- --------- --------------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------- --------- --------- --------------
TOTAL RETURN*** 2.72% 2.13% 3.55%
- ----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------
Expenses 0.59% 0.59%(b) 0.48%(b)
- ----------------------------------------------------------------------
Net investment income 2.68% 3.13%(b) 4.61%(b)
- ----------------------------------------------------------------------
Expense waiver/reimbursement(a) 0.11% 0.05%(b) 0.15%(b)
- ----------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------
Net assets, end of period (000 omitted) $168,909 $242,935 $280,931
- ----------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from August 1, 1991 (date of initial
public investment) to April 30, 1992. During the period from May 16, 1991
(start of business) to August 1, 1991, net investment income aggregating
$0.01 per share ($1,101) was distributed to Federated Administrative
Services.
** The Fund changed its fiscal year from April 30 to December 31.
*** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(b) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS--INVESTMENT SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1993*
<S> <C>
- ----------------------------------------------------------------------------------------- -----------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
- -----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------
Net investment income 0.03
- -----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income ) (0.03
--------
- -----------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.00
--------
- -----------------------------------------------------------------------------------------
TOTAL RETURN** 2.58%
- -----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------
Expenses 0.62% (b)
- -----------------------------------------------------------------------------------------
Net investment income 2.60% (b)
- -----------------------------------------------------------------------------------------
Expense waiver/reimbursement(a) 0.11%
- -----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $30,746
- -----------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from January 19, 1993 (date of initial
public offering) to
December 31, 1993.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(b) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
- --------------------------------------------------------------------------------
(1) ORGANIZATION
BayFunds (the "Trust") is registered under the Investment Company Act of 1940,
as amended, as an open-end, management investment company with five portfolios.
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated April 1, 1991. The Declaration of Trust permits the Trust to
offer shares of beneficial interest representing interests in separate
portfolios of the Trust. The financial statements included herein present only
those of BayFunds Money Market Portfolio (the "Fund"). The financial statements
of the other portfolios are presented separately. The assets of each portfolio
are segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The Fund offers two classes of shares ("Trust Shares" and
"Investment Shares"). Investment Shares are identical in all respects to Trust
Shares, except that Investment Shares are sold pursuant to a Shareholder
Servicing Plan. Under the Shareholder Servicing Plan, the Fund may pay BayBank
Systems, Inc. (the "Shareholder Servicing Agent") a fee at an annual rate up to
0.25 of 1% of the average daily net assets for which the Shareholder Servicing
Agent provides services. For the year ended December 31, 1993 the Fund paid no
Shareholder Servicing fee to the Shareholder Servicing Agent.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--The Fund uses the amortized cost method to value its
portfolio securities in accordance with Rule 2a-7 under the Investment
Company Act of 1940.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System or to have segregated within the
custodian bank's vault, all securities held as collateral in support of
repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of
each repurchase agreement's underlying collateral to ensure the value at
least equals the principal amount of the repurchase transaction, including
accrued interest.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to guidelines established
by the Board of Trustees (the "Trustees"). Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the repurchase
price on the sale of collateral securities.
C. INCOME--Interest income is recorded on the accrual basis and includes
discount earned less any premium, plus short-term gain if any.
D. FEDERAL TAXES--It is the Fund's policy to continue to comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies and to distribute to shareholders each year substantially all of
its taxable income. Accordingly, no provision for federal income or excise
tax is necessary.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund will record
when-issued securities and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
F. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line method over a period of five years from
the Fund's commencement date.
G. OTHER--Investment transactions are accounted for on the date of the
transaction.
(3) DIVIDENDS
The Fund computes its net income daily, and, immediately prior to the
calculation of its net asset value at the close of business, declares and
records dividends to shareholders of record at the time of the previous
computation of the Fund's net asset value. Payment of dividends is made monthly
in cash, or in additional shares at the net asset value on the payable date.
(4) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) in each
class of shares. At December 31, 1993, capital paid in aggregated $199,655,173.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
<S> <C> <C>
TRUST SHARES 12/31/93 12/31/92*
Shares outstanding, beginning of period 242,934,805 280,931,184
- --------------------------------------------------------------------------------
Shares sold 408,340,666 398,224,415
- --------------------------------------------------------------------------------
Net asset value of shares issued to shareholders electing to receive payment of
distributions in Fund shares 27,453 --
- --------------------------------------------------------------------------------
Shares redeemed (482,393,472) (436,220,794)
- -------------------------------------------------------------------------------- --------------- ---------------
Shares outstanding, end of period 168,909,452 242,934,805
- -------------------------------------------------------------------------------- --------------- ---------------
</TABLE>
* For the period from May 1, 1992 to December 31, 1992.
BAYFUNDS MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
<S> <C> <C>
INVESTMENT SHARES 12/31/93** 12/31/92
Shares outstanding, beginning of period -- --
- --------------------------------------------------------------------------------
Shares sold 80,095,432 --
- --------------------------------------------------------------------------------
Net asset value of shares issued to shareholders electing to receive payment of
distributions in Fund shares 384,247 --
- --------------------------------------------------------------------------------
Shares redeemed (49,733,958) --
- -------------------------------------------------------------------------------- --------------- ---------------
Shares outstanding, end of period 30,745,721 --
- -------------------------------------------------------------------------------- --------------- ---------------
</TABLE>
** For the period from January 19, 1993 (date of initial public offering) to
December 31, 1993.
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
BayBanks Investment Management, Inc., the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.40 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
waive a portion of its fee or reimburse other expenses of the Fund, but reserves
the right to terminate such waiver or reimbursement at any time at its sole
discretion. For the period ended December 31, 1993, the Adviser earned an
investment advisory fee of $893,521, of which $192,825 was voluntarily waived.
Administrative personnel and services are provided by Federated Administrative
Services ("FAS") at an annual rate of .15 of 1% on the first $250 million of
average aggregate daily net assets of the Trust; .125 of 1% on the next $250
million; .10 of 1% on the next $250 million; and .075 of 1% on average aggregate
daily net assets in excess of $750 million. FAS may voluntarily waive a portion
of its fee. FAS can modify or terminate this voluntary waiver at any time at its
sole discretion. For the year ended December 31, 1993, FAS earned $263,548, of
which $15,149 was voluntarily waived. In addition, FAS voluntarily reimbursed
the Fund for $48,336 of other operating expenses.
The Fund has adopted a Shareholders Services Plan (the "Services Plan") with
respect to the Investment Shares. The Fund will pay BayBank Systems, Inc., the
Shareholder Servicing Agent, from the net assets of the Fund for administrative
support services of the Investment Shares. The Services Plan provides that the
Fund may incur shareholder services expenses up to 0.25 of 1% of the average
daily net assets of the Investment Shares. For the period ended December 31,
1993, BayBank Systems, Inc., earned no shareholder services fees.
Federated Services Company, the Fund's recordkeeper earned $64,643 for the
period ended December 31, 1993.
Organization expenses of $60,969 were initially borne by FAS. The Fund has
agreed to reimburse FAS for the organization expenses initially borne by FAS
during the five year period following the date the
Trust registration became effective. For the period ended December 31, 1993, the
Fund paid $11,573 pursuant to this agreement.
Certain of the Officers of the Trust are Officers and Trustees of FAS and
Federated Services Company.
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
BAYFUNDS:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of BayFunds Money Market Portfolio (a portfolio of
BayFunds), as of December 31, 1993, and the related statement of operations for
the year then ended and the statement of changes in net assets for the year then
ended and for the period from May 1, 1992 to December 31, 1992, and the
financial highlights for the periods presented therein. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1993, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
BayFunds Money Market Portfolio at December 31, 1993, the results of its
operations for the year then ended and changes in its net assets for each of the
two periods then ended, and financial highlights for the periods presented
therein, in conformity with generally accepted accounting principles.
ERNST & YOUNG
Pittsburgh, Pennsylvania
February 11, 1994
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Kenneth G. Condon Glen R. Johnson
Robert W. Eisenmenger President and Treasurer
Sara L. Johnson Craig P. Churman
Ernest R. May Vice President and Assistant Treasurer
Alvin J. Silk Peter J. Germain
Secretary
Victor R. Siclari
Assistant Secretary
</TABLE>
Mutual funds are not obligations of or insured by any bank nor are they insured
by the federal government or any of its agencies. Investment in these shares
involves risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the Fund's prospectus which contains facts concerning its
objective and policies, management fees and other information.
BAYFUNDS
U.S. TREASURY
MONEY MARKET
PORTFOLIO
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1993
(A Portfolio of BayFunds)
BayBank Boston, N.A.
Investment Adviser
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
Z0319A 4020913 (2/94)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am delighted to communicate with all investors in the BayFunds U.S. Treasury
Money Market Portfolio (the "Fund") and to present the Annual Report to our
shareholders. This Report, which covers the period from the Fund's initial
public investment on January 29, 1993 through year-end, contains valuable
information about your investment, including complete Financial Statements and
the Portfolio of Investments. I want to point out that your Fund's portfolio
manager prepared the Investment Review, which describes the strategies used to
pursue the Fund's investment objective--and yours.
If your objective is current income along with the additional advantage of share
price stability*,
I trust that you will be satisfied with the Fund's performance in 1993. The
Fund, which is invested in a portfolio of short-term U.S. Treasury obligations,
provided dividends totalling $0.02 per share to our investors in the Investment
Shares class, and $0.03 per share to investors in the Institutional Shares class
this year.
At December 31, 1993, the Fund's net assets stood at $537.4 million, which
included balances related to the BayBank Precision Sweep account, an automated
same-day corporate cash management product.
On January 29, 1993, we expanded the selection of BayFunds offerings. In this
short time the BayFunds family of mutual funds--BayFunds U.S. Treasury Money
Market Portfolio, BayFunds Money Market Portfolio, BayFunds
Shares--Massachusetts Municipal Cash Trust, BayFunds Short Term Yield Portfolio,
BayFunds Bond Portfolio and BayFunds Equity Portfolio--has become the investment
array of choice for our retail, corporate and trust customers. I am gratified
that the BayFunds portfolios were closing in on the $1.2 billion mark at
year-end.
On behalf of BayBank Boston, N.A., investment adviser to the Fund, I want to
thank you for your confidence in BayFunds. We remain committed to understanding
your financial goals and providing you with investment advice to assist you in
reaching your target. I urge you to contact your Investment Specialist or
account officer whenever we can be of help.
Sincerely,
John J. Arena
President
BayBank Boston, N.A.
February 10, 1994
* While no money market mutual fund can guarantee that a stable net asset value
will be maintained, the Fund has done so since its inception. Investments in
the Fund are neither insured nor guaranteed by the U.S. government, and are
not obligations of or guaranteed by BayBanks, Inc. or its subsidiaries.
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
ECONOMIC HIGHLIGHTS:
Data released during the first half of 1993 indicated that the economy's growth
moderated considerably following the surge in late 1992. The first half Gross
Domestic Product ("GDP") figure came in at a modest 0.7%, on the heels of a
solid 4.0% achieved during the second half of 1992. Consumer confidence
continued to falter, perhaps reflecting modest employment gains, uncertainty
regarding tax increases and proposed health care reform, and further cutbacks in
defense spending.
In response to higher than expected levels in inflation indicators, the Federal
Reserve issued a directive that was biased toward tightening at its May meeting,
indicating a willingness to raise rates in a preemptive move to keep inflation
in check. This action resulted in a spike in short-term rates in late May and
early June. Subsequent data indicated that inflation continued to abate
throughout the remainder of the year, which allowed the Federal Reserve to
eliminate its bias toward tightening and to maintain a 3% target for the pivotal
short-term benchmark, the federal funds rate.
During the second half of the year consumer confidence (and expenditures) showed
signs of improvement, helping the economy gain momentum. This was particularly
true for interest sensitive sectors such as housing and durable goods, as
interest rates fell sharply in the third quarter.
Stronger economic data, concerns over future inflation, and a shift in the
Treasury's debt from longer to shorter maturities during the fourth quarter
boosted short-term rates back to the levels previously achieved in June.
PORTFOLIO HIGHLIGHTS:
BayFunds U.S. Treasury Money Market Portfolio (the "Fund") began to accept
shareholder funds on January 29, 1993. The Fund began that first day with $288
million in assets and finished the year virtually doubled in size--at $537
million. Throughout this period of rapid asset growth, the Fund's adviser,
BayBank Boston, N.A., believed that the moderate economic expansion would not
give the Federal Reserve an opportunity to raise short-term rates. As such, our
strategy was to take advantage of higher rates during bouts of inflationary
days. This has permitted us to benefit from the steep yield curve and any
temporary rate increases. We achieved our strategy by purchasing U.S. Treasury
obligations with maturities of six to twelve months for additional yield, and
repurchase agreements ("repos") fully collateralized by U.S. Treasury
obligations as our short-term investment of choice. Repos with maturities of one
to thirty days have provided considerable liquidity for the Fund and more
attractive yields than weekly Treasury bills.
OUTLOOK:
We expect to maintain the current strategy over the near term. However, as we
enter the third year of economic expansion, we are closely monitoring an
acceleration of growth or inflation, either of which would provide the Federal
Reserve a reason to tighten policy. When we see a change to higher, sustainable
interest rates and/or a flatter yield curve, we intend to shorten the average
maturity of the Fund.
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- --------------- ------------------------------------------------------------------------------- ---------------
U.S. TREASURY OBLIGATIONS--47.8%
- ------------------------------------------------------------------------------------------------
U.S. TREASURY BILLS--28.5%
-------------------------------------------------------------------------------
$ 155,000,000 1/13/94-11/17/94 $ 153,125,752
-------------------------------------------------------------------------------
U.S. TREASURY NOTES--14.0%
-------------------------------------------------------------------------------
75,000,000 4.00%-5.75%, 2/28/94-11/30/94 75,437,029
-------------------------------------------------------------------------------
U.S. TREASURY NOTES STRIPS--5.3%
-------------------------------------------------------------------------------
28,623,850 2/15/94-8/15/94 28,292,552
------------------------------------------------------------------------------- ---------------
TOTAL U.S. TREASURY OBLIGATIONS 256,855,333
------------------------------------------------------------------------------- ---------------
*REPURCHASE AGREEMENTS--52.3%
- ------------------------------------------------------------------------------------------------
10,145,000 Aubrey G. Lanston & Co., Inc., 3.15%, dated 12/31/93, due 1/3/94 10,145,000
-------------------------------------------------------------------------------
50,000,000 Carroll McEntee & McGinley, Inc., 3.25%, dated 12/31/93,
due 1/3/94 50,000,000
-------------------------------------------------------------------------------
50,000,000 Greenwich Capital Markets, Inc., 3.40%, dated 12/30/93,
due 1/6/94 50,000,000
-------------------------------------------------------------------------------
25,000,000 Kidder, Peabody & Co., Inc., 3.30%, dated 12/22/93, due 1/3/94** 25,000,000
-------------------------------------------------------------------------------
25,000,000 Merrill Lynch Government Securities, Inc., 3.20%, dated 12/20/93, due 1/3/94** 25,000,000
-------------------------------------------------------------------------------
50,000,000 PaineWebber, Inc., 3.25%, dated 12/31/93, due 1/3/94 50,000,000
-------------------------------------------------------------------------------
45,932,000 Salomon Brothers, Inc., 3.15%, dated 12/31/93, due 1/3/94 45,932,000
-------------------------------------------------------------------------------
25,000,000 Sanwa-BGK Securities Co., 3.20%, dated 12/20/93, due 1/3/94** 25,000,000
------------------------------------------------------------------------------- ---------------
TOTAL REPURCHASE AGREEMENTS (NOTE 2B) 281,077,000
------------------------------------------------------------------------------- ---------------
TOTAL INVESTMENTS, AT AMORTIZED COST $ 537,932,333\
------------------------------------------------------------------------------- ---------------
</TABLE>
\ Also represents cost for federal tax purposes.
