BAYFUNDS, 485BPOS, 1995-02-23

BAYFUNDS
485BPOS, 1995-02-23

Previous: SUMMIT SECURITIES INC /ID/, 424B1, 1995-02-23

Next: SMITH BARNEY SHEARSON UNIT TRUSTS UTILITY VALUE TRUST V, 24F-2NT, 1995-02-23

1933 Act File No. 33-39717
1940 Act File No. 811-6296

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X

Pre-Effective Amendment No.

Post-Effective Amendment No. 10 X

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 10 X

BAYFUNDS

(Exact Name of Registrant as Specified in Charter)

Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)

(412) 288-1900
(Registrant's Telephone Number)

John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)

It is proposed that this filing will become effective:

immediately upon filing pursuant to paragraph (b)
x on March 1, 1995 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
75 days after filing pursuant to paragraph (a)(ii)
on _________________ pursuant to paragraph (a)(ii) of Rule 485.

If appropriate, check the following box:

This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:

x filed the Notice required by that Rule on February 15, 1995; or
intends to file the Notice required by that Rule on or about
____________; or
during the most recent fiscal year did not sell any securities pursuant
to Rule 24f-2 under the Investment Company Act of 1940, and, pursuant to
Rule 24f-2(b)(2), need not file the Notice.

Copies To:

Margaret A. Sheehan John R. Dudley
Ropes & Gray Sullivan & Worchester
1001 Pennsylvania Avenue, N.W. 1025 Connecticut Avenue, N.W.
Suite 1200, South Washington, D.C. 20036
Washington, D.C. 20034

CROSS-REFERENCE SHEET

This Amendment to the Registration Statement of BAYFUNDS, which is
comprised of five portfolios (1) BayFunds Money Market Portfolio consisting
of two classes of shares, (a) Trust Shares and (b) Investment Shares; (2)
BayFunds U.S. Treasury Money Market Portfolio consisting of two classes of
shares, (a) Institutional Shares and (b) Investment Shares; (3) BayFunds
Bond Portfolio consisting of two classes of shares, (a) Institutional
Shares and (b) Investment Shares; (4) BayFunds Equity Portfolio consisting
of two classes of shares, (a) Institutional Shares and (b) Investment
Shares; and (5) BayFunds Short Term Yield Portfolio consisting of two
classes of shares, (a) Institutional Shares and (b) Investment Shares
relates to all classes of all portfolios, and is comprised of the
following:

PART A. INFORMATION REQUIRED IN A PROSPECTUS.

Prospectus Heading
(Rule 404(c) Cross Reference)

Item 1. Cover Page (1-5) Cover Page.
Item 2. Synopsis (1-5) General Information; (1-
5) Summary of Fund Expenses.
Item 3. Condensed Financial
Information (1-5) Performance Information.
Item 4. General Description of
Registrant (1b, 2b) Financial Highlights-
Investment Shares; (1a,2a)
Financial Highlights-Trust
Shares and Institutional
Shares; (3a, 4a,5a) Financial
Highlights-Institutional
Shares (3b,4b,5b) Financial
Highlights-Investment Shares;
(1-5) General Information;
Investment Objective and
Policies; Portfolio
Investments; Investment
Limitations; (1,2) Regulatory
Compliance.

Item 5. Management of the Fund (1,5) Management Distribution
and Administration; (1-2)
Investment Advisers; (3-5)
Investment Adviser; (1-5)
Authority to Act as Investment
Adviser; Administrative
Arrangements; Administrative
Services; Transfer Agent,
Divident Disbursing Agent and
Portfolio Accounting Services;
Shareholder Servicing Agent;
Custodian.
Item 6. Capital Stock and Other
Securities (1-5) Minimum Balance;
Dividends and Distributions;
Confirmations and Statements;
Voting Rights; Tax
Information; Federal Income
Tax.

Item 7. Purchase of Securities Being
Offered (1,5) Pricing of Shares; When
Purchases are Effective;
Minimum Investment;
(1b,2b,3b,4b,5b) How to Buy
Investment Shares; (1a, 2a)
How to Buy Institutional
and/or Trust Shares;
(3a,4a,5a) How to Buy
Institutional Shares.

Item 8. Redemption or Repurchase (1b, 2b, 3b, 4b, 5b) How to
Exchange Investment Shares;
How to Redeem Investment
Shares; (1a, 2a) How to
Exchange Institutional and/or
Trust Shares; How to Redeem
Institutional and/or Trust
Shares; (3a, 4a, 5a) How to
Exchange Institutional Shares;
How to Redeem Institutional
Shares.

Item 9. Pending Legal Proceedings None.

PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.

Item 10. Cover Page (1-5) Cover Page.
Item 11. Table of Contents (1-5) Table of Contents.
Item 12. General Information and
History (1-5) General Information.
Item 13. Investment Objectives and
Policies (1-5) Investment Objectives
and Policies; Types of
Investments; Investment
Limitations.
Item 14. Management of the Fund (1-5) BayFunds Management.
Item 15. Control Persons and Principal
Holders of Securities (1-5) Fund Ownership.
Item 16. Investment Advisory and Other
Services (1-5) Investment Advisory
Services.
Item 17. Brokerage Allocation Brokerage Transactions.
Item 18. Capital Stock and Other
Securities (1-5) Massachusetts Law.
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered (1-5) Purchasing Shares;
Determining Net Asset Value;
Exchange Privileges; Redeeming
Shares.
Item 20. Tax Status (1-5) Tax Status.
Item 21. Underwriters Not Applicable.
Item 22. Calculation of Performance
Data (1-5) Yield; Performance
Comparisons; (1-2) Effective
Yield; (3-5) Total Return; (1-
5) Appendix.
Item 23. Financial Statements (1-5) Incorporated by
reference to Annual Reports
dated December 31, 1994.

INCOME PORTFOLIOS
& EQUITY PORTFOLIOS

SHORT TERM YIELD PORTFOLIO
BOND PORTFOLIO
EQUITY PORTFOLIO

PROSPECTUS

Investment
Shares

Institutional
Shares

BAYBANKS INVESTMENT MANAGEMENT, INC.
Investment Adviser

Federated Securities Corp.
Distributor
March 1, 1995 G00981-01 (2/95)
Printed on Recycled Paper 00-6038-0295

Mutual
Funds At
BayBank

BAYFUNDS(R)
INCOME FUNDS AND EQUITY FUND
INVESTMENT SHARES AND INSTITUTIONAL SHARES

The shares offered in this prospectus represent interests in the INVESTMENT
SHARES and INSTITUTIONAL SHARES ("Shares") of the following income and equity
portfolios of BayFunds, an open-end, management investment company (a mutual
fund):

INCOME FUNDS
- BAYFUNDS SHORT TERM YIELD PORTFOLIO
- BAYFUNDS BOND PORTFOLIO

EQUITY FUND
- BAYFUNDS EQUITY PORTFOLIO

This prospectus relates only to the INCOME FUNDS and EQUITY FUND (individually
referred to as a "Fund" or collectively as the "Funds"). The Funds offer a
convenient means of accumulating an interest in a professionally managed,
diversified portfolio of securities. INVESTMENT SHARES of the Funds are sold
primarily to individuals who purchase Shares through BayBanks and its
affiliates. INSTITUTIONAL SHARES of the Funds are offered primarily to trusts,
fiduciaries and other institutions. Shareholders can invest, reinvest, or redeem
Shares with no sales loads or redemption fees imposed by the Funds. Shareholders
have access to other portfolios in BayFunds.

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND
ARE NOT ENDORSED OR GUARANTEED BY BAYBANKS, INC., OR ITS SUBSIDIARIES, AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

This prospectus contains the information you should read and know before you
invest in the Funds. Keep this prospectus for future reference.

The Funds have also filed a combined Statement of Additional Information dated
March 1, 1995, with the Securities and Exchange Commission. The information
contained in the combined Statement of Additional Information is incorporated by
reference into this prospectus. To request a copy of the combined Statement of
Additional Information free of charge, obtain other information, or make
inquiries about the Funds, shareholders of INVESTMENT SHARES can call toll-free
1-800-BAY-FUND (1-800-229-3863), and shareholders of INSTITUTIONAL SHARES may
call toll-free 1-800-462-9999 ext. 4589 during normal business hours.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

Prospectus dated March 1, 1995

- -------------------------------------------------------------------------------
TABLE OF CONTENTS

- --------------------------------------------------------------------------------
KEY FACTS

General Information.......................................................... 1
Summary of Fund Expenses..................................................... 2
Financial Highlights......................................................... 6

- --------------------------------------------------------------------------------
MATCHING THE FUNDS TO YOUR INVESTMENT NEEDS

Investment Objective and Policies............................................ 12
Short Term Yield Fund................................................... 12
Bond Fund............................................................... 13
Equity Fund............................................................. 14

Portfolio Investments........................................................ 14
Investment Limitations....................................................... 21

- --------------------------------------------------------------------------------
SHAREHOLDER MANUAL

Pricing of Shares............................................................ 22
How to Buy Investment Shares................................................. 22
How to Exchange Investment
Shares.................................................................... 24
How to Redeem Investment
Shares.................................................................... 26
How to Buy Institutional Shares.............................................. 27
How to Exchange Institutional
Shares.................................................................... 28
How to Redeem Institutional
Shares.................................................................... 28

- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION YOU SHOULD KNOW

Minimum Balance.............................................................. 29
Dividends and Distributions.................................................. 30
Tax Information.............................................................. 30
Performance Information...................................................... 31
Management, Distribution and
Administration............................................................ 32
Code of Ethics Compliance.................................................... 35

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

KEY FACTS

GENERAL INFORMATION

BayFunds offers you a convenient and affordable way to participate in five
separate, professionally managed, diversified investment portfolios with
distinct investment objectives and policies. This prospectus relates only to the
INVESTMENT SHARES and INSTITUTIONAL SHARES of BAYFUNDS SHORT TERM YIELD
PORTFOLIO ("SHORT TERM YIELD FUND"), BAYFUNDS BOND PORTFOLIO ("BOND FUND"), and
BAYFUNDS EQUITY PORTFOLIO ("EQUITY FUND") (individually, a "Fund" and
collectively, the "Funds").

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

- BAYFUNDS SHORT TERM YIELD PORTFOLIO
SEEKS A HIGH LEVEL OF CURRENT INCOME
CONSISTENT WITH PRESERVATION OF CAPITAL
BY INVESTING IN A DIVERSIFIED PORTFOLIO
OF HIGH-GRADE DEBT OBLIGATIONS. THIS
FUND WILL MAINTAIN A DOLLAR-WEIGHTED
AVERAGE PORTFOLIO MATURITY OF THREE
YEARS OR LESS.

- BAYFUNDS BOND PORTFOLIO SEEKS TO
ACHIEVE HIGH CURRENT INCOME AND CAPITAL
APPRECIATION BY INVESTING, UNDER NORMAL
MARKET AND ECONOMIC CONDITIONS, AT
LEAST 65% OF THE VALUE OF ITS TOTAL
ASSETS IN BONDS. THE FUND WILL MAINTAIN
A DOLLAR-WEIGHTED AVERAGE MATURITY OF
TWELVE YEARS OR LESS.

- BAYFUNDS EQUITY PORTFOLIO SEEKS TO PRO-
VIDE LONG-TERM CAPITAL APPRECIATION BY
INVESTING, UNDER NORMAL MARKET AND
ECONOMIC CONDITIONS, AT LEAST 65% OF
ITS ASSETS IN A BROADLY DIVERSIFIED
PORTFOLIO OF EQUITY SECURITIES, WITH
CURRENT INCOME AS A SECONDARY
INVESTMENT CONSIDERATION.
- ----

As of the date of this prospectus, BayFunds offers shares in two other
portfolios:

- - BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO seeks to provide current income
consistent with stability of principal and liquidity by investing in a
portfolio consisting primarily of short-term U.S. Treasury obligations with
remaining maturities of 397 days or less.

- - BAYFUNDS MONEY MARKET PORTFOLIO seeks to provide current income consistent
with stability of principal and liquidity by investing in a portfolio of money
market instruments with remaining maturities of 397 days or less.

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

BAYFUNDS INCOME AND EQUITY FUNDS

SUMMARY OF FUND EXPENSES -- INVESTMENT SHARES

SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<CAPTION>
SHORT TERM
YIELD BOND EQUITY
FUND FUND FUND
---------- --------- ---------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)............ None None None
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering
price)......................................... None None None
Contingent Deferred Sales Charge (as a percentage
of original purchase price or redemption
proceeds,
as applicable)................................. None None None
Redemption Fees (as a percentage of amount
redeemed, if applicable)....................... None None None
Exchange Fee..................................... None None None
</TABLE>

ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)

<TABLE>
<CAPTION>
SHORT TERM
YIELD BOND EQUITY
FUND FUND FUND
---------- --------- ---------
<S> <C> <C> <C>
Management Fee.................................. 0.50% 0.60% 0.70%
12b-1 Fee....................................... None None None
Total Other Expenses............................ 0.60% 0.70% 0.61%
Shareholder Servicing Fees........... 0.25% 0.25% 0.25%
Total Operating Expenses.............. 1.10% 1.30% 1.31%
</TABLE>

The Annual Operating Expenses for the Short Term Yield Fund, Bond Fund, and
Equity Fund were 1.04%, 1.19%, and 1.26%, respectively, for the fiscal year
ended December 31, 1994. The Annual Operating Expenses in the table above are
based on expenses expected to be incurred during the fiscal year ending December
31, 1995.

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

BAYFUNDS INCOME AND EQUITY FUNDS

SUMMARY OF FUND EXPENSES -- INVESTMENT SHARES (CONTINUED)

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Short Term Yield Fund, Bond Fund, and
Equity Fund will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Additional Information You
Should Know." Wire-transferred redemptions may be subject to additional fees.

<TABLE>
<CAPTION>
EXAMPLE:
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and SHORT TERM
(2) redemption at the end of each time period. The YIELD BOND EQUITY
Funds charge no redemption fees. FUND FUND FUND
---------- --------- ---------
<S> <C> <C> <C>
1 Year...................................................... $ 11 $ 13 $ 13
3 Years..................................................... $ 35 $ 41 $ 42
5 Years..................................................... $ 61 $ 71 $ 72
10 Years.................................................... $134 $157 $158
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

The information set forth in the foregoing table and example relates only to
Investment Shares. The Funds also offer another class of shares called
Institutional Shares. Investment Shares and Institutional Shares are generally
subject to the same expenses, however, Institutional Shares are not subject to a
shareholder servicing fee.

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

BAYFUNDS INCOME AND EQUITY FUNDS

SUMMARY OF FUND EXPENSES -- INSTITUTIONAL SHARES

SHAREHOLDER TRANSACTION EXPENSES

ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)

<TABLE>
<CAPTION>
SHORT TERM
YIELD BOND EQUITY
FUND FUND FUND
---------- --------- ---------
<S> <C> <C> <C>
Management Fee................................... 0.50% 0.60% 0.70%
12b-1 Fee........................................ None None None
Total Other Expenses............................. 0.35% 0.45% 0.36%
Total Operating Expenses............... 0.85% 1.05% 1.06%
</TABLE>

The Annual Operating Expenses for the Short Term Yield Fund, Bond Fund, and
Equity Fund were 0.80%, 0.99%, and 1.02%, respectively, for the fiscal year
ended December 31, 1994. The Annual Operating Expenses in the table above are
based on expenses expected to be incurred during the fiscal year ending December
31, 1995.

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

BAYFUNDS INCOME AND EQUITY FUNDS

SUMMARY OF FUND EXPENSES -- INSTITUTIONAL SHARES (CONTINUED)

<TABLE>
<CAPTION>
EXAMPLE:
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and SHORT TERM
(2) redemption at the end of each time period. The YIELD BOND EQUITY
Funds charge no redemption fees. FUND FUND FUND
---------- --------- ---------
<S> <C> <C> <C>
1 Year..................................................... $ 9 $ 11 $ 11
3 Years.................................................... $ 27 $ 33 $ 34
5 Years.................................................... $ 47 $ 58 $ 58
10 Years................................................... $105 $128 $129
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

The information set forth in the foregoing table and example relates only to
Institutional Shares. The Funds also offer another class of shares called
Investment Shares. Investment Shares and Institutional Shares are generally
subject to the same expenses, however, Investment Shares are subject to a
shareholder servicing fee.

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

BAYFUNDS SHORT TERM YIELD PORTFOLIO

FINANCIAL HIGHLIGHTS -- INVESTMENT SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Ernst & Young LLP, the Trust's
independent auditors. Their report dated February 6, 1995, on the Fund's
financial statements for the year ended December 31, 1994 and on the following
table for the periods presented, is included in the Annual Report to
Shareholders dated December 31, 1994, which is incorporated by reference. This
table should be read in conjunction with the Fund's financial statements and
notes thereto, which may be obtained free of charge from the Trust.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1994 1993*
<S> <C> <C>
- --------------------------------------------------------------------- ------- --------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.91 $10.00
- ---------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------
Net investment income 0.43 0.48
- ---------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.76) (0.09)
- --------------------------------------------------------------------- ------ ------
Total from investment operations (0.33) 0.39
- ---------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------
Distributions from net investment income (0.43) (0.48)
- --------------------------------------------------------------------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 9.15 $ 9.91
- --------------------------------------------------------------------- ------ ------
TOTAL RETURN** (3.43%) 3.96%
- ---------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------
Expenses 1.04% 0.60%(a)
- ---------------------------------------------------------------------
Net investment income 4.42% 5.19%(a)
- ---------------------------------------------------------------------
Expense waiver/reimbursement (b) -- 0.16%(a)
- ---------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------
Net assets, end of period (000 omitted) $34,993 $173,301
- ---------------------------------------------------------------------
Portfolio turnover rate 148% 98%
- ---------------------------------------------------------------------
* 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.
</TABLE>

(See Notes which are an integral part of the Financial Statements)

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

BAYFUNDS BOND PORTFOLIO

FINANCIAL HIGHLIGHTS -- INVESTMENT SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1994 1993*
<S> <C> <C>
- ----------------------------------------------------------------------- ------ -------
NET ASSET VALUE, BEGINNING OF PERIOD $10.14 $10.00
- -----------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------
Net investment income 0.49 0.55
- -----------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.73) 0.24
- ----------------------------------------------------------------------- ------ ------
Total from investment operations (0.24) 0.79
- -----------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------
Distributions from net investment income (0.49) (0.55)
- -----------------------------------------------------------------------
Distributions from net realized gain on investment transactions -- (0.10)
- ----------------------------------------------------------------------- ------ ------
Total distributions (0.49) (0.65)
- ----------------------------------------------------------------------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 9.41 $10.14
- ----------------------------------------------------------------------- ------ ------
TOTAL RETURN** (2.37%) 7.97%
- -----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------
Expenses 1.19% 0.70%(a)
- -----------------------------------------------------------------------
Net investment income 5.09% 5.84%(a)
- -----------------------------------------------------------------------
Expense waiver/reimbursement (b) -- 0.23%(a)
- -----------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------
Net assets, end of period (000 omitted) $5,136 $78,080
- -----------------------------------------------------------------------
Portfolio turnover rate 134% 74%
- -----------------------------------------------------------------------
* 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.
</TABLE>

(See Notes which are an integral part of the Financial Statements)

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

BAYFUNDS EQUITY PORTFOLIO

FINANCIAL HIGHLIGHTS -- INVESTMENT SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1994 1993*
<S> <C> <C>
- --------------------------------------------------------------------- ------- --------
NET ASSET VALUE, BEGINNING OF PERIOD $10.98 $10.00
- ---------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------
Net investment income 0.09 0.14
- ---------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.44) 0.98
- --------------------------------------------------------------------- ------ ------
Total from investment operations (0.35) 1.12
- ---------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------
Distributions from net investment income (0.09) (0.14)
- --------------------------------------------------------------------- ------ ------
NET ASSET VALUE, END OF PERIOD $10.54 $10.98
- --------------------------------------------------------------------- ------ ------
TOTAL RETURN** (3.23%) 11.28%
- ---------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------
Expenses 1.26% 0.75%(a)
- ---------------------------------------------------------------------
Net investment income 0.81% 1.56%(a)
- ---------------------------------------------------------------------
Expense waiver/reimbursement (b) -- 0.24%(a)
- ---------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------
Net assets, end of period (000 omitted) $28,903 $111,687
- ---------------------------------------------------------------------
Portfolio turnover rate 108% 81%
- ---------------------------------------------------------------------
* 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.
</TABLE>

(See Notes which are an integral part of the Financial Statements)

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

BAYFUNDS SHORT TERM YIELD PORTFOLIO

FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

The following table has been audited by Ernst & Young LLP, the Trust's
independent auditors. Their report dated February 6, 1995, on the Fund's
financial statements for the year ended December 31, 1994 and on the following
table for the period presented, is included in the Annual Report to Shareholders
dated December 31, 1994, which is incorporated by reference. This table should
be read in conjunction with the Fund's financial statements and notes thereto,
which may be obtained free of charge from the Trust.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
<S> <C>
- ------------------------------------------------------------------------ -----------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.91
- ------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------
Net investment income 0.45
- ------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.76)
- ------------------------------------------------------------------------ -----------
Total from investment operations (0.31)
- ------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------
Distributions from net investment income (0.45)
- ------------------------------------------------------------------------ -----------
NET ASSET VALUE, END OF PERIOD $ 9.15
- ------------------------------------------------------------------------ -----------
TOTAL RETURN* (3.19%)
- ------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------
Expenses 0.80%
- ------------------------------------------------------------------------
Net investment income 4.66%
- ------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
Net assets, end of period (000 omitted) $56,511
- ------------------------------------------------------------------------
Portfolio turnover rate 148%
- ------------------------------------------------------------------------
</TABLE>

* Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge, if applicable.

(See Notes which are an integral part of the Financial Statements)

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

BAYFUNDS BOND PORTFOLIO

FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

The following table has been audited by Ernst & Young LLP, the Trust's
independent auditors. Their report dated February 6, 1995, on the Fund's
financial statements for the year ended December 31, 1994 and on the following
table for the period presented, is included in the Annual Report to Shareholders
dated December 31, 1994, which is incorporated by reference. This table should
be read in conjunction with the Fund's financial statements and notes thereto,
which may be obtained free of charge from the Trust.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
<S> <C>
- ----------------------------------------------------------------------- ------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.14
- -----------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------
Net investment income 0.52
- -----------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.73)
- ----------------------------------------------------------------------- -----------
Total from investment operations (0.21)
- -----------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------
Distributions from net investment income (0.52)
- ----------------------------------------------------------------------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.41
- ----------------------------------------------------------------------- -----------
TOTAL RETURN* (2.14%)
- -----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------
Expenses 0.99%
- -----------------------------------------------------------------------
Net investment income 5.29%
- -----------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 56,619
- -----------------------------------------------------------------------
Portfolio turnover rate 134%
- -----------------------------------------------------------------------
</TABLE>

* Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge, if applicable.

(See Notes which are an integral part of the Financial Statements)

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

BAYFUNDS EQUITY PORTFOLIO

FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

The following table has been audited by Ernst & Young LLP, the Trust's
independent auditors. Their report dated February 6, 1995, on the Fund's
financial statements for the year ended December 31, 1994 and on the following
table for the period presented, is included in the Annual Report to Shareholders
dated December 31, 1994, which is incorporated by reference. This table should
be read in conjunction with the Fund's financial statements and notes thereto,
which may be obtained free of charge from the Trust.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
<S> <C>
- ------------------------------------------------------------------------ -----------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.98
- ------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------
Net investment income 0.11
- ------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.44)
- ------------------------------------------------------------------------ -----------
Total from investment operations (0.33)
- ------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------
Distributions from net investment income (0.11)
- ------------------------------------------------------------------------ -----------
NET ASSET VALUE, END OF PERIOD $10.54
- ------------------------------------------------------------------------ -----------
TOTAL RETURN* (2.98%)
- ------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------
Expenses 1.02%
- ------------------------------------------------------------------------
Net investment income 1.05%
- ------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
Net assets, end of period (000 omitted) $78,312
- ------------------------------------------------------------------------
Portfolio turnover rate 108%
- ------------------------------------------------------------------------
</TABLE>

* Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge, if applicable.