* Repurchase agreements are fully collateralized by U.S. Treasury and/or agency
obligations based on market prices at the date of the portfolio.
** Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the repurchase
agreement.
STRIPS--Separate Trading of Registered Interest and Principal of Securities.
Note: The categories of investments are shown as a percentage of net assets
($537,417,521) at
December 31, 1993.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------------------------
Investments in repurchase agreements $ 281,077,000
- -------------------------------------------------------------------------------
Investments in other securities 256,855,333
- ------------------------------------------------------------------------------- ---------------
Total investments, at amortized cost and value (Note 2A and 2B) $ 537,932,333
- ------------------------------------------------------------------------------------------------
Cash 126,515
- ------------------------------------------------------------------------------------------------
Interest receivable 886,473
- ------------------------------------------------------------------------------------------------
Deferred expenses 132,211
- ------------------------------------------------------------------------------------------------ ---------------
Total assets 539,077,532
- ------------------------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------------------------
Dividends payable 1,267,466
- -------------------------------------------------------------------------------
Accrued expenses and other liabilities 392,545
- ------------------------------------------------------------------------------- ---------------
Total liabilities 1,660,011
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSETS for 537,417,521 shares of beneficial interest outstanding $ 537,417,521
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share
Institutional Shares ($502,723,847 / 502,723,847 shares of beneficial interest outstanding)
$1.00
- ------------------------------------------------------------------------------------------------ ---------------
Investment Shares ($34,693,674 / 34,693,674 shares of beneficial interest outstanding)
$1.00
- ------------------------------------------------------------------------------------------------ ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------------
Interest income (Note 2C) $ 13,618,859
- --------------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 851,157
- -----------------------------------------------------------------------------------
Administrative personnel and services fees (Note 5) 478,865
- -----------------------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 179,399
- -----------------------------------------------------------------------------------
Custodian fees 35,535
- -----------------------------------------------------------------------------------
Recordkeeping fees (Note 5) 108,195
- -----------------------------------------------------------------------------------
Printing and postage 14,389
- -----------------------------------------------------------------------------------
Legal fees 82,201
- -----------------------------------------------------------------------------------
Shareholder services fees (Note 5) 38,154
- -----------------------------------------------------------------------------------
Insurance premiums 13,380
- -----------------------------------------------------------------------------------
Trustees' fees 27,060
- -----------------------------------------------------------------------------------
Miscellaneous 19,545
- ----------------------------------------------------------------------------------- -------------
Total expenses 1,847,880
- -----------------------------------------------------------------------------------
Deduct--
- ----------------------------------------------------------------------
Waiver of administrative personnel and
services fees (Note 5) $ 238,788
- ----------------------------------------------------------------------
Reimbursement of other operating expenses (Note 5) 59,801 298,589
- ---------------------------------------------------------------------- ----------- -------------
Net expenses 1,549,291
- -------------------------------------------------------------------------------------------------- --------------
Net investment income $ 12,069,568
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
* For the period from January 29, 1993 (date of initial public investment) to
December 31, 1993.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1993*
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------------------------
Net investment income $ 12,069,568
- ----------------------------------------------------------------------------------------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -----------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- -----------------------------------------------------------------------------------------------
Institutional Shares (11,674,226)
- -----------------------------------------------------------------------------------------------
Investment Shares (395,342)
- ----------------------------------------------------------------------------------------------- -----------------
Change in net assets from distributions to shareholders (12,069,568)
- ----------------------------------------------------------------------------------------------- -----------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- -----------------------------------------------------------------------------------------------
Proceeds from sale of shares 1,439,679,366
- -----------------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders electing to receive payment of distributions
in Fund shares 1,413,741
- -----------------------------------------------------------------------------------------------
Cost of shares redeemed (903,675,586)
- ----------------------------------------------------------------------------------------------- -----------------
Change in net assets from Fund share transactions 537,417,521
- ----------------------------------------------------------------------------------------------- -----------------
Change in net assets 537,417,521
- -----------------------------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------------------------
Beginning of period --
- ----------------------------------------------------------------------------------------------- -----------------
End of period $ 537,417,521
- ----------------------------------------------------------------------------------------------- -----------------
</TABLE>
* For the period from January 29, 1993 (date of initial public investment) to
December 31, 1993.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1993*
<S> <C>
- ------------------------------------------------------------------------------------------------ -----------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
- ------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------
Net investment income 0.03
-------
- ------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.03)
-------
- ------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.00
-------
- ------------------------------------------------------------------------------------------------
TOTAL RETURN** 2.62%
- ------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------------
Expenses 0.35%(a)
- ------------------------------------------------------------------------------------------------
Net investment income 2.85%(a)
- ------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.07%(a)
- ------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $502,724
- ------------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from January 29, 1993 (date of initial
public investment) to December 31, 1993.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS--INVESTMENT SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1993*
<S> <C>
- ------------------------------------------------------------------------------------------------ -----------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
- ------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------
Net investment income 0.02
-------
- ------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.02)
-------
- ------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.00
-------
- ------------------------------------------------------------------------------------------------
TOTAL RETURN** 2.41%
- ------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------------
Expenses 0.62%(a)
- ------------------------------------------------------------------------------------------------
Net investment income 2.59%(a)
- ------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.07%(a)
- ------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $34,694
- ------------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from January 29, 1993 (date of initial
public offering) to December 31, 1993.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
- --------------------------------------------------------------------------------
(1) ORGANIZATION
BayFunds (the "Trust") is registered under the Investment Company Act of 1940,
as amended, as an open-end, management investment company with five portfolios.
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated April 1, 1991. The Declaration of Trust permits the Trust to
offer shares of beneficial interest representing interests in separate
portfolios of the Trust. The financial statements included herein present only
those of BayFunds U.S. Treasury Money Market Portfolio (the "Fund"). The
financial statements of the other portfolios are presented separately. The
assets of each portfolio are segregated and a shareholder's interest is limited
to the portfolio in which shares are held. The Fund offers two classes of shares
("Institutional Shares" and "Investment Shares"). Investment Shares are
identical in all respects to Institutional Shares except that Investment Shares
are sold pursuant to a Shareholder Servicing Plan. Under the Shareholder
Servicing Plan the Fund may pay BayBank Systems, Inc. (the "Shareholder
Servicing Agent") a fee at an annual rate up to 0.25 of 1% of the average daily
net assets for which the Shareholder Servicing Agent provides services.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--The Fund uses the amortized cost method to value its
portfolio securities in accordance with Rule 2a-7 under the Investment
Company Act of 1940.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System or to have segregated within the
custodian bank's vault, all securities held as collateral in support of
repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of
each repurchase agreement's underlying securities to ensure the value at
least equals the principal amount of the repurchase transaction, including
accrued interest.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to guidelines established
by the Board of Trustees (the "Trustees"). Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the repurchase
price on the sale of collateral securities.
C. INCOME--Interest income is recorded on the accrual basis and includes
discount earned less any premium, plus short-term gain, if any.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year substantially all of its taxable
income. Accordingly, no provision for federal tax is necessary.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities and maintains security positions such that sufficient liquid
assets will be available to make payment for the securities purchased.
Securities purchased on a when-issued or delayed delivery basis are marked
to market daily and begin earning interest on the settlement date.
F. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line method over a period of five years from
the Fund's commencement date.
G. OTHER--Investment transactions are accounted for on the date of the
transaction.
(3) DIVIDENDS
The Fund computes its net income daily, and, immediately prior to the
calculation of its net asset value at the close of business, declares and
records dividends to shareholders of record at the time of the previous
computation of the Fund's net asset value. Payment of dividends is made monthly
in cash, or in additional shares at the net asset value on the payable date.
(4) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) in each
class of shares. At December 31, 1993, capital paid in aggregated $537,417,521.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
INSTITUTIONAL SHARES 1993*
<S> <C>
- ------------------------------------------------------------------------------------------------
Shares outstanding, beginning of period --
- ------------------------------------------------------------------------------------------------
Shares sold 1,362,891,661
- ------------------------------------------------------------------------------------------------
Shares issued to shareholders electing to receive payment
of distributions in Fund shares 1,048,895
- ------------------------------------------------------------------------------------------------
Shares redeemed (861,216,709)
- ------------------------------------------------------------------------------------------------ ----------------
Shares outstanding, end of period 502,723,847
- ------------------------------------------------------------------------------------------------ ----------------
</TABLE>
*For the period from January 29, 1993 (date of initial public investment) to
December 31, 1993.
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
INVESTMENT SHARES 1993*
<S> <C>
- ------------------------------------------------------------------------------------------------
Shares outstanding, beginning of period --
- ------------------------------------------------------------------------------------------------
Shares sold 76,787,705
- ------------------------------------------------------------------------------------------------
Shares issued to shareholders electing to receive payment
of distributions in Fund shares 364,846
- ------------------------------------------------------------------------------------------------
Shares redeemed (42,458,877)
- ------------------------------------------------------------------------------------------------ ----------------
Shares outstanding, end of period 34,693,674
- ------------------------------------------------------------------------------------------------ ----------------
</TABLE>
*For the period from January 29, 1993 (date of initial public offering) to
December 31, 1993.
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
BayBank Boston, N.A., the Fund's investment adviser ("Adviser"), receives for
its services an annual investment advisory fee equal to 0.20 of 1% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse other expenses of the Fund, but reserves the right to terminate
such waiver or reimbursement at any time at its sole discretion. For the period
ended December 31, 1993, the Adviser earned an investment advisory fee of
$851,157.
Administrative personnel and services are provided by Federated Administrative
Services ("FAS") at an annual rate of .15 of 1% on the first $250 million of
average aggregate daily net assets of the Trust; .125 of 1% on the next $250
million; .10 of 1% on the next $250 million; and .075 of 1% on average aggregate
daily net assets in excess of $750 million. FAS may voluntarily waive a portion
of its fee. FAS may modify or terminate this voluntary waiver at any time at its
sole discretion. For the period ended December 31, 1993, FAS earned $478,865, of
which $238,788 was voluntarily waived. In addition, FAS voluntarily reimbursed
the Fund $59,801 in other operating expenses.
The Fund has adopted a Shareholder Services Plan (the "Services Plan") with
respect to the Investment Shares. The Fund will pay BayBank Systems, Inc., the
Shareholder Servicing Agent, from the net assets of the Fund for administrative
support services of the Investment Shares. The Services Plan provides that the
Fund may incur shareholder services expenses up to 0.25 of 1% of the average
daily net assets of the Investment Shares. However, the Shareholder Servicing
Agent may voluntarily waive all or a portion of its fee at any time. For the
period ended December 31, 1993, BayBank Systems, Inc. earned $38,154 in
shareholder service fees.
Federated Services Company, the Fund's recordkeeper, received for its services
fees of $108,195 for the period ended December 31, 1993.
Organization expenses of $48,056 were initially borne by FAS. The Fund has
agreed to reimburse FAS for the organization expenses initially borne by FAS
during the five year period following the date the Fund became effective. For
the period ended December 31, 1993, the Fund paid $3,611 pursuant to this
agreement.
Certain of the Officers of the Fund are Officers and Trustees of FAS and
Federated Services Company.
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
BAYFUNDS:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of BayFunds U.S. Treasury Money Market Portfolio
(a portfolio of BayFunds), as of December 31, 1993, and the related statement of
operations, statement of changes in net assets and financial highlights for the
period from January 29, 1993 (date of initial public investment) to December 31,
1993. These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1993, by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
BayFunds U.S. Treasury Money Market Portfolio at December 31, 1993, the results
of its operations, changes in its net assets and financial highlights for the
period from January 29, 1993 to December 31, 1993, in conformity with generally
accepted accounting principles.
ERNST
& YOUNG
Pittsburgh, Pennsylvania
February 11, 1994
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Kenneth G. Condon Glen R. Johnson
Robert W. Eisenmenger President and Treasurer
Sara L. Johnson Craig P. Churman
Ernest R. May Vice President and Assistant Treasurer
Alvin J. Silk Peter J. Germain
Secretary
Victor R. Siclari
Assistant Secretary
</TABLE>
Mutual funds are not obligations of or insured by any bank nor are they insured
by the federal government or any of its agencies. Investment in these
shares involves risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the Fund's prospectus which contains facts concerning its
objective and policies, management fees and other information.
BAYFUNDS
BOND
PORTFOLIO
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1993
(A Portfolio of BayFunds)
BayBanks Investment Management, Inc.
Investment Adviser
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
Z0306A 4020914 (2/94)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am delighted to communicate with all investors in the BayFunds Bond Portfolio
(the "Fund") and to present the Annual Report to shareholders. This Report,
which covers the period from the Fund's initial public investment on January 29,
1993 through year-end, contains valuable information about your investment,
including complete financial statements and the Portfolio of Investments. I want
to point out that your Fund's portfolio manager prepared the Investment Review,
which describes the strategies used to pursue the Fund's investment
objective--and yours.
I trust that you will be pleased with the Fund's performance this year. Since
its launch, the Fund provided a total return (the sum of dividend income,
capital appreciation and capital gains (reinvested in additional shares of the
Fund)) of 7.97%. In seeking to accomplish its objective of high current income
and long-term growth of your principal, the Fund paid monthly dividends
totalling $0.55 per share, and capital gains of $0.10 to our investors this
year.*
The Fund, which maintains a well diversified portfolio of U.S. Treasury, U.S.
government agency and investment grade corporate bonds, was selected by many
investors as a key component of their long-term investment strategy. At year-end
the Fund's net assets had increased to $78.1 million.
On January 29, 1993, we expanded the selection of BayFunds offerings. In this
short time the BayFunds family of mutual funds--BayFunds U.S. Treasury Money
Market Portfolio, BayFunds Money Market Portfolio, BayFunds
Shares--Massachusetts Municipal Cash Trust, BayFunds Short Term Yield Portfolio,
BayFunds Bond Portfolio and BayFunds Equity Portfolio--has become the investment
array of choice for our retail, corporate and trust customers. I am gratified
that the BayFunds portfolios were closing in on the $1.2 billion mark at
year-end.
On behalf of BayBanks Investment Management, Inc., investment adviser to the
Fund, I want to thank you for your confidence in BayFunds. We remain committed
to understanding your financial goals and providing you with investment advice
to assist you in reaching your target. I urge you to contact your Investment
Specialist or account officer whenever we can be of help.
Sincerely,
John J. Arena
President
BayBanks Investment Management, Inc.
February 10, 1994
*Performance given is for the Investment Shares class. Past performance is not
indicative of future results. Investment return and principal value will
fluctuate, so when shares are redeemed they may be worth more or less than the
original cost.
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
ECONOMIC HIGHLIGHTS:
The bond market surge that began after the presidential election spilled over
into the first quarter of 1993. Positive economic data eased concerns that the
new administration would pursue a stimulative fiscal policy and the Federal
Reserve appeared willing to maintain their current course. These factors pushed
long-term rates to their lowest levels since the seventies. However, by the
middle of the second quarter, the rally ground to a halt because of large
increases in the broad price indices suggesting rising inflation, declining
consumer confidence in the President's ability to affect significant deficit
reduction and a subpar economic recovery. The backup in rates proved temporary
as susbsequent data indicated that inflation was receding and economic growth
was even more lackluster than expected. In addition, investors realized that the
Clinton administration's tax and health care plans would act as a fiscal drag on
the economy. The yield curve (two year note to 30 year bond) flattened to its
narrowest level in over a year and the first half ended on a strong note.
Early in the summer, there was evidence of continued sluggishness in the
economy. Ongoing corporate downsizing, declining inflationary expectations,
strong productivity gains, falling oil prices and a reversal by the Federal
Reserve on its bias toward tightening combined to propel interest rates to new
lows. The yield curve flattened with a vengeance, and despite a subdued July,
the bond market soared to new heights in August and the long bond broke through
the 6% level just before Labor Day.
By the final quarter, the economy finally responded to the significant rate
declines that had occurred in the spring and summer. Rate-sensitive sectors
(housing and durable goods) began to perk up, consumer confidence showed signs
of improving and the National Association of Purchasing Managers' Index moved
into an expansionary mode. The phenomenal rally of 1993 ended in the fourth
quarter, as money managers began to lock in the substantial year-to-date profits
and focused on the strengthening economy and whether the Federal Reserve would
tighten in a preemptive fashion to reduce fears of rekindling inflation.
PORTFOLIO HIGHLIGHTS:
Calendar year 1993 saw tremendous gains from almost every sector of the fixed
income market. The major exception was mortgage-backed securities, which were
crippled by the dramatic decline in interest rates and subsequent massive
prepayments, which forced reinvestment of principal at substantially lower
rates. The best performing securities were noncallable obligations and the Fund
maintained a 94% position in these obligations. The intermediate sector of the
yield curve (five to ten years) was the best performing segment, and we
maintained a good overweighting in that area versus the Lehman Brothers Lehman
Brothers Intermediate Government/Corporate Index throughout 1993. For most of
the year, another favorable strategy was to own noncallable investment grade
corporates, distributed across the maturity spectrum. Since the Fund's initial
public investment on January 29, 1993, we have increased our exposure to the
corporate sector (from 17% to 32%) focusing on industrial and bank issuers. We
also maintained an average maturity that was significantly longer than that of
the Index, a strategy that enabled us to outperform the Index's total return of
6.71% since the Fund's inception. Unlike the Fund, this Index is unmanaged.
OUTLOOK:
- --------------------------------------------------------------------------------
We believe it is time for the fixed income market to pause in 1994. We would
characterize the new year as a "coupon-clipping" period with yield products
(such as corporate, asset-backed and mortgage-backed securities) outperforming
U.S. Treasuries. Two areas that underperformed in 1993, mortgage-backed
securities and callable issues, could provide relatively superior returns at
various points in 1994. Corporates, especially bank, finance and selective
industrial issues should continue to do well and we expect that investment grade
issues will receive ongoing attention and demand. Since there does not appear to
be a discernable interest rate trend, we will attempt to capture incremental
yield by focusing on sector rotation.
PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT
IN BAYFUNDS BOND PORTFOLIO AND LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT/CORPORATE INDEX
Graphic representation A omitted. See Appendix.
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
*Reflects performance of BayFunds Bond Portfolio from January 29, 1993 through
December 31, 1993, on a cumulative basis. On January 1, 1994, the Fund
designated its shares as Investment Shares and established a new class of
shares called Institutional Shares. (See Note 1 to the Financial Statements)
**The Fund's performance assumes the reinvestment of all dividends and
distributions. The Lehman Brothers Intermediate Government/Corporate Index is
adjusted to reflect reinvestment of dividends on securities in the index.
The Lehman Brothers Intermediate Government/Corporate Index is not adjusted to
reflect sales loads, expenses, or other fees that the SEC requires to be
reflected in the Fund's performance.
BAYFUNDS BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- --------------------------------------------------------------------------------- --------------
ASSET-BACKED SECURITIES--4.9%
- -------------------------------------------------------------------------------------------------
$ 1,000,000 First Deposit Master Trust 5.75%, 6/15/98 $ 1,005,800
---------------------------------------------------------------------------------
445,287 Merrill Lynch Asset-Backed Corp., 5.125%, 7/15/98 448,969
---------------------------------------------------------------------------------
1,000,000 NationsBank Credit Card Master Trust, 4.75%, 9/15/98 996,620
---------------------------------------------------------------------------------
171,301 Shawmut National Grantor Trust, 5.55%, 11/15/97 172,944
---------------------------------------------------------------------------------
300,000 Standard Credit Card Trust, 9.00%, 3/10/95 318,813
---------------------------------------------------------------------------------
500,000 Standard Credit Card Master Trust, 5.50%, 2/7/2000 499,275
---------------------------------------------------------------------------------
341,461 Volvo Auto Receivables Grantor Trust, 5.45%, 12/15/98 345,719
--------------------------------------------------------------------------------- --------------
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST, $3,784,177) 3,788,140
--------------------------------------------------------------------------------- --------------
CORPORATE BONDS--35.3%
- -------------------------------------------------------------------------------------------------
BANKING--10.9%
---------------------------------------------------------------------------------
1,250,000 Bank One Milwaukee, N.A., 6.625%, 4/15/2003 1,270,925
---------------------------------------------------------------------------------
500,000 Bank of Montreal, 6.10%, 9/15/2005 479,875
---------------------------------------------------------------------------------
1,000,000 Chemical Banking Corp., 7.00%, 6/1/2005 1,032,990
---------------------------------------------------------------------------------
500,000 Mellon Financial Co., 6.50%, 12/1/97 516,160
---------------------------------------------------------------------------------
2,000,000 NationsBank Corp., 6.50%-6.875%, 1/15/98-2/15/2005 2,035,540
---------------------------------------------------------------------------------
1,000,000 Norwest Corp., 6.00%, 3/15/2000 1,011,180
---------------------------------------------------------------------------------
200,000 Royal Bank of Scotland Capital Group, 10.125%, 3/1/2004 252,442
---------------------------------------------------------------------------------
1,000,000 Republic NY Corp., 5.875%, 10/15/2008 937,500
---------------------------------------------------------------------------------
1,000,000 Toronto Dominion Bank, 6.15%, 10/15/2008 959,430
--------------------------------------------------------------------------------- --------------
Total 8,496,042
--------------------------------------------------------------------------------- --------------
CHEMICAL--1.2%
---------------------------------------------------------------------------------
500,000 Dow Chemical Co., 9.35%, 3/15/2002 588,755
---------------------------------------------------------------------------------
300,000 Rohm & Haas Holdings, 9.80%, 4/15/2020 378,630
--------------------------------------------------------------------------------- --------------
Total 967,385
--------------------------------------------------------------------------------- --------------
DIVERSIFIED--0.1%
---------------------------------------------------------------------------------
$ 100,000 Philip Morris Cos., 8.25%, 4/10/95 $ 103,904
--------------------------------------------------------------------------------- --------------
ENTERTAINMENT--1.6%
---------------------------------------------------------------------------------
300,000 Paramount Communications, Inc., 8.25%, 8/1/2022 294,027
---------------------------------------------------------------------------------
1,000,000 Walt Disney Co., 5.80%, 10/27/2008 956,670
--------------------------------------------------------------------------------- --------------
Total 1,250,697
--------------------------------------------------------------------------------- --------------
FINANCE-CONSUMER--0.4%
---------------------------------------------------------------------------------
300,000 American General Finance Corp., 7.15%, 5/15/97 317,328
--------------------------------------------------------------------------------- --------------
FINANCIAL SERVICES--4.4%
---------------------------------------------------------------------------------
500,000 Bear Stearns Cos., Inc., 6.75%, 4/15/2003 501,230
---------------------------------------------------------------------------------
1,500,000 Dean Witter, Discover & Co., 6.00%-6.75%, 3/1/98-10/15/2013 1,453,690
---------------------------------------------------------------------------------
1,500,000 Paine Webber Group, Inc., 6.50%-7.00%, 3/1/2000-11/1/2005 1,472,555
--------------------------------------------------------------------------------- --------------
Total 3,427,475
--------------------------------------------------------------------------------- --------------
FOOD & BEVERAGE--3.0%
---------------------------------------------------------------------------------
500,000 Anheuser-Busch Cos. Inc., 7.375%, 7/1/2023 508,145
---------------------------------------------------------------------------------
1,500,000 Coca-Cola Enterprises, Inc., 6.75%-7.875%, 2/1/2002-9/15/2023 1,492,840
---------------------------------------------------------------------------------
300,000 Grand Metropolitan Investment, PLC, 9.00%, 8/15/2011 362,955
--------------------------------------------------------------------------------- --------------
Total 2,363,940
--------------------------------------------------------------------------------- --------------
INSURANCE--4.7%
---------------------------------------------------------------------------------
1,000,000 Allstate Corp., 6.75%, 6/15/2003 1,020,150
---------------------------------------------------------------------------------
1,000,000 Enhance Financial Services Group, Inc., 6.75%, 3/1/2003 1,018,900
---------------------------------------------------------------------------------
1,000,000 MBIA, Inc., 8.20%, 10/1/2022 1,090,500
---------------------------------------------------------------------------------
500,000 USLIFE Corp., 6.75%, 1/15/98 518,775
--------------------------------------------------------------------------------- --------------
Total 3,648,325
--------------------------------------------------------------------------------- --------------
MACHINERY, EQUIPMENT & AUTO--2.1%
---------------------------------------------------------------------------------
500,000 Ford Motor Co., 7.50%, 11/15/99 534,125
---------------------------------------------------------------------------------
500,000 Ingersoll-Rand Co., 6.875%, 2/1/2003 519,920
---------------------------------------------------------------------------------
500,000 Xerox Corp., 8.125%, 4/15/2002 562,210
--------------------------------------------------------------------------------- --------------
Total 1,616,255
--------------------------------------------------------------------------------- --------------
OIL/OIL FINANCE--0.7%
---------------------------------------------------------------------------------
$ 500,000 Texaco Capital, Inc., 6.875%, 7/15/99 $ 530,600
--------------------------------------------------------------------------------- --------------
UTILITIES--3.6%
---------------------------------------------------------------------------------
250,000 Consolidated Edison NY, 7.375%, 9/15/2000 270,578
---------------------------------------------------------------------------------
500,000 GTE Southwest, Inc., 6.54%, 12/1/2005 503,080
---------------------------------------------------------------------------------
500,000 Houston Lighting & Power Co., 7.75%, 3/15/2023 514,475
---------------------------------------------------------------------------------
300,000 Ontario Hydro, 9.25%, 5/1/95 316,986
---------------------------------------------------------------------------------
300,000 Rural Electric Cooperative Grantor Trust CTF, 10.11%, 12/15/2017 359,664
---------------------------------------------------------------------------------
600,000 Southern California Edison Co., 9.25%, 6/15/2021 661,650
---------------------------------------------------------------------------------
150,000 Southwestern Bell Telephone Co., 6.875%, 2/1/2011 148,734
--------------------------------------------------------------------------------- --------------
Total 2,775,167
--------------------------------------------------------------------------------- --------------
TRANSPORTATION--2.6%
---------------------------------------------------------------------------------
1,000,000 Ryder System, Inc., 8.375%, 2/15/2017 1,082,760
---------------------------------------------------------------------------------
1,000,000 Southwest Airlines Co. Equipment Trust, 6.26%, 9/24/2012 955,940
--------------------------------------------------------------------------------- --------------
Total 2,038,700
--------------------------------------------------------------------------------- --------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $27,927,739) 27,535,818
--------------------------------------------------------------------------------- --------------
U.S. GOVERNMENT AGENCIES--6.7%
- -------------------------------------------------------------------------------------------------
500,000 Federal Home Loan Mortgage Corp., 6.61%, 3/4/2003 515,135
---------------------------------------------------------------------------------
1,155,380 Federal National Mortgage Association REMIC 6.50-9.50%,
11/25/99-12/25/2016 1,171,873
---------------------------------------------------------------------------------
2,050,000 Federal National Mortgage Association 6.72%-8.90%,
6/12/2000-8/12/2019 2,256,468
---------------------------------------------------------------------------------
752,524 Federal National Mortgage Association Pass-Thru, 10.50%, 5/1/2012 833,887
---------------------------------------------------------------------------------
400,000 Private Export Funding Corp., 8.95%, 10/31/97 454,000
--------------------------------------------------------------------------------- --------------
TOTAL U.S. GOVERNMENT AGENCIES (IDENTIFIED COST $4,676,963) 5,231,363
--------------------------------------------------------------------------------- --------------
U.S. TREASURY OBLIGATIONS--50.7%
- -------------------------------------------------------------------------------------------------
$ 8,500,000 U.S. Treasury Bill, 3/17/94 $ 8,442,200
---------------------------------------------------------------------------------
6,050,000 U.S. Treasury Bonds, 7.25%-9.375%, 2/15/2006-5/15/2018 7,240,805
---------------------------------------------------------------------------------
22,300,000 U.S. Treasury Notes, 5.125%-8.875%, 11/15/94-8/15/2002 23,892,302
--------------------------------------------------------------------------------- --------------
TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST $39,086,565) 39,575,307
--------------------------------------------------------------------------------- --------------
*VARIABLE RATE INSTRUMENT--0.6%
- -------------------------------------------------------------------------------------------------
500,000 Bankers Trust NY Corp., 6.00%, 3/19/94 503,125
--------------------------------------------------------------------------------- --------------
TOTAL VARIABLE RATE INSTRUMENT (IDENTIFIED COST $501,250) 503,125
--------------------------------------------------------------------------------- --------------
**REPURCHASE AGREEMENT--1.1%
- -------------------------------------------------------------------------------------------------
845,000 Aubrey G. Lanston & Co., Inc., 3.15%, dated 12/31/93, due 1/3/94
(at amortized cost) (Note 2B) 845,000
--------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $76,821,694) $ 77,478,753\
--------------------------------------------------------------------------------- --------------
</TABLE>
* Current rate and next demand date shown.
** Repurchase agreement is fully collateralized by U.S. Treasury obligation
based on market prices at the date of the portfolio.
\ The cost of investments for federal tax purposes amounts to $76,821,694. The
net unrealized appreciation on a federal tax basis amounts to $657,059, which
is comprised of $1,101,538 appreciation and $444,479 depreciation at December
31, 1993.