(See Notes which are an integral part of the Financial Statements)

- ------------------------------------------------------------------------
MATCHING THE FUNDS TO
YOUR INVESTMENT NEEDS

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

IF YOU ARE SEEKING HIGH CURRENT INCOME
AND GREATER PRICE STABILITY THAN A
LONG-TERM BOND FUND PROVIDES, THEN THE
SHORT TERM YIELD FUND MAY BE A SUITABLE
INVESTMENT. THE AVERAGE MATURITY OF THE
FUND'S HOLDINGS WILL BE KEPT TO THREE
YEARS OR LESS IN ORDER TO LIMIT
FLUCTUATIONS IN SHARE PRICE.
IF YOU ARE SEEKING HIGH CURRENT INCOME
AND CAPITAL APPRECIATION, THEN THE BOND
FUND MAY BE A SUITABLE INVESTMENT.
IF YOU ARE SEEKING LONG-TERM CAPITAL
APPRECIATION AND CURRENT INCOME IS NOT
YOUR PRIMARY CONSIDERATION, THEN THE
EQUITY FUND MAY BE A SUITABLE INVEST-
MENT.
- ----

INVESTMENT OBJECTIVE AND POLICIES

The investment objective and policies of each Fund appear below. The investment
objective of a Fund cannot be changed without the approval of holders of a
majority of that Fund's shares. While there is no assurance that a Fund will
achieve its investment objective, it endeavors to do so by following the
investment policies described in this prospectus.

Unless indicated otherwise, the investment policies of a Fund may be changed by
the Board of Trustees ("Trustees") without approval of shareholders.
Shareholders will be notified before any material change in these policies
becomes effective.

For additional information about the investment strategies that the Funds may
employ, and certain investment policies mentioned below, please refer to the
"Portfolio Investments" section of this prospectus and the combined Statement of
Additional Information.

SHORT TERM YIELD FUND

The investment objective of the SHORT TERM YIELD FUND is a high level of current
income consistent with preservation of capital. Under normal market and economic
conditions, the Fund pursues its investment objective by investing in a
diversified portfolio of high-grade debt obligations, which may include bonds,
notes, debentures, asset-backed and mortgage-backed securities, commercial
paper, bank instruments, and money market instruments. The Fund will maintain a
dollar-weighted average portfolio maturity of three years or less.

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

THE SHORT TERM YIELD FUND BUYS ONLY
HIGH-GRADE U.S. DOLLAR-DENOMINATED DEBT
OBLIGATIONS.
- ----

ACCEPTABLE INVESTMENTS. The high-grade debt obligations in which the SHORT TERM
YIELD FUND invests are rated by one or more nationally
recognized statistical rating organizations ("NRSROs") in one of the three
highest rating categories at the time of purchase (e.g., AAA, AA or A by
Standard & Poor's Ratings Group ("S&P") or Fitch Investors Service, Inc.
("Fitch"), or Aaa, Aa or A by Moody's Investors Service, Inc. ("Moody's")). The
SHORT TERM YIELD FUND may purchase commercial paper rated by one or more NRSROs
in one of their two highest categories at the time of purchase (e.g., A-1 or A-2
by S&P, Prime-1 or Prime-2 by Moody's, or F-1 or F-2 by Fitch). The SHORT TERM
YIELD FUND may also invest in unrated debt securities that are determined by its
adviser to be of comparable quality to securities having such

ratings. The SHORT TERM YIELD FUND will limit its investment in commercial paper
rated in the second highest rating category by one or more NRSROs to not more
than 10% of net assets. Acceptable investments include the following:

- Government Securities (as defined below);

- corporate debt obligations, including medium-term notes and variable rate
demand notes;

- asset-backed securities rated in one of the two highest ratings categories
by a NRSRO, or if unrated, of comparable quality in the judgment of the
adviser;

- commercial paper (including Canadian Commercial Paper and Europaper);

- certificates of deposit, demand and time deposits, savings shares, bankers'
acceptances, deposit notes and other instruments of domestic and foreign
banks, savings and loans and other deposit or thrift institutions;

- medium and short-term credit facilities, including demand notes and
participations in revolving credit facilities;

- U.S. dollar-denominated debt obligations of foreign issuers;

- repurchase agreements;

- money market instruments; and

- money market mutual funds.

BOND FUND

The investment objective of the BOND FUND is high current income and capital
appreciation. Under normal market and economic conditions, the Fund pursues its
investment objective by investing at least 65% of the value of its total assets
in bonds. The Fund intends to maintain a dollar-weighted average portfolio
maturity of twelve years or less.

THE BOND FUND BUYS ONLY INVESTMENT
GRADE U.S. DOLLAR-DENOMINATED DEBT
OBLIGATIONS.
- ----

ACCEPTABLE INVESTMENTS. The investment grade debt securities in which the BOND
FUND invests are rated by one or more ("NRSROs") in one of the four highest
rating categories at the time of purchase (e.g., AAA, AA, A or BBB by S&P or
Fitch, or Aaa, Aa, A or Baa by Moody's). The BOND FUND may purchase commercial
paper rated by one or more NRSROs in their highest category at the time of
purchase (e.g., A-1 by S&P, Prime-1 by Moody's, or F-1 by Fitch). The BOND FUND
may also invest in unrated debt securities that are determined by its adviser to
be of comparable quality to securities having such ratings. Acceptable
investments include the following:

- Government Securities (as defined below);

- domestic issues of corporate debt obligations;

- asset-backed securities rated in one of the two highest ratings categories
by an NRSRO, or if unrated, of comparable quality in the judgment of the
adviser;

- U.S. dollar-denominated debt obligations of foreign issuers;

- commercial paper;

- repurchase agreements;

- money market instruments; and

- money market mutual funds.

The adviser attempts to manage the BOND FUND'S total performance, which includes
both changes in principal value of the BOND FUND'S portfolio and income earned,
by anticipating opportunities

in the capital markets and risks of changes in market interest rates. When the
adviser expects that market interest rates may decline, which would cause prices
of outstanding bonds to rise, it generally extends the average maturity of the
BOND FUND'S portfolio. When the adviser expects that market interest rates may
rise, which would cause prices of outstanding bonds to decline, it generally
shortens the average maturity of the BOND FUND'S portfolio. Further, the adviser
attempts to improve the BOND FUND'S total return by weighing the relative value
of alternative bond issues having similar maturities in selecting portfolio
securities. By actively managing the BOND FUND'S portfolio in this manner, the
adviser seeks to provide capital appreciation during periods of falling interest
rates and protection against capital depreciation during periods of rising
rates.

EQUITY FUND

The investment objective of the EQUITY FUND is long-term capital appreciation.
Current income is a secondary consideration in the selection of investments.
Under normal market and economic conditions, the Fund pursues its investment
objective by investing at least 65% of the value of its total assets in a
broadly diversified portfolio of equity securities. The stock selection process
emphasizes the securities of those companies which the EQUITY FUND'S adviser
believes offer the potential for long-term, above-average capital appreciation.
In making portfolio investments, the adviser assesses characteristics such as
financial condition, earnings momentum, earnings variability, trading liquidity,
market valuation, potential for capital gains, and other investment criteria.
Securities of other companies may be attractive in the pursuit of investment
value across all sectors of the stock market, or by virtue of other economic or
financial factors the adviser deems important in the pursuit of the EQUITY
FUND'S investment objective.

ACCEPTABLE INVESTMENTS. Acceptable investments include the following:

- common stocks of U.S. or foreign companies which are either listed on the
New York or American Stock Exchange or traded in over-the-counter markets,
preferred stock of such companies, warrants, and securities convertible into
or exchangeable for common stock of such companies;

- investments in American Depositary Receipts of foreign companies traded on
the New York Stock Exchange, American Stock Exchange or in the
over-the-counter market;

- stock index futures;

- fixed rate notes and bonds and adjustable and variable rate notes of
companies whose common stock the Fund may acquire;

- zero coupon convertible securities;

- repurchase agreements;

- money market instruments; and

- money market mutual funds.

PORTFOLIO INVESTMENTS

GOVERNMENT SECURITIES. Except as noted under "Temporary Investments," only the
SHORT TERM YIELD FUND and BOND FUND may purchase obligations issued or
guaranteed as to payment of principal and interest by the U.S. government or one
of its agencies or instrumentalities ("Government Securities"). The types of
Government Securities in which these Funds may invest generally include direct
obligations of the U.S. Treasury (such as U.S. Treasury bills, notes, and bonds)
and obligations issued or guaranteed by

U.S. government agencies or instrumentalities. These securities are backed by:

- the full faith and credit of the U.S. Treasury;

- the issuer's right to borrow from the U.S. Treasury;

- the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or

- the credit of the agency or instrumentality issuing the obligations.

Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:

- Federal Home Loan Banks;

- Federal Home Loan Mortgage Corporation ("FHLMC");

- Federal Farm Credit Banks;

- The Student Loan Marketing Association; and

- Federal National Mortgage Association ("FNMA").

ZERO-COUPON AND STRIPPED TREASURY SECURITIES. The SHORT TERM YIELD FUND and
BOND FUND may invest in zero-coupon and stripped Treasury securities.
Zero-coupon securities are debt obligations which are generally issued at a
discount and payable in full at maturity, and which do not provide for
current payments of interest prior to maturity. Zero-coupon securities
usually trade at a deep discount from their face or par value and are
subject to greater market value fluctuations from changing interest rates
than debt obligations of comparable maturities which make current
distributions of interest.

The Treasury has facilitated transfers of ownership of zero-coupon
securities by accounting separately for the beneficial ownership of
particular interest coupons and corpus payments on Treasury securities
through the Federal Reserve book-entry record-keeping system. The Federal
Reserve program as established by the Treasury Department is known as
"STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities." Under the STRIPS program, the Funds will be able to have
beneficial ownership of U.S. Treasury zero-coupon securities recorded
directly in the book-entry record-keeping system in lieu of having to hold
certificates or other evidence of ownership of the underlying U.S. Treasury
securities.

When debt obligations have been stripped of their unmatured interest
coupons by the holder, the stripped coupons are sold separately. The
principal or corpus is sold at a deep discount because the buyer receives
only the right to receive a future fixed payment on the security and does
not receive any rights to periodic cash interest payments. Once stripped or
separated, the corpus and coupons may be sold separately. Typically, the
coupons are sold separately or grouped with other coupons with like
maturity dates and sold in such bundled form. Purchasers of stripped
obligations acquire, in effect, discount obligations that are economically
identical to the zero-coupon securities issued directly by the obligor.

VARIABLE RATE DEMAND NOTES. The SHORT TERM YIELD FUND may purchase variable rate
demand notes, which are long-term corporate debt instruments that have variable
or floating interest rates and provide the SHORT TERM YIELD FUND with the right
to tender the security for repurchase at its stated principal amount plus
accrued interest. Such securities typically bear interest at a rate that is
intended to cause the securities to trade at par. The interest rate may float or
be adjusted at regular intervals (ranging from daily to annually), and is
normally based on a published interest rate or interest rate index. Many
variable rate demand notes allow the SHORT TERM YIELD FUND to demand the
repurchase of the security on not more than seven days prior notice. Other

notes only permit the SHORT TERM YIELD FUND to tender the security at the time
of each interest rate adjustment or at other fixed intervals.

ASSET-BACKED SECURITIES. The SHORT TERM YIELD FUND and BOND FUND may purchase
asset-backed securities. Asset-backed securities are created by the grouping of
certain governmental, government related and private loans, receivables and
other lender assets into pools. Interests in these pools are sold as individual
securities. Payments from the asset pools may be divided into several different
tranches of debt securities, with some tranches entitled to receive regular
installments of principal and interest, other tranches entitled to receive
regular installments of interest, with principal payable at maturity or upon
specified call dates, and other tranches only entitled to receive payments of
principal and accrued interest at maturity or upon specified call dates.
Different tranches of securities will bear different interest rates, which may
be fixed or floating. Because the loans held in the asset pool often may be
prepaid without penalty or premium, asset-backed securities are generally
subject to higher prepayment risks than most other types of debt instruments.
Prepayment risks on mortgage securities tend to increase during periods of
declining mortgage interest rates, because many borrowers refinance their
mortgages to take advantage of the more favorable rates. Depending upon market
conditions, the yield that the SHORT TERM YIELD FUND and the BOND FUND receive
from the reinvestment of such prepayments, or any scheduled principal payments,
may be lower than the yield on the original mortgage security. As a consequence,
mortgage securities may be a less effective means of "locking in" interest rates
than other types of debt securities having the same stated maturity and may also
have less potential for capital appreciation. For certain types of asset pools,
such as collateralized mortgage obligations, prepayments may be allocated to one
tranche of securities ahead of other tranches, in order to reduce the risk of
prepayment for the other tranches.

Prepayments may result in a capital loss to the SHORT TERM YIELD FUND and the
BOND FUND to the extent that the prepaid mortgage securities were purchased at a
market premium over their stated principal amount. Conversely, the prepayment of
mortgage securities purchased at a market discount from their stated principal
amount will accelerate the recognition of interest income by the SHORT TERM
YIELD FUND and the BOND FUND, which would be taxed as ordinary income when
distributed to the shareholders.

The credit characteristics of asset-backed securities also differ in a number of
respects from those of traditional debt securities. The credit quality of most
asset-backed securities depends primarily upon the credit quality of the assets
underlying such securities, how well the entity issuing the securities is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement to such
securities.

NON-MORTGAGE RELATED ASSET-BACKED SECURITIES. The SHORT TERM YIELD FUND and the
BOND FUND may invest in non-mortgage related asset-backed securities, including
interests in pools of receivables, such as credit card and accounts receivable
and motor vehicle and other installment purchase obligations and leases. These
securities may be in the form of pass-through instruments or asset-backed
obligations. The securities are issued by non-governmental entities and carry no
direct or indirect U.S. government guarantee.

Non-mortgage related asset-backed securities present certain risks that are not
presented by mortgage-related asset-backed securities described below.
Primarily, these securities do not have the benefit of the same security
interest in the related collateral. Credit card receivables are generally
unsecured and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, many of which give such debtors the right to
set off certain amounts owed on the credit cards, thereby reducing the balance
due. Most issuers of asset-backed securities

backed by motor vehicle installment purchase obligations permit the servicer of
such receivables to retain the possession of the underlying obligations. If the
servicer sells these obligations to another party, there is a risk that the
purchaser would acquire an interest superior to that of the holders of the
related asset-backed securities. Further, if a vehicle is registered in one
state and is then reregistered because the owner and obligor moves to another
state, such registration could defeat the original security interest in the
vehicle in certain cases. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws, the
trustee for the holders of asset-backed securities backed by automobile
receivables may not have a proper security interest in all of the obligations
backing such receivables. Therefore, there is the possibility that recoveries on
repossessed collateral may not, in some cases, be available to support payments
on these securities.

MORTGAGE-RELATED ASSET-BACKED SECURITIES. The SHORT TERM YIELD FUND and the BOND
FUND may also invest in various mortgage-related asset-backed securities. These
types of investments may include adjustable rate mortgage securities,
collateralized mortgage obligations, real estate mortgage investment conduits,
or other securities collateralized by or representing an interest in real estate
mortgages (collectively, "mortgage securities"). Many mortgage securities are
issued or guaranteed by U.S. government agencies.

ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS"). ARMS are pass-through
mortgage securities representing interests in adjustable rather than fixed
interest rate mortgages. The ARMS in which the SHORT TERM YIELD FUND and
the BOND FUND invest are issued by the Government National Mortgage
Association ("GNMA"), FNMA, and FHLMC and are actively traded. The
underlying mortgages which collateralize ARMS issued by GNMA are fully
guaranteed by the Federal Housing Administration ("FHA") or Veterans
Administration ("VA"), while those collateralizing ARMS issued by FHLMC or
FNMA are typically conventional residential mortgages conforming to strict
underwriting size and maturity constraints.

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs are debt obligations
collateralized by mortgage loans or mortgage pass-through securities.
Typically, CMOs are collateralized by GNMA, FNMA or FHLMC certificates, but
may be collateralized by whole loans or private pass-through securities.

The SHORT TERM YIELD FUND and the BOND FUND may invest in CMOs which are
rated AAA by a NRSRO, and which may be: (a) collateralized by pools of
mortgages in which each mortgage is guaranteed as to payment of principal
and interest by an agency or instrumentality of the U.S. government; (b)
collateralized by pools of mortgages in which payment of principal and
interest is guaranteed by the issuer and such guarantee is collateralized
by U.S. government securities; or (c) securities in which the proceeds of
the issuance are invested in mortgage securities and payment of the
principal and interest is supported by the credit of an agency or
instrumentality of the U.S. government.

OBLIGATIONS OF FOREIGN ISSUERS. The SHORT TERM YIELD FUND and the BOND FUND may
invest in debt obligations of foreign issuers which are U.S. dollar-denominated
and traded on domestic exchanges or in the over-the-counter market (American
Depositary Receipts or "ADRs"). In addition, the EQUITY FUND may invest in debt
obligations and equity securities of foreign issuers which are U.S.
dollar-denominated and traded on the New York or American Stock Exchange, in the
over-the-counter market or in the form of ADRs. Obligations of foreign issuers
may include debt obligations of supranational entities, which include
international organizations de-

signed or supported by governmental entities to promote economic reconstruction
or development, and international banking institutions and related government
agencies. Examples of these include, but are not limited to, the International
Bank for Reconstruction and Development (World Bank), European Investment Bank,
Asian Development Bank and InterAmerican Development Bank. Each Fund will limit
its investments in non-ADR foreign obligations to less than 5% of its net
assets. Different risks may also exist with respect to investments of foreign
banks because the banks issuing these instruments, or their domestic or foreign
branches, are not necessarily subject to the same regulatory requirements that
apply to domestic banks, such as reserve requirements, loan requirements, loan
limitations, examinations, accounting, auditing, and
recordkeeping, and the public availability of information. These factors will be
carefully considered by the Funds' adviser in selecting investments for the
Funds. As a matter of practice, the EQUITY FUND will not invest in the
securities of a foreign issuer if the risks associated with such investment
appear substantial. (See the combined Statement of Additional Information for
additional risk disclosure on non-ADR foreign obligations.)

RESTRICTED AND ILLIQUID SECURITIES. The Funds may invest in restricted
securities. Restricted securities are any securities in which the Funds may
otherwise invest pursuant to their investment objectives and policies, but which
are subject to restriction on resale under federal securities law. Such
restrictions often impact the marketability of the investment. However, the
Funds will limit investments in illiquid securities, including certain
restricted securities not determined by the Trustees to be liquid,
non-negotiable time deposits, over-the-counter options (in the case of the
EQUITY FUND), and repurchase agreements providing for settlement in more than
seven days after notice, to 15% of their respective net assets.

The Funds may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) commercial paper is restricted as to disposition under federal
securities law and is generally sold to institutional investors, such as the
Funds, who agree that they are purchasing the paper for investment purposes and
not with a view to public distribution. Any resale by the purchaser must be in
an exempt transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Funds through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity. The Funds believe that Section 4(2) commercial paper
and possibly certain other restricted securities which meet the criteria for
liquidity established by the Trustees are quite liquid. The Funds intend,
therefore, to treat the restricted securities which meet the criteria for
liquidity established by the Trustees, including Section 4(2) commercial paper,
as determined by the adviser, as liquid and not subject to the investment
limitation applicable to illiquid securities. In addition, because Section 4(2)
commercial paper is liquid, the Funds intend to not subject such paper to the
limitation applicable to restricted securities.

REPURCHASE AGREEMENTS. Certain securities in which the Funds invest may be
purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell securities to the Funds and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. To the extent that the
seller does not repurchase the securities from the Funds, the Funds could
receive more or less than the repurchase price on any sale of such securities.

REVERSE REPURCHASE AGREEMENTS. The Funds may enter into reverse repurchase
agreements as a temporary measure for extraordinary or emer-

gency purposes and not for investment leverage purposes. These transactions are
similar to borrowing cash. In a reverse repurchase agreement, a Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate.

When effecting reverse repurchase agreements, assets of the Fund, in a dollar
amount sufficient to make payment for the obligations to be purchased, are
segregated at the trade date, marked to market daily, and maintained until the
transaction is settled.

The use of reverse repurchase agreements may enable the Funds to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Funds will be able to avoid selling portfolio instruments at a
disadvantageous time.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Funds may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Funds purchase securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Funds to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Funds may pay more or less than the market value of the
securities on the settlement date.

The Funds may dispose of a commitment prior to settlement if the adviser deems
it appropriate to do so. In addition, the Funds may enter in transactions to
sell their purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Funds may realize short-term profits or losses upon the sale of such
commitments.

LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Funds may lend their portfolio securities on a short-term or long-term basis, or
both, to broker/dealers, banks, or other institutional borrowers of securities.
The Funds will limit the amount of portfolio securities they may lend to not
more than one-third of their respective total assets. The Funds will only enter
into loan arrangements with broker/dealers, banks, or other institutions which
the adviser has determined are creditworthy under guidelines established by the
Trustees and will receive collateral equal to at least 100% of the value of the
securities loaned.

There is the risk that when lending portfolio securities, the securities may not
be available to the Funds on a timely basis and the Funds may, therefore, lose
the opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.

TEMPORARY INVESTMENTS. For defensive purposes only, the Funds may also invest in
cash and cash items during times of unusual market conditions and to maintain
liquidity. Cash items may include short-term obligations such as:

- with respect to the SHORT TERM YIELD FUND, commercial paper rated A-1 or A-2
by S&P, Prime-1 or Prime-2 by Moody's, or F-1 or F-2 by Fitch;

- with respect to the BOND FUND and the EQUITY FUND, commercial paper rated
A-1 by S&P, Prime-1 by Moody's or F-1 by Fitch;

- Government Securities; and

- repurchase agreements.

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

THE SHORT TERM YIELD FUND'S DOLLAR-
WEIGHTED AVERAGE PORTFOLIO MATURITY
WILL NOT EXCEED THREE YEARS. THE BOND
FUND'S DOLLAR-WEIGHTED AVERAGE
PORTFOLIO MATURITY WILL NOT EXCEED
TWELVE YEARS.
- ----

AVERAGE PORTFOLIO MATURITY. None of the Funds maintain a stable net asset value.
However, to the extent consistent with the SHORT TERM YIELD FUND'S investment
objective of current income, the adviser will seek to limit the magnitude of
fluctuations in the SHORT TERM YIELD FUND'S net asset value by limiting the
dollar-weighted average maturity of the SHORT TERM YIELD FUND'S portfolio to
three years or less. Similarly, to the extent consistent with the BOND FUND'S
investment objective of high current income and capital appreciation, the
adviser will seek to limit the magnitude of fluctuations in the BOND FUND'S net
asset value by limiting the dollar-weighted average maturity of the BOND FUND'S
portfolio to twelve years or less. Securities with shorter maturities generally
have less price movement than securities of comparable quality with longer
maturities. In periods of anticipated rising interest rates, a greater portion
of the assets of the SHORT TERM YIELD FUND and the BOND FUND may be invested in
securities the value of which are believed to be less sensitive to interest rate
changes. However, the prices of fixed income securities fluctuate inversely to
the direction of interest rates.

PORTFOLIO TURNOVER. Although the Funds do not intend to invest for the purpose
of seeking short-term profits, securities in a Fund's portfolio will be sold
whenever the adviser believes it is appropriate to do so in light of a Fund's
investment objective, without regard to the length of time a particular security
may have been held. The adviser does not anticipate that the annual portfolio
turnover rate will generally exceed 150% for the SHORT TERM YIELD FUND, 200% for
the BOND FUND, or 150% for the EQUITY FUND under normal market conditions. The
high portfolio turnover rates may lead to increased costs and may also result in
higher taxes paid by the Funds' shareholders.

RATINGS. As noted above, the BOND FUND only may invest in debt securities that
are investment grade; that is, rated Baa or higher by Moody's, or BBB or higher
by S&P or Fitch, or, if unrated, judged by the adviser to be of comparable
quality. Moody's, S&P, and Fitch believe that securities rated Baa or BBB, while
of investment grade, have speculative characteristics with respect to the
issuer's capacity to pay interest and repay principal. If an investment grade
security loses its rating or has its rating reduced after the BOND FUND has
purchased it, the BOND FUND is not required to sell the security from its
portfolio; however, the adviser will endeavor to dispose of the security as soon
as practicable thereafter, taking into account existing market conditions.

Downgrades of ratings of debt securities purchased by the SHORT TERM YIELD FUND
and EQUITY FUND will be evaluated on a case by case basis by the adviser. The
adviser will determine whether or not the downgraded security continues to be an
acceptable investment. If not, the security will be sold.

FUTURES AND OPTIONS TRANSACTIONS. The EQUITY FUND may engage in the following
futures and options transactions.

WRITING COVERED OPTIONS. The EQUITY FUND may write (i.e., sell) covered call
options. By writing a call option, the EQUITY FUND becomes obligated during
the term of the option to deliver the securities underlying the option upon
payment of the exercise price.