Note: The categories of investments are shown as a percentage of net assets
($78,079,542) at
December 31, 1993.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------------------------
Investments, at value (Notes 2A and 2B)
(identified and tax cost: $76,821,694) $ 77,478,753
- --------------------------------------------------------------------------------------------------
Cash 2,849
- --------------------------------------------------------------------------------------------------
Interest receivable 1,051,580
- --------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 4,047
- --------------------------------------------------------------------------------------------------
Deferred expenses (Note 2F) 26,436
- -------------------------------------------------------------------------------------------------- --------------
Total assets 78,563,665
- --------------------------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------------------------
Payable for Fund shares repurchased $ 61,105
- -------------------------------------------------------------------------------------
Dividend payable 323,102
- -------------------------------------------------------------------------------------
Accrued expenses and other liabilities 99,916
- ------------------------------------------------------------------------------------- -----------
Total liabilities 484,123
- -------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 7,700,664 shares of beneficial interest outstanding $ 78,079,542
- -------------------------------------------------------------------------------------------------- --------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------------------------
Paid-in capital $ 77,422,434
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 657,059
- --------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 49
- -------------------------------------------------------------------------------------------------- --------------
Total Net Assets $ 78,079,542
- -------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share
($78,079,542 / 7,700,664 shares of beneficial interest outstanding) $10.14
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS BOND PORTFOLIO
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------------
Interest income (Note 2C) $ 4,279,371
- --------------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 392,858
- -------------------------------------------------------------------------------------
Trustees' fees 2,838
- -------------------------------------------------------------------------------------
Administrative personnel and services fees (Note 5) 74,221
- -------------------------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 28,953
- -------------------------------------------------------------------------------------
Custodian expenses 9,795
- -------------------------------------------------------------------------------------
Recordkeeping fees (Note 5) 54,618
- -------------------------------------------------------------------------------------
Legal fees 20,315
- -------------------------------------------------------------------------------------
Printing and postage 6,470
- -------------------------------------------------------------------------------------
Insurance premiums 9,247
- -------------------------------------------------------------------------------------
Miscellaneous 8,090
- ------------------------------------------------------------------------------------- -----------
Total expenses 607,405
- -------------------------------------------------------------------------------------
Deduct--
- --------------------------------------------------------------------------
Waiver of investment advisory fees (Note 5) $ 95,417
- --------------------------------------------------------------------------
Reimbursement of other operating expenses (Note 5) 13,169
- --------------------------------------------------------------------------
Waiver of administrative personnel and services fees (Note 5) 41,156 149,742
- -------------------------------------------------------------------------- --------- -----------
Net expenses 457,663
- -------------------------------------------------------------------------------------------------- -------------
Net investment income 3,821,708
- -------------------------------------------------------------------------------------------------- -------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
- --------------------------------------------------------------------------------------------------
Net realized gain on investment transactions (identified cost basis)-- 742,614
- --------------------------------------------------------------------------------------------------
Net change in unrealized appreciation on investments 657,059
- -------------------------------------------------------------------------------------------------- -------------
Net realized and unrealized gain on investments 1,399,673
- -------------------------------------------------------------------------------------------------- -------------
Change in net assets resulting from operations $ 5,221,381
- -------------------------------------------------------------------------------------------------- -------------
</TABLE>
*For the period from January 29, 1993 (date of initial public investment) to
December 31, 1993.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1993*
<S> <C>
- ----------------------------------------------------------------------------------------- -----------------------
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------------------
Net investment income $ 3,821,708
- -----------------------------------------------------------------------------------------
Net realized gain on investment transactions
($742,614 net gain as computed for federal tax purposes) 742,614
- -----------------------------------------------------------------------------------------
Net change in unrealized appreciation on investments 657,059
- ----------------------------------------------------------------------------------------- -----------------------
Change in net assets resulting from operations 5,221,381
- ----------------------------------------------------------------------------------------- -----------------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (3,821,708)
- -----------------------------------------------------------------------------------------
Distribution to shareholders from net realized gain on investment transactions: (742,565)
- ----------------------------------------------------------------------------------------- -----------------------
Change in net assets from distributions to shareholders (4,564,273)
- ----------------------------------------------------------------------------------------- -----------------------
FUND SHARE (PRINCIPAL) TRANSACATIONS (NOTE 4)--
- -----------------------------------------------------------------------------------------
Proceeds from sale of shares 84,401,252
- -----------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders electing to receive
payment of distributions in Fund shares 180,690
- -----------------------------------------------------------------------------------------
Cost of shares redeemed (7,159,508)
- ----------------------------------------------------------------------------------------- -----------------------
Change in net assets from Fund share transactions 77,422,434
- ----------------------------------------------------------------------------------------- -----------------------
Change in net assets 78,079,542
- -----------------------------------------------------------------------------------------
NET ASSETS--
- -----------------------------------------------------------------------------------------
Beginning of period --
- ----------------------------------------------------------------------------------------- -----------------------
End of period $ 78,079,542
- ----------------------------------------------------------------------------------------- -----------------------
</TABLE>
*For the period from January 29, 1993 (date of initial public investment) to
December 31, 1993.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS BOND PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1993*
<S> <C>
- ----------------------------------------------------------------------------------------- -----------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- -----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------
Net investment income 0.55
- -----------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 0.24
--------
- -----------------------------------------------------------------------------------------
Total from investment operations 0.79
--------
- -----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.55)
- -----------------------------------------------------------------------------------------
Distribution to shareholders from net realized gain on investment transactions (0.10)
--------
- -----------------------------------------------------------------------------------------
Total distributions (0.65)
--------
- -----------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.14
--------
- -----------------------------------------------------------------------------------------
TOTAL RETURN** 7.97%
- -----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------
Expenses 0.70% (a)%
- -----------------------------------------------------------------------------------------
Net investment income 5.84%(a)
- -----------------------------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.23%(a)
- -----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 78,080
- -----------------------------------------------------------------------------------------
Portfolio turnover rate 74%
- -----------------------------------------------------------------------------------------
</TABLE>
* For the period from January 29, 1993 (date of initial public investment) to
December 31, 1993.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntarily expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
- --------------------------------------------------------------------------------
(1) ORGANIZATION
BayFunds (the "Trust") is registered under the Investment Company Act of 1940,
as amended, as an open-end, management investment company with five portfolios.
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated April 1, 1991. The Declaration of Trust permits the Trust to
offer shares of beneficial interest representing interests in separate
portfolios of the Trust. The financial statements included herein present only
those of BayFunds Bond Portfolio (the "Fund"). The financial statements of the
other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. Effective January 1, 1994, the Fund offers two classes of
shares ("Institutional Shares" and "Investment Shares"). Investment Shares are
identical in all respects to Institutional Shares, except that Investment Shares
are sold pursuant to a Shareholder Servicing Plan. Under the Shareholder
Servicing Plan, the Fund may pay BayBank Systems, Inc. (the "Shareholder
Servicing Agent") a fee at an annual rate up to 0.25 of 1% of the average daily
net assets for which the Shareholder Servicing Agent provides services.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--U.S. government obligations generally are valued at
the mean between the over-the-counter bid and asked prices as furnished by
an independent pricing service. Corporate bonds (and other fixed income
securities/asset-backed securities) are valued at the last sale price on
national securities exchanges on that day, if available. Otherwise,
corporate bonds (and other fixed income securities/asset-backed securities)
are valued at the mean between the bid and asked prices provided by an
independent pricing service. Short-term obligations are generally valued at
the mean between bid and asked prices as furnished by an independent
pricing service. Short-term obligations with maturities of sixty days or
less are valued at amortized cost, which approximates value.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral in support of
repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of
each repurchase agreement's underlying collateral to ensure the value at
least equals to principal amount of the repurchase transaction, including
accrued interest.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to guidelines established
by the Board of Trustees (the "Trustees"). Risks may arise from the
potential inability of counterparties to honor the terms of these
agreements. Accordingly, the Fund could receive less than the repurchase
price on the sale of collateral securities.
C. INCOME--Interest income is recorded on the accrual basis and includes
discount earned, less any premium, on short-term obligations, and original
issue discount on all other debt securities.
D. FEDERAL TAXES--It is the Fund's policy to continue to comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies and to distribute to shareholders each year substantially all of
its taxable income, including any net realized gain on investments.
Accordingly, no provisions for federal tax are necessary.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund will record
when-issued securities and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
F. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line method over a period of five years from
the Fund's commencement date.
G. OTHER--Investment transactions are accounted for on the date of the
transaction.
(3) DIVIDENDS
Dividends from net investment income are declared daily and paid monthly.
Distributions of any net realized capital gains will be made at least once every
twelve months. Dividends and capital gain distributions, if any, are recorded on
the ex-dividend date.
(4) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1993*
<S> <C>
Shares outstanding, beginning of period --
- ------------------------------------------------------------------------------------------------
Shares sold 8,380,954
- ------------------------------------------------------------------------------------------------
Shares issued to shareholders electing to receive
payment of distributions in Fund shares 17,528
- ------------------------------------------------------------------------------------------------
Shares redeemed (697,818)
- ------------------------------------------------------------------------------------------------ ----------------
Shares outstanding, end of period 7,700,664
- ------------------------------------------------------------------------------------------------ ----------------
</TABLE>
*For the period from January 29, 1993 (date of initial public investment) to
December 31, 1993.
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
BayBanks Investment Management, Inc., the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.60 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive a portion of its fee or reimburse other expenses of the Fund.
The Adviser can terminate such waiver or reimbursement policy at any time at its
sole discretion. For the period ended December 31, 1993, the Adviser earned an
investment advisory fee of $392,858, of which $95,417 was voluntarily waived.
Administrative personnel and services are provided by Federated Administrative
Services ("FAS") at an annual fee equal to .15 of 1% on the first $250 million
of average aggregate daily net assets of the Trust; .125 of 1% on the next $250
million; .10 of 1% on the next $250 million; and .075 of 1% on average aggregate
daily net assets in excess of $750 million. FAS may voluntarily waive a portion
of its fee. FAS can modify or terminate this voluntary waiver at any time at its
sole discretion. For the period ended December 31, 1993, FAS earned $74,221, of
which $41,156 was voluntarily waived. In addition, FAS voluntarily reimbursed
the Fund for $13,169 of other operating expenses.
Federated Services Company, the Funds' recordkeeper, received for its services
fees of $54,618 for the period ended December 31, 1993.
Organization expenses of $52,861 were initially borne by FAS. The Fund has
agreed to reimburse FAS for the organization expenses initially borne by FAS
during the five year period following the date the Fund became effective. For
the period ended December 31, 1993, the Fund paid $3,972 pursuant to this
agreement.
Certain of the Officers of the Trust are Officers and Trustees of FAS and
Federated Services Company.
(6) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended December 31, 1993, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------
PURCHASES $ 125,312,637
- ------------------------------------------------------------------------------------------------- ---------------
SALES $ 50,087,957
- ------------------------------------------------------------------------------------------------- ---------------
</TABLE>
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
BAYFUNDS:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of BayFunds Bond Portfolio (a portfolio of
BayFunds), as of December 31, 1993, and the related statement of operations,
statement of changes in net assets and financial highlights for the period from
January 29, 1993 (date of initial public investment) to December 31, 1993. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1993, by
correspondence with the custodian and broker. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
BayFunds Bond Portfolio at December 31, 1993, and the results of its operations,
changes in its net assets and financial highlights for the period from January
29, 1993 to December 31, 1993, in conformity with generally accepted accounting
principles.
ERNST
& YOUNG
Pittsburgh, Pennsylvania
February 11, 1994
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Kenneth G. Condon Glen R. Johnson
Robert W. Eisenmenger President and Treasurer
Sara L. Johnson Craig P. Churman
Ernest R. May Vice President and Assistant Treasurer
Alvin J. Silk Peter J. Germain
Secretary
Victor R. Siclari
Assistant Secretary
</TABLE>
Mutual funds are not obligations of or insured by any bank nor are they insured
by the federal government or any of its agencies. Investment in these shares
involves risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the Fund's prospectus which contains facts concerning its
objective and policies, management fees and other information.
BAYFUNDS
EQUITY
PORTFOLIO
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1993
(A Portfolio of BayFunds)
BayBanks Investment Management, Inc.
Investment Adviser
FEDERATED SECURITIES CORP.
Distributors
A subsidiary of FEDERATED INVESTORS
Z0315A 4020912 (2/94)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am delighted to communicate with all investors in the BayFunds Short Term
Yield Portfolio (the "Fund") and to present the Annual Report to our
shareholders. This Report, which covers the period from the Fund's initial
public investment on January 29, 1993 through year-end, contains valuable
information about your investment, including complete financial statements and
the Portfolio of Investments. I want to point out that your Fund's portfolio
manager prepared the Investment Review, which describes the strategies used to
pursue the Fund's investment objective--and yours.
I trust that you will be pleased with the Fund's performance this year. Since
its launch, the Fund achieved a total return (the sum of dividend income,
capital appreciation and capital gains (reinvested in additional shares of the
Fund)) of 3.96%. The Fund, which maintains a highly diversified portfolio of
U.S. Treasury, U.S. Government agency and high grade corporate debt obligations,
paid monthly dividends totaling $0.48 per share to our investors this year.*
In seeking to accomplish its objective of high current income consistent with
the preservation of the value of your investment (which means a relatively
stable net asset value per share), the Fund has proven to be an extremely
popular selection for many thousands of investors. The Fund can be a key
component of your long-term investment strategy, or as an alternative to an
FDIC-insured savings account or CD since it can offer a potentially higher
yield. Although the Fund may pay a higher rate, its net asset value is sensitive
to interest rate movement and a rise in interest rates can result in a decline
in the Fund's net asset value. Unlike a CD or savings account, the Fund is not
federally insured and does not offer a fixed rate of return. Since January 29,
1993, when the Fund began accepting shareholder monies, we have seen net assets
increase by 77%.
On January 29, 1993, we expanded the selection of BayFunds offerings. In this
short time the BayFunds family of mutual funds--BayFunds U.S. Treasury Money
Market Portfolio, BayFunds Money Market Portfolio, BayFunds
Shares--Massachusetts Municipal Cash Trust, BayFunds Short Term Yield Portfolio,
BayFunds Bond Portfolio and BayFunds Equity Portfolio--has become the investment
array of choice for our retail, corporate and trust customers. I am gratified
that the BayFunds portfolios were closing in on the $1.2 billion mark at
year-end.
On behalf of BayBanks Investment Management, Inc., investment adviser to the
Fund, I want to thank you for your confidence in BayFunds. We remain committed
to understanding your financial goals and providing you with investment advice
to assist you in reaching your target. I urge you to contact your Investment
Specialist or account officer whenever we can be of help.
Sincerely,
John J. Arena
President
BayBanks Investment Management, Inc.
February 10, 1994
*Performance given is for the Investment Shares class. Past performance is not
indicative of future results. Investment return and principal value will
fluctuate, so when shares are redeemed they may be worth more or less than the
original cost.
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Q How did the Fund perform?
A Since its initial public investment on January 29, 1993, the Fund's total
return was 11.28%, strongly outperforming its benchmark, the S&P 500
Index's 9.02% return for the same period.
Q What do you attribute the excess return to?
A The excess return can be attributed to two factors: sector weighting and
stock picking. We attempted to overweight the industries and sectors that
would benefit from a recovering economy. Our quantitative models also
identify stocks that exhibit the greatest earnings growth and price
momentum
(stable to increased growth in share price relative to the market). The
combination of these characteristics identifies stocks that should
outperform
the market. By diversifying the portfolio over a number of sectors, the
Fund has
been positioned to respond as changes in market leadership occur.
Q What were your favorite U.S. sectors?
A Our equity style utilizes a "bottom up" approach, looking for stocks that
incorporate growth, value and technical characteristics. Three sectors that
provided excellent growth and good value were Capital Goods, Technology and
Basic Materials. The Capital Goods and Technology sectors of the S&P 500
returned 19.6% and 17.6%, respectively, outpacing the S&P 500's Composite
return
of 10.0%. These two sectors comprised approximately 17% of the Index, and our
commitment to those sectors was over 22%. The Basic Material sector, which we
believed would produce strong returns as the economy showed signs of recovery,
actully underperformed the market for much of the year, but finished with a
13.5% gain. In addition, the Fund's stock selection within each of these
sectors
outperformed those in the Index.
Given the benign growth outlook and the uncertain ramifications of various
political agendas, I underweighted the Consumer Staples sector (made up of
tobacco, food, beverage and healthcare issues). It comprised 15.8% of the Fund,
versus 20.6% against the Index. This strategy added value, as the return for the
Consumer Staples sector was a -5.8%.
Q What is your outlook for the equity markets over the next 3-6 months?
A Liquidity and low interest rates propelled the market in 1993. At the
beginning of 1994, we believe the driving force for the stock market will
be corporate earnings, which are expected to exhibit good year-over-year
growth and reduce the high valuation levels. The best opportunities should
remain in areas that will benefit from a recovering economy, and we will
continue to overweight those sectors.
PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT
IN BAYFUNDS EQUITY PORTFOLIO AND
STANDARD & POOR'S 500 INDEX
Graphic representation B omitted. See Appendix.
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
*Reflects performance of BayFunds Equity Portfolio from January 29, 1993
through December 31, 1993, on a cumulative basis. On January 1, 1994, the
Fund designated its shares as Investment Shares and established a new class
of shares called Institutional Shares. (See Note 1 to the Financial
Statements)
**The Fund's performance assumes the reinvestment of all dividends and
distributions. The Standard & Poor's 500 Index is adjusted to reflect
reinvestment of dividends on securities in the index.
The Standard & Poor's 500 Index is not adjusted to reflect sales loads,
expenses, or other fees that the SEC requires to be reflected in the Fund's
performance.
BAYFUNDS EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- ---------------
COMMON STOCKS--94.2%
- ------------------------------------------------------------------------------------------------
AEROSPACE--2.9%
---------------------------------------------------------------------------------
21,500 Grumman Corp. $ 849,250
---------------------------------------------------------------------------------
14,600 Lockheed Corp. 996,450
---------------------------------------------------------------------------------
26,400 Loral Corp. 996,600
---------------------------------------------------------------------------------
6,600 Raytheon Co. 435,600
--------------------------------------------------------------------------------- ---------------
Total 3,277,900
--------------------------------------------------------------------------------- ---------------
AIRLINES--0.9%
---------------------------------------------------------------------------------
28,250 Atlantic Southeast Airlines, Inc. 967,562
--------------------------------------------------------------------------------- ---------------
APPAREL & TEXTILE--0.7%
---------------------------------------------------------------------------------
10,000 Culp, Inc. 250,000
---------------------------------------------------------------------------------
13,000 Springs Industries, Inc. 490,750
--------------------------------------------------------------------------------- ---------------
Total 740,750
--------------------------------------------------------------------------------- ---------------
AUTO RELATED--1.0%
---------------------------------------------------------------------------------
35,200 Echlin, Inc. 1,170,400
--------------------------------------------------------------------------------- ---------------
AUTOS & TRUCKS--1.7%
---------------------------------------------------------------------------------
13,100 Ford Motor Co. 844,950
---------------------------------------------------------------------------------
13,400 General Motors Corp. 735,325
---------------------------------------------------------------------------------
8,100 Harley Davidson, Inc. 357,413
--------------------------------------------------------------------------------- ---------------
Total 1,937,688
--------------------------------------------------------------------------------- ---------------
BANKS--3.5%
---------------------------------------------------------------------------------
15,900 Boatmen's Bancshares Inc. 475,013
---------------------------------------------------------------------------------
13,200 First Interstate Bancorp. 846,450
---------------------------------------------------------------------------------
33,000 Huntington Bancshares, Inc. 779,625
---------------------------------------------------------------------------------
6,200 J.P. Morgan & Co., Inc. 430,125
---------------------------------------------------------------------------------
39,187 Southtrust Corp. 744,553
---------------------------------------------------------------------------------
26,035 Washington Federal Savings $ 680,164
--------------------------------------------------------------------------------- ---------------
Total 3,955,930
--------------------------------------------------------------------------------- ---------------
BEVERAGES--1.8%
---------------------------------------------------------------------------------
22,000 Anheuser Busch Cos., Inc. 1,080,750
---------------------------------------------------------------------------------
16,200 Coca-Cola Co. 722,925
---------------------------------------------------------------------------------
4,400 PepsiCo, Inc. 179,850
--------------------------------------------------------------------------------- ---------------
Total 1,983,525
--------------------------------------------------------------------------------- ---------------
BUILDING & CONSTRUCTION--1.7%
---------------------------------------------------------------------------------
12,438* Clayton Homes, Inc. 301,609
---------------------------------------------------------------------------------
22,000 Morrison Knudsen Corp. 552,750
---------------------------------------------------------------------------------
37,400 Oakwood Homes Corp. 1,009,800
--------------------------------------------------------------------------------- ---------------
Total 1,864,159
--------------------------------------------------------------------------------- ---------------
CHEMICALS--2.2%
---------------------------------------------------------------------------------
9,600 Dow Chemical Co. 544,800
---------------------------------------------------------------------------------
6,900 Du Pont (E.I.) deNemours & Co., Inc. 332,925
---------------------------------------------------------------------------------
12,300 Monsanto Co. 902,513
---------------------------------------------------------------------------------
19,000 Petrolite Corp. 665,000
--------------------------------------------------------------------------------- ---------------
Total 2,445,238
--------------------------------------------------------------------------------- ---------------
CHEMICALS SPECIAL--1.0%
---------------------------------------------------------------------------------
50,000* Airgas, Inc. 1,087,500
--------------------------------------------------------------------------------- ---------------
COAL, GAS & PIPE--1.4%
---------------------------------------------------------------------------------
18,000 Burlington Res., Inc. 762,750
---------------------------------------------------------------------------------
23,000 Questar Corp. 759,000
--------------------------------------------------------------------------------- ---------------
Total 1,521,750
--------------------------------------------------------------------------------- ---------------
CONTAINERS--0.3%
---------------------------------------------------------------------------------
7,750* Crown Cork & Seal Co., Inc. 324,531
--------------------------------------------------------------------------------- ---------------
DIVERSIFIED--2.0%
---------------------------------------------------------------------------------
8,700 Allied-Signal, Inc. $ 687,300
---------------------------------------------------------------------------------
40,000 Mark IV Industries, Inc. 720,000
---------------------------------------------------------------------------------
14,200 Textron, Inc. 827,150
--------------------------------------------------------------------------------- ---------------
Total 2,234,450
--------------------------------------------------------------------------------- ---------------
DRUGS--5.1%
---------------------------------------------------------------------------------
23,800* Amgen, Inc. 1,178,100
---------------------------------------------------------------------------------
25,000 Cardinal Distribution, Inc. 1,187,500
---------------------------------------------------------------------------------
21,700* Forest Laboratories, Inc. 1,033,463
---------------------------------------------------------------------------------
76,400 Marion Merrell Dow, Inc. 1,375,200
---------------------------------------------------------------------------------
13,550 Schering-Plough, Inc. 928,175
--------------------------------------------------------------------------------- ---------------
Total 5,702,438
--------------------------------------------------------------------------------- ---------------
ELECTRONICS--2.7%
---------------------------------------------------------------------------------
7,200* Applied Materials, Inc. 279,000
---------------------------------------------------------------------------------
13,000* Arrow Electronics, Inc. 542,750
---------------------------------------------------------------------------------
28,300 Linear Technology Corp. 1,096,625
---------------------------------------------------------------------------------
11,300 Motorola, Inc. 1,043,837
--------------------------------------------------------------------------------- ---------------
Total 2,962,212
--------------------------------------------------------------------------------- ---------------
ELECTRICAL EQUIPMENT--2.5%
---------------------------------------------------------------------------------
44,100* American Power Conversion Co. 1,047,375
---------------------------------------------------------------------------------
19,500 Baldor Electric Co. 558,187
---------------------------------------------------------------------------------
11,100 General Electric Co. 1,164,113
--------------------------------------------------------------------------------- ---------------
Total 2,769,675
--------------------------------------------------------------------------------- ---------------
ENVIRONMENT CONTROL--1.0%
---------------------------------------------------------------------------------
32,400* Thermo Instrument System, Inc. 1,129,950
--------------------------------------------------------------------------------- ---------------
FINANCIAL SERVICES--3.9%
---------------------------------------------------------------------------------
19,800 Advanta Corp. 658,350
---------------------------------------------------------------------------------
14,200 American Express Co. 438,425
---------------------------------------------------------------------------------
21,300 Equifax, Inc. $ 583,087
---------------------------------------------------------------------------------
19,000 Merrill Lynch & Co., Inc. 798,000
---------------------------------------------------------------------------------
21,200 Primerica Corp. 824,150
---------------------------------------------------------------------------------
4,650 Sunamerica, Inc. 201,113
---------------------------------------------------------------------------------
20,800 United Asset Management Corp. 850,200
--------------------------------------------------------------------------------- ---------------
Total 4,353,325
--------------------------------------------------------------------------------- ---------------
FOODS--1.8%
---------------------------------------------------------------------------------
36,700 Dean Foods Co. 1,197,338
---------------------------------------------------------------------------------
11,000 Dreyer's Grand Ice Cream, Inc. 324,500
---------------------------------------------------------------------------------
6,800 Quaker Oats Co. 482,800
--------------------------------------------------------------------------------- ---------------
Total 2,004,638
--------------------------------------------------------------------------------- ---------------
FOOD SERVICE/LODGING--1.5%
---------------------------------------------------------------------------------
26,900* Brinker International, Inc. 1,237,400
---------------------------------------------------------------------------------
9,150* Promus Cos. Inc. 418,613
--------------------------------------------------------------------------------- ---------------
Total 1,656,013
--------------------------------------------------------------------------------- ---------------
HOSPITAL SUPPLIES & SERVICES--2.8%
---------------------------------------------------------------------------------
34,800 Abbott Laboratories 1,026,600
---------------------------------------------------------------------------------
22,400* Cordis Corp. 1,106,000
---------------------------------------------------------------------------------
19,600 Owens & Minor, Inc. 450,800
---------------------------------------------------------------------------------
7,700 United Healthcare Corp. 584,238
--------------------------------------------------------------------------------- ---------------
Total 3,167,638
--------------------------------------------------------------------------------- ---------------
HOUSEHOLD FURNITURE/APPLIANCE--2.2%
---------------------------------------------------------------------------------
23,400 Armstrong World Industries, Inc. 1,246,050
---------------------------------------------------------------------------------
14,600 Premark International Inc. 1,171,650
--------------------------------------------------------------------------------- ---------------
Total 2,417,700
--------------------------------------------------------------------------------- ---------------
INSURANCE--2.1%
---------------------------------------------------------------------------------
13,000 AFLAC, Inc. 370,500
---------------------------------------------------------------------------------
7,370 Frontier Insurance Group, Inc. $ 329,807
---------------------------------------------------------------------------------
28,500 Progressive Corp. Ohio 1,154,250
---------------------------------------------------------------------------------
5,000 St. Paul Companies, Inc. 449,375
--------------------------------------------------------------------------------- ---------------
Total 2,303,932
--------------------------------------------------------------------------------- ---------------
LEISURE RELATED--3.1%
---------------------------------------------------------------------------------
47,500 Blockbuster Entertainment Corp. 1,454,687
---------------------------------------------------------------------------------
3,500 CBS, Inc. 1,009,750
---------------------------------------------------------------------------------
21,400* Electronic Arts 642,000
---------------------------------------------------------------------------------
23,000 Handleman Co. 304,750
--------------------------------------------------------------------------------- ---------------
Total 3,411,187
--------------------------------------------------------------------------------- ---------------
MACHINERY--3.1%
---------------------------------------------------------------------------------
11,050 Briggs & Stratton Corp. 911,625
---------------------------------------------------------------------------------
5,800 Caterpillar, Inc. 516,200
---------------------------------------------------------------------------------
19,000 Stewart & Stevenson Services, Inc. 973,750
---------------------------------------------------------------------------------
25,200 Trinity Industries, Inc. 1,086,750
--------------------------------------------------------------------------------- ---------------
Total 3,488,325
--------------------------------------------------------------------------------- ---------------
METALS & MINING--1.4%
---------------------------------------------------------------------------------
35,000 American Barrick Res. Corp. 997,500
---------------------------------------------------------------------------------
27,600 Homestake Mining Co. 607,200
--------------------------------------------------------------------------------- ---------------
Total 1,604,700
--------------------------------------------------------------------------------- ---------------
OFFICE EQUIPMENT--2.3%
---------------------------------------------------------------------------------
7,200* Cabletron System, Inc. 810,000
---------------------------------------------------------------------------------
10,200* Compaq Computer Corp. 754,800
---------------------------------------------------------------------------------
40,400* Cray Research, Inc. 1,035,250
--------------------------------------------------------------------------------- ---------------
Total 2,600,050
--------------------------------------------------------------------------------- ---------------
OFFICE EQUIPMENT --SERVICES--3.3%
---------------------------------------------------------------------------------
11,400* Cisco Systems, Inc. 736,725
---------------------------------------------------------------------------------
28,500 Computer Associates International, Inc. $ 1,140,000
---------------------------------------------------------------------------------
26,700* Oracle System Corp. 767,625
---------------------------------------------------------------------------------
23,300 Reynolds & Reynolds Co. 1,063,062
--------------------------------------------------------------------------------- ---------------
Total 3,707,412
--------------------------------------------------------------------------------- ---------------
OIL--DOMESTIC--2.3%
---------------------------------------------------------------------------------
14,400 Amoco Corp. 761,400
---------------------------------------------------------------------------------
30,500 Ashland Oil, Inc. 1,040,813
---------------------------------------------------------------------------------
13,400 Pennzoil Co. 713,550
--------------------------------------------------------------------------------- ---------------
Total 2,515,763
--------------------------------------------------------------------------------- ---------------
OIL--INTERNATIONAL--4.4%
---------------------------------------------------------------------------------
26,600 British Petroleum PLC 1,702,400
---------------------------------------------------------------------------------
9,500 Chevron Corp. 827,688
---------------------------------------------------------------------------------
4,750 Exxon Corp. 299,250
---------------------------------------------------------------------------------
15,600 Mobil Corp. 1,232,400
---------------------------------------------------------------------------------
8,400 Royal Dutch Petroleum Co. 876,750
--------------------------------------------------------------------------------- ---------------
Total 4,938,488
--------------------------------------------------------------------------------- ---------------
OIL--SUPPLIES & CONSTRUCTION--1.2%
---------------------------------------------------------------------------------
17,800 Halliburton Co. 567,375
---------------------------------------------------------------------------------
27,300* Pogo Producing Co. 457,275
---------------------------------------------------------------------------------
5,100 Schlumberger, Ltd. 301,537
--------------------------------------------------------------------------------- ---------------
Total 1,326,187
--------------------------------------------------------------------------------- ---------------
PAPER--2.1%
---------------------------------------------------------------------------------
14,900 International Paper Co. 1,009,475
---------------------------------------------------------------------------------
17,400 Mead Corp. 783,000
---------------------------------------------------------------------------------
14,800 Scott Paper Co. 608,650
--------------------------------------------------------------------------------- ---------------
Total 2,401,125
--------------------------------------------------------------------------------- ---------------
PHOTO & OPTICAL--1.0%
---------------------------------------------------------------------------------
6,000 Eastman Kodak Co. $ 336,000
---------------------------------------------------------------------------------
23,500 Polaroid Corp. 793,125
--------------------------------------------------------------------------------- ---------------
Total 1,129,125
--------------------------------------------------------------------------------- ---------------
PRINTING & PUBLISHING--0.7%
---------------------------------------------------------------------------------
19,500 Meredith Corp. 780,000
--------------------------------------------------------------------------------- ---------------
RAILROAD--1.4%
---------------------------------------------------------------------------------
31,200 Kansas City Southern Industries, Inc. 1,606,800
--------------------------------------------------------------------------------- ---------------
RETAIL--FOOD--1.2%
---------------------------------------------------------------------------------
21,800 Hannaford Brothers Co. 468,700
---------------------------------------------------------------------------------
30,950 Sysco Corp. 905,287
--------------------------------------------------------------------------------- ---------------
Total 1,373,987
--------------------------------------------------------------------------------- ---------------
RETAIL--GENERAL--6.0%