THE EQUITY FUND MAY ONLY WRITE "COVERED" CALL OPTIONS. This means that so
long as the EQUITY FUND is obligated as the writer of a call option, it
will own the underlying securities subject to the option or, in the case of
call options on U.S. Treasury bills, the

EQUITY FUND might own substantially similar U.S. Treasury bills.

The principal reason for writing call options is to obtain, through a
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. The EQUITY FUND receives a premium from
writing a call option which it retains whether or not the option is
exercised. By writing a call option, the EQUITY FUND might lose the
potential for gain on the underlying security while the option is open.
Prior to the exercise of an option, the EQUITY FUND has the right to buy
out the option position at the then prevailing price.

FUTURES CONTRACTS. The EQUITY FUND may purchase and sell stock index futures
contracts to hedge all or a portion of its portfolio against changes in the
price of its portfolio securities, but will not engage in futures transactions
for speculative purposes.

FUTURES AND OPTIONS TRADING MARKETS. Futures and options in which the EQUITY
FUND will trade must be listed on national securities exchanges. Exchanges on
which such options currently are traded are the Chicago Board Options Exchange
and the New York, American, Pacific and Philadelphia Stock Exchanges.

RISKS. When the EQUITY FUND writes a covered call option, the EQUITY FUND
risks not participating in any rise in the value of the underlying
security. When the EQUITY FUND uses futures as a hedging device, there is a
risk that the prices of the securities subject to the futures contract may
not correlate perfectly with the prices of the securities in the EQUITY
FUND'S portfolio. This may cause the futures contract to react differently
than the portfolio securities to market changes. In addition, the adviser
could be incorrect in its expectations about the direction or extent of
market factors, such as interest rate and stock price movements. In these
events, the
EQUITY FUND may lose money on the futures contract.

It is not certain that a secondary market for positions in futures
contracts will exist at all times. Although the adviser will consider
liquidity before entering into transactions, there is no assurance that a
liquid secondary market will exist for any particular futures contract at
any point in time. The EQUITY FUND'S ability to establish and close out
futures positions depends on this secondary market.

The EQUITY FUND may not purchase or sell futures contracts if immediately
thereafter the sum of the amount of margin deposits on the EQUITY FUND'S
existing futures positions and premiums paid for related options would
exceed 5% of the market value of the EQUITY FUND'S total assets.

INVESTMENT LIMITATIONS

The Funds will not borrow money directly or through reverse repurchase
agreements (arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set date) or
pledge securities except, under certain circumstances, the Funds may borrow up
to one-third of the value of their respective total assets and pledge up to 15%
of the value of those assets to secure such borrowings.

With respect to 75% of the value of total assets, each Fund will invest no more
than 5% in securities of any one issuer or acquire more than 10% of the
outstanding voting securities of any one issuer, other than cash, cash items or
securities issued or guaranteed by the government of the United States or its
agencies or instrumentalities, and repurchase agreements collateralized by U.S.
government securities.

The above limitations cannot be changed without shareholder approval.

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

SHAREHOLDER MANUAL

PRICING OF SHARES

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

THE TERM "NET ASSET VALUE" PER SHARE
REFERS TO THE VALUE OF ONE FUND SHARE.
- ----

Each Fund's net asset value per share fluctuates. Net asset value per share for
purposes of pricing purchases and redemptions is calculated by dividing the
market value of all securities and other assets belonging to a Fund, less the
liabilities charged to the Fund, by the number of outstanding shares of the
Fund. The net asset value for INVESTMENT SHARES of a Fund may be less than that
of INSTITUTIONAL SHARES of a Fund due to the variance in daily net income
realized by each class as a result of shareholder servicing fees incurred by the
INVESTMENT SHARES. Such variance will reflect only accrued net income to which
the shareholders of a particular class are entitled.

The net asset value of each Fund is determined at the close of regular trading
hours on the New York Stock Exchange, currently 4:00 p.m. (Eastern time), Monday
through Friday, except on: (i) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day; (ii) days on which there are not sufficient
changes in the value of a Fund's portfolio securities that its net asset value
might be materially affected; and (iii) days during which no Shares are tendered
for redemption and no orders to purchase Shares are received.

WHEN PURCHASES ARE EFFECTIVE. When a purchase order is received in good order
and accepted by a Fund from Supervised Services Company, Inc. (the "Transfer
Agent") by 4:00 p.m. (Eastern time) on a Business Day, it will be executed at
the net asset value next determined. The Transfer Agent will not communicate
purchase orders to the Fund until the Shareholder Servicing Agent has received
the purchase price in Federal funds or other immediately available funds. When
Shares are purchased by check, the order is considered received when the check
is converted into Federal funds, normally within two Business Days. BayBanks (as
defined later) acts as the shareholder's agent in depositing checks and
converting them to Federal funds. Texas residents must purchase Shares of the
Funds through the Distributor at 1-800-356-2805.

HOW TO BUY INVESTMENT SHARES

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

INVESTMENT SHARES ARE SOLD "NO-LOAD" --
WITHOUT A SALES CHARGE. YOUR MINIMUM
INITIAL INVESTMENT IS ONLY $2,500, OR
$500 IF YOU PARTICIPATE IN THE
AUTOMATIC INVESTMENT PROGRAM OR INVEST
THROUGH AN IRA.
- ----

MINIMUM INVESTMENT. You can become a Fund shareholder with an initial investment
of $2,500, or $500 if you participate in the Automatic Investment Program or
invest through an IRA. You must submit a completed application at the time of
your initial purchase. Subsequent investments must be in amounts of at least
$100, or if you participate in the Automatic Investment Program or invest
through an IRA, the minimum for addi-

tional Investment Share purchases is $50. The Funds may waive any investment
minimums from time to time. In addition, the Funds may reduce or waive
investment minimums for investors purchasing through qualified BayBanks
accounts.

The Shareholder Servicing Agent is responsible for prompt transmission of
purchase orders to the Transfer Agent.

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

SUBSEQUENT PURCHASES MAY BE MADE BY
PHONE, MAIL, WIRE, OR IN PERSON THROUGH
BAYBANKS OFFICES.
- ----

BY PHONE. Once you are a Fund shareholder, you may purchase INVESTMENT SHARES by
phone by calling 1-800-BAY-FUND.

You must have previously authorized the specific Fund in writing to accept
telephone requests. If you have not done so, call 1-800-BAY-FUND to receive the
necessary form and information on this Fund feature. Each Fund uses reasonable
procedures (including a shareholder identity test and sending a written
confirmation of each telephone transaction) to confirm that instructions given
by telephone are genuine. However, a Fund is not responsible for the
authenticity of telephone instructions or for the losses caused by fraudulent or
unauthorized telephone instructions if the Fund reasonably believed that the
instructions were genuine. For the protection of investors, all phone
communications may be recorded where not otherwise prohibited by law.

The establishment of certain types of deposit account relationships with
BayBanks may permit the direct deduction of your purchase price from your
BayBanks deposit account. Please call 1-800-BAY-FUND to determine whether your
BayBanks deposit account qualifies.

BY MAIL. If you make your initial purchase by mail, you must send a completed
and signed application and a check payable to the specific Fund and class of
shares, to:

BayFunds
P.O. Box 889
Burlington, MA 01803

You may obtain an application by calling 1-800-BAY-FUND.

You may make subsequent investments in a Fund at any time by sending a check for
a minimum of $100 ($50 if for an IRA) payable to the specific Fund and class of
shares at the following address:

BayFunds
P.O. Box 5-0900
Woburn, MA 01815-0900

or for IRAs:

BayFunds
P.O. Box 889
Burlington, MA 01803

You must include either (a) the detachable form that regularly accompanies
confirmation of a prior transaction, (b) a subsequent order form that may be
obtained by calling 1-800-BAY-FUND, or (c) a letter stating the amount of the
investment, the name of the Fund and class of shares, the exact name and address
of the account, and your account number.

If the check does not clear, your purchase order will be canceled and you could
be held liable for associated transaction costs.

BY WIRE. If you are a Fund shareholder, you may purchase additional INVESTMENT
SHARES by wire by first notifying BayBank, as agent for the Transfer Agent, by
phone at 1-800-BAY-FUND and then wiring the funds as follows:

BayBank
ABA Number: 0110-0174-2
Attention: Mutual Funds Services
For Credit to: (identify the appropriate Fund -- INVESTMENT SHARES) Account
37153931

Further Credit to: (shareholder name and account number)

THROUGH BAYBANKS OFFICES. You may place an order to purchase INVESTMENT SHARES
of a Fund in person through designated BayBanks offices. Purchase orders placed
through BayBanks offices typically would be received by the Transfer Agent
within two Business Days. If you want more prompt processing, you should
consider another method, such as "By Phone."

CORPORATE CUSTOMERS. Corporate customers of BayBanks interested in purchasing
INVESTMENT SHARES should consult their account relationship managers for
procedures applicable to their accounts or call 1-800-554-3311. This prospectus
should be read in conjunction with any materials provided by BayBanks regarding
such procedures.

<TABLE>
<S> <C> <C>
- -----------------------------------------------

YOU CAN BUY INVESTMENT SHARES CONVEN-
IENTLY THROUGH THE AUTOMATIC INVEST-
MENT PROGRAM.
- ----
</TABLE>

AUTOMATIC INVESTMENT PROGRAM. When you participate in the Automatic Investment
Program, you can purchase additional INVESTMENT SHARES in minimum amounts of
$50. You must previously have authorized in writing the total dollar amount to
be deducted automatically from eligible BayBanks deposit accounts or your
deposit account maintained at a domestic financial institution which is an
automated clearing house member, and the frequency of the deductions. The funds
will be invested in INVESTMENT SHARES of the specified Fund at the net asset
value next determined. The Funds may reduce or waive the investment minimums for
investors purchasing through qualified BayBanks accounts.

RETIREMENT PLANS. BayBanks makes available for purchase Fund INVESTMENT SHARES
for investment by IRAs, rollover IRAs and Simplified Employee Pension Plans. For
details, including minimum investments, application forms and other investment
procedures, call 1-800-BAY-FUND.

HOW TO EXCHANGE INVESTMENT SHARES

<TABLE>
<S> <C> <C>
- -----------------------------------------------

IF YOUR INVESTMENT NEEDS CHANGE, YOU
CAN EASILY EXCHANGE A FUND'S INVESTMENT
SHARES FOR INVESTMENT SHARES OF ANY
OTHER BAYFUNDS PORTFOLIO AT NO CHARGE.
- ----
</TABLE>

BayFunds consists of the Funds, the BayFunds U.S. Treasury Money Market
Portfolio and the BayFunds Money Market Portfolio. As a shareholder, you have
access to the INVESTMENT SHARES of all the portfolios ("Participating Funds") of
BayFunds through an exchange program. You may also purchase BayFunds Shares of
Massachusetts Municipal Cash Trust with redemption proceeds of a BayFunds
Portfolio by calling 1-800-BAY-FUND.

You may exchange INVESTMENT SHARES having a net asset value of at least $100 for
INVESTMENT SHARES of any other Participating Fund in which you have an account.
The minimum initial investment to establish an account in any other
Participating Fund by exchange is $2,500, or $500 if you participate in the
Automatic Investment Program or invest through an IRA. BayFunds does not charge
any exchange fees.

Each exchange is considered a sale of shares of one fund and a purchase of
shares of another fund. Shares submitted for exchange will be redeemed at the
net asset value next determined after receipt of the exchange request by the
Transfer Agent on a Business Day. INVESTMENT SHARES of the Participating Fund to
be acquired will be purchased at the net asset value per share next determined
on a Business Day. Transfers of money between a BayFunds Portfolio and BayFunds
Shares of Massachusetts Municipal Cash Trust will be reflected as a redemption
and purchase on a shareholder's account statement. In a transfer involving the
BayFunds Shares of Massachusetts Municipal Cash Trust, the

purchase order will be placed on the Business Day following the Business Day
after which the redemption order has been executed.

If you do not have an account in the Participating Fund whose INVESTMENT SHARES
you want to acquire, you must establish an account. Prior to any such exchange,
you must receive a copy of the current prospectus of the INVESTMENT SHARES of
the Participating Fund into which an exchange is to be effected. This account
will be registered in the same name and, unless you specify otherwise, will have
the same dividend and distribution payment option as you selected with your
existing account. If the new account registration (name, address, and taxpayer
identification number) is not identical to your existing account, please call
1-800-BAY-FUND for the necessary new account or transfer procedures.

You may find the exchange privilege useful if your investment objectives or
market outlook should change after you invest in any of the INVESTMENT SHARES of
Participating Funds. You may obtain further information on the exchange
privilege and obtain a prospectus by calling 1-800-BAY-FUND.

The exchange privilege is available to shareholders in any state in which
Participating Funds' shares being acquired may be sold.

BayFunds reserves the right to terminate the exchange privilege at any time on
60 days' notice. Shareholders will be notified if this privilege is terminated.

Depending on the circumstances, an exchange may generate a short- or long-term
capital gain or loss for federal income tax purposes.

BY PHONE. You may provide instructions for exchanges by telephone between
Participating Funds by calling 1-800-BAY-FUND.

You must have previously authorized the Funds in writing to accept telephone
requests. If you have not done so, call 1-800-BAY-FUND to receive the necessary
form and information on this feature. Each Fund uses reasonable procedures
(including a shareholder identity test and sending a written confirmation of
each telephone transaction) to confirm that instructions given by telephone are
genuine. However, a Fund is not responsible for the authenticity of telephone
instructions or for any losses caused by fraudulent or unauthorized telephone
instructions if the Fund reasonably believed that the instructions were genuine.

BY MAIL. You may send a written request for an exchange to:

BayFunds
P.O. Box 889
Burlington, MA 01803

Your written request must include your name and tax identification number; the
name of the specific Fund and class of shares; the dollar amount or number of
INVESTMENT SHARES to be redeemed; the name of the Fund and class of shares in
which shares are to be purchased; and your account number. Your request must be
signed by the registered owner(s) exactly as required by the account
application.

THROUGH BAYBANKS OFFICES. You may place an order to exchange INVESTMENT SHARES
in person through designated BayBanks offices. Exchange orders received through
designated BayBanks offices typically would be received by the Transfer Agent
within two Business Days. For more prompt processing, you should consider
another method, such as "By Phone."

HOW TO REDEEM INVESTMENT SHARES

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

WHEN YOU SELL YOUR INVESTMENT
SHARES -- "REDEEM" THEM -- YOU RECEIVE
THE NET ASSET VALUE PER SHARE NEXT
DETERMINED AFTER THE REQUEST IS
RECEIVED BY A FUND IN PROPER FORM.
THERE ARE NO FEES OR OTHER REDEMPTION
CHARGES (EXCEPT FOR REDEMPTIONS BY
WIRE). YOU MAY REDEEM SOME OR ALL OF
YOUR INVESTMENT.
- ----

Each Fund redeems its INVESTMENT SHARES at the net asset value next determined
after the Fund has received your redemption request from the Transfer Agent in
proper form. Redemption requests can be executed only on Business Days. If your
redemption request is received by the Shareholder Servicing Agent on a
non-Business Day, the Transfer Agent will not communicate your redemption
request to the Fund until the next Business Day.

The Funds ordinarily will make payment for INVESTMENT SHARES redeemed after
proper receipt from the Transfer Agent of the redemption request and of all
documents in proper form within five Business Days. Redemption proceeds may be
credited to an eligible BayBanks deposit account, paid by check, or paid by
wire, as you previously designated in your application.

SIGNATURE GUARANTEES. If you request a redemption for an amount in excess of
$25,000 (no limitation if the proceeds are being credited to your BayBanks
deposit account), a redemption of any amount to be sent to an address other than
your address of record with the Fund, the transfer of the registration of
INVESTMENT SHARES, or a redemption of any amount payable to someone other than
yourself as the shareholder of record, your signature must be guaranteed on a
written redemption request by a trust company or insured commercial bank; an
insured savings and loan association or savings bank; a member firm of a
national or regional stock exchange; or any other "eligible guarantor
institution," as defined in the Securities Exchange Act of 1934. The Transfer
Agent has adopted standards for accepting signature guarantees from the above
institutions. BayFunds may elect in the future to limit eligible signature
guarantors to institutions that are members of a signature guarantee program.
The Funds do not accept signatures guaranteed by a notary public. BayFunds and
its Transfer Agent reserve the right to amend these standards at any time
without notice. If you have a question about the proper form for redemption
requests, call 1-800-BAY-FUND.

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

YOU MAY REDEEM INVESTMENT SHARES BY
PHONE, MAIL, WIRE, OR THROUGH BAYBANKS
OFFICES.
- ----

BY PHONE. You may redeem INVESTMENT SHARES by calling 1-800-BAY-FUND. You must
have previously authorized the Fund in writing to accept telephone requests. If
you have not done so, call 1-800-BAY-FUND to receive the necessary form.

In the event of drastic economic or market changes, you may experience
difficulty in redeeming by telephone. If this occurs, you should consider
another method of redemption, such as "By Mail." The Fund uses reasonable
procedures (including a shareholder identity test and sending a written
confirmation of each telephone transaction) to confirm that instructions given
by telephone are genuine. However, a Fund is not responsible for the
authenticity of telephone instructions or for any losses caused by fraudulent or
unauthorized telephone instructions if the Fund reasonably believed that the
instructions were genuine.

BY MAIL. You may redeem INVESTMENT SHARES by submitting a written request for
redemption to:

BayFunds
P.O. Box 889
Burlington, MA 01803

Your written request must include your name and tax identification number, the
specific Fund's name, the class of shares name, the dollar amount or number of
INVESTMENT SHARES to be redeemed, and your account number. Your request must be
signed by the registered owner(s) exactly as required by the account
application.

BY WIRE. You may receive redemption proceeds of INVESTMENT SHARES by wire by
calling 1-800-BAY-FUND. Redemption proceeds of at least $1,000 will be wired
directly to the domestic commercial bank and account you previously designated
in writing. You are charged a fee for each wire redemption and the fee is
deducted from your redemption proceeds.

Each Fund reserves the right to wire redemption proceeds within five Business
Days after receiving the redemption order if, in its judgment, an earlier
payment could adversely affect the Fund. However, the redemption order will be
effected at the net asset value next determined after redemption request is
received by a Fund from the Transfer Agent in proper form. The Funds also
reserve the right to terminate or modify the "By Wire" or "By Phone" redemption
procedures at any time. In that event, shareholders would be promptly notified.

THROUGH BAYBANKS OFFICES. You may place an order to redeem INVESTMENT SHARES in
person through designated BayBanks offices. Redemption orders received through
designated BayBanks offices typically would be received by the Transfer Agent
within two Business Days. For more prompt processing, you should consider
another method, such as "By Phone."

BACKUP WITHHOLDING. The Internal Revenue Service requires that backup
withholding of 31% apply to any redemption or exchange request on an account
that has not certified its taxpayer identification number ("TIN"). Shareholders
who either have not certified their number or applied for a number should be
aware that backup withholding will apply to any redemption request processed
prior to receipt of a TIN number and certification.

REDEMPTIONS BEFORE PURCHASE INSTRUMENTS CLEAR. If any portion of a Fund's
INVESTMENT SHARES to be redeemed represents an investment made with uncollected
funds, the Fund reserves the right to delay payment of proceeds until the
Shareholder Servicing Agent is reasonably certain that the funds have been
collected, which could take up to five Business Days.

AUTOMATIC WITHDRAWAL PROGRAM. An Automatic Withdrawal Program may be established
for IRA accounts only whereby automatic redemptions are made from the account
and transferred electronically to an eligible BayBanks deposit account or your
deposit account maintained at a domestic financial institution that is an
automated clearing house member. The minimum redemption amount is $100 per
month. Depending upon the amount of the withdrawal payments and the amount of
dividends paid with respect to INVESTMENT SHARES, redemptions may reduce, and
eventually deplete, the shareholder's investment in the Fund. For this reason,
payments under this program should not be considered as yield or income on the
shareholder's investment in the Fund. A shareholder may apply for participation
in this program by calling 1-800-BAY-FUND for further information. If a
shareholder withdraws any funds from the IRA account before reaching age 59 1/2
(except certain withdrawals of excess contributions and regular payments made
over the shareholder's life expectancy), the shareholder will be subject to an
IRS penalty tax of 10% of the taxable amount withdrawn in addition to regular
income taxes on the taxable amount.

HOW TO BUY INSTITUTIONAL SHARES

INSTITUTIONAL SHARES are offered to trusts, fiduciaries and other institutions
(collectively referred to as the "Institution"). The minimum initial investment
by an Institution is $10,000, and subsequent investments must be in amounts of
at least $100. The Funds may waive any investment minimums

from time to time. An Institution will set minimums for its customers.

INSTITUTIONAL SHARES are purchased and redeemed with no sales loads or
redemption fees imposed by the Funds. Depending upon the terms of each customer
account, an Institution may charge the customer account fees for services it
provides, such as automatic investment, cash management, dividend payment
processing, information regarding customer position, and sub-accounting with
respect to customer accounts. Such fees may include compensating balance
requirements or account maintenance fees, or may be based on account assets or
transactions. Customers should obtain information about account services and
fees directly from their Institution before authorizing the purchase of
INSTITUTIONAL SHARES, and this prospectus should be read in conjunction with any
such information.

INSTITUTIONAL SHARES may be purchased in accordance with procedures established
by an Institution in connection with the requirements of its customer accounts.
Procedures applicable to each Institution and each customer account governing
the purchase of INSTITUTIONAL SHARES will differ. Each Institution is
responsible for prompt transmission of purchase orders to the Funds in
accordance with terms of its customer agreements.

Customers should consult their trust account relationship manager at this
Institution for further information and procedures on purchasing INSTITUTIONAL
SHARES. This prospectus should be read in conjunction with any materials
provided by the Institution regarding such procedures.

RETIREMENT PLANS. For information about retirement plan vehicles established by
employers for their employees which are qualified under Section 401(k) and
403(b) of the Internal Revenue Code, call BayBank at 1-800-462-9999, extension
4589 or write to BayBank, Corporate Trust--New Business Department, 7 New
England Executive Park, Burlington, MA 01803.

HOW TO EXCHANGE INSTITUTIONAL SHARES

BayFunds consists of the Funds, the BayFunds U.S. Treasury Money Market
Portfolio and the BayFunds Money Market Portfolio. Institutions may access all
of these portfolios ("Participating Funds") of BayFunds through an exchange
program. Institutions may also purchase BayFunds Shares of Massachusetts
Municipal Cash Trust with redemption proceeds of a BayFunds Portfolio. A
customer of BayBanks may telephone the BayBanks Trust Department toll-free at
1-800-462-9999. BayBanks Capital Markets customers should call 1-800-554-3311.
Participants in Employee Benefits programs should contact their Plan
Administrator.

Procedures will be established by each Institution in connection with the
requirements of its customer accounts and the Participating Funds. Customers
should contact their Institution to obtain further information on exchange
privileges. Prior to any such exchange, the Institution must provide a copy of
the current prospectus of the Participating Fund into which an exchange is to be
effected. The exchange privilege is available to shareholders in any state in
which the Participating Fund's shares being acquired may be sold.

HOW TO REDEEM INSTITUTIONAL SHARES

INSTITUTIONAL SHARES may be redeemed in accordance with procedures established
by an Institution in connection with the requirements of its customer accounts.
Procedures applicable to each Institution and each customer account governing
the redemption of INSTITUTIONAL SHARES will differ. Customers should contact
their Institution for further information. Each Institution is responsible for
transmitting redemption orders promptly to the Funds and crediting customers'
accounts with redemption proceeds on a timely basis.

Redemption orders are effective at the net asset value per share next determined
after proper receipt of the redemption request by the Fund from the Transfer
Agent in proper form. Redemption orders can be executed only on Business

Days. If your redemption request is received by the Transfer Agent on a
non-Business Day, the Transfer Agent will not communicate your redemption
request to the Fund until the next Business Day. Payment for redemption orders
received by the Transfer Agent by 4:00 p.m. (Eastern time) on a Business Day
will normally be wired the next Business Day to the Institution for credit to
customer accounts. INSTITUTIONAL SHARES so redeemed will not be eligible to
receive the dividend declared on the redemption date. Payment for redemption
orders received after 4:00 p.m. (Eastern time) or on a non-Business Day will
normally be wired in Federal funds to the Institution for credit to customer
accounts on the Business Day following the Business Day on which the redemption
order is effected.

The Funds assess no charges for wiring redemption proceeds. However,
Institutions may charge customer accounts for redemption services. Information
relating to such redemption services and charges, if any, are available from the
Institutions.

The Funds reserve the right to wire redemption proceeds within five Business
Days after receiving the redemption order if, in their judgment, an earlier
payment could adversely affect the Funds.

REDEMPTIONS BEFORE PURCHASE INSTRUMENTS CLEAR. If any portion of a Fund's
INSTITUTIONAL SHARES to be redeemed represents an investment made with
uncollected funds, the Fund reserves the right to delay payment of proceeds
until the Shareholder Servicing Agent is reasonably certain that the funds have
been collected, which could take up to five Business Days.

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

ADDITIONAL INFORMATION YOU SHOULD KNOW

MINIMUM BALANCE

Due to the high cost of maintaining accounts with low balances, a Fund may
redeem Shares (other than in retirement plan accounts or IRAs) and send the
shareholder the proceeds if, due to shareholder redemptions:

- your INVESTMENT SHARES account balance falls below a minimum value of
$1,000, or

- an Institution's INSTITUTIONAL SHARES account falls below $10,000.

However, before Shares are redeemed to close an account, the shareholder or
Institution will be notified in writing and given 60 days to purchase additional
Shares to meet the minimum balance requirement. The Funds reserve the right to
amend this standard upon 60 days' prior written notice to shareholders. The
Funds also reserve the right to redeem their Shares involuntarily or to make
payment for redemptions in the form of securities if it appears appropriate to
do so in light of their responsibilities under the Investment Company Act of
1940. Customers of Institutions should consult their relevant account agreements
for any applicable balance requirements.

CONFIRMATIONS AND STATEMENTS. Shareholders of INVESTMENT SHARES will receive
confirmations of each purchase, exchange or redemption. Monthly statements are
sent to report transactions such as purchases and redemptions, as well as
dividends paid during the month. However, BayBank IRA customers will receive
quarterly statements for their accounts.

INSTITUTIONAL SHARES will be held of record by the Institutions or in the name
of a nominee of the Institutions. Beneficial ownership of INSTITUTIONAL SHARES
will be recorded by the Institutions and reflected in statements of account
provided by the

Institutions to their customers. It is the responsibility of the Institutions to
provide the customers with confirmations and statements of account with respect
to INSTITUTIONAL SHARE transactions made for their accounts at the Institutions
in accordance with procedures established by the Institutions. Confirmations are
sent to the Institutions (at least monthly in the case of the INCOME FUNDS and
at least quarterly in the case of the EQUITY FUND) to report transactions such
as purchases and redemptions as well as dividends paid.

DIVIDENDS AND DISTRIBUTIONS

Dividends from the net investment income of the SHORT TERM YIELD FUND and the
BOND FUND are declared daily, immediately prior to the 4:00 p.m. (Eastern time)
pricing of the Shares. Dividends of the SHORT TERM YIELD FUND and the BOND FUND
are paid monthly within five Business Days after the end of such calendar month
to all shareholders invested in such Funds on the record date. Dividends from
the EQUITY FUND'S net investment income are declared and paid quarterly within
five Business Days after the end of such calendar quarter to all shareholders
invested in the EQUITY FUND on the record date. Net realized capital gains of
the Funds are distributed at least annually.

Shareholders of INVESTMENT SHARES elect in writing how they wish to receive
dividends and distributions. Such shareholders may choose automatic reinvestment
in additional INVESTMENT SHARES at the net asset value next determined on the
payment dates, automatic credit to an eligible BayBanks deposit account, or
payment by check. If such shareholders fail to select an option, all
distributions will be reinvested in additional INVESTMENT SHARES.

Institutions holding INSTITUTIONAL SHARES may elect to (a) have their dividends
and distributions automatically reinvested in additional INSTITUTIONAL SHARES at
the net asset value next determined on the payment dates, (b) receive their
dividends and distributions in cash, or (c) receive a combination of additional
INSTITUTIONAL SHARES and cash. It is expected that customers of an Institution's
automatic investment program will receive all dividends and distributions in
cash credited to their account pursuant to the terms of their agreement with an
Institution; all other customers should contact their Institution for further
information about dividend elections.

The amount of dividends payable to INSTITUTIONAL SHARES of a Fund will be
greater than those payable to its INVESTMENT SHARES by the difference between
any class expenses and the shareholder servicing fees borne by shares of each
respective class of Shares of the Fund. (Currently, there are no differences in
class expenses other than shareholder servicing fees.)

TAX INFORMATION

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

THIS DISCUSSION OF TAXES IS FOR GENERAL
INFORMATION ONLY. PLEASE CONSULT YOUR
OWN TAX ADVISER ABOUT YOUR PARTICULAR
SITUATION.
- ----

FEDERAL INCOME TAX. Each Fund intends to meet requirements of the Internal
Revenue Code applicable to regulated investment companies in order not to be
liable for any Federal income taxes on income and gains distributed to the
Fund's shareholders. Each Fund will distribute substantially all of its net
investment income and net realized gains at least annually.

Each Fund will be treated as a single, separate entity for Federal income tax
purposes.

Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional Shares. Distributions
from the Funds' net investment income and short-term capital gains of the SHORT
TERM YIELD FUND and BOND FUND will be taxed as ordinary

income and will not be eligible for the dividends received deduction available
to corporations. However, the dividends received deduction for corporations will
apply to ordinary income distributions of the EQUITY FUND to the extent the
distribution represents amounts that would qualify for the dividends received
deduction to the EQUITY FUND if the EQUITY FUND were a regular corporation, and
to the extent designated by the EQUITY FUND as so qualifying. These dividends
and any short-term capital gains are taxable as ordinary income. Distributions
of net long-term capital gains will be taxed as such regardless of how long the
Shares have been held.

Early each year, each Fund will notify its shareholders of the amount and tax
status of distributions paid to the shareholder for the preceding year.

Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local laws.

PERFORMANCE INFORMATION

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

YOU CAN FOLLOW EACH FUND'S PERFORMANCE.
- ----

From time to time, in advertisements or in reports to shareholders, the
performance and yield of the Funds may be quoted and compared to those of other
mutual funds with similar investment objectives and to relevant bond or equity
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For example,
the performance of the Funds may be compared to data prepared by Lipper
Analytical Services, Inc., a widely recognized independent service which
monitors the performance of mutual funds.

National financial publications in which performance and yield data are reported
may include The Wall Street Journal, The New York Times, Forbes, or Money
magazine. Publications of a local or regional nature, such as The Boston Globe
or The Boston Herald, may also be used in comparing the performance and yield of
the Funds.

Total return represents the change, over a specified period of time, in the
value of an investment in Shares after reinvesting all income and capital gains
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.

The yield of Shares is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by Shares
over a thirty-day period by the net asset value per share of Shares on the last
day of the period. This number is then annualized using semi-annual compounding.
The yield does not necessarily reflect income actually earned by Shares and,
therefore, may not correlate to the dividends or other distributions paid to
shareholders.

Yield and total return will be calculated separately for both classes of shares
of the Funds. Because INVESTMENT SHARES are subject to shareholder servicing
fees, the yield and total return of INSTITUTIONAL SHARES of a Fund for the same
period will exceed that of its INVESTMENT SHARES.

Shares of the Funds are sold without any sales load or other similar
non-recurring charges.

DISTRIBUTION RATE. The Funds may quote non-standardized yield in the form of a
distribution rate.

The SHORT TERM YIELD FUND calculates its yield daily, as of the date preceding
the calculation, based upon the thirty days ending on the day of the
calculation. This yield is computed by:

- adding the average daily interest accrued to the average daily original
issue discount earned per share on the Fund's portfolio for that thirty-day
period, exclusive of gains or losses on portfolio instruments, including
short-term capital gains;

- subtracting the average daily provision for expenses per share for the
thirty-day period;

- multiplying by the number of days in the current month times twelve; and

- dividing by the thirty-day average net asset value per share.
The BOND FUND calculates its yield daily, as of the date preceding the
calculation, based upon the thirty days ending on the day of the calculation.
This yield is computed by:

- adding the average daily interest accrued to the average daily discount
earned (including original issue discount) per share on the Fund's
portfolio for that thirty-day period, exclusive of gains or losses on
portfolio instruments;

- subtracting the average daily provision for expenses per share for the
thirty-day period;

- multiplying by 365 days; and

- dividing by the thirty-day average net asset value per share.

The EQUITY FUND calculates its annualized current net yield daily as of the date
preceding the calculation. The calculation is made by:

- dividing the most recent quarterly dividend (including any short-term
capital gains) times four by

- the offering price per share for that day.

MANAGEMENT, DISTRIBUTION AND ADMINISTRATION

BayFunds was established as a Massachusetts business trust under a Declaration
of Trust dated April 1, 1991. The Declaration of Trust permits BayFunds to offer
separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to the INCOME FUNDS and EQUITY FUND,
as of the date of this prospectus, the Board of Trustees ("Trustees") has
established two classes of shares, INVESTMENT SHARES and INSTITUTIONAL SHARES.
INVESTMENT SHARES are designed primarily for individuals who purchase the Funds
through BayBanks and its affiliates. INSTITUTIONAL SHARES are offered primarily
to trusts, fiduciaries and other institutions.

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

AS A SHAREHOLDER, YOU ARE ENTITLED TO
VOTE ON CERTAIN MATTERS.
- ----

VOTING RIGHTS. Each Share of a Fund gives the shareholder one vote in Trustee
elections and other matters submitted to shareholders for vote. All Shares of
each portfolio in BayFunds have equal voting rights except that, in matters
affecting only a particular Fund or class of Shares, only Shares of that
particular Fund or class are entitled to vote.

As a Massachusetts business trust, BayFunds is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in BayFunds' or a Fund's operation and for the election of Trustees
under certain circumstances. As of January 31, 1995, Slatt & Co., Burlington,
Massachusetts, acting in various capacities for numerous accounts, was the owner
of record of 5,756,585 INSTITUTIONAL SHARES (100%) of the SHORT TERM YIELD FUND;
5,374,454 INSTITUTIONAL SHARES (94.9%) of the BOND FUND; and 6,906,421
INSTITUTIONAL SHARES (96.3%) of the EQUITY FUND; and therefore, may for certain
purposes, be deemed to control the respective Funds and be able to affect the
outcome of certain matters presented for a vote of shareholders. Trustees may be
removed by a two-thirds vote of the number of Trustees prior to such removal or
by a two-thirds vote of the shareholders at a special meeting. A special meeting
of shareholders shall be called by the Trustees upon the written request of
shareholders owning at least 10% of BayFunds' outstanding shares of all
portfolios entitled to vote.

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

A BOARD OF TRUSTEES SUPERVISES
BAYFUNDS.
- ----

BayFunds is managed by a Board of Trustees. The Trustees are responsible for
managing BayFunds'

business affairs and for exercising all BayFunds' powers except those reserved
for the shareholders.

INVESTMENT ADVISER

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

ACTING UNDER THE DIRECTION OF THE
TRUSTEES, THE ADVISER MAKES INVESTMENT
DECISIONS FOR THE FUNDS. THE ADVISER
HAS EXTENSIVE INVESTMENT EXPERIENCE AND
IS A SUBSIDIARY OF A LEADING NEW
ENGLAND FINANCIAL SERVICES
ORGANIZATION.
- ----

Pursuant to an investment advisory contract with BayFunds, investment decisions
for the Funds are made by BayBanks Investment Management, Inc., the Funds'
investment adviser (the "Adviser"), subject to direction by the Trustees. The
Adviser continually conducts investment research and supervision for the Funds
and is responsible for the purchase and sale of portfolio instruments, for which
it receives an annual fee from the Funds.

ADVISORY FEES. The Adviser receives an annual investment advisory fee equal to
.50 of 1% of the average daily net assets of the SHORT TERM YIELD FUND, .60 of
1% of the average daily net assets of the BOND FUND, and .70 of 1% of the
average daily net assets of the EQUITY FUND. The Adviser has undertaken to
reimburse the Funds, up to the amount of the advisory fee, for operating
expenses in excess of limitations established by certain states. The Adviser may
also voluntarily choose to waive a portion of its fee or reimburse the Funds for
certain other expenses, but reserves the right to terminate such waiver or
reimbursement at any time at its sole discretion.

ADVISER'S BACKGROUND. The Adviser is a wholly-owned subsidiary of BayBanks,
Inc., a bank holding company organized under the laws of the Commonwealth of
Massachusetts. BayBanks, Inc., through its banking subsidiaries (hereinafter
"BayBanks") and affiliates, offers a full range of financial services to the
public, including depository services, commercial lending, cash management,
brokerage, retail banking, mortgage banking, and investment advisory and trust
services. As part of their regular banking operations, BayBanks may make loans
to public companies. Thus, it may be possible, from time to time, for the Funds
to hold or acquire the securities of issuers which are also lending clients of
BayBanks. The lending relationship will not be a factor in the selection of
securities.

The Adviser is a registered investment adviser and provides investment advisory
services for trust and other managed assets. The Adviser was established as a
separate subsidiary of BayBanks, Inc. in 1985, but its predecessor division and
personnel have been providing investment advisory services to BayBanks'
customers for more than 65 years. As of December 31, 1994, the Trust Division of
BayBank, a state-chartered affiliate of the Adviser, acted as custodian for
assets totaling $10 billion. Of this amount, the Adviser managed $2.4 billion of
discretionary assets. The Adviser and BayBanks have been managing commingled
funds for over twenty years. At the present time, the Adviser serves as adviser
to six such commingled funds with total assets of approximately $280 million.
The Adviser has managed mutual funds since August 1991 and manages approximately
$455 million (as of December 31, 1994) in various BayFunds Portfolios.

BayBank Boston, N.A., through its Capital Markets Division, manages more than
$2.7 billion of assets in the investment portfolios of BayBanks, Inc. and
BayBanks. BayBank Boston, N.A., an affiliate of the Adviser, manages
approximately $835 million (as of December 31, 1994) in the BayFunds U.S.
Treasury Money Market Portfolio. BayBank Boston, N.A., is a national banking
association.

Investment decisions for SHORT TERM YIELD FUND, BOND FUND, and EQUITY FUND are
made by an investment committee of the Adviser.

ate thereof, from sponsoring, organizing or controlling a registered, open-end
investment company continuously engaged in the issuance of its shares, and from
issuing, underwriting, selling or distributing securities in general. Such laws
and regulations do not prohibit such a holding company or affiliate from acting
as investment adviser, transfer agent or custodian to such an investment company
or from purchasing shares of such a company as agent for and upon the order of
their customer. The Funds' investment adviser, BayBanks Investment Management,
Inc., is subject to such banking laws and regulations.

The Adviser believes that it may perform the investment advisory services for
the Funds contemplated by its advisory agreement with BayFunds without violating
the Glass-Steagall Act or other applicable banking laws or regulations. Changes
in either federal or state statutes and regulations relating to the permissible
activities of banks and their subsidiaries or affiliates, as well as further
judicial or administrative decisions or interpretations of present or future
statutes and regulations, could prevent the Adviser from continuing to perform
all or a part of the above services for its customers and/or the Funds. In such
event, changes in the operation of the Funds may occur, including the possible
alteration or termination of any automatic or other Fund Share investment and
redemption services then being provided, and the Trustees would consider
alternative investment advisers and other means of continuing available
investment services. It is not expected that Fund shareholders would suffer any
adverse financial consequences (if another adviser with equivalent abilities to
BayBanks Investment Management, Inc. is found) as a result of any of these
occurrences.

State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state laws.

DISTRIBUTION

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

FEDERATED SECURITIES CORP. IS THE
PRINCIPAL DISTRIBUTOR FOR SHARES OF THE
FUNDS.
- ----

Federated Securities Corp. is the principal distributor (the "Distributor") for
Shares of the Funds. It is a Pennsylvania corporation organized on November 14,
1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.

ADMINISTRATIVE ARRANGEMENTS. The Distributor may pay financial institutions such
as banks, fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide certain services to shareholders. These services may
include, but are not limited to, distributing prospectuses and other
information, providing accounting assistance, and communicating or facilitating
purchases and redemptions of Shares. Any fees paid for these services by the
Distributor will be reimbursed by the Adviser and not the Funds.

The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Trustees will consider appropriate changes in the administrative services.

ADMINISTRATION

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

VARIOUS ORGANIZATIONS PROVIDE SERVICES
TO THE FUNDS.
- ----

ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Funds with certain administrative

personnel and services necessary to operate the Funds, such as legal and
accounting services. Federated Administrative Services provides these at an
annual rate as specified in the following table:

<TABLE>
<CAPTION>
AVERAGE AGGREGATE
MAXIMUM DAILY NET ASSETS
ADMINISTRATIVE FEE OF BAYFUNDS
- ------------------- -------------------------
<S> <C>
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess
of $750 million
</TABLE>

The administrative fee received during any fiscal year shall be at least $50,000
for each Fund. Federated Administrative Services may choose voluntarily to
reimburse a portion of its fee at any time.

TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND PORTFOLIO ACCOUNTING SERVICES.
Supervised Service Company, Inc. (the "Transfer Agent"), Kansas City, Missouri,
is transfer agent for the Shares of the Funds and dividend disbursing agent for
the Funds. Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of
Federated Investors, provides portfolio accounting services for the Funds. The
Funds' Transfer Agent maintains a Share account for each shareholder of record.
Share certificates are not issued.

SHAREHOLDER SERVICING AGENT. BayBank Systems, Inc., Waltham, Massachusetts, is
the Fund's shareholder servicing agent (the "Shareholder Servicing Agent") for
INVESTMENT SHARES. The Fund may pay the Shareholder Servicing Agent a fee based
on the average daily net asset value of INVESTMENT SHARES for which it provides
shareholder services. These shareholder services include, but are not limited
to, distributing prospectuses and other information, providing shareholder
assistance and communicating or facilitating purchases and redemptions of
INVESTMENT SHARES. This fee will be equal to .25 of 1% of the Fund's average
daily net assets of INVESTMENT SHARES for which the Shareholder Servicing Agent
provides services; however, the Shareholder Servicing Agent may choose
voluntarily to waive all or a portion of its fee at any time.

CUSTODIAN. The Fifth Third Bank, Cincinnati, Ohio, is custodian for the
securities and cash of the Funds.

LEGAL COUNSEL. Legal counsel is provided by Ropes & Gray, Washington, D.C.,
Counsel to BayFunds, and Sullivan & Worcester, Washington, D.C., Counsel to the
Independent Trustees.

INDEPENDENT AUDITORS. The independent auditors for the Funds are Ernst & Young
LLP, Pittsburgh, Pennsylvania.

CODE OF ETHICS COMPLIANCE

In accordance with industry-wide recommendations as endorsed by the SEC, the
Trust, the adviser and the distributor have revised their respective Codes of
Ethics governing personal securities trading of trustees, directors, officers
and employees. Generally, the Codes implement various restrictions on such
persons, such as requiring them to preclear their securities investments;
banning their short-term trading; prohibiting them from investing in private
placements without prior written approval; restricting trading during periods of
Fund trading; prohibiting them from receiving gifts from any person or entity
doing business with the Fund; and prohibiting them from serving as directors of
public companies without prior approval. In addition, the Codes require such
persons to report their securities holdings and trading activity, and may
subject them to punishment for violations.

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

ADDRESSES

BAYFUNDS SHORT TERM YIELD PORTFOLIO,
BAYFUNDS BOND PORTFOLIO AND
BAYFUNDS EQUITY PORTFOLIO
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

DISTRIBUTOR

Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

INVESTMENT ADVISER

BayBanks Investment Management, Inc.
1414 Massachusetts Avenue
Cambridge, Massachusetts 02138

TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT

Supervised Service Company, Inc.
811 Main Street
Kansas City, Missouri 64105

SHAREHOLDER SERVICING AGENT

BayBank Systems, Inc.
One BayBank Technology Place
Waltham, Massachusetts 02154

CUSTODIAN

The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45202
PORTFOLIO ACCOUNTING SERVICES

Federated Services Company
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

COUNSEL TO BAYFUNDS

Ropes & Gray
1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004

COUNSEL TO THE INDEPENDENT TRUSTEES

Sullivan & Worcester
1025 Connecticut Avenue, N.W.
Washington, D.C. 20036

INDEPENDENT AUDITORS

Ernst & Young LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219

BayFunds U.S. Treasury Money Market Portfolio
(Investment Shares and Institutional Shares)
BayFunds Money Market Portfolio
(Investment Shares and Trust Shares)

(Portfolios of BayFundsR)
Combined Statement of Additional Information

This combined Statement of Additional Information should be read with
the combined prospectus for BayFunds U.S. Treasury Money Market
Portfolio ("U.S. Treasury Fund") and BayFunds Money Market Portfolio
("Money Market Fund") (individually referred to as a "Fund" or
collectively as the "Funds"), dated March 1, 1995. This combined
Statement is not a prospectus itself. Customers of BayBanks and its
affiliates can request a prospectus by writing to the Fund or by
calling toll free at 1-800-BAY-FUND (1-800-229-3863). Customers of
BayBanks Trust Department may call in Massachusetts at (617) 273-1700
or toll free 1-800-462-9999 ext. 4589. BayBanks Capital Markets
customers should call 1-800-554-3311.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Statement dated March 1, 1995

FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
General Information About the
Funds 1
Investment Objective and Policies
of the Funds 1
When-Issued and Delayed Delivery
Transactions 1
Repurchase Agreements 1
Reverse Repurchase Agreements 1
Lending of Portfolio Securities 1
Types of Investments 2
Restricted and Illiquid
Securities 2
Investment Limitations 2
BayFunds Management 5
Trustees and Officers 5
Fund Ownership 7
Trustee Compensation 7
Trustee Liability 7
Investment Advisory Services 7
Advisers to the Funds 7
Advisory Fees 8
Brokerage Transactions 8
Shareholder Servicing Arrangements 9
Administrative Services 9
Purchasing Shares 9
Conversion to Federal Funds 9
Exchanging Securities for Fund
Shares 10
Use of the Amortized Cost Method 10
Exchange Privileges 11
Requirements for Exchange 11
Making an Exchange 11
Redeeming Shares 11
Redemption in Kind 11
Additional Information You Should
Know 11
Monthly Statements 11
Companion Account Availability 11
Massachusetts Law 11
Tax Status 12
The Funds' Tax Status 12
Shareholders' Tax Status 12
Yield 12
Effective Yield 12
Performance Comparisons 13
Financial Statements 13
Appendix 14
General Information About the Funds
The Funds are portfolios in BayFunds, which was established as a
Massachusetts business trust under a Declaration of Trust dated April 1,
1991.
The portfolios in BayFunds are: BayFunds U.S. Treasury Money Market
Portfolio; BayFunds Money Market Portfolio; BayFunds Short Term Yield
Portfolio; BayFunds Bond Portfolio; and BayFunds Equity Portfolio. This
combined Statement of Additional Information relates only to the U.S.
Treasury Fund and Money Market Fund.
The U.S. Treasury Fund and Money Market Fund are offered in two classes of
shares. The U.S. Treasury Fund is offered in Investment Shares and
Institutional Shares. The Money Market Fund is offered in Investment Shares
and Trust Shares. Collectively the classes will be referred to as "Shares."
Investment Objective and Policies of the Funds
The prospectus for the Funds discusses each Fund's investment objective and
the policies each Fund employs to achieve that objective. The following
discussion supplements the description of the Funds' investment policies in
the Funds' prospectus. The Funds' investment objectives cannot be changed
without approval of shareholders. Unless indicated otherwise, the
investment policies described in the prospectus may be changed by the Board
of Trustees ("Trustees") without the approval of each Fund's shareholders.
Shareholders will be notified before any material changes in these policies
become effective.
The following policies apply to both Funds.
When-Issued and Delayed Delivery Transactions
The Funds may engage in when-issued and delayed delivery transactions.
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. Settlement dates may be a month
or more after entering into these transactions, and the market values of
the securities purchased may vary from the purchase prices. No fees or
other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Fund sufficient to make payment for the
securities to be purchased are segregated on the Fund's records at the
trade date. These assets are marked to market daily and are maintained
until the transaction has been settled. Neither Fund intends to engage in
when-issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of its assets.
Repurchase Agreements
The Funds, their custodian, or sub-custodian will take possession of the
securities subject to repurchase agreements, and these securities will be
marked to market daily. To the extent that the original seller does not
repurchase the securities from a Fund, the Fund could receive less than the
repurchase price on any sale of such securities. In the event that such a
defaulting seller filed for bankruptcy or became insolvent, disposition of
such securities by the Fund might be delayed pending court action. The
Funds believe that under the regular procedures normally in effect for
custody of the Funds' portfolio securities subject to repurchase
agreements, a court of competent jurisdiction would rule in favor of the
Funds and allow retention or disposition of such securities. The Funds will
only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are deemed by the
Funds' advisers to be creditworthy pursuant to guidelines established by
the Trustees.
Reverse Repurchase Agreements
The Funds may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, a Fund transfers possession of a portfolio instrument to another
person, such as a financial institution, broker, or dealer, in return for a
percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio
instrument by remitting the original consideration plus interest at an
agreed upon rate.
When effecting reverse repurchase agreements, liquid assets of a Fund, in a
dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
Lending of Portfolio Securities
The collateral received when each Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays a Fund
any dividends or interest paid on such securities. Loans are subject to
termination at the option of a Fund or the borrower. A Fund may pay
reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker.
The following policies apply to the U.S. Treasury Fund only.
Types of Investments
The U.S. Treasury Fund invests primarily in short-term U.S. Treasury
obligations with remaining maturities of 397 days or less. These may
include direct obligations of the U.S. Treasury (such as U.S. Treasury
bills, notes, bonds, and STRIPs) and obligations issued or guaranteed as to
principal and interest by the U.S. government. Examples of such obligations
are:
- Export-Import Bank;
- General Services Administration;
- Government National Mortgage Association; and
- Small Business Administration.
The following policies apply to the Money Market Fund only.
The Money Market Fund invests primarily in money market instruments with
remaining maturities of 397 days or less and which include, but are not
limited to, commercial paper, demand master notes, domestic and foreign
bank instruments, U.S. government obligations, corporate debt obligations
and repurchase agreements.
Bank Instruments
The instruments of domestic banks and savings and loans whose
deposits are insured by the Bank Insurance Fund or the Savings
Association Insurance Fund, both of which are administered by the
Federal Deposit Insurance Corporation, such as certificates of
deposit, demand and time deposits, savings shares, and bankers'
acceptances, are not necessarily guaranteed by those organizations.
In addition, the Fund may invest in the following U.S. dollar-
denominated instruments:
- Eurodollar Certificates of Deposit which are issued by foreign
branches of U.S. or foreign banks;
- Eurodollar Time Deposits, which are deposits in foreign branches
of U.S. or foreign banks;
- Canadian Time Deposits, which are deposits issued by branches of
major Canadian banks located in the United States; and
- Yankee Certificates of Deposit, which are certificates of
deposit issued by U.S. branches of foreign banks and held in the
United States.
Restricted and Illiquid Securities
The ability of the Trustees to determine the liquidity of certain
restricted securities is permitted under the Securities and Exchange
Commission ("SEC") Staff position set forth in the adopting release for
Rule 144A under the Securities Act of 1933. Rule 144A is a non-exclusive
safe harbor for certain secondary market transactions involving securities
subject to restrictions on resale under federal securities laws. Rule 144A
provides an exemption from registration for resales of otherwise restricted
securities to qualified institutional buyers. Rule 144A was expected to
further enhance the liquidity of the secondary market for securities
eligible for resale under Rule 144A. The Money Market Fund believes that
the Staff of the SEC has left the question of determining the liquidity of
all restricted securities (eligible for resale under Rule 144A) to the
Trustees. The Trustees consider the following criteria in determining the
liquidity of certain restricted securities:
- the frequency of trades and quotes for the security;
- the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
- dealer undertakings to make a market in the security; and
- the nature of the security and the nature of the marketplace trades.
Investment Limitations
The following limitations apply to both Funds.
Selling Short and Buying on Margin
The Funds will not sell any securities short or purchase any
securities on margin but may obtain such short-term credits as may be
necessary for clearance of transactions.
Pledging Assets
The Funds will not mortgage, pledge or hypothecate any assets except
to secure permitted borrowings. In those cases, a Fund may pledge
assets having a market value not exceeding the lesser of the dollar
amounts borrowed or 15% of the value of total assets of a Fund at the
time of the pledge.
Lending Cash or Securities
The Funds will not lend any of their assets, except portfolio
securities up to one-third of the value of their total assets. This
shall not prevent the Funds from purchasing or holding bonds,
debentures, notes, certificates of indebtedness, or other debt
securities, entering into repurchase agreements, or engaging in other
transactions where permitted by the Funds' investment objectives,
policies, and limitations or its Declaration of Trust.
Investing in Commodities and Real Estate
The Funds will not purchase or sell commodities, commodity contracts,
or commodity futures contracts. The Funds will not purchase or sell
real estate, including real estate limited partnerships, although
they may invest in securities of issuers whose business involves the
purchase or sale of real estate or in securities which are secured by
real estate or interests in real estate.
Diversification of Investments
With respect to 75% of the value of their total assets, the Funds
will not purchase securities issued by any one issuer (other than
cash, cash items or securities issued or guaranteed by the government
of the United States or its agencies or instrumentalities and
repurchase agreements collateralized by such securities) if as a
result more than 5% of the value of their total assets at the time of
purchase would be invested in the securities of that issuer.
Underwriting
The Funds will not underwrite any issue of securities, except as they
may be deemed to be an underwriter under the Securities Act of 1933
in connection with the sale of securities in accordance with their
investment objectives, policies and limitations.
Investing in Restricted Securities
The Funds will not purchase restricted securities if immediately
thereafter more than 5% (for the U.S. Treasury Fund) or more than 10%
(for the Money Fund) of the net assets of the Fund, as applicable,
taken at market value, would be invested in such securities (except
for commercial paper issued under Section 4(2) of the Securities Act
of 1933 and certain other restricted securities which meet the
criteria for liquidity as established by the Trustees).
The following limitation applies to the U.S. Treasury Fund only.
Issuing Senior Securities and Borrowing Money
The U.S. Treasury Fund will not issue senior securities except that
the U.S. Treasury Fund may borrow money directly or through reverse
repurchase agreements as a temporary measure for extraordinary or
emergency purposes and then only in amounts not in excess of one-
third of the value of the U.S. Treasury Fund's total assets; provided
that, while borrowings exceed 5% of the U.S. Treasury Fund's total
assets, any such borrowings will be repaid before additional
investments are made. The U.S. Treasury Fund will not borrow money or
engage in reverse repurchase agreements for investment leverage
purposes. The U.S. Treasury Fund has no present intention to borrow
money or engage in reverse repurchase agreements in an amount in
excess of 5% of the U.S. Treasury Fund's net assets.
The following limitations apply to the Money Market Fund only.
Issuing Senior Securities and Borrowing Money
The Money Market Fund will not issue senior securities except that
the Money Market Fund may borrow money directly or through reverse
repurchase agreements in amounts up to one-third of the value of its
total assets including the amounts borrowed. The Money Market Fund
will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by
enabling the Money Market Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Money Market Fund will not purchase any
securities while borrowings in excess of 5% of the value of its total
assets are outstanding. The Money Market Fund has no present
intention to borrow money or engage in reverse repurchase agreements
except as a temporary measure for extraordinary or emergency purposes
and not in an amount in excess of 5% of the Money Market Fund's net
assets.
Concentration of Investments
The Money Market Fund will not invest more than 25% of the value of
its total assets in any one industry, except it may invest more than
25% of the value of its total assets in time and demand deposits,
certificates of deposit, and other instruments of domestic banks, and
U.S. branches of foreign banks, or U.S. government obligations, or
instruments secured by these money market instruments, such as
repurchase agreements for U.S. government obligations.
The above investment limitations cannot be changed without shareholder
approval. The Funds do not consider the issuance of separate classes of
shares to involve the issuance of "senior securities" within the meaning of
the investment limitation set forth above. The following limitations,
however, may be changed by the Trustees without shareholder approval.
Shareholders will be notified before any material change in these
limitations becomes effective.
The following limitations apply to both Funds.
Investing in Illiquid Securities
The Funds will not invest more than 10% of the value of their net
assets in illiquid securities, including repurchase agreements
providing for settlement more than seven days after notice, certain
restricted securities determined by the Trustees not to be liquid,
and non-negotiable time deposits with maturities over seven days.
Investing in Securities of Other Investment Companies
The Funds will limit their investment in other investment companies
that are money market funds having investment objectives and policies
similar to their own, to no more than 3% of the total outstanding
voting stock of any such investment company, invest not more than 5%
of their total assets in any one investment company, or invest no
more than 10% of their total assets in investment companies in
general. The Funds will purchase securities of closed-end investment
companies only in open market transactions involving only customary
brokers' commissions. However, these limitations are not applicable
if the securities are acquired in a merger, consolidation, or
acquisition of assets. It should be noted that investment companies
incur certain expenses such as management fees, and, therefore, any
investment by a Fund in shares of another investment company would be
subject to such duplicate expenses. The Funds will invest in other
investment companies primarily for the purpose of investing their
short-term cash on a temporary basis. The advisers will waive their
investment advisory fee on assets invested in securities of open-end
investment companies.
Arbitrage Transactions
The Funds will not enter into transactions for the purpose of
engaging in arbitrage.
Dealing in Puts And Calls
The Funds will not invest in puts, calls, straddles, spreads or any
combination of them.
The following limitations apply to the Money Market Fund only.
Investing in New Issuers
The Money Market Fund will not invest more than 5% of the value of
its total assets in securities of issuers which have records of less
than three years of continuous operations, including the operations
of any predecessor.
Investing in Issuers Whose Securities Are Owned by Officers and Trustees
of BayFunds
The Money Market Fund will not purchase or retain the securities of
any issuer if the officers and Trustees of BayFunds or the Funds'
investment advisers owning individually more than 1/2 of 1% of the
issuer's securities together own more than 5% of the issuer's
securities.
Investing in Minerals
The Money Market Fund will not purchase interests in oil, gas, or
other mineral exploration or development programs or leases, except
it may purchase the securities of issuers which invest in or sponsor
such programs.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such restriction.
The Funds do not expect to borrow money or pledge securities in excess of
5% of the value of their net assets during the coming fiscal year.
The Funds consider instruments issued by a U.S. branch of a bank having
capital, surplus, and undivided profits in excess of $100,000,000 at the
time of investment to be "cash items."
BayFunds Management
Trustees and Officers
Trustees and Officers are listed with their addresses, principal
occupations, and present positions, including any affiliation with BayBanks
Investment Management, Inc., BayBank Boston, N.A., BayBanks, Inc.,
Federated Investors, Federated Securities Corp., and Federated
Administrative Services.
Officers and Trustees are listed with their addresses, principal
occupations, and present positions.

Kenneth G. Condon
11 Dudley Road
Sudbury, MA
Birthdate: August 14, 1947

Trustee

Treasurer (since June 1992) and Vice President for Financial Affairs (1984
through present), Boston University; Member, BayBank Trust Advisory Board;
Member, Regional Strategic Planning Committee, BayBanks, Inc.; Director,
Seragen, Inc.; Director, WABU-TV; Trustee and Chairman of the Finance/Audit
Committee, Newbury College; formerly, Director and Member of Audit
Committee, BayBank Harvard Trust Co.; Director and Secretary of the Boston
Chapter of the Financial Executives Institute.

Robert W. Eisenmenger
92 Woodland Street
Natick, MA
Birthdate: June 30, 1926

Trustee

Consultant; formerly, First Vice President of the Federal Reserve Bank of
Boston, and Executive Director for Priced Services for the Federal Reserve
System; Trustee, Massachusetts Congregational Fund; Trustee and Consultant,
Cape Cod Five Cents Savings Bank.

Sara L. Johnson
30 Eaton Court
Wellesley Hills, MA
Birthdate: November 16, 1951

Trustee

Principal and Director of Regional Forecasting (since 1992), Managing
Economist for Regional Information Group's Eastern Regions (1988-1991) and
Senior Economist, U.S. Economic Service (1983-1988), DRI/McGraw Hill.

Ernest R. May
John F. Kennedy School of Government
Cambridge, MA
Birthdate: November 19, 1928

Trustee

Charles Warren Professor of History, Harvard University; Chair, Board of
Visitors, Joint Military Intelligence College; Chair, Board of Control,
John Anson Kittredge Educational Fund; Director, Charles Warren Center for
Studies in American History, Harvard University.

Alvin J. Silk
Graduate School of Business Administration
Harvard University
Soldiers Field Road
Boston, MA
Birthdate: December 31, 1935

Trustee

Lincoln Filene Professor of Business Administration, Graduate School of
Business Administration, Harvard University (1988- present); formerly,
Erwin H. Schell Professor of Management, Sloan School of Management,
Massachusetts Institute of Technology; formerly, Director, BayBank Systems,
Inc.; Trustee, Marketing Science Institute; Director, Reed and Barton, Inc.

Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929

President and Treasurer

Trustee, Federated Investors; President and/or Trustee of certain
investment companies distributed by Federated Securities Corp.; Staff
member, Federated Securities Corp. and Federated Administrative Services.

C. Christine Thomson
Federated Investors Tower
Pittsburgh, PA
Birthdate: September 1, 1957

Vice President and Assistant Treasurer

Vice President, Federated Administrative Services; Vice President and
Assistant Treasurer of certain investment companies distributed by
Federated Securities Corp.

Peter J. Germain
Federated Investors Tower
Pittsburgh, PA
Birthdate: September 3, 1959
Secretary

Senior Corporate Counsel, Federated Investors.

Fund Ownership
Officers and Trustees own less than 1% of each of the Funds' outstanding
shares.
As of January 31, 1995, no shareholder of record owned 5% or more of the
outstanding Investment Shares of U.S. Treasury Fund.
As of January 31, 1995, the following shareholders of record owned 5% or
more of the outstanding Institutional Shares of U.S. Treasury Fund: Slatt &
Co., Burlington, Massachusetts, owned approximately 181,506,034 shares
(24.71%); Express & Co, Boston, Massachusetts, owned approximately
553,125,335 shares (75.29%).
As of January 31, 1995, no shareholders of record owned 5% or more of the
outstanding Investment Shares of the Money Market Fund.
As of January 31, 1995, the following shareholder of record owned 5% or
more of the outstanding Trust Shares of the Money Market Fund: Slatt & Co.,
Burlington, Massachusetts, owned approximately 151,273,213 shares (97.62%).

Trustee Compensation
<TABLE>
<CAPTION>

AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +

<S> <C> <C>
Kenneth G. Condon $ 11,600.00 $11,600.00 for the Trust and
Trustee one other investment company in the Fund Complex
Robert W. Eisenmenger $ 10,000.00 $10,000.00 for the Trust and
Trustee one other investment company in the Fund Complex
Sarah L. Johnson $ 10,000.00 $10,000.00 for the Trust and
Trustee one other investment company in the Fund Complex
Ernest R. May $ 10,000.00 $10,000.00 for the Trust and
Trustee one other investment company in the Fund Complex
Alvin J. Silk $ 10,000.00 $10,000.00 for the Trust and
Trustee one other investment company in the Fund Complex
</TABLE>
*Information is furnished for the fiscal year ended December 31, 1994.
Trustee compensation is included in the calculation of Fund expenses that
is reported in the Summary of Fund Expenses section of the prospectus.
#The aggregate compensation is provided for the Trust which is comprised of
5 portfolios.
+The information is provided for the last calendar year.
Trustee Liability
BayFunds' Declaration of Trust provides that the Trustees are not liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
Investment Advisory Services
Advisers to the Funds
The U.S. Treasury Fund's investment adviser is BayBank Boston, N.A.
("BBNA"). The Money Market Fund's investment adviser is BayBanks Investment
Management, Inc. ("BBIM"). BBNA and BBIM will collectively be referred to
as the "Advisers." The Advisers are wholly-owned subsidiaries of BayBanks,
Inc., a bank holding company organized under the laws of the Commonwealth
of Massachusetts with a number of commercial bank subsidiaries.
Collectively, these bank subsidiaries are referred to in this Statement of
Additional Information as "BayBanks." The Advisers shall not be liable to
BayFunds, the Funds or any shareholder of the Funds for any losses that may
be sustained in the purchase, holding, or sale of any security, or for
anything done or omitted by them, except acts or omissions involving
willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties imposed upon them by their contracts with BayFunds.
Because of the internal controls maintained by BayBanks to restrict the
flow of non-public information, Fund investments are typically made without
any knowledge of BayBanks or its affiliates' lending relationships with an
issuer.
Advisory Fees
For their advisory services, the Advisers receive an annual investment
advisory fee as described in the prospectus.
For the period from January 29, 1993 (date of initial public investment) to
December 31, 1993, and the year ended December 31, 1994, BBNA earned fees
from U.S. Treasury Fund in the amount of $851,157, and $1,428,354,
respectively, none of which was voluntarily waived.
For the years ended December 31, 1992 and 1993, and 1994, BBIM earned fees
from Money Market Fund of $781,926, $893,521, and $818,942 respectively, of
which $48,529, $192,825, and $86,926, respectively, was voluntarily waived.
State Expense Limitation
The Advisers have undertaken to comply with the expense limitation
established by certain states for investment companies whose shares
are registered for sale in those states. If a Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net
assets, 2% per year of the next $70 million of average net assets,
and 1-1/2% per year of the remaining average net assets, each of the
Advisers has agreed to reimburse the Funds for its expenses over the
limitation up to the amount of the advisory fee.
If a Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by an Adviser
will be limited, in any single fiscal year, by the amount of the
investment advisory fee. This arrangement is not part of the
advisory contracts and may be amended or rescinded in the future.
Expenses of a Fund and Shares
Each Fund pays all of its own expenses and its allocable share of
BayFunds' expenses. The expenses borne by a Fund include, but are not
limited to, the cost of: organizing BayFunds and continuing its
existence; Trustee fees; investment advisory and administrative
services; printing prospectuses and other Fund documents for
shareholders; registering BayFunds, the Fund, and the shares with
federal and state securities authorities; taxes and commissions;
issuing, purchasing, repurchasing, and redeeming shares; fees for
custodians, transfer agents, dividend disbursing agents, portfolio
accounting services, and registrars; printing, mailing, auditing,
accounting, and legal expenses; reports to shareholders and
governmental agencies; meetings of Trustees and shareholders and
proxy solicitations therefor; insurance premiums; association
membership dues; and such non-recurring and extraordinary items as
may arise.
At present, the only expenses allocated to shares as a class are
expenses under the Fund's Shareholder Servicing Plan which relate to
the Investment Shares. However, the Trustees reserve the right to
allocate certain other expenses to holders of shares as it deems
appropriate ("Class Expenses"). In any case, Class Expenses would be
limited to: transfer agent fees as identified by the Transfer Agent
as attributable to holders of a class of shares; printing and postage
expenses related to preparing and distributing materials such as
shareholder reports, prospectuses and proxies to current
shareholders; registration fees paid to the Securities and Exchange
Commission and registration fees paid to states; expenses related to
administrative personnel and service as required to support holders
of a class of shares; legal fees relating solely to a class of
shares; and Trustees' fees incurred as a result of issues relating
solely to a class of shares.
Brokerage Transactions
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Advisers look for prompt execution of the order
at a favorable price. In working with dealers, the Advisers will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The Advisers make decisions on portfolio transactions and select
brokers and dealers subject to review by the Trustees.
The Advisers may select brokers and dealers who offer brokerage and
research services. These services may be furnished directly to the Funds or
to the Advisers and may include:
- advice as to the advisability of investing in securities;
- security analysis and reports;
- economic studies;
- industry studies;
- receipt of quotations for portfolio evaluations; and
- similar services.
The Advisers exercise reasonable business judgment in selecting brokers who
offer brokerage and research services to execute securities transactions.
They determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided.
Research services provided by brokers and dealers may be used by the
Advisers in advising the Funds and other accounts. To the extent that
receipt of these services may supplant services for which the Advisers or
their affiliates might otherwise have paid, it would tend to reduce
expenses.
On December 31, 1994, Money Market Fund owned approximately $2,494,000 of
the securities of Dean Witter Discover & Co.; and $10,014,000 of the
securities of Merrill Lynch & Co., both of whom are the Fund's regular
brokers that derive more than 15% of gross revenues from securities-related
activities.
Shareholder Servicing Arrangements
Under a Shareholder Services Plan, the Fund may pay a fee to BayBank
Systems, Inc., as shareholder servicing agent for Investment Shares, for
services provided which are necessary for the maintenance of shareholder
accounts. These activities and services may include, but are not limited
to: providing office space, equipment, telephone facilities, and various
clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments
of client account cash balance; answering routine client inquiries; and
assisting clients in changing dividend options, account designations, and
addresses. For the period ended December 31, 1994, U.S. Treasury Fund and
Money Market Fund paid BayBanks Systems, Inc. $228,859 and $89,758,
respectively, in shareholder services fees with respect to Investment
Shares under the Shareholder Services Plan.
Administrative Services
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Funds for fees as
described in the prospectus.
For the period from January 29, 1993 (date of initial public investment) to
December 31, 1993, and for the year ended December 31, 1994, the U.S.
Treasury Fund incurred costs for administrative fees of $478,865, and
$750,678, respectively, of which $238,788, and $0, respectively, was
voluntarily waived.
For the years ended December 31, 1992, 1993, and 1994, the Money Market
Fund incurred costs for administrative service fees of $286,304, $263,548,
and $215,486, respectively, of which $49,869, $15,149, and $0,
respectively, was voluntarily waived.
For the period from January 29, 1993 (date of initial public investment) to
December 31, 1993, and for the year ended December 31, 1994 Federated
Administrative Services reimbursed $59,801, and $0, respectively, to U.S.
Treasury Fund. For the years ended December 31, 1993, and 1994, Federated
Administrative Services reimbursed $48,336, and $0, respectively, to Money
Market Fund.
Purchasing Shares
The procedures for purchasing Shares are explained in the prospectus.
Conversion to Federal Funds
It is the Funds' policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in Federal funds or be converted into Federal funds. BayBanks acts as the
shareholder's agent in depositing checks and converting them to Federal
funds.
Exchanging Securities for Fund Shares
Each Fund may accept securities in exchange for Shares. A Fund will allow
such exchanges only upon the prior approval of the Fund and a determination
by the Fund and its Adviser that the securities to be exchanged are
acceptable.
Any securities exchanged must meet the investment objective and policies of
the Fund, must have a readily ascertainable market value and must be
liquid. The market value of any securities exchanged in an initial
investment, plus any cash, must be at least $100,000.
Securities accepted by the Fund will be valued in the same manner as the
Fund values its assets. The basis of the exchange will depend upon the net
asset value of Shares on the day the securities are valued. One Share of
the Fund will be issued for each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be
considered in valuing the securities. All interest, dividends, subscription
or other rights attached to the securities become the property of the Fund,
along with the securities.
Determining Net Asset Value
The Funds attempt to stabilize the value of a share at $1.00. The days on
which net asset value is calculated by the Funds are described in the
prospectus.
Use of the Amortized Cost Method
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization
of premium or accumulation of discount rather than at current market value.
The Funds' use of the amortized cost method of valuing portfolio
instruments depends on their compliance with Rule 2a-7 (the "Rule")
promulgated by the SEC under the Investment Company Act of 1940. Under the
Rule, the Trustees must establish procedures reasonably designed to
stabilize the net asset value per share, as computed for purposes of
distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Funds' investment objectives.
Monitoring Procedures
The Trustees' procedures include monitoring the relationship between
the amortized cost value per share and the net asset value per share
based upon available indications of market value. The Trustees will
decide what, if any, steps should be taken if there is a difference
of more than .5 of 1% between the two values. The Trustees will take
any steps they consider appropriate (such as redemption in kind or
shortening the average portfolio maturity) to minimize any material
dilution or other unfair results arising from differences between the
two methods of determining net asset value.
Investment Restrictions
The Rule requires that the Funds limit their investments to
instruments that, in the opinion of the Trustees, present minimal
credit risks and have received the requisite rating from one or more
nationally recognized statistical rating organizations. If the
instruments are not rated, the Trustees must determine that they are
of comparable quality. In purchasing shares of other investment
companies, the Trustees will review each company's stated investment
policies for consistency with Rule 2a-7. The Rule also requires the
Funds to maintain a dollar-weighted average portfolio maturity (not
more than 90 days) appropriate to the objective of maintaining a
stable net asset value of $1.00 per share. In addition, no
instruments with a remaining maturity of more than 397 days can be
purchased by the Funds.
Should the disposition of a portfolio security result in a dollar-
weighted average portfolio maturity of more than 90 days, the Funds
will invest their available cash to reduce the average maturity to 90
days or less as soon as possible.
The Funds may attempt to increase yield by trading portfolio
securities to take advantage of short-term market variations. This
policy may, from time to time, result in high portfolio turnover.
Under the amortized cost method of valuation, neither the amount of
daily income nor the net asset value is affected by any unrealized
appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on
shares of the Funds computed by dividing the annualized daily income
on the Funds' portfolios by the net asset value computed as above may
tend to be higher than a similar computation made by using a method
of valuation based upon market prices and estimates.
In periods of rising interest rates, the indicated daily yield on
shares of the Funds computed the same way may tend to be lower than a
similar computation made by using a method of calculation based upon
market prices and estimates.
Exchange Privileges
Requirements for Exchange
Upon receipt of proper instructions and required supporting documents,
shares submitted for exchange are redeemed and the proceeds invested in
shares of the other Participating Fund.
Please review the prospectus for further information on the exchange
privileges.
Making an Exchange
Instructions for exchanges may be given in writing. Written instructions
may require a signature guarantee.
Redeeming Shares
The Funds redeem Shares at the next computed net asset value after the
Funds receive the redemption request from the Funds' transfer agent in
proper form. Redemption procedures are explained in the prospectus.
Redemption in Kind
Although the Funds intend to redeem Shares in cash, they reserve the right
under certain circumstances to pay the redemption price in whole or in part
by a distribution of securities from the respective Fund's portfolio.
Redemption in kind will be made in conformity with applicable SEC rules,
taking such securities at the same value employed in determining net asset
value and selecting the securities in a manner the Trustees determine to be
fair and equitable.
BayFunds has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, which obligates the Funds to redeem Shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net
asset value of the respective class during any 90-day period.
Redemption in kind is not as liquid as cash redemption. If redemption is
made kind, shareholders receiving their securities and selling them before
their maturity could receive less than the redemption value of their
securities and could incur transaction costs.
Additional Information You Should Know
Monthly Statements
Shareholders of the Funds who have eligible BayBanks deposit accounts will
receive combined monthly statements containing all information relating to
their deposit account(s) and BayFunds transactions.
Companion Account Availability
Certain BayBanks deposit account customers may elect to open a companion
BayFunds account to facilitate BayFunds transactions.
Massachusetts Law
Under certain circumstances, shareholders may be held personally liable
under Massachusetts law for acts or obligations of BayFunds. To protect
shareholders, BayFunds has filed legal documents with Massachusetts that
expressly disclaim the liability of shareholders for such acts or
obligations of BayFunds. These documents require notice of this disclaimer
to be given in each agreement, obligation, or instrument BayFunds or its
Trustees enter into or sign.
In the unlikely event a shareholder is held personally liable for BayFunds'
obligations, BayFunds is required, by its Declaration of Trust, to use its
property to protect or compensate the shareholder. On request, BayFunds
will defend any claim made and pay any judgment against a shareholder for
any act or obligation of BayFunds. Therefore, financial loss resulting from
liability as a shareholder will occur only if BayFunds cannot meet its
obligations to indemnify shareholders and pay judgments against them from
its assets.
Tax Status
The Funds' Tax Status
The Funds intend to meet the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies in order not to
be liable for Federal income taxes on income and gains distributed to Fund
shareholders. To qualify for this treatment, a Fund must, among other
requirements:
- derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
- derive less than 30% of its gross income from the sale of securities
held, or deemed held, less than three months;
- diversify its holdings according to certain statutory requirements;
and
- distribute to its shareholders at least 90% of its taxable and tax-
exempt income earned during the year.
The Funds will distribute substantially all of their net investment income
and net realized gains at least annually.
Shareholders' Tax Status
Shareholders are subject to Federal income tax on dividends and any short-
term capital gains received as cash or additional shares. No portion of any
income dividend paid by a Fund is eligible for the dividends received
deduction available to corporations. These dividends and any short-term
capital gains are taxable as ordinary income.
Capital Gains
Capital gains experienced by a Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If
for some extraordinary reason a Fund realizes net long-term capital
gains, it will distribute them at least once every 12 months.
Yield
The Funds calculate their yield for both classes of shares daily, based
upon the seven days ending on the day of the calculation, called the "base
period." This yield is computed by:
- determining the net change in the value of a hypothetical account with
a balance of one share at the beginning of the base period, with the
net change excluding capital changes but including the value of any
additional shares purchased with dividends earned from the original
one share and all dividends declared on the original and any purchased
shares;
- dividing the net change in the account's value by the value of the
account at the beginning of the base period to determine the base
period return; and
- multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in
either class of shares, the performance will be reduced for those
shareholders paying those fees.
The yields for the seven day period ended December 31, 1994 were 5.07% and
4.59% for Investment Shares of U.S. Treasury Fund and Money Market Fund,
respectively, and were 5.32% and 4.84% for the Institutional Shares of U.S.
Treasury Fund and Trust Shares of Money Market Fund, respectively.
Effective Yield
The effective yield for both classes of shares of each Fund is computed by
compounding the unannualized base period return by:
- adding 1 to the base period return;
- raising the sum to the 365/7th power; and
- subtracting 1 from the result.
The effective yields for the seven-day period ended December 31, 1994 for
the Investment Shares of U.S. Treasury Fund and Money Market Fund were
5.20% and 4.70%, respectively. The effective yields for the seven-day
period ended December 31, 1994 for Institutional Shares of U.S. Treasury
Fund and Trust Shares of the Money Market Fund were 5.46% and 4.96%,
respectively.
Performance Comparisons
The performance of both classes of shares of each Fund depends upon such
variables as:
- portfolio quality;
- average portfolio maturity;
- type of instruments in which the portfolio is invested;
- changes in interest rates on money market instruments;
- changes in a Fund's or of either class of its shares expenses; and
- the relative amount of a Fund's cash flow.
From time to time the Funds may advertise their performance of both classes
of shares compared to similar funds or portfolios.
Investors may use financial publications and/or indices to obtain a more
complete view of the Funds' performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Funds
use in advertising may include:
- - Lipper Analytical Services, Inc., ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all income dividends and capital gains
distributions, if any. From time to time, the Funds will quote their
Lipper ranking in the money market funds category in advertising and
sales literature.
- - Bank Rate Monitor National Index, Miami Beach, Florida, is a financial
reporting service which publishes weekly average rates of 50 leading
banks and thrift institution money market deposit accounts. The rates
published in the index are an average of the personal account rates
offered on the Wednesday prior to the date of publication by ten of the
largest banks and thrifts in each of the five largest Standard
Metropolitan Statistical Areas. Account minimums range upward from
$2,500 in each institution and compounding methods vary. If more than
one rate is offered, the lowest rate is used. Rates are subject to
change at any time specified by the institution.
- - Donoghue's Money Fund Report publishes annualized yields of hundreds of
money market funds on a weekly basis and through its Money Market
Insight publication reports monthly and year-to-date investment results
for the same money funds.
Advertisements and other sales literature for both classes of shares of
either Fund may refer to total return. Total return is the historic change
in the value of an investment in either Funds' classes of shares based on
the monthly reinvestment of dividends over a specified period of time.
Financial Statements
The financial statements for the fiscal year ended December 31, 1994, are
incorporated herein by reference to the Annual Report of the Funds dated
December 31, 1994 (File No. 811-6296). You may request a copy of the Annual
Report free of charge by writing the Funds or by calling 1-800-BAY-FUND.
Appendix
Standard and Poor's Ratings Group Corporate Bond Rating Definitions
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's
Ratings Group. Capacity to pay interest and repay principal is extremely
strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
Moody's Investors Service, Inc., Corporate Bond Rating Definitions
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
Fitch Investors Service, Inc., Bond Rating Definitions
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA."
Standard and Poor's Ratings Group Commercial Paper Rating Definitions
A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Moody's Investors Service, Inc., Commercial Paper Rating Definitions
P-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-
1 repayment capacity will normally be evidenced by the following
characteristics:
--Leading market positions in well established industries.
--High rates of return on funds employed.
--Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
--Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
--Well-established access to a range of financial markets and assured
sources of alternate liquidity.
P-2--Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above, but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Fitch Investors Service, Inc., Short-Term Debt Rating Definitions
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment only slightly less in degree than issues rated
F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the F-1+ and F-1 ratings.