---------------------------------------------------------------------------------
34,200 CML Group, Inc. 807,975
---------------------------------------------------------------------------------
7,500 Dayton Hudson Corp. 500,625
---------------------------------------------------------------------------------
11,000 Dollar General Corp. 330,000
---------------------------------------------------------------------------------
17,900 Fingerhut Corp. 503,438
---------------------------------------------------------------------------------
30,800 Heilig Meyers Co. 1,201,200
---------------------------------------------------------------------------------
23,700 Lowe's Companies, Inc. 1,404,225
---------------------------------------------------------------------------------
15,300 Mercantile Stores, Inc. 554,625
---------------------------------------------------------------------------------
28,400 *Office Depot Inc. 954,950
---------------------------------------------------------------------------------
8,500 Sears Roebuck & Co. 448,375
--------------------------------------------------------------------------------- ---------------
Total 6,705,413
--------------------------------------------------------------------------------- ---------------
SOAPS & TOILETRIES--1.2%
---------------------------------------------------------------------------------
5,600 Colgate-Palmolive Co. 349,300
---------------------------------------------------------------------------------
16,000 Gillette Co. 954,000
--------------------------------------------------------------------------------- ---------------
Total 1,303,300
--------------------------------------------------------------------------------- ---------------
STEEL--0.4%
---------------------------------------------------------------------------------
9,400 Nucor Corp. $ 498,200
--------------------------------------------------------------------------------- ---------------
TELECOMMUNICATIONS--1.5%
---------------------------------------------------------------------------------
29,600* Andrew Corp. 1,139,600
---------------------------------------------------------------------------------
11,100* 3Com Corp. 521,700
--------------------------------------------------------------------------------- ---------------
Total 1,661,300
--------------------------------------------------------------------------------- ---------------
TOBACCO--0.9%
---------------------------------------------------------------------------------
14,300 American Brands 475,475
---------------------------------------------------------------------------------
10,200 Philip Morris Cos., Inc. 568,650
--------------------------------------------------------------------------------- ---------------
Total 1,044,125
--------------------------------------------------------------------------------- ---------------
TRUCKING & SHIPPING--1.1%
---------------------------------------------------------------------------------
17,100* Federal Express Corp. 1,211,962
--------------------------------------------------------------------------------- ---------------
UTILITY--ELECTRIC--3.5%
---------------------------------------------------------------------------------
23,600 American Electric Power Co., Inc. 876,150
---------------------------------------------------------------------------------
21,225 Baltimore Gas & Electric Co. 538,584
---------------------------------------------------------------------------------
20,500 Duke Power Co. 868,687
---------------------------------------------------------------------------------
25,100 Philadelphia Electric Co. 759,275
---------------------------------------------------------------------------------
19,600 Southern Co. 864,850
--------------------------------------------------------------------------------- ---------------
Total 3,907,546
--------------------------------------------------------------------------------- ---------------
UTILITY--GAS PIPELINE--0.7%
---------------------------------------------------------------------------------
30,600 The Williams Companies, Inc. 745,875
--------------------------------------------------------------------------------- ---------------
UTILITY --TELEPHONE--4.7%
---------------------------------------------------------------------------------
10,900 Ameritech Corp. 836,575
---------------------------------------------------------------------------------
8,500 Bellsouth Corp. 491,938
---------------------------------------------------------------------------------
7,600 British Telecommunications 540,550
---------------------------------------------------------------------------------
31,800 Century Tel. Enterprises Inc. 818,850
---------------------------------------------------------------------------------
42,518* Citizens Utilities Co. 765,324
---------------------------------------------------------------------------------
5,500 GTE Corp. 192,500
---------------------------------------------------------------------------------
5,800 Pacific Telesis Group $ 313,200
---------------------------------------------------------------------------------
14,200 Sprint Corp. 493,450
---------------------------------------------------------------------------------
16,600 U.S. West, Inc. 761,525
--------------------------------------------------------------------------------- ---------------
Total 5,213,912
--------------------------------------------------------------------------------- ---------------
TOTAL COMMON STOCKS (IDENTIFIED COST $95,073,269) 105,153,686
--------------------------------------------------------------------------------- ---------------
**REPURCHASE AGREEMENT--5.7%
- ------------------------------------------------------------------------------------------------
$ 6,375,000 Aubrey G. Lanston & Co., Inc.,3.15%, dated 12/31/93, due 1/3/94
(at amortized cost) (Note 2B) 6,375,000
--------------------------------------------------------------------------------- ---------------
TOTAL INVESTMENTS (IDENTIFIED COST $101,448,269) $ 111,528,686\
--------------------------------------------------------------------------------- ---------------
</TABLE>
* Non-income producing securities.
** The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
\ The cost of investments for federal tax purposes amounts to $101,448,269. The
net unrealized appreciation of investments on a federal tax cost basis
amounts to $10,080,417, and is comprised of $12,080,180 appreciation and
$1,999,763 depreciation at December 31, 1993.
Note: The categories of investments are shown as a percentage of net assets
($111,687,025) at
December 31, 1993.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Investments, at value (Notes 2A and 2B)
(identified and tax cost: $101,448,269) $ 111,528,686
- -------------------------------------------------------------------------------------------------
Cash 3,374
- -------------------------------------------------------------------------------------------------
Dividends and interest receivable 181,870
- -------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 55,540
- -------------------------------------------------------------------------------------------------
Deferred expenses (Note 2F) 38,045
- ------------------------------------------------------------------------------------------------- ---------------
Total assets 111,807,515
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------------------
Payable for Fund shares redeemed $ 9,274
- ------------------------------------------------------------------------------------
Accrued expenses and other liabilities 111,216
- ------------------------------------------------------------------------------------ -----------
Total liabilities 120,490
- ------------------------------------------------------------------------------------------------- ---------------
NET ASSETS for 10,175,978 shares of beneficial interest outstanding $ 111,687,025
- ------------------------------------------------------------------------------------------------- ---------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------
Paid-in capital $ 103,681,659
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 10,080,417
- -------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (2,089,978)
- -------------------------------------------------------------------------------------------------
Undistributed net investment income 14,927
- ------------------------------------------------------------------------------------------------- ---------------
Total $ 111,687,025
- ------------------------------------------------------------------------------------------------- ---------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share
($111,687,025 / 10,175,978 shares of beneficial interest outstanding) $10.98
- ------------------------------------------------------------------------------------------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------------
Dividends $ 1,686,003
- --------------------------------------------------------------------------------------------------
Interest 167,984
- -------------------------------------------------------------------------------------------------- -------------
Total investment income (Note 2C) 1,853,987
- --------------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 560,943
- --------------------------------------------------------------------------------------
Trustees' fees 3,612
- --------------------------------------------------------------------------------------
Administrative personnel and services fees (Note 5) 90,387
- --------------------------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 35,964
- --------------------------------------------------------------------------------------
Custodian expenses 19,287
- --------------------------------------------------------------------------------------
Recordkeeping fees (Note 5) 42,684
- --------------------------------------------------------------------------------------
Legal fees 19,943
- --------------------------------------------------------------------------------------
Printing and postage 7,196
- --------------------------------------------------------------------------------------
Insurance premiums 6,319
- --------------------------------------------------------------------------------------
Miscellaneous 8,555
- -------------------------------------------------------------------------------------- ----------
]Total expenses 794,890
- --------------------------------------------------------------------------------------
Deduct--
- --------------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 133,201
- --------------------------------------------------------------------------
Waiver of administrative personnel and services fees (Note 5) 46,661
- --------------------------------------------------------------------------
Reimbursement of other operating expenses (Note 5) 13,014 192,876
- -------------------------------------------------------------------------- ---------- ----------
Net expenses 602,014
- -------------------------------------------------------------------------------------------------- -------------
Net investment income 1,251,973
- -------------------------------------------------------------------------------------------------- -------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------------------------
Net realized loss on investment transactions (identified cost basis)-- (2,089,978)
- --------------------------------------------------------------------------------------------------
Net change in unrealized appreciation on investments 10,080,417
- -------------------------------------------------------------------------------------------------- -------------
Net realized and unrealized gain/(loss) on investments 7,990,439
- -------------------------------------------------------------------------------------------------- -------------
Net change in net assets resulting from operations $ 9,242,412
- -------------------------------------------------------------------------------------------------- -------------
</TABLE>
* For the period from January 29, 1993 (date of initial public investment) to
December 31, 1993.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1993*
<S> <C>
- ----------------------------------------------------------------------------------------- -----------------------
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------------------
Net investment income $ 1,251,973
- -----------------------------------------------------------------------------------------
Net realized loss on investment transactions
($2,089,978 net loss as computed for federal tax purposes) (2,089,978)
- -----------------------------------------------------------------------------------------
Net change in unrealized appreciation on investments 10,080,417
- ----------------------------------------------------------------------------------------- -----------------------
Change in net assets resulting from operations 9,242,412
- ----------------------------------------------------------------------------------------- -----------------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (1,237,046)
- ----------------------------------------------------------------------------------------- -----------------------
FUND SHARE (PRINCIPAL) TRANSACATIONS (NOTE 4)--
- -----------------------------------------------------------------------------------------
Proceeds from sale of shares 113,880,236
- -----------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders electing to receive
payment of distributions in Fund shares 214,740
- -----------------------------------------------------------------------------------------
Cost of shares redeemed (10,413,317)
- ----------------------------------------------------------------------------------------- -----------------------
Change in net assets from Fund share transactions 103,681,659
- ----------------------------------------------------------------------------------------- -----------------------
Change in net assets 111,687,025
- -----------------------------------------------------------------------------------------
NET ASSETS--
- -----------------------------------------------------------------------------------------
Beginning of period --
- ----------------------------------------------------------------------------------------- -----------------------
End of period (including undistributed net investment income of $14,927) $ 111,687,025
- ----------------------------------------------------------------------------------------- -----------------------
</TABLE>
*For the period from January 29, 1993 (date of initial public investment) to
December 31, 1993.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1993*
<S> <C>
- ------------------------------------------------------------------------------------------------ -----------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------
Net investment income 0.14
- ------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 0.98
- ------------------------------------------------------------------------------------------------ -----------------
Total from investment operations 1.12
- ------------------------------------------------------------------------------------------------ -----------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.14)
- ------------------------------------------------------------------------------------------------ -----------------
NET ASSET VALUE, END OF PERIOD $ 10.98
- ------------------------------------------------------------------------------------------------ -----------------
TOTAL RETURN** 11.28%
- ------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------------
Expenses 0.75%(a)
- ------------------------------------------------------------------------------------------------
Net investment income 1.56%(a)
- ------------------------------------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.24%(a)
- ------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 111,687
- ------------------------------------------------------------------------------------------------
Portfolio turnover rate 81%
- ------------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from January 29, 1993 (date of initial
public investment) to December 31, 1993.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
- --------------------------------------------------------------------------------
(1) ORGANIZATION
BayFunds (the "Trust") is registered under the Investment Company Act of 1940,
as amended, as an open-end, management investment company with five portfolios.
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated April 1, 1991. The Declaration of Trust permits the Trust to
offer shares of beneficial interest representing interests in separate
portfolios of the Trust. The financial statements included herein present only
those of BayFunds Equity Portfolio (the "Fund"). The financial statements of the
other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. Effective January 1, 1994 the Fund offers two classes of shares
("Institutional Shares" and "Investment Shares"). Investment Shares are
identical in all respects to Institutional Shares except that Investment Shares
are sold pursuant to a Shareholder Servicing Plan. Under the Shareholder
Servicing Plan, the Fund may pay BayBank Systems, Inc. (the "Shareholder
Servicing Agent") a fee at an annual rate up to 0.25 of 1% of the average daily
net assets for which the Shareholder Servicing Agent provides services.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--Listed equity securities are valued at the last
sales price reported on national securities exchanges. Unlisted securities
or listed securities for which there were no sales on the valuation date
are generally valued at the mean between the bid and asked prices. Short-
term obligations are valued at the mean between the bid and asked prices
furnished by an independent pricing service. Short-term obligations with
maturities of sixty days or less are valued at amortized cost, which
approximates value.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession of, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral in support of
repurchase and reverse repurchase agreements investments. Additionally,
procedures have been established by the Fund to monitor, on a daily basis,
the market value of each repurchase agreement's underlying collateral to
ensure the value at least equals to the principal amount of the repurchase
transaction, including accrued interest.
The Fund will only enter into repurchase and reverse repurchase agreements
with banks and other recognized financial institutions, such as
broker/dealers, which are deemed by the Fund's adviser to be creditworthy
pursuant to guidelines established by the Board of Trustees (the
"Trustees").
BAYFUNDS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
Risks may arise from the potential inability of counterparties to honor the
terms of these agreements. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
C. INCOME--Dividend income is recorded on the ex-dividend date. Interest
income is recorded on the accrual basis and includes discount earned, less
any premium.
D. FEDERAL TAXES--It is the Fund's policy to continue to comply with the
provisions of the Internal Revenue Code (the "Code") applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its taxable income. Accordingly, no provisions for
federal tax are necessary.
At December 31, 1993 the Fund, for federal tax purposes, had a capital loss
carryforward of $2,089,978 which will reduce the Fund's taxable income
arising from a future net realized gain on investments, if any, to the
extent permitted by the Code, and thus will reduce the amount of the
distributions to shareholders which would otherwise be necessary to relieve
the Fund of any liability for federal tax. Pursuant to the Code, such
capital loss carryforward will expire in 2001.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund will record
when-issued securities and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
F. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line method over a period of five years from
the Fund's commencement date.
G. OTHER--Investment transactions are accounted for on the date of the
transaction.
(3) DIVIDENDS
Dividends from net investment income are declared and paid quarterly.
Distributions of any net realized capital gains will be made at least once every
twelve months. Dividends and capital gain distributions, if any, are recorded on
the ex-dividend date.
(4) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1993*
<S> <C>
INVESTMENT SHARES
Shares outstanding, beginning of period --
- -----------------------------------------------------------------------------------------
Shares sold 11,146,082
- -----------------------------------------------------------------------------------------
Shares issued to shareholders electing to receive
payment of distributions in Fund shares 19,788
- -----------------------------------------------------------------------------------------
Shares redeemed (989,892)
- ----------------------------------------------------------------------------------------- -----------------------
Shares outstanding, end of period 10,175,978
- ----------------------------------------------------------------------------------------- -----------------------
</TABLE>
*For the period from January 29, 1993 (date of initial public investment) to
December 31, 1993.
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
BayBanks Investment Management, Inc., the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.70 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive a portion of its fee or reimburse other expenses of the Fund.
The Adviser can terminate such waiver or reimbursement policy at any time at its
sole discretion. For the period ended December 31, 1993, the Adviser earned an
investment advisory fee of $560,943, of which $133,201 was voluntarily waived.