1042301-B (2/95)

MONEY MARKET
PORTFOLIOS

U.S. TREASURY
MONEY MARKET PORTFOLIO
INVESTMENT SHARES/INSTITUTIONAL SHARES

MONEY MARKET PORTFOLIO
INVESTMENT SHARES/TRUST SHARES

PROSPECTUS

BAYBANKS INVESTMENT MANAGEMENT, INC.
Investment Adviser for Money Market Portfolio

BAYBANKS BOSTON, N.A.
Investment Adviser for U.S. Treasury Money Market Portfolio

Federated Securities Corp.
Distributor
March 1, 1995 G00981-02 (2/95)
Printed on Recycled Paper 00-6038A-0295

Mutual
Funds At
BayBank

BAYFUNDS(R)
MONEY MARKET FUNDS
INVESTMENT SHARES,
INSTITUTIONAL SHARES AND TRUST SHARES

The shares offered in this prospectus represent interests in the INVESTMENT
SHARES, INSTITUTIONAL SHARES, and TRUST SHARES ("Shares") of the following money
market portfolios (individually referred to as a "Fund" or collectively as the
"Funds") of BayFunds, an open-end, management investment company (a mutual
fund):

MONEY MARKET FUNDS
- BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO -- INVESTMENT SHARES AND
INSTITUTIONAL SHARES
- BAYFUNDS MONEY MARKET PORTFOLIO -- INVESTMENT SHARES AND TRUST SHARES

The Funds offer a convenient means of accumulating an interest in a
professionally managed, diversified portfolio of securities. INVESTMENT SHARES
of the Funds are sold primarily to individuals who purchase the Funds through
BayBanks and its affiliates. INSTITUTIONAL SHARES of BAYFUNDS U.S. TREASURY
MONEY MARKET PORTFOLIO are sold to BayBank Boston, N.A., its affiliated and
correspondent banks and other institutions investing for their own account and
on behalf of customers maintaining accounts at such banks and institutions.
TRUST SHARES of BAYFUNDS MONEY MARKET PORTFOLIO are sold to trusts, fiduciaries
and institutions. Shareholders can invest, reinvest, or redeem Shares with no
sales loads or redemption fees imposed by the Funds. Shareholders have access to
other portfolios in BayFunds.

AN INVESTMENT IN THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUNDS ATTEMPT TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO DO SO.

This prospectus contains the information you should read and know before you
invest in the Funds. Keep this prospectus for future reference.

The Funds have also filed a combined Statement of Additional Information dated
March 1, 1995, with the Securities and Exchange Commission. The information
contained in the combined Statement of Additional Information is incorporated by
reference into this prospectus. To request a copy of the combined Statement of
Additional Information free of charge, to obtain other information, or to make
inquiries about the Funds, shareholders of INVESTMENT SHARES can call toll-free
1-800-BAY-FUND (1-800-229-3863); shareholders of INSTITUTIONAL SHARES or TRUST
SHARES can call BayBanks Trust Department in Massachusetts at (617) 273-1700 or
toll-free 1-800-462-9999; and BayBanks Capital Markets customers should call
1-800-554-3311.

- -------------------------------------------------------------------------------
TABLE OF CONTENTS

- --------------------------------------------------------------------------------
KEY FACTS

- --------------------------------------------------------------------------------
MATCHING THE FUNDS TO YOUR INVESTMENT NEEDS

Investment Objective and Policies............................................ 10
U.S. Treasury Fund...................................................... 10
Money Market Fund....................................................... 10

Portfolio Investments........................................................ 11
Investment Limitations....................................................... 15
Regulatory Compliance........................................................ 15

- --------------------------------------------------------------------------------
SHAREHOLDER MANUAL

Pricing of Shares............................................................ 16
How to Buy Investment Shares................................................. 16
How to Exchange Investment
Shares.................................................................... 18
How To Redeem Investment
Shares.................................................................... 20
How to Buy Institutional Shares
and/or Trust Shares....................................................... 22
How to Exchange Institutional
Shares and/or Trust Shares................................................ 24
How To Redeem Institutional
Shares and/or Trust Shares................................................ 24

- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION YOU SHOULD KNOW

Minimum Balance.............................................................. 26
Dividends and Distributions.................................................. 27
Tax Information.............................................................. 27
Performance Information...................................................... 28
Management, Distribution and
Administration............................................................ 28
Code of Ethics Compliance.................................................... 32

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

KEY FACTS

GENERAL INFORMATION

BayFunds offers you a convenient and affordable way to participate in five
separate, professionally managed, diversified investment portfolios with
distinct investment objectives and policies. This prospectus relates only to the
INVESTMENT SHARES and INSTITUTIONAL SHARES of BAYFUNDS U.S. TREASURY MONEY
MARKET PORTFOLIO ("U.S. TREASURY FUND") and to the INVESTMENT SHARES and TRUST
SHARES of BAYFUNDS MONEY MARKET PORTFOLIO ("MONEY MARKET FUND") (individually, a
"Fund" and collectively, the "Funds").

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

- BAYFUNDS U.S. TREASURY MONEY MARKET
PORTFOLIO SEEKS TO PROVIDE CURRENT IN-
COME CONSISTENT WITH STABILITY OF
PRINCIPAL AND LIQUIDITY BY INVESTING IN
A PORTFOLIO CONSISTING PRIMARILY OF
SHORT-TERM U.S. TREASURY OBLIGATIONS
WITH REMAINING MATURITIES OF 397 DAYS
OR LESS.
- BAYFUNDS MONEY MARKET PORTFOLIO SEEKS
TO PROVIDE CURRENT INCOME CONSISTENT
WITH STABILITY OF PRINCIPAL AND
LIQUIDITY BY INVESTING IN A PORTFOLIO
OF MONEY MARKET INSTRUMENTS WITH RE-
MAINING MATURITIES OF 397 DAYS OR LESS.
- ----

As of the date of this prospectus, BayFunds offers shares in three other
portfolios:

- BAYFUNDS SHORT TERM YIELD PORTFOLIO seeks a high level of current income
consistent with preservation of capital by investing in a diversified
portfolio of high-grade debt obligations. This Fund will maintain a dollar-
weighted average portfolio maturity of three years or less.

- BAYFUNDS BOND PORTFOLIO seeks to achieve high current income and capital
appreciation by investing, under normal market and economic conditions, at
least 65% of the value of its total assets in bonds. The Fund will maintain
a dollar-weighted average maturity of twelve years or less.

- BAYFUNDS EQUITY PORTFOLIO seeks to provide long-term capital appreciation by
investing, under normal market and economic conditions, at least 65% of its
assets in a broadly diversified portfolio of equity securities, with current
income as a secondary investment consideration.

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

BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
BAYFUNDS MONEY MARKET PORTFOLIO

SUMMARY OF FUND EXPENSES -- INVESTMENT SHARES

SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<CAPTION>
U.S. MONEY
TREASURY MARKET
FUND FUND
---------- ---------
<S> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage
of offering price).............................................. None None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)............................. None None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)........... None None
Redemption Fees (as a percentage of amount redeemed,
if applicable).................................................. None None
Exchange Fee...................................................... None None
</TABLE>

ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)

<TABLE>
<CAPTION>
U.S. MONEY
TREASURY MARKET
FUND FUND
---------- ---------
<S> <C> <C>
Management Fee (after waiver)(1).................................. 0.20% 0.36%
12b-1 Fee......................................................... None None
Total Other Expenses.............................................. 0.44% 0.47%
Shareholder Servicing Fees(2).......................... 0.25% 0.18%
Total Operating Expenses(3)............................. 0.64% 0.83%
</TABLE>

(1) The management fee for the Money Market Fund has been reduced to reflect the
voluntary waiver of the management fee. The adviser can terminate this
voluntary waiver at any time at its sole discretion. The maximum management
fee for the Money Market Fund is 0.40%.

(2) The Funds can pay up to 0.25% of Investment Shares average daily net assets
for shareholder servicing agent fees. See "Management, Distribution and
Administration."

(3) The Total Operating Expenses for the Money Market Fund would be 0.87%,
absent the voluntary fee waiver described in note (1) above.

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

BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
BAYFUNDS MONEY MARKET PORTFOLIO

SUMMARY OF FUND EXPENSES -- INVESTMENT SHARES (CONTINUED)

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of U.S. Treasury Fund and Money Market
Fund Investment Shares will bear, either directly or indirectly. For more
complete descriptions of the various costs and expenses, see "Additional
Information You Should Know." Wire-transferred redemptions may be subject to
additional fees.

<TABLE>
<CAPTION>
EXAMPLE:
You would pay the following expenses on a $1,000 investment
assuming
(1) 5% annual return and (2) redemption at the end of each time U.S. MONEY
period. TREASURY MARKET
The Funds charge no redemption fees. FUND FUND
---------- ---------
<S> <C> <C>
1 Year................................................................. $ 7 $ 8
3 Years................................................................ $20 $ 26
5 Years................................................................ $36 $ 46
10 Years............................................................... $80 $103
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

The information set forth in the foregoing table and example relates only to
U.S. Treasury Fund and Money Market Fund Investment Shares. The Funds also offer
another class of shares called Institutional Shares and Trust Shares,
respectively. Institutional Shares of the U.S. Treasury Fund and Trust Shares of
the Money Market Fund and Investment Shares of both Funds are generally subject
to the same expenses, however, Institutional Shares and Trust Shares are not
subject to a shareholder servicing fee.

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

BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO --
INSTITUTIONAL SHARES
BAYFUNDS MONEY MARKET PORTFOLIO -- TRUST SHARES

SUMMARY OF FUND EXPENSES

SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<CAPTION>
U.S. TREASURY FUND MONEY MARKET
INSTITUTIONAL FUND
SHARES TRUST SHARES
------------------ ------------
<S> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage
of offering price)..................................... None None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).................... None None
Contingent Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds, as
applicable)............................................ None None
Redemption Fees (as a percentage of amount redeemed,
if applicable)......................................... None None
Exchange Fee............................................. None None
</TABLE>

ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)

<TABLE>
<CAPTION>
U.S. TREASURY FUND MONEY MARKET
INSTITUTIONAL FUND
SHARES TRUST SHARES
------------------ ------------
<S> <C> <C>
Management Fee (after waiver)(1)......................... 0.20% 0.36%
12b-1 Fee................................................ None None
Total Other Expenses..................................... 0.19% 0.29%
Total Operating Expenses (2)................... 0.39% 0.65%
</TABLE>

(2) The Total Operating Expenses for the Money Market Fund would be 0.69%,
absent the voluntary fee waiver described in note (1) above.

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

BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO --
INSTITUTIONAL SHARES
BAYFUNDS MONEY MARKET PORTFOLIO -- TRUST SHARES

SUMMARY OF FUND EXPENSES (CONTINUED)

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of U.S. Treasury Fund Institutional Shares
and Money Market Fund Trust Shares will bear, either directly or indirectly. For
more complete descriptions of the various costs and expenses, see "Additional
Information You Should Know." Wire-transferred redemptions may be subject to
additional fees.

<TABLE>
<CAPTION>
EXAMPLE:
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and U.S. TREASURY FUND MONEY MARKET
(2) redemption at the end of each time period. The INSTITUTIONAL FUND
Funds charge no redemption fees. SHARES TRUST SHARES
------------------ ------------
<S> <C> <C>
1 Year................................................... $ 4 $ 7
3 Years.................................................. $13 $21
5 Years.................................................. $22 $36
10 Years................................................. $49 $81
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

The information set forth in the foregoing table and example relates only to
U.S. Treasury Fund Institutional Shares and Money Market Fund Trust Shares. The
Funds also offer another class of shares called Investment Shares. U.S. Treasury
Fund Investment Shares and Institutional Shares and Money Market Fund Investment
Shares and Trust Shares are generally subject to the same expenses, however,
Investment Shares of both Funds are subject to a shareholder servicing fee.

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

BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO

FINANCIAL HIGHLIGHTS -- INVESTMENT SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1994 1993*
<S> <C> <C>
- --------------------------------------------------------------------- -------- -------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
- ---------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------
Net investment income 0.04 0.02
- ---------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------
Distributions from net investment income (0.04) (0.02)
- --------------------------------------------------------------------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
- --------------------------------------------------------------------- ------ ------
TOTAL RETURN** 3.61% 2.41%
- ---------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------
Expenses 0.64% 0.62%(a)
- ---------------------------------------------------------------------
Net investment income 3.65% 2.59%(a)
- ---------------------------------------------------------------------
Expense waiver/reimbursement(b) -- 0.07%(a)
- ---------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------
Net assets, end of period (000 omitted) $142,109 $34,694
- ---------------------------------------------------------------------
* 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.
</TABLE>

(See Notes which are an integral part of the Financial Statements)

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

BAYFUNDS MONEY MARKET PORTFOLIO

FINANCIAL HIGHLIGHTS -- INVESTMENT SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1994 1993*
<S> <C> <C>
- ---------------------------------------------------------------------- ------- -------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
- ----------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------
Net investment income 0.04 0.03
- ----------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------
Distributions from net investment income (0.04) (0.03)
- ---------------------------------------------------------------------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
- ---------------------------------------------------------------------- ------ ------
TOTAL RETURN** 3.60% 2.58%
- ----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------
Expenses 0.83% 0.62%(a)
- ----------------------------------------------------------------------
Net investment income 3.46% 2.60%(a)
- ----------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.04% 0.11%(a)
- ----------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------
Net assets, end of period (000 omitted) $57,348 $30,746
- ----------------------------------------------------------------------
* 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) Computed on an annualized basis.

(b) This voluntary expense decrease is reflected in both the expense and net investment income
ratios shown above.
</TABLE>

(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 EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1994 1993*
<S> <C> <C>
- -------------------------------------------------------------------- -------- --------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
- --------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------
Net investment income 0.04 0.03
- --------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------
Distributions from net investment income (0.04) (0.03)
- -------------------------------------------------------------------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
- -------------------------------------------------------------------- ------ ------
TOTAL RETURN** 3.87% 2.62%
- --------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------
Expenses 0.39% 0.35%(a)
- --------------------------------------------------------------------
Net investment income 3.90% 2.85%(a)
- --------------------------------------------------------------------
Expense waiver/reimbursement(b) -- 0.07%(a)
- --------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------
Net assets, end of period (000 omitted) $693,712 $502,724
- --------------------------------------------------------------------
* 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.
</TABLE>

(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,
--------------------------------- -----------
1994 1993 1992** 1992*
<S> <C> <C> <C> <C>
- ------------------------------------------ -------- -------- -------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------
Net investment income 0.04 0.03 0.02 0.03
- ------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------
Distributions from net investment income (0.04) (0.03) (0.02) (0.03)
- ------------------------------------------ ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------ ------ ------ ------ -------
TOTAL RETURN*** 3.75% 2.72% 2.13% 3.55%
- ------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------
Expenses 0.65% 0.59% 0.59%(a) 0.48%(a)
- ------------------------------------------
Net investment income 3.64% 2.68% 3.13%(a) 4.61%(a)
- ------------------------------------------
Expense waiver/reimbursement(b) 0.04% 0.11% 0.05%(a) 0.15%(a)
- ------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------
Net assets, end of period (000 omitted) $136,923 $168,909 $242,935 $ 280,931
- ------------------------------------------
* 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. Reflects operations for the
period from May 1, 1992 to December 31, 1992.
*** 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.
</TABLE>

(See Notes which are an integral part of the Financial Statements)

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

MATCHING THE FUNDS TO
YOUR INVESTMENT NEEDS

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

THE U.S. TREASURY FUND IS DESIGNED FOR
CONSERVATIVE INVESTORS WHO WANT CURRENT
INCOME, LIQUIDITY AND STABILITY OF
PRINCIPAL AS WELL AS THE EXTRA SECURITY
OF A PORTFOLIO INVESTED ONLY IN
SHORT-TERM U.S. TREASURY OBLIGATIONS
AND REPURCHASE AGREEMENTS
COLLATERALIZED BY SUCH OBLIGATIONS.
THE MONEY MARKET FUND IS DESIGNED FOR
CONSERVATIVE INVESTORS WHO WANT CURRENT
INCOME, LIQUIDITY, AND STABILITY OF
PRINCIPAL.
THE FUNDS SEEK TO MAINTAIN A STABLE
$1.00 SHARE PRICE, REFERRED TO AS NET
ASSET VALUE PER SHARE. WHILE THE FUNDS
CANNOT GUARANTEE A STABLE SHARE PRICE,
THE SHORT-TERM NATURE OF THEIR
INVESTMENTS HELPS TO MINIMIZE PRICE
FLUCTUATIONS.
- ----

INVESTMENT OBJECTIVE AND POLICIES

U.S. TREASURY FUND

The investment objective of the U.S. TREASURY FUND is current income consistent
with stability of principal and liquidity. The Fund pursues its investment
objective by investing, under normal market conditions, at least 65% of the
value of its total assets in U.S. Treasury obligations with remaining maturities
of 397 days or less. The average maturity of these securities, computed on a
dollar-weighted basis, will be 90 days or less.

ACCEPTABLE INVESTMENTS. The U.S. TREASURY FUND invests at least 65% of the value
of its total assets in U.S. Treasury obligations. These instruments are issued
by the U.S. government, its agencies, or instrumentalities and are fully
guaranteed as to principal and interest by the United States. They mature in 397
days or less from the date of acquisition, or have a variable rate of interest
adjusted no less frequently than every 397 days, or are purchased pursuant to a
repurchase agreement which provides for repurchase by the seller within 397 days
from the date of acquisition.

MONEY MARKET FUND

The investment objective of the MONEY MARKET FUND is to provide current income
consistent with stability of principal and liquidity. The Fund pursues its
investment objective by investing primarily in a diversified portfolio of money
market instruments with remaining maturities of 397 days or less. The average
maturity of these securities, computed on a dollar-weighted basis, will be 90
days or less.

ACCEPTABLE INVESTMENTS. The MONEY MARKET FUND invests in high quality money
market instruments that are either rated in the highest short-term rating
category by nationally recognized statistical rating organizations ("NRSROs") or
are of comparable quality to securities having such ratings. Examples of these
instruments include, but are not limited to:

- domestic issues of corporate debt obligations;

- commercial paper (including Canadian Commercial Paper and Europaper);

- demand master notes;

- obligations issued or guaranteed as to payment of principal and interest by
the U.S. government or one of its agencies or instrumentalities ("Government
Securities"); and

- other money market instruments.

The MONEY MARKET FUND invests only in instruments denominated and payable in
U.S. dollars.

PORTFOLIO INVESTMENTS

GOVERNMENT SECURITIES. The types of Government Securities in which the Funds may
invest generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and, with respect to the MONEY MARKET FUND,
obligations issued or guaranteed by U.S. government agencies or
instrumentalities. These securities are backed by:

- the full faith and credit of the U.S. Treasury;

- the issuer's right to borrow from the U.S. Treasury;

- the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or

- the credit of the agency or instrumentality issuing the obligations.

Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:

- Federal Home Loan Banks;

- Federal Home Loan Mortgage Corporation;

- Federal Farm Credit Banks;

- The Student Loan Marketing Association; and

- Federal National Mortgage Association.

ZERO-COUPON AND STRIPPED TREASURY SECURITIES. The Funds may invest in
zero-coupon and stripped Treasury securities. Zero-coupon securities are
debt obligations which are generally issued at a discount and payable in
full at maturity, and which do not provide for current payments of interest
prior to maturity. Zero-coupon securities usually trade at a deep discount
from their face or par value and are subject to greater market value
fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest.

The U.S. Treasury has facilitated transfers of ownership of zero-coupon
securities by accounting separately for the beneficial ownership of
particular interest coupons and corpus payments on Treasury securities
through the Federal Reserve book-entry record-keeping system. The Federal
Reserve program as established by the Treasury Department is known as
"STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities." Under the STRIPS program, the Funds will be able to have
beneficial ownership of U.S. Treasury zero-coupon securities recorded
directly in the book-entry record-keeping system in lieu of having to hold
certificates or other evidence of ownership of the underlying U.S. Treasury
securities.

REPURCHASE AGREEMENTS. The securities in which the Funds invest may be purchased
pursuant to repurchase agreements. Repurchase agreements are arrangements in
which banks, broker/dealers, and other recognized financial institutions sell
securities to the Funds and agree at the time of sale to repurchase them at a
mutually agreed upon time and price. To the extent that the seller does not
repurchase the securities from the Funds, the Funds could receive more or less
than the repurchase price on any sale of such securities.

The Funds may dispose of a commitment prior to settlement if their investment
advisers deem it appropriate to do so. In addition, the Funds may enter in
transactions to sell its purchase commitments to third parties at current market
values and simultaneously acquire other commitments to purchase similar
securities at later dates. The Funds may realize short-term profits or losses
upon the sale of such commitments.

LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Funds may lend their portfolio securities on a short-term basis to
broker/dealers, banks, or other institutional borrowers of securities. The Funds
will limit the amount of portfolio securities they may lend to not more than
one-third of their respective total assets. The Funds will only enter into loan
arrangements with broker/dealers, banks, or other institutions that their
investment advisers have determined are creditworthy under guidelines
established by the Trustees and will receive collateral equal to at least 100%
of the value of the securities loaned.

RESTRICTED AND ILLIQUID SECURITIES. The Funds may invest in restricted
securities. Restricted securities are any securities in which the Funds may
otherwise invest pursuant to their investment objective and policies, but which
are subject to restriction on resale under federal securities law. However, the
Funds will limit investments in illiquid securities, including certain
restricted securities not determined by the Trustees to be liquid,
non-negotiable time deposits, and repurchase agreements providing for settlement
in more than seven days after notice, to 10% of its net assets.

The MONEY MARKET FUND may invest in commercial paper issued in reliance on the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933. Section 4(2) commercial paper is restricted as to disposition under
federal securities law and is generally sold to institutional investors, such as
the MONEY MARKET FUND, who agree that they are purchasing the paper for
investment purposes and not with a view to public distribution. Any resale by
the purchaser must be in an exempt transaction. Section 4(2) commercial paper is
normally resold to other institutional investors like the MONEY MARKET FUND
through or with the assistance of the issuer or investment dealers who make a
market in Section 4(2) commercial paper, thus providing liquidity. The MONEY
MARKET FUND believes that Section 4(2) commercial paper and possibly certain
other restricted securities which meet the criteria for liquidity established by
the Trustees are quite liquid. The MONEY MARKET FUND intends, therefore, to
treat the restricted securities which meet the criteria for liquidity
established by the Trustees, including Section 4(2) commercial paper, as
determined by the MONEY MARKET FUND'S investment adviser, as liquid and not
subject to the investment limitation applicable to illiquid securities. In
addition, because Section 4(2) commercial paper is liquid, the MONEY MARKET FUND
intends to not subject such paper to the limitation applicable to restricted
securities.

REVERSE REPURCHASE AGREEMENTS. The Funds may enter into reverse repurchase
agreements as a temporary measure for extraordinary or emergency purposes and
not for investment leverage purposes. These transactions are similar to
borrowing cash. In a reverse repurchase agreement, a Fund transfers possession
of a portfolio instrument to another person, such as a financial institution,
broker, or dealer, in return for a percentage of the instrument's market value
in cash, and agrees that on a stipulated date in the future the Funds will
repurchase the portfolio instrument by remitting the original consideration plus
interest at an agreed upon rate. When effecting reverse repurchase agreements,
assets of the Fund, in a dollar amount sufficient to make payment for the
obligations to be purchased, are segregated at the trade date, marked to market
daily, and maintained until the transaction is settled.

During the period any reverse repurchase agreements are outstanding, the Funds
will restrict the purchase of portfolio instruments to money market instruments
maturing on or before the expiration date of the reverse repurchase agreements,
but only to the extent necessary to assure completion of the reverse repurchase
agreements.

RATINGS. An NRSRO's highest rating category is determined without regard for
sub-categories and gradations. For example, securities rated A-1 or A-1+ by
Standard & Poor's Ratings Group ("S&P"), Prime-1 by Moody's Investors Service,
Inc. ("Moody's"), or F-1+ or F-1 by Fitch Investors Service, Inc. ("Fitch") are
all considered rated in the highest short-term rating category. The Funds will
follow applicable regulations in determining whether a security rated by more
than one NRSRO can be treated as being in the highest short-term rating
category. See "Regulatory Compliance."

BANK INSTRUMENTS. The MONEY MARKET FUND may invest in Bank Instruments which are
either issued by an institution having capital, surplus and undivided profits
over $100 million as of the date of its most recently published financial
statements or which are insured by the Bank Insurance Fund ("BIF") or the
Savings Association Insurance Fund ("SAIF"), both of which are administered by
the Federal Deposit Insurance Corporation ("FDIC"). Bank Instruments may

include Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of
Deposit ("Yankee CDs"), and Eurodollar Time Deposits ("ETDs"). The MONEY MARKET
FUND will treat securities that are credit enhanced with a bank's letter of
credit as Bank Instruments.

DEMAND MASTER NOTES. The MONEY MARKET FUND may purchase demand master notes,
which are short-term borrowing arrangements between a corporation or government
agency and an institutional lender (such as the MONEY MARKET FUND) payable upon
demand by either party. The notice period for demand typically ranges from one
to seven days, and the party may demand full or partial payment. Many master
notes give the MONEY MARKET FUND the option of increasing or decreasing the
principal amount of the master note on a daily or weekly basis within certain
limits. Demand master notes and other short-term credit arrangements usually
provide for floating or variable rates of interest.

CREDIT ENHANCEMENT. The MONEY MARKET FUND may acquire securities that have been
credit enhanced by a guaranty, letter of credit or insurance. The MONEY MARKET
FUND will evaluate the credit quality and ratings of credit enhanced securities
based upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. Generally, credit
enhanced securities will not be treated as having been issued by the credit
enhancer for diversification purposes. However, under certain circumstances, as
required by applicable regulations, the securities will be treated as having
been issued both by the issuer and the credit enhancer.

PUTS AND STANDBY COMMITMENTS. The MONEY MARKET FUND may acquire securities that
are subject to puts and standby commitments to repurchase the securities at
their principal amount (usually with accrued interest) within a fixed period
(usually seven days) following a demand by the MONEY MARKET FUND. The puts and
standby commitments may be issued by the issuer of the underlying securities, a
dealer in the securities or by another third party, and may not be transferred
separately from the underlying security. These arrangements are used to provide
the MONEY MARKET FUND with liquidity and not to protect against changes in the
market value of the underlying securities. Puts that are exercisable even after
a payment default on the underlying security may be treated as a form of credit
enhancement.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The MONEY MARKET FUND may
invest in the securities of other investment companies that are money market
funds having investment objectives and policies similar to its own, but it will
not own more than 3% of the total outstanding voting stock of any such
investment company, invest more than 5% of its total assets in any one such
investment company, or invest more than 10% of its total assets in such other
investment companies in general. The MONEY MARKET FUND will invest in other
investment companies primarily for the purpose of investing short-term cash
which has not yet been invested in other portfolio instruments. The MONEY MARKET
FUND'S adviser will waive its investment advisory fee on assets invested in
securities of open-end investment companies.

INVESTMENT RISKS. The ECDs, ETDs, Yankee CDs, and Europaper which the MONEY
MARKET FUND may purchase are subject to different risks than domestic
obligations of domestic banks or corporations. Examples of these risks include
international economic and political developments, foreign governmental
restrictions that may adversely affect the payment of principal or interest,
foreign withholding or other taxes on interest income, difficulties in obtaining
or enforcing a judgment against the issuing entity, and the possible impact of
interruptions in the flow of international currency transactions. Different
risks may also exist for ECDs, ETDs, and Yankee CDs because the banks issuing
these instruments, or their domestic or foreign branches, are not neces-

sarily subject to the same regulatory requirements that apply to domestic banks,
such as reserve requirements, loan limitations, examinations, accounting,
auditing, recordkeeping, and the public availability of information. These
factors will be carefully considered by the MONEY MARKET FUND'S adviser in
selecting investments for the MONEY MARKET FUND.

INVESTMENT LIMITATIONS

The Funds will not:

- borrow money directly or through reverse repurchase agreements (arrangements
in which the Funds sell a portfolio instrument for a percentage of their
cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Funds may borrow money
and engage in reverse repurchase agreements in amounts up to one-third of
the value of their respective total assets and pledge up to 15% of the value
of those assets to secure such borrowings; nor

- with respect to 75% of the value of their respective total assets, invest
more than 5% in securities of any one issuer other than cash, cash items or
securities issued or guaranteed by the government of the United States or
its agencies or instrumentalities and repurchase agreements collateralized
by such securities.

The above limitations cannot be changed without shareholder approval. The
following limitation, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.

The Funds will not:

- invest more than 10% of their respective net assets in illiquid securities,
including repurchase agreements providing for settlement in more than seven
days after notice.

REGULATORY COMPLIANCE

The Funds may follow non-fundamental operating policies that are more
restrictive than their fundamental investment limitations, as set forth in this
prospectus and combined Statement of Additional Information, in order to comply
with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940, as amended (the "ICA"). In
particular, the Funds will comply with the various requirements of Rule 2a-7
under the ICA, which regulates money market mutual funds. For example, Rule 2a-7
generally prohibits the investment of more than 5% of each Fund's total assets
in the securities of any one issuer, although each Fund's investment limitation
only requires such 5% diversification with respect to 75% of its assets.
However, U.S. government securities may be purchased without regard to this 5%
limitation. The Funds will also determine the effective maturity of their
investments, as well as their ability to consider a security as having received
the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Funds
may change these operational policies to reflect changes in the laws and
regulations without the approval of their shareholders.

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

SHAREHOLDER MANUAL

PRICING OF SHARES

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

THE TERM "NET ASSET VALUE" PER SHARE
REFERS TO THE VALUE OF ONE FUND SHARE.
- ----

Each Fund attempts to stabilize the net asset value of its Shares at $1.00 by
valuing the portfolio securities using the amortized cost method. Net asset
value per Share for purposes of pricing purchases and redemptions is calculated
by dividing the value of all securities and other assets belonging to a Fund,
less the liabilities charged to the Fund, by the number of outstanding shares of
the Fund.

Neither Fund can guarantee that its net asset value will always remain at $1.00
per Share.

The net asset value of each Fund is determined at 2:00 p.m. (Eastern time) and
the close of regular trading hours on the New York Stock Exchange, currently
4:00 p.m. (Eastern time), Monday through Friday, except on: (i) the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day; (ii) days on
which there are not sufficient changes in the value of a Fund's portfolio
securities that its net asset value might be materially affected; and (iii) days
during which no Shares are tendered for redemption and no orders to purchase
Shares are received.

The Funds offer Shares only on days on which the New York Stock Exchange and the
Federal Reserve Bank of Boston are open for business ("Business Days"). In
addition to the holidays listed above, other non-Business Days include Martin
Luther King Day, Columbus Day and Veteran's Day. If your purchase order for
Shares is received on a non-Business Day by BayBank Systems, Inc. (the
"Shareholder Servicing Agent") with respect to INVESTMENT SHARES, through
BayBanks (as defined later) with respect to TRUST SHARES, or by Supervised
Services Company, Inc. (the "Transfer Agent") with respect to INSTITUTIONAL
SHARES, the order will not be executed until the next Business Day in accordance
with the Distributor's procedures. The Funds and the Distributor reserve the
right to reject any purchase request. Texas residents must purchase Shares
through the Distributor at 1-800-356-2805.

To allow the Advisers (as defined below) to manage the Funds effectively and to
enhance your chances of being eligible to receive that day's dividend, you are
strongly encouraged to initiate all trades (purchases, redemptions, or
exchanges) as early in the day as possible. In addition, in the case of
purchases, exchanges or redemptions of U.S. TREASURY FUND INSTITUTIONAL SHARES
in excess of $5 million, you are strongly encouraged to notify your BayBank
Account Officer at least one day in advance. On those days when either the
Federal Reserve Bank of Boston or the U.S. Government Bond Market closes early,
or, in an Adviser's judgment, closing early is deemed to be in the best interest
of a Fund's shareholders, the right is reserved to advance the time on that day
by which all transactions (purchases, redemptions, or exchanges) must be
received.

HOW TO BUY INVESTMENT SHARES

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

at the time of your initial purchase. Subsequent investments must be in amounts
of at least $100, or if you participate in the Automatic Investment Program or
invest through an IRA, the minimum for additional purchases is $50. The Funds
may waive any investment minimums from time to time. In addition, the Funds may
reduce or waive investment minimums for investors purchasing through qualified
BayBanks accounts.

WHEN PURCHASES ARE EFFECTIVE. Purchase orders for INVESTMENT SHARES must be
placed with the Shareholder Servicing Agent by 11:30 a.m. (Eastern time) on a
Business Day in order to be eligible to receive dividends declared that day.
Purchase orders received in good order and accepted by the Funds from the
Transfer Agent by 2:00 p.m. (Eastern time) on a Business Day will be executed at
the net asset value next determined and will begin earning dividends that day.
The Transfer Agent will not communicate your purchase order to the Fund until
the Shareholder Servicing Agent has received the purchase price in Federal funds
or other immediately available funds. If your purchase order is received in good
order and accepted by the Funds from the Transfer Agent after 2:00 p.m. (Eastern
time) and prior to 4:00 p.m. (Eastern time), it will be executed at the net
asset value next determined and INVESTMENT SHARES will begin earning dividends
the next Business Day. When you purchase INVESTMENT SHARES by check, the order
is considered received when the check is converted into Federal funds, normally
within two Business Days. The Shareholder Servicing Agent is responsible for the
prompt transmission of purchase orders received in good order to the Transfer
Agent.

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

YOU MAY BUY INVESTMENT SHARES BY PHONE,
MAIL, WIRE, OR IN PERSON THROUGH
BAYBANKS OFFICES.
- ----

BY PHONE. Once you are a Fund shareholder, you may purchase INVESTMENT SHARES by
phone by calling 1-800-BAY-FUND. You must have previously authorized the
specific Fund in writing to accept telephone requests. If you have not done so,
call 1-800-BAY-FUND to receive the necessary form and information on this Fund
feature. Each Fund uses reasonable procedures (including a shareholder identity
test and sending a written confirmation of each telephone transaction) to
confirm that instructions given by telephone are genuine. However, a Fund is not
responsible for the authenticity of telephone instructions or for the losses
caused by fraudulent or unauthorized telephone instructions if the Fund
reasonably believed that the instructions were genuine. For the protection of
investors, all phone communications may be recorded where not otherwise
prohibited by law.

BY MAIL. If you make your initial INVESTMENT SHARES purchase by mail, you must
send a completed and signed application and a check payable to the specific Fund
and INVESTMENT SHARES class, to:

BayFunds
P.O. Box 889
Burlington, MA 01803

You may obtain an application by calling 1-800-BAY-FUND.

You may make subsequent investments in a Fund at any time by sending a check for
a minimum of $100 ($50 if for an IRA) payable to the specific Fund and
INVESTMENT SHARES class at the following address:

BayFunds
P.O. Box 5-0900
Woburn, MA 01815-0900

or for IRAs:

BayFunds
P.O. Box 889
Burlington, MA 01803

You must include either (a) the detachable form that regularly accompanies
confirmation of a prior transaction, (b) a subsequent order form that may be
obtained by calling 1-800-BAY-FUND, or (c) a letter stating the amount of the
investment, the name of the Fund and INVESTMENT SHARES class, the exact name and
address of the account, and your account number.

If the check does not clear, your purchase order will be canceled and you could
be held liable for associated transaction costs.

BayBanks
ABA Number: 0110-0174-2
Attention: Mutual Funds Services
For Credit to: (identify the appropriate Fund -- INVESTMENT SHARES) Account
37153931
Further Credit to: (shareholder name and account number)

CORPORATE CUSTOMERS. Corporate customers of BayBanks interested in purchasing
Fund INVESTMENT SHARES should consult their account relationship managers for
procedures applicable to their accounts or call 1-800-554-3311. This prospectus
should be read in conjunction with any materials provided by BayBanks regarding
such procedures.

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

YOU CAN BUY INVESTMENT SHARES CONVE-
NIENTLY THROUGH THE AUTOMATIC INVEST-
MENT PROGRAM.
- ----

AUTOMATIC INVESTMENT PROGRAM. When you participate in the Automatic Investment
Program, you can purchase additional Fund INVESTMENT SHARES in minimum amounts
of $50. You must previously have authorized in writing the total dollar amount
to be deducted automatically from eligible BayBanks deposit accounts or your
deposit account maintained at a domestic financial institution which is an
automated clearing house member, and the frequency of the deductions. The funds
will be invested in INVESTMENT SHARES of the specified Fund at the net asset
value next determined. The Funds may reduce or waive the investment minimums for
investors purchasing through qualified BayBanks accounts.

RETIREMENT PLANS. BayBanks makes INVESTMENT SHARES available for purchase by
IRAs, rollover IRAs and Simplified Employee Pension Plans. For details,
including minimum investments, application forms and other investment
procedures, call 1-800-BAY-FUND.

HOW TO EXCHANGE INVESTMENT SHARES

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

IF YOUR INVESTMENT NEEDS CHANGE, YOU
CAN EASILY EXCHANGE A FUND'S INVESTMENT
SHARES FOR INVESTMENT SHARES OF ANY
OTHER BAYFUNDS PORTFOLIO AT NO CHARGE.
- ----

BayFunds consists of the Funds, the BayFunds Short Term Yield Portfolio, the
BayFunds Bond Portfolio, and the BayFunds Equity Portfolio. As an INVESTMENT
SHARES shareholder, you have access to the INVESTMENT SHARES of all the
portfolios ("Participating Funds") of BayFunds through an exchange program. You
may also

purchase BayFunds Shares of Massachusetts Municipal Cash Trust with redemption
proceeds of a BayFunds Portfolio by calling 1-800-BAY-FUND.

If you do not have an account in the Participating Fund whose INVESTMENT SHARES
you want to acquire, you must establish an account. Prior to any such exchange,
you must receive a copy of the current prospectus of the Participating Fund into
which an exchange is to be effected. This account will be registered in the same
name and, unless you specify otherwise, will have the same dividend and
distribution payment option as you selected with your existing account. If the
new account registration (name, address, and taxpayer identification number) is
not identical to your existing account, please call 1-800-BAY-FUND for the
necessary new account or transfer procedures.

The exchange privilege is available to shareholders in any state in which
INVESTMENT SHARES of the Participating Funds' being acquired may be sold.

BayFunds reserves the right to terminate the exchange privilege at any time on
60 days' notice. Shareholders will be notified if this privilege is terminated.

Depending on the circumstances, an exchange may generate a short-or long-term
capital gain or loss for federal income tax purposes.

BY PHONE. You may provide instructions for exchanges by telephone between
Participating Funds by calling 1-800-BAY-FUND.

BY MAIL. You may send a written request for an exchange to:

BayFunds
P.O. Box 889
Burlington, MA 01803

Your written request must include your name and tax identification number; the
name of the specific Fund and INVESTMENT SHARES; the dollar amount or number of
INVESTMENT SHARES to be redeemed; the name of the fund and class of shares which
are to be purchased; and your account number. Your request must be signed by the
registered owner(s) exactly as required by the account application.

HOW TO REDEEM INVESTMENT SHARES

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

Redemption proceeds may be credited to an eligible BayBanks deposit account,
paid by check, or paid by wire, as you previously designated in your
application. Shareholders of a Fund must place redemption orders with the
Shareholder Servicing Agent by 11:30 a.m. (Eastern time) on a Business Day in
order to be eligible to receive redemption proceeds by wire on the day of
redemption. The Funds ordinarily will make payment for INVESTMENT SHARES
redeemed after proper receipt from the Transfer Agent of the redemption request
and of all documents in proper form within one Business Day to an eligible
BayBanks deposit account, within five Business Days if you requested redemption
proceeds by check, or the same day by wire if the Funds receive your redemption
request from the Transfer Agent by 2:00 p.m. (Eastern time) on the day of
redemption. INVESTMENT SHARES of the Funds redeemed and wired the same day will
not receive the dividend declared on the day of redemption.

that are members of a signature guarantee program. The Funds do not accept
signatures guaranteed by a notary public. BayFunds and its Transfer Agent
reserve the right to amend these standards at any time without notice. If you
have a question about the proper form for redemption requests, call
1-800-BAY-FUND.

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

YOU MAY REDEEM INVESTMENT SHARES BY
PHONE, MAIL, WIRE, OR THROUGH BAYBANKS
OFFICES. YOU MAY RECEIVE REDEMPTION
PROCEEDS BY WIRE.
- ----

BY MAIL. You may redeem INVESTMENT SHARES by submitting a written request for
redemption to:

BayFunds
P.O. Box 889
Burlington, MA 01803

Your written request must include your name and tax identification number, the
specific Fund's name, the INVESTMENT SHARES name, the dollar amount or number of
INVESTMENT SHARES to be redeemed, and your account number. Your request must be
signed by the registered owner(s) exactly as required by the account
application.

REDEMPTIONS BEFORE PURCHASE INSTRUMENTS CLEAR. If any portion of a Fund's
INVESTMENT

SHARES to be redeemed represents an investment made with uncollected funds, the
Funds reserve the right to delay payment of proceeds until the Shareholder
Servicing Agent is reasonably certain that the funds have been collected, which
could take up to five Business Days.