Administrative personnel and services are provided by Federated Administrative
Services ("FAS") at an annual fee equal to .15 of 1% on the first $250 million
of average aggregate daily net assets of the Trust; .125 of 1% on the next $250
million; .10 of 1% on the next $250 million; and .075 of 1% on average aggregate
daily net assets in excess of $750 million. FAS may voluntarily waive a portion
of its fee. FAS may modify or terminate this voluntary waiver at any time at its
sole discretion. For the period ended December 31, 1993, FAS earned $90,387, of
which $46,661 was voluntarily waived. In addition, FAS voluntarily reimbursed
the Fund $13,014 of other operating expenses.
Federated Services Company, the Fund's recordkeeper, earned $42,684 for the
period ended Decem-
ber 31, 1993.
Organization expenses of $48,533 were initially borne by FAS. The Fund has
agreed to reimburse FAS for the organization expenses initially borne by FAS
during the five year period following the date the Fund became effective. For
the period ended December 31, 1993, the Fund paid $3,755 pursuant to this
agreement.
BAYFUNDS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
Certain of the Officers of the Trust are Officers and Trustees of FAS and
Federated Services Company.
(6) INVESTMENT TRANSACTIONS
Purchases, and sales of investments, excluding short-term securities, for the
period ended Decem-
ber 31, 1993, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------
PURCHASES $ 164,327,920
- ------------------------------------------------------------------------------------------------- ---------------
SALES $ 67,164,673
- ------------------------------------------------------------------------------------------------- ---------------
</TABLE>
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
BAYFUNDS:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of BayFunds Equity Portfolio (a portfolio of
BayFunds) as of December 31, 1993, and the related statement of operations,
statement of changes in net assets and financial highlights for the period from
January 29, 1993 (date of initial public investment) to December 31, 1993. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1993, by
correspondence with the custodian and broker. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
BayFunds Equity Portfolio at December 31, 1993, and the results of its
operations, changes in its net assets and financial highlights for the period
from January 29, 1993 to December 31, 1993, in conformity with generally
accepted accounting principles.
ERNST
& YOUNG
Pittsburgh, Pennsylvania
February 11, 1994
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Kenneth G. Condon Glen R. Johnson
Robert W. Eisenmenger President and Treasurer
Sara L. Johnson Craig P. Churman
Ernest R. May Vice President and Assistant Treasurer
Alvin J. Silk Peter J. Germain
Secretary
Victor R. Siclari
Assistant Secretary
</TABLE>
Mutual funds are not obligations of or insured by any bank nor are they insured
by the federal government or any of its agencies. Investment in these shares
involves risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the Fund's prospectus which contains facts concerning its
objective and policies, management fees and other information.
BAYFUNDS
SHORT TERM
YIELD
PORTFOLIO
ANNUAL REPORT
TO SHAREHOLDERS
JANUARY 31, 1994
(A Portfolio of BayFunds)
[LOGO] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
4020915 (2/94)
Z0402A
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am delighted to communicate with all investors in the BayFunds Short Term
Yield Portfolio (the "Fund") and to present the Annual Report to our
shareholders. This Report, which covers the period from the Fund's initial
public investment on January 29, 1993 through year-end, contains valuable
information about your investment, including complete financial statements and
the Portfolio of Investments. I want to point out that your Fund's portfolio
manager prepared the Investment Review, which describes the strategies used to
pursue the Fund's investment objective--and yours.
I trust that you will be pleased with the Fund's performance this year. Since
its launch, the Fund achieved a total return (the sum of dividend income,
capital appreciation and capital gains (reinvested in additional shares of the
Fund)) of 3.96%. The Fund, which maintains a highly diversified portfolio of
U.S. Treasury, U.S. Government agency and high grade corporate debt obligations,
paid monthly dividends totaling $0.48 per share to our investors this year.*
In seeking to accomplish its objective of high current income consistent with
the preservation of the value of your investment (which means a relatively
stable net asset value per share), the Fund has proven to be an extremely
popular selection for many thousands of investors. The Fund can be a key
component of your long-term investment strategy, or as an alternative to an
FDIC-insured savings account or CD since it can offer a potentially higher
yield. Although the Fund may pay a higher rate, its net asset value is sensitive
to interest rate movement and a rise in interest rates can result in a decline
in the Fund's net asset value. Unlike a CD or savings account, the Fund is not
federally insured and does not offer a fixed rate of return. Since January 29,
1993, when the Fund began accepting shareholder monies, we have seen net assets
increase by 77%.
On January 29, 1993, we expanded the selection of BayFunds offerings. In this
short time the BayFunds family of mutual funds--BayFunds U.S. Treasury Money
Market Portfolio, BayFunds Money Market Portfolio, BayFunds
Shares--Massachusetts Municipal Cash Trust, BayFunds Short Term Yield Portfolio,
BayFunds Bond Portfolio and BayFunds Equity Portfolio--has become the investment
array of choice for our retail, corporate and trust customers. I am gratified
that the BayFunds portfolios were closing in on the $1.2 billion mark at
year-end.
On behalf of BayBanks Investment Management, Inc., investment adviser to the
Fund, I want to thank you for your confidence in BayFunds. We remain committed
to understanding your financial goals and providing you with investment advice
to assist you in reaching your target. I urge you to contact your Investment
Specialist or account officer whenever we can be of help.
Sincerely,
John J. Arena
President
BayBanks Investment Management, Inc.
February 10, 1994
*Performance given is for the Investment Shares class. Past performance is not
indicative of future results. Investment return and principal value will
fluctuate, so when shares are redeemed they may be worth more or less than the
original cost.
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
ECONOMIC HIGHLIGHTS:
During 1993, BayFunds Short Term Yield Portfolio (the "Fund") was managed
against the backdrop of an erratic economic recovery. In the first half of the
year, Gross Domestic Product ("GDP") increased at an anemic 0.7% rate. While
there was some improvement in the third quarter, it was not until the final
quarter that the economy showed signs of more robust growth, primarily in
interest rate sensitive sectors (housing and auto sales). The unemployment rate
dropped to 6.4% at year end, and GDP growth for the fourth quarter came in at a
remarkable 5.9%.
Throughout the year, the Federal Reserve remained vigilant in its fight against
inflation by maintaining a 3% target for the federal funds rate. Other short
term rates, which had been declining for most of the year, began to rise in
October due to increased Treasury borrowing in shorter maturities. By the end of
the fourth quarter, rates rose in response to economic statistics signaling a
strong growth profile and a change in investor sentiment concerning the
likelihood that the Federal Reserve would tighten rates.
PORTFOLIO HIGHLIGHTS:
The BayFunds Short Term Yield Portfolio has proven to be a popular alternative
for customers seeking high current income and preservation of the value of their
investment. During 1993, assets in the Fund grew by 77% to more than $172
million. At the same time, the net asset value per share of the Fund moved in a
narrow band--between $9.91 and $10.05. Throughout the period, the average
maturity of the Fund was maintained at only slightly above two and one-half
years by pursuing a barbell strategy. This means that we selected securities
with final maturities in the five to seven year range to achieve attractive and
competitive yields, in addition to securities with less than one year to
maturity. These shorter-term issues help the Fund pursue a relatively stable net
asset value.
We found favorable yield-enhancing opportunities with high-quality corporate
issues, which now represent more than 50% of the net assets for the Fund. We
also have been focusing on floating rate notes, the majority of which are issued
by agencies of the U.S. government. Over the longer term, floating rate notes
should allow the Fund to participate favorably in a rising interest rate
environment. Since the initial public investment of the Fund on January 29,
1993, we achieved a total return of 3.96% versus the Merrill Lynch 1-3 year U.S.
Treasury Index total return of 4.3%. Unlike the Fund, this index is unmanaged.
OUTLOOK:
Our long term expectations are that economic growth experienced in the fourth
quarter will not continue and that inflation is not a major threat in the coming
year. Real GDP forecasts have been revised downward to a milder 2.5%-3.0% for
the first half of the year. In the shorter term, however, the Federal Reserve
may need to manage the perception of inflationary pressures and we would not be
surprised by any pre-emptive moves to raise short term rates throughout the
first quarter. Therefore, our strategy will be to maintain a defensive position
and shorten the average maturity of the Fund in order to pursue favorable yields
and seek to maintain a relatively stable net asset value should interest rates
begin to rise.
PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN
IN BAYFUNDS SHORT TERM YIELD PORTFOLIO AND
MERRILL LYNCH 1-3 YEAR U.S. TREASURY INDEX
Graphic representation C omitted. See Appendix.
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
*Reflects performance of BayFunds Short Term Yield Portfolio from January 29,
1993 through December 31, 1993, on a cumulative basis. On January 1, 1994, the
Fund designated its shares as Investment Shares and established a new class of
shares called Institutional Shares. (See Note 1 to the Financial Statements)
**The Fund's performance assumes the reinvestment of all dividends and
distributions. The Merrill Lynch 1-3 Year U.S. Treasury Index is adjusted to
reflect reinvestment of dividends on securities in the index.
The Merrill Lynch 1-3 Year U.S. Treasury Index is not adjusted to reflect sales
loads, expenses, or other fees that the SEC requires to be reflected in the
Fund's performance.
BAYFUNDS SHORT TERM YIELD PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- -------------------------------------------------------------------------------- ---------------
CORPORATE BONDS/ASSET-BACKED SECURITIES--58.8%
- ------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--14.9%
--------------------------------------------------------------------------------
$ 3,000,000 Discover Credit Card Trust Series 1993-1B, 5.30%, 11/15/2001 $ 2,916,090
--------------------------------------------------------------------------------
2,000,000 Discover Credit Card Trust Series 1992A, Class A, 5.50%, 5/16/98 2,026,660
--------------------------------------------------------------------------------
1,500,000 Discover Credit Card Trust Series 1993B, 6.75%, 2/16/2002 1,552,755
--------------------------------------------------------------------------------
674,750 Ford Credit Grantor Trust Series 1993A, Class A, 4.85%, 1/15/98 678,799
--------------------------------------------------------------------------------
243,057 GMAC 1992 Grantor Trust, Series 1992G, Class A, 4.30%, 11/15/94 243,018
--------------------------------------------------------------------------------
1,312,216 GMAC 1993 Grantor Trust, Series 1993B, Class A, 4.00%, 9/15/98 1,300,760
--------------------------------------------------------------------------------
416,667 MBNA Credit Card Trust, Series 1990B, 8.75%, 10/31/95 420,712
--------------------------------------------------------------------------------
2,500,000 NationsBank Credit Card Master Trust, Series 1993-1, Class A,
4.75%, 9/15/98 2,491,550
--------------------------------------------------------------------------------
990,583 Nissan Auto Receivables Grantor Trust, Series 1992B, 4.30%,
9/15/97 989,464
--------------------------------------------------------------------------------
1,999,987 Premier Auto Trust, Series 1993-3, Class B, 5.15%, 11/15/98 2,001,607
--------------------------------------------------------------------------------
1,199,319 Premier Auto Trust, Series 1992-3, Class A, 5.90%, 11/17/97 1,220,631
--------------------------------------------------------------------------------
994,849 Premier Auto Trust, Series 1992-4, Class A, 5.05%, 1/15/98 1,001,237
--------------------------------------------------------------------------------
1,992,847 Premier Auto Trust, Series 1993-2, Class A3, 4.90%, 10/15/98 1,991,094
--------------------------------------------------------------------------------
2,999,977 Premier Auto Trust, Series 1993-5, Class A2, 4.22%, 3/2/99 2,967,127
--------------------------------------------------------------------------------
3,000,000 Premier Auto Trust, Series 1993-6, Class A2, 4.65%, 11/2/99 2,981,790
--------------------------------------------------------------------------------
1,000,000 Standard Credit Card Master Trust, Series 1991/2, Class A, 7.875%, 9/7/95 1,022,540
-------------------------------------------------------------------------------- ---------------
TOTAL ASSET-BACKED SECURITIES 25,805,834
-------------------------------------------------------------------------------- ---------------
CORPORATE BONDS--43.9%
--------------------------------------------------------------------------------
CHEMICALS--1.5%
--------------------------------------------------------------------------------
2,500,000 Monsanto Co., 6.00%, 7/1/2000 2,548,725
-------------------------------------------------------------------------------- ---------------
CONTAINER/PACKAGING--1.5%
--------------------------------------------------------------------------------
2,580,000 WMX Technologies, Inc., 4.625%, 4/14/96 2,576,311
-------------------------------------------------------------------------------- ---------------
DOMESTIC BANK--4.2%
--------------------------------------------------------------------------------
$ 5,000,000 Nationsbank Corp., 5.125%, 9/15/98 $ 4,905,100
--------------------------------------------------------------------------------
2,500,000 Nationsbank Corp., 5.375%, 4/15/2000 2,398,450
-------------------------------------------------------------------------------- ---------------
Total 7,303,550
-------------------------------------------------------------------------------- ---------------
FINANCE AUTOMOTIVE--2.9%
--------------------------------------------------------------------------------
3,000,000 Ford Motor Credit Corp., 4.85%, 5/13/96 2,992,830
--------------------------------------------------------------------------------
2,000,000 Ford Motor Credit Corp., 5.80%, 5/11/98 1,992,420
-------------------------------------------------------------------------------- ---------------
Total 4,985,250
-------------------------------------------------------------------------------- ---------------
FINANCE COMMERCIAL--3.7%
--------------------------------------------------------------------------------
1,500,000 Associates Corp. of N>A>, 4.75%, 8/1/96 1,493,760
--------------------------------------------------------------------------------
4,000,000 Associates Corp. of N>A>, 5.25%, 3/3/2000 3,861,400
--------------------------------------------------------------------------------
1,100,000 CIT Group Holdings, Inc., 5.50%, 2/1/94 1,100,786
-------------------------------------------------------------------------------- ---------------
Total 6,455,946
-------------------------------------------------------------------------------- ---------------
FINANCE CONSUMER--2.8%
--------------------------------------------------------------------------------
3,000,000 Beneficial Corp., 5.35%, 10/8/98 2,959,260
--------------------------------------------------------------------------------
2,000,000 Norwest Financial, Inc., 5.125%, 4/15/2000 1,929,580
-------------------------------------------------------------------------------- ---------------
Total 4,888,840
-------------------------------------------------------------------------------- ---------------
FINANCIAL SERVICES--10.0%
--------------------------------------------------------------------------------
1,000,000 Dean Witter, Discover & Co., 5.00%, 4/1/96 1,005,720
--------------------------------------------------------------------------------
2,500,000 Dean Witter, Discover & Co., 6.00%, 3/1/98 2,516,100
--------------------------------------------------------------------------------
5,000,000 Goldman Sachs Group, 6.375%, 6/15/2000 5,022,450
--------------------------------------------------------------------------------
5,000,000 Merrill Lynch & Co., Inc., 5.125%, 5/19/2003 4,999,150
--------------------------------------------------------------------------------
2,500,000 PaineWebber Group, Inc., 6.25%, 6/15/98 2,508,650
--------------------------------------------------------------------------------
1,200,000 Salomon Inc., 5.88%, 7/29/97 1,211,292
-------------------------------------------------------------------------------- ---------------
Total 17,263,362
-------------------------------------------------------------------------------- ---------------
FOOD & BEVERAGE--2.3%
--------------------------------------------------------------------------------
1,000,000 Coca Cola Enterprises, Inc., 8.20%, 7/18/94 1,020,470
--------------------------------------------------------------------------------
2,000,000 PepsiCo, Inc., 4.60%, 6/30/96 1,985,440
--------------------------------------------------------------------------------
$ 1,000,000 PepsiCo, Inc., 5.875%, 12/15/94 $ 1,012,040
-------------------------------------------------------------------------------- ---------------
Total 4,017,950
-------------------------------------------------------------------------------- ---------------
INSURANCE--5.8%
--------------------------------------------------------------------------------
5,000,000 Allstate Corp., 5.875%, 6/15/98 5,041,950
--------------------------------------------------------------------------------
2,000,000 Chubb Capital Corp., 6.00%, 2/1/98 2,037,400
--------------------------------------------------------------------------------
3,000,000 TransAmerica Financial Corp., 5.62%, 11/24/98 2,977,500
-------------------------------------------------------------------------------- ---------------
Total 10,056,850
-------------------------------------------------------------------------------- ---------------
OIL/OIL FINANCE--0.6%
--------------------------------------------------------------------------------
1,000,000 Exxon Capital Corp., 8.25%, 10/15/94 1,027,110
-------------------------------------------------------------------------------- ---------------
RETAIL--2.0%
--------------------------------------------------------------------------------
3,500,000 Albertson's Inc., 5.57%, 5/23/94 3,513,195
-------------------------------------------------------------------------------- ---------------
TELECOMMUNICATIONS--4.3%
--------------------------------------------------------------------------------
1,500,000 AT & T Capital Corp., 5.25%, 1/28/94 1,501,163
--------------------------------------------------------------------------------
2,000,000 Bell Atlantic Financial Service Inc., 5.46%, 4/27/98 2,008,280
--------------------------------------------------------------------------------
1,000,000 Southwestern Bell Capital Corp., 7.75%, 4/11/94 1,009,750
--------------------------------------------------------------------------------
3,000,000 U.S. West Communications, 5.625%, 7/8/98 2,994,840
-------------------------------------------------------------------------------- ---------------
Total 7,514,033
-------------------------------------------------------------------------------- ---------------
UTILIES-GAS--0.9%
--------------------------------------------------------------------------------
1,500,000 Washington Gas Light Co., 7.01%, 9/26/94 1,526,340
-------------------------------------------------------------------------------- ---------------
UTILITIES-TELEPHONE--1.4%
--------------------------------------------------------------------------------
2,500,000 GTE Southwest, Inc., 5.82%, 12/1/99 2,497,325
-------------------------------------------------------------------------------- ---------------
TOTAL CORPORATE BONDS 76,174,787
-------------------------------------------------------------------------------- ---------------
TOTAL CORPORATE BONDS/ASSET-BACKED SECURITIES
(IDENTITIED COST, $102,989,213) 101,980,621
-------------------------------------------------------------------------------- ---------------
U.S. GOVERNMENT AGENCIES--2.9%
- ------------------------------------------------------------------------------------------------
$ 3,900,000 Federal Home Loan Bank, 7.45%-8.05%, 2/25/94-3/27/95 $ 4,036,432
--------------------------------------------------------------------------------
1,000,000 Student Loan Marketing Association, 7.65%, 12/21/94 1,035,110
-------------------------------------------------------------------------------- ---------------
Total 5,071,542
-------------------------------------------------------------------------------- ---------------
U.S. GOVERNMENT AGENCIES--COLLATERALIZED MORTGAGE OBLIGATIONS (CMO)--1.7%
- ------------------------------------------------------------------------------------------------
2,984,757 Federal Home Loan Mortage Corporation, 5.00%, 7/15/2022 2,981,504
-------------------------------------------------------------------------------- ---------------
TOTAL U.S. GOVERNMENT AGENCIES (IDENTIFIED COST $8,171,957) 8,053,046
-------------------------------------------------------------------------------- ---------------
U.S. TREASURY OBLIGATIONS--2.9%
- ------------------------------------------------------------------------------------------------
5,000,000 U.S. Treasury Notes, 4.25%-7.75%, 4/15/94-11/30/95 5,064,500
-------------------------------------------------------------------------------- ---------------
TOTAL U.S. TREASURY OBLIGIATIONS (IDENTIFIED COST $5,123,749) 5,064,500
-------------------------------------------------------------------------------- ---------------
*VARIABLE RATE INSTRUMENTS--30.9%
- ------------------------------------------------------------------------------------------------
8,000,000 Bankers Trust NY Corp., 6.00%, 3/19/94 8,050,000
--------------------------------------------------------------------------------
5,000,000 CIT Group Holdings, Inc., 3.4375%, 3/25/94 4,994,550
--------------------------------------------------------------------------------
18,350,000 Federal Home Loan Bank, 5.00%-9.05%, 1/15/94-3/27/95 18,285,567
--------------------------------------------------------------------------------
9,850,000 Federal Home Loan Mortage Corporation, 5.00%,
2/25/94-3/27/95 9,851,857
--------------------------------------------------------------------------------
2,500,000 First Union Corp., 4.125%, 1/22/94 2,481,250
--------------------------------------------------------------------------------
1,000,000 Ford Motor Credit Corp., 4.075%, 3/19/94 997,500
--------------------------------------------------------------------------------
3,000,000 Rabobank Nederland, N.V., 5.00%, 3/30/94 2,983,140
--------------------------------------------------------------------------------
2,500,000 Salomon Inc., 4.19%, 1/7/94 2,496,875
--------------------------------------------------------------------------------
3,500,000 Salomon Inc., 5.20%, 4/5/94 3,478,125
-------------------------------------------------------------------------------- ---------------
TOTAL VARIABLE RATE INSTRUMENTS (IDENTIFIED COST $53,702,625) 53,618,864
-------------------------------------------------------------------------------- ---------------
**REPURCHASE AGREEMENT--1.5%
- ------------------------------------------------------------------------------------------------
$ 2,635,000 Aubrey G. Lanston & Co., Inc., 3.15%, dated 12/31/93,
due 1/3/94 (at amortized cost) (Note 2B) $ 2,635,000
-------------------------------------------------------------------------------- ---------------
TOTAL INVESTMENTS AT IDENTIFIED COST ($172,622,544) $ 171,352,031\
-------------------------------------------------------------------------------- ---------------
</TABLE>
* Current rate and next reset date shown.
** Repurchase agreement is fully collaterized by U.S. government and/or agency
obligations based on market prices at the date of the portfolio.
\ The cost for federal tax purposes amounts to $172,627,099. The net unrealized
depreciation of investments on a federal tax basis amounts to $1,275,068
which is comprised of $244,756 appreciation and $1,519,824 depreciation at
December 31, 1993.
Note: The categories of investments are shown as a percentage of net assets
($173,300,804) at
December 31, 1993.
(See Notes which are an integral part of the financial statements)
BAYFUNDS SHORT TERM YIELD PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Investments, at value (Notes 2A and 2B)
(identified cost: $172,622,544; tax cost: $172,627,099) $ 171,352,031
- -------------------------------------------------------------------------------------------------
Cash 3,260
- -------------------------------------------------------------------------------------------------
Interest receivable 1,591,585
- -------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 1,236,926
- -------------------------------------------------------------------------------------------------
Deferred expenses (Note 2F) 54,280
- ------------------------------------------------------------------------------------------------- ---------------
Total assets 174,238,082
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------------------
Dividends payable $ 426,648
- ------------------------------------------------------------------------------------
Payable for Fund shares purchased 360,769
- ------------------------------------------------------------------------------------
Accrued expenses and other liabilities 149,861
- ------------------------------------------------------------------------------------ -----------
Total liabilities 937,278
- ------------------------------------------------------------------------------------------------- ---------------
NET ASSETS for 17,478,310 shares of beneficial interest outstanding $ 173,300,804
- ------------------------------------------------------------------------------------------------- ---------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------
Paid-in capital $ 174,646,738
- -------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (1,270,513)
- -------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (75,421)
- ------------------------------------------------------------------------------------------------- ---------------
Total $ 173,300,804
- ------------------------------------------------------------------------------------------------- ---------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share:
($173,300,804 / 17,478,310 shares of beneficial interest outstanding) $9.91
- ------------------------------------------------------------------------------------------------- ---------------
(See Notes which are an integral part of the Financial Statements)
</TABLE>
BAYFUNDS SHORT TERM YIELD PORTFOLIO
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest income (Note 2C) $ 7,440,719
- ----------------------------------------------------------------------------------------------------
EXPENSES--
- ----------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 643,201
- ----------------------------------------------------------------------------------------
Trustees' fees 5,547
- ----------------------------------------------------------------------------------------
Administrative personnel and services fees (Note 5) 145,120
- ----------------------------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 57,471
- ----------------------------------------------------------------------------------------
Custodian expenses 13,378
- ----------------------------------------------------------------------------------------
Recordkeeping fees (Note 5) 56,479
- ----------------------------------------------------------------------------------------
Legal fees 29,563
- ----------------------------------------------------------------------------------------
Printing and postage 6,527
- ----------------------------------------------------------------------------------------
Insurance premiums 7,214
- ----------------------------------------------------------------------------------------
Miscellaneous 10,581
- ---------------------------------------------------------------------------------------- ----------
]Total expenses 975,081
- ----------------------------------------------------------------------------------------
Deduct--
- ----------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 111,229
- ----------------------------------------------------------------------------
Waiver of administrative personnel and services fees (Note 5) 75,217
- ----------------------------------------------------------------------------
Reimbursement of other operating expenses (Note 5) 20,605 207,051
- ---------------------------------------------------------------------------- ---------- ----------
Net expenses 768,030
- ---------------------------------------------------------------------------------------------------- ------------
Net investment income 6,672,689
- ----------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
- ----------------------------------------------------------------------------------------------------
Net realized loss on investment transactions (identified cost basis) (75,421)
- ----------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (1,270,513)
- ---------------------------------------------------------------------------------------------------- ------------
Net realized and unrealized loss on investments (1,345,934)
- ---------------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 5,326,755
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
*For the period from January 29, 1993 (date of initial public investment) to
December 31, 1993.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS SHORT TERM YIELD PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1993*
<S> <C>
- ------------------------------------------------------------------------------------------------ ----------------
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------------------------------------------------
Net investment income $ 6,672,689
- ------------------------------------------------------------------------------------------------
Net realized loss on investment transactions ($70,866 net loss as computed for federal tax
purposes) (75,421)
- ------------------------------------------------------------------------------------------------
Net change in unrealized depreciation of investments (1,270,513)
- ------------------------------------------------------------------------------------------------ ----------------
Change in net assets resulting from operations 5,326,755
- ------------------------------------------------------------------------------------------------ ----------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- ------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (6,672,689)
- ------------------------------------------------------------------------------------------------ ----------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- ------------------------------------------------------------------------------------------------
Proceeds from sale of shares 218,527,684
- ------------------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders electing to receive
payment of distributions in Fund shares 1,608,290
- ------------------------------------------------------------------------------------------------
Cost of shares redeemed (45,489,236)
- ------------------------------------------------------------------------------------------------ ----------------
Change in net assets from Fund share transactions 174,646,738
- ------------------------------------------------------------------------------------------------ ----------------
Change in net assets 173,300,804
- ------------------------------------------------------------------------------------------------
NET ASSETS--
- ------------------------------------------------------------------------------------------------
Beginning of period --
- ------------------------------------------------------------------------------------------------ ----------------
End of period $ 173,300,804
- ------------------------------------------------------------------------------------------------ ----------------
</TABLE>
* For the period from January 29, 1993 (date of initial public investment) to
December 31, 1993.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS SHORT TERM YIELD PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1993*
<S> <C>
- ------------------------------------------------------------------------------------------ -----------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------
Net investment income 0.48
- ------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments (0.09)
--------
- ------------------------------------------------------------------------------------------
Total from investment operations 0.39
--------
- ------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.48)
--------
- ------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.91
--------
- ------------------------------------------------------------------------------------------
TOTAL RETURN** % 3.96
- ------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------
Expenses 0.60%(a)
- ------------------------------------------------------------------------------------------
Net investment income 5.19%(a)
- ------------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.16%(a)
- ------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $173,301
- ------------------------------------------------------------------------------------------
Portfolio turnover rate 98 %
- ------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period January 29, 1993 (date of initial public
investment) to December 31, 1993.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Kenneth G. Condon Glen R. Johnson
Robert W. Eisenmenger President and Treasurer
Sara L. Johnson Craig P. Churman
Ernest R. May Vice President and Assistant Treasurer
Alvin J. Silk Peter J. Germain
Secretary
Victor R. Siclari
Assistant Secretary
</TABLE>
Mutual funds are not obligations of or insured by any bank nor are they insured
by the federal government or any of its agencies. Investment in these shares
involves risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the Fund's prospectus which contains facts concerning its
objective and policies, management fees and other information.
APPENDIX
A. The graphic presentation here displayed consists of a
boxed legend in the bottom center indicating the components
of the corresponding line graph. BayFunds Bond Portfolio
(the "Fund") is represented by a solid line. Lehman
Brothers Intermediate Government/Corporate Index is
represented by a broken line. The line graph is a visual
representation of a comparison of change in value of a
hypothetical $10,000 purchase in the Fund and Lehman
Brothers Intermediate Government/Corporate Index. The "y"
axis reflects the cost of the investment. The "x" axis
reflects computation periods from January 29, 1993, through
December 31, 1993. The right margin reflects the ending
value of the hypothetical investment in the Fund as compared
to Lehman Brothers Intermediate Government/Corporate Index;
the ending values are $10,797, and $10,671, respectively.
There is also a legend in the upper left quadrant of the
graphic presentation which indicates the Average Annual
Total Return for the period ended December 31, 1993,
beginning with the period from January 29, 1993; the Average
Annual Total Return is 7.97%, respectively.
B. The graphic presentation here displayed consists of a
boxed legend in the bottom center indicating the components
of the corresponding line graph. BayFunds Equity Portfolio
(the "Fund") is represented by a solid line. Standard &
Poor's 500 Index is represented by a broken line. The line
graph is a visual representation of a comparison of change
in value of a hypothetical $10,000 purchase in the Fund and
Standard & Poor's 500 Index. The "y" axis reflects the cost
of the investment. The "x" axis reflects computation
periods from January 29, 1993, through December 31, 1993.
The right margin reflects the ending value of the
hypothetical investment in the Fund as compared to Standard
& Poor's 500 Index; the ending values are $11,128, and
$10,902, respectively. There is also a legend in the upper
left quadrant of the graphic presentation which indicates
the Average Annual Total Return for the period ended
December 31, 1993, beginning with the period from January
29, 1993; the Average Annual Total Return is 11.28%,
respectively.
C. The graphic presentation here displayed consists of a
boxed legend in the bottom center indicating the components
of the corresponding line graph. BayFunds Short Term Yield
Portfolio (the "Fund") is represented by a solid line.
Merrill Lynch 1-3 Year U.S. Treasury index is represented by
a broken line. The line graph is a visual representation of
a comparison of change in value of a hypothetical $10,000
purchase in the Fund and Merrill Lynch 1-3 year U.S.
Treasury Index. The "y" axis reflects the cost of the
investment. The "x" axis reflects computation periods from
January 29, 1993, through December 31, 1993. The right
margin reflects the ending value of the hypothetical
investment in the Fund as compared to Merrill Lynch 1-3 Year
U.S. Treasury Index; the ending values are $10,433 and ,
$10,396, respectively. There is also a legend in the upper
left quadrant of the graphic presentation which indicates
the Average Annual Total Return for the period ended
December 31, 1993, beginning with the period from January
29, 1993; the Average Annual Total Return is 3.96%.