HOW TO BUY INSTITUTIONAL SHARES AND/OR TRUST SHARES

MINIMUM INVESTMENT. U.S. TREASURY FUND INSTITUTIONAL SHARES are sold to BayBank
Boston, N.A., its affiliated and correspondent banks and other institutions
investing for their own account and on behalf of customers maintaining accounts
at such banks and institutions. (BayBank Boston, N.A. and such banks and
institutions may be collectively referred to as the "Institution.") The minimum
initial investment by an Institution is $500,000, and subsequent investments
must be in amounts of at least $100,000. An Institution will set minimums for
its customers.

U.S. TREASURY FUND INSTITUTIONAL SHARES are sold with no sales load. However,
depending upon the terms of each customer account, an Institution may charge the
customer account fees for services it provides, such as automatic investment,
cash management, dividend payment processing, information regarding customer
position, and sub-accounting with respect to customer accounts. Such fees may
include compensating balance requirements or account maintenance fees, or may be
based on account assets or transactions. Customers should obtain information
about account services and fees directly from their Institution before
authorizing the purchase of INSTITUTIONAL SHARES, and this prospectus should be
read in conjunction with any such information.

MONEY MARKET FUND TRUST SHARES are sold with no sales load. The minimum initial
investment in TRUST SHARES is $10,000. Subsequent investments must be in amounts
of at least $100. The MONEY MARKET FUND may waive any investment minimums from
time to time.

THROUGH BAYBANKS. INSTITUTIONAL SHARES. An institutional customer of BayBanks
may telephone the BayBanks Trust Department toll-free at 1-800-462-9999.
BayBanks Capital Markets customers should call 1-800-554-3311. Participants in
Employee Benefits programs should contact their Plan Administrator.
INSTITUTIONAL SHARES of the U.S. TREASURY FUND may be purchased in accordance
with procedures established by an Institution in connection with the
requirements of its customer accounts. Procedures applicable to each Institution
and each customer account governing the purchase of INSTITUTIONAL SHARES of the
U.S. TREASURY FUND will differ. For example, such procedures may include
instructions under which a customer's account is "swept" automatically on a
daily basis of collected balances in excess of a minimum agreed to by an
Institution and the

customer. The U.S. TREASURY FUND expects that the Institution will transmit
orders on behalf of their customers for the purchase of INSTITUTIONAL SHARES of
the U.S. TREASURY FUND arising from automatic investment programs within one
business day of the time the amounts in excess of the minimum balances are
swept. Customers should consult their account relationship manager at their
Institution for further information and procedures on purchasing INSTITUTIONAL
SHARES of the U.S. TREASURY FUND. This prospectus should be read in conjunction
with any materials provided by the Institution regarding such procedures.

TRUST SHARES. A customer of BayBanks may telephone the BayBanks Trust Department
toll-free at 1-800-462-9999. Participants in Employee Benefits programs should
contact their Plan Administrator. For the protection of investors, all phone
communications may be recorded where not otherwise prohibited by law.

WHEN PURCHASES ARE EFFECTIVE. Orders by an Institution to purchase INSTITUTIONAL
SHARES received in good order and accepted by the U.S. TREASURY FUND from the
Transfer Agent by 2:00 p.m. (Eastern time) on a Business Day will be executed at
the net asset value next determined and will begin earning dividends that day.
The Transfer Agent will not communicate purchase orders to the U.S. TREASURY
FUND until the Transfer Agent receives Federal funds or other available funds.
Orders by an Institution to purchase INSTITUTIONAL SHARES received in good order
and accepted by the U.S. TREASURY FUND from the Transfer Agent after 2:00 p.m.
(Eastern time) and prior to 4:00 p.m. (Eastern time), will be executed at the
net asset value next determined and INSTITUTIONAL SHARES will begin earning
dividends the next Business Day. Each Institution is responsible for
transmitting purchase orders promptly to the U.S. TREASURY FUND in accordance
with the terms of its customer agreements.

Payment may be made to BayBanks either by check or Federal funds. If a purchase
order for TRUST SHARES is received in good order and accepted by the MONEY
MARKET FUND from the Transfer Agent by 2:00 p.m. (Eastern time) on a Business
Day it will be executed at the net asset value next determined and TRUST SHARES
will begin earning dividends that day. The Transfer Agent will not communicate a
purchase order to the MONEY MARKET FUND until BayBanks has received the purchase
price in Federal funds or other immediately available funds. If a purchase order
is received in good order and accepted by the MONEY MARKET FUND from the
Transfer Agent after 2:00 p.m. (Eastern time) and prior to 4:00 p.m. (Eastern
time), it will be executed at the net asset value next determined and TRUST
SHARES will begin earning dividends the next Business Day. When TRUST SHARES are
purchased by check, the order is considered received when the check is converted
into Federal funds, normally within two Business Days. When payment is made with
Federal funds, it should be wired to BayBanks as agent for the Transfer Agent as
follows: ABA No. 0113-0235-7; Wire Order Number 0110-0174-2; Fiduciary Account
Number 03000-002-298-5. Investors not purchasing through BayBanks should consult
their financial institution for wiring instructions. BayBanks is responsible for
the prompt transmission of purchase orders received in good order to the
Transfer Agent.

RETIREMENT PLANS. For information about retirement plan vehicles established by
employers for their employees which are qualified under Section 401(k) and
403(b) of the Internal Revenue Code, call BayBank at 1-800-462-9999, extension
4589 or write to BayBank, Corporate Trust -- New Business Department, 7 New
England Executive Park, Burlington, MA 01803.

HOW TO EXCHANGE INSTITUTIONAL SHARES AND/OR TRUST SHARES

BayFunds consists of the Funds, the BayFunds Short Term Yield Portfolio, the
BayFunds Bond Portfolio, and the BayFunds Equity Portfolio. Customers may access
the INSTITUTIONAL SHARES or TRUST SHARES of all of these portfolios of BayFunds
("Participating Funds") through an exchange program. In addition, institutions
may purchase BayFunds Shares of Massachusetts Municipal Cash Trust with
redemption proceeds of a BayFunds Portfolio. A customer of BayBanks may
telephone the BayBanks Trust Department toll-free at 1-800-462-9999. BayBanks
Capital Markets customers should call 1-800-554-3311. Participants in Employee
Benefits programs should contact their Plan Administrator. Procedures will be
established by each Institution in connection with the requirements of its
customer accounts and the Participating Funds. Customers should contact their
trust relationship officer or Institution to obtain further information on
exchange privileges. Prior to any such exchange, a customer must receive a copy
of the current prospectus of the Participating Fund into which an exchange is to
be effected.

The exchange privilege is available to shareholders in any state in which
Participating Funds' shares being acquired may be sold.

HOW TO REDEEM INSTITUTIONAL SHARES
AND/OR TRUST SHARES

INSTITUTIONAL SHARES of the U.S. TREASURY FUND may be redeemed in accordance
with procedures established by an Institution in connection with the
requirements of its customer accounts. Procedures applicable to each Institution
and each customer account governing the redemption of INSTITUTIONAL SHARES of
the U.S. TREASURY FUND will differ. Customers should contact their Institution
for further information. Each Institution is responsible for transmitting
redemption orders promptly to the U.S. TREASURY FUND and crediting customers'
accounts with redemption proceeds on a timely basis. The U.S. TREASURY FUND does
not impose any sales loads or redemption fees on redemptions of INSTITUTIONAL
SHARES. The U.S. TREASURY FUND assesses no charges for wiring redemption
proceeds. However, Institutions may charge customer accounts for redemption
services. Information relating to such redemption services and charges, if any,
are available from the Institutions.

The MONEY MARKET FUND redeems TRUST SHARES at their net asset value next
determined after the MONEY MARKET FUND has received the redemption request from
the Transfer Agent in proper form. The MONEY MARKET FUND does not impose any
sales loads or redemption fees on redemptions of TRUST SHARES.

WHEN REDEMPTIONS ARE EFFECTIVE. Redemption orders are effected at the net asset
value per INSTITUTIONAL SHARE next determined after proper receipt of the
redemption request by the U.S. TREASURY FUND from the Transfer Agent in proper
form. Institutions may transmit redemption orders by telephoning the Transfer
Agent. Payment for redemption orders received by the Transfer Agent by 2:00 p.m.
(Eastern time) on a Business Day will be wired the same day to the Institution
for credit to customer accounts that day. INSTITUTIONAL SHARES so redeemed will
not be eligible to receive the dividend declared on the redemption date. Payment
for redemption orders received after 2:00 p.m. (Eastern time) or on a
non-Business Day will normally be wired in Federal funds to the Institution for
credit to customer accounts on the next Business Day. The U.S. TREASURY FUND
reserves the right to wire redemption proceeds within five Business Days after
receiving the redemption order if, in its judgment, an earlier payment could
adversely affect the U.S. TREASURY FUND.

Redemption requests for TRUST SHARES can be executed only on Business Days. If a
redemption request is received through BayBanks on a non-Business Day, the
Transfer Agent will not com-

municate the redemption request to the MONEY MARKET FUND until the next Business
Day.

BY TELEPHONE. A customer of BayBanks may telephone the BayBanks Trust Department
toll-free at 1-800-462-9999. BayBanks Capital Markets customers should call
1-800-554-3311. Participants in Employee Benefits programs should contact their
Plan Administrator. Redemption proceeds may be paid by check or paid by wire.
The MONEY MARKET FUND ordinarily will make payment for TRUST SHARES redeemed
after proper receipt from the Transfer Agent of the redemption request the same
day by wire if the MONEY MARKET FUND receives the redemption request from the
Transfer Agent by 2:00 p.m. (Eastern time) on the day of redemption. TRUST
SHARES redeemed and wired on the same day will not receive the dividend declared
on the day of redemption. Payment for TRUST SHARES of the MONEY MARKET FUND
redeemed by check will be within five Business Days. The MONEY MARKET FUND
reserves the right to wire redemption proceeds within five Business Days after
receiving the order if, in its judgment, an earlier payment could adversely
affect the MONEY MARKET FUND. If at any time the MONEY MARKET FUND shall
determine it necessary to terminate or modify this method of redemption,
shareholders would be promptly notified.

An authorization form permitting the MONEY MARKET FUND to accept telephone
requests must first be completed. Authorization forms and information on this
service are available from BayBanks or (for Texas residents) the Distributor. In
the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "By Mail," should be considered. The MONEY MARKET
FUND uses reasonable procedures (including a shareholder identity test and
sending a written confirmation of each telephone transaction) to confirm that
instructions given by telephone are genuine. However, the MONEY MARKET FUND is
not responsible for the authenticity of telephone instructions or for any losses
caused by fraudulent or unauthorized telephone instructions if the MONEY MARKET
FUND reasonably believed that the instructions were genuine.

BY MAIL. A shareholder who is a customer of BayBanks may redeem TRUST SHARES of
the MONEY MARKET FUND by sending a written request to BayBanks. The written
request should include the shareholder's name, the Fund name, the TRUST SHARES
name, the account number, and the TRUST SHARE or dollar amount requested, and
should be signed by each registered owner exactly as the TRUST SHARES are
registered. For assistance in redeeming by mail, a customer of BayBanks may
telephone the BayBanks Trust Department toll-free at 1-800-462-9999. BayBanks
Capital Markets customers should call 1-800-554-3311. Participants in Employee
Benefits programs should contact their Plan Administrator.

Except for 401(k) plan participants and administrators, shareholders requesting
a redemption of $25,000 or more (no limitation if the proceeds are being
credited to a BayBanks deposit account), a redemption of any amount to be sent
to an address other than that on record with the MONEY MARKET FUND, a transfer
of the registration of TRUST SHARES, or a redemption payable other than to the
shareholder of record, must have signatures on written redemption requests
guaranteed by:

- - a trust company or insured commercial bank;

- - an insured savings and loan association or a savings bank;

- - a member firm of a national or regional stock exchange; or

- - any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.

The Transfer Agent has adopted standards for accepting signature guarantees from
the above institutions. The MONEY MARKET FUND may elect in the future to limit
eligible signature guarantees to institutions that are members of a signature

guarantee program. The MONEY MARKET FUND does not accept signatures guaranteed
by a notary public. The MONEY MARKET FUND and the Transfer Agent reserve the
right to amend these standards at any time without notice.

REDEMPTIONS BEFORE PURCHASE INSTRUMENTS CLEAR. If any portion of a Fund's
INSTITUTIONAL SHARES or TRUST SHARES to be redeemed represents an investment
made with uncollected funds, the Fund reserves the right to delay payment of
proceeds until BayBanks is reasonably certain that the funds have been
collected, which could take up to five Business Days.

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

ADDITIONAL INFORMATION YOU SHOULD KNOW

MINIMUM BALANCE

- $1,000 for INVESTMENT SHARES;

- $100,000 for INSTITUTIONAL SHARES of the U.S. TREASURY FUND; or

- $10,000 for TRUST SHARES of the MONEY MARKET FUND.

However, before Shares are redeemed to close an account, the shareholder or the
Institution, as applicable, will be notified in writing and given 60 days to
purchase additional Shares to meet the minimum balance requirement. The Funds
reserve the right to amend this standard upon 60 days' prior written notice to
shareholders. The Funds also reserve the right to redeem their Shares
involuntarily or to make payment for redemptions in the form of securities if it
appears appropriate to do so in light of their responsibilities under the
Investment Company Act of 1940. Customers of Institutions should consult their
relevant account agreements for any applicable balance requirements.

CONFIRMATIONS AND STATEMENTS. Confirmations are sent at least monthly to the
Institutions or shareholders of record to report transactions such as purchases
and redemptions as well as dividends paid during the month. However, BayBank IRA
customers will receive quarterly statements for their accounts.

INSTITUTIONAL SHARES of the U.S. TREASURY FUND will be held of record by the
Institutions or in the name of a nominee of the Institutions. Beneficial

ownership of INSTITUTIONAL SHARES of the U.S. TREASURY FUND will be recorded by
the Institutions and reflected in statements of account provided by the
Institutions to their customers. It is the responsibility of the Institutions to
provide the customers with confirmations and statements of account with respect
to INSTITUTIONAL SHARES transactions made for their accounts at the Institutions
in accordance with procedures established by the Institutions.

DIVIDENDS AND DISTRIBUTIONS

Dividends from a Fund's net investment income are declared daily to shareholders
of record (normally the Institutions in the case of the U.S. TREASURY FUND)
immediately following the 2:00 p.m. (Eastern time) pricing of shares.

With respect to the INSTITUTIONAL SHARES of the U.S. TREASURY FUND, dividends
are paid monthly within five Business Days after the end of such calendar month.
Institutions may elect to (a) have their dividends and distributions
automatically reinvested in additional INSTITUTIONAL SHARES of the U.S. TREASURY
FUND at the net asset value next determined on the payment dates, (b) receive
their dividends and distributions in cash, or (c) receive a combination of
additional INSTITUTIONAL SHARES of the U.S. TREASURY FUND and cash. It is
expected that customers of an Institution's automatic investment program will
receive all dividends and distributions of the U.S. TREASURY FUND in cash
credited to their account pursuant to the terms of their agreement with an
Institution; all other customers should contact their Institution for further
information about dividend elections.

With respect to the TRUST SHARES of MONEY MARKET FUND, dividends are paid
monthly and will be reinvested on payment dates in additional TRUST SHARES of
the MONEY MARKET FUND unless cash payments are requested by writing to the MONEY
MARKET FUND or BayBanks as appropriate.

The amount of dividends payable to INSTITUTIONAL SHARES of the TREASURY FUND and
TRUST SHARES of the MONEY MARKET FUND will exceed that of INVESTMENT SHARES of
the corresponding Fund by the difference between class expenses and shareholder
servicing fees borne by shares of each respective class of shares of the Fund.
(Currently, there are no differences in class expenses other than shareholder
servicing fees.)

Neither Fund expects to realize any net long-term capital gains. If for some
extraordinary reason a Fund realizes net long-term capital gains, it will
distribute them at least annually.

TAX INFORMATION

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

THIS DISCUSSION OF TAXES IS FOR GENERAL
INFORMATION ONLY. PLEASE CONSULT YOUR
OWN TAX ADVISER ABOUT YOUR PARTICULAR
SITUATION.
- ----

Each Fund will be treated as a single, separate entity for Federal income tax
purposes.

Unless otherwise exempt, shareholders are required to pay Federal income tax on
any divi-

dends and other distributions received. This applies whether dividends and
distributions are received in cash or as additional shares. Distributions from a
Fund's net investment income and short-term capital gains will be taxed as
ordinary income and will not be eligible for the dividends received deduction
available to corporations.

Early each year, each Fund will notify its shareholders of the amount and tax
status of distributions paid to the shareholder for the preceding year.

Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.

PERFORMANCE INFORMATION

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

YOU CAN FOLLOW EACH FUND'S PERFORM-
ANCE.
- ----

From time to time, in advertisements or in reports to shareholders, the
performance and yield of the Funds may be quoted and compared to those of other
mutual funds with similar investment objectives and to relevant money market
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For example,
the performance of the Funds may be compared to data prepared by Lipper
Analytical Services, Inc., a widely recognized independent service which
monitors the performance of mutual funds.

National financial publications in which performance and yield data are reported
include The Wall Street Journal, The New York Times, Forbes, or Money magazine.
Publications of a local or regional nature, such as The Boston Globe or The
Boston Herald, may also be used in comparing the performance and yield of the
Funds.

The yield of the Shares represents the annualized rate of income earned on an
investment in the Shares over a seven-day period. It is the annualized dividends
earned during the period on the investment shown as a percentage of the
investment. The effective yield is calculated similarly to the yield, but, when
annualized, the income earned by an investment in the Shares is assumed to be
reinvested daily. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment.

Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in the Shares after reinvesting all income distributions. It is
calculated by dividing that change by the initial investment and is expressed as
a percentage.

Yield, effective yield and total return will be calculated separately for
INSTITUTIONAL SHARES of the U.S. TREASURY FUND, TRUST SHARES of the MONEY MARKET
FUND and INVESTMENT SHARES of each of the Funds. Because INVESTMENT SHARES of
the Funds are subject to shareholder servicing fees, the yield, effective yield
and total return of the INSTITUTIONAL SHARES of the U.S. TREASURY FUND and TRUST
SHARES of the MONEY MARKET FUND for the same period will exceed that of
INVESTMENT SHARES of the corresponding Fund.

MANAGEMENT, DISTRIBUTION AND ADMINISTRATION

BayFunds was established as a Massachusetts business trust under a Declaration
of Trust dated April 1, 1991. The Declaration of Trust permits BayFunds to offer
separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to the Funds, as of the date of this
prospectus, the Board of Trustees has established two classes of shares,
INVESTMENT SHARES and INSTITUTIONAL SHARES of the U.S. TREASURY FUND and
INVESTMENT SHARES and TRUST SHARES of the MONEY MARKET FUND.

INVESTMENT SHARES of the Funds are offered primarily to individuals who purchase
shares through BayBanks and its affiliates. INSTITUTIONAL SHARES of the U.S.
TREASURY FUND are sold to BayBank Boston, N.A., its affiliated and correspondent
banks and other institutions investing for their own account and on behalf of
customers maintaining accounts at such banks and institutions. TRUST SHARES of
the MONEY MARKET FUND are sold to trusts, fiduciaries and institutions.

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

AS A SHAREHOLDER, YOU ARE ENTITLED TO
VOTE ON CERTAIN MATTERS.
- ----

VOTING RIGHTS. Each share of a Fund gives the shareholder one vote in Trustee
elections and other matters submitted to shareholders for vote. All shares of
each portfolio in BayFunds have equal voting rights except that, in matters
affecting only a particular fund or class, only shares of that particular fund
or class are entitled to vote.

As a Massachusetts business trust, BayFunds is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in BayFunds' or a Fund's operation and for the election of Trustees
under certain circumstances. As of January 31, 1995, Express & Co., Boston,
Massachusetts, acting in various capacities for numerous accounts, was the owner
of record of 553,125,335 INSTITUTIONAL SHARES (75.3%) of the U.S. TREASURY FUND.
As of January 31, 1995, Slatt & Co., Burlington, Massachusetts, acting in
various capacities for numerous accounts, was the owner of record of 181,506,034
INSTITUTIONAL SHARES (24.7%) of the U.S. TREASURY FUND. These shareholders may,
for certain purposes, be deemed to control the U.S. TREASURY FUND and be able to
affect the outcome of certain matters presented for a vote of shareholders. As
of January 31, 1995, Slatt & Co., Burlington, Massachusetts, acting in various
capacities for numerous accounts, was the owner of record of 151,273,213 TRUST
SHARES (97.6%) of the MONEY MARKET FUND and, therefore, may for certain
purposes, be deemed to control the MONEY MARKET FUND and be able to affect the
outcome of certain matters presented for a vote of shareholders. Trustees may be
removed by a two-thirds vote of the number of Trustees prior to such removal or
by a two-thirds vote of the shareholders at a special meeting. A special meeting
of shareholders shall be called by the Trustees upon the written request of
shareholders owning at least 10% of BayFunds' outstanding shares of all
portfolios entitled to vote.

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

A BOARD OF TRUSTEES SUPERVISES
BAYFUNDS.
- ----

BayFunds is managed by a Board of Trustees. The Trustees are responsible for
managing BayFunds' business affairs and for exercising all BayFunds' powers
except those reserved for the shareholders.

INVESTMENT ADVISERS

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

ACTING UNDER THE DIRECTION OF THE
TRUSTEES, THE ADVISERS MAKE INVESTMENT
DECISIONS FOR THE FUNDS. THE ADVISERS
HAVE EXTENSIVE INVESTMENT EXPERIENCE
AND ARE SUBSIDIARIES OF A LEADING NEW
ENGLAND FINANCIAL SERVICES
ORGANIZATION.
- ----

Pursuant to investment advisory contracts with BayFunds, investment decisions
for the U.S. TREASURY FUND are made by BayBank Boston, N.A., and investment
decisions for the MONEY MARKET FUND are made by BayBanks Investment Management,
Inc., the Funds' investment advisers (individually referred to as the "Adviser,"
and collectively as the "Advisers"), subject to direction by the Trustees. The
Advisers continually conduct investment research and supervision for the
respective Funds and are responsible for the purchase and sale of portfolio
instruments, for which they receive an annual fee from the respective Fund.

ADVISORY FEES. BayBank Boston, N.A., receives an annual investment advisory fee
equal to .20 of 1% of the U.S. TREASURY FUND'S average daily net assets.
BayBanks Investment Management, Inc. receives an annual investment advisory fee
equal to .40 of 1% of the MONEY MARKET FUND'S average daily net assets. The
Advisers have undertaken to reimburse the respective Funds, up to the amount of
the advisory fees, for operating expenses in excess of limitations established
by certain states. The Advisers also may voluntarily choose to waive a portion
of their fees or reimburse the Funds for certain other expenses, but reserve the
right to terminate such waiver or reimbursement at any time at their sole
discretion.

ADVISERS' BACKGROUND. The Advisers are wholly-owned subsidiaries of BayBanks,
Inc., a bank holding company organized under the laws of the Commonwealth of
Massachusetts. BayBanks, Inc. through its banking subsidiaries (hereinafter
"BayBanks") and affiliates, offers a full range of financial services to the
public, including depository services, commercial lending, cash management,
brokerage, retail banking, mortgage banking, and investment advisory and trust
services. As part of their regular banking operations, BayBanks may make loans
to public companies. Thus, it may be possible, from time to time, for the Funds
to hold or acquire the securities of issuers which are also lending clients of
BayBanks. The lending relationship will not be a factor in the selection of
securities.

BayBank Boston, N.A., Adviser to the U.S. TREASURY FUND, manages approximately
$835 million (as of December 31, 1994) in the U.S. TREASURY FUND. BayBank
Boston, N.A., through its Capital Markets Division, manages more than $2.7
billion of assets in the investment portfolios of BayBanks, Inc. and BayBanks.
BayBank Boston, N.A., is a national banking association.

BayBanks Investment Management, Inc., the Adviser for the MONEY MARKET FUND, is
a registered investment adviser and provides investment advisory services for
trust and other managed assets. BayBanks Investment Management, Inc. was
established as a separate subsidiary of BayBanks, Inc. in 1985, but its
predecessor division and personnel have been providing investment advisory
services to BayBanks' customers for more than 65 years. As of December 31, 1994,
the Trust Division of BayBank, a state-chartered affiliate of BayBanks
Investment Management, Inc., acted as custodian for assets totaling $10 billion.
Of this amount, BayBanks Investment Management, Inc. managed $2.4 billion of
discretionary assets. BayBanks Investment Management, Inc., and BayBanks have
been managing commingled funds for over twenty years. At the present time
BayBanks Investment Management, Inc. serves as adviser to six such commingled
funds with total assets of approximately $280 million. BayBanks Investment
Management, Inc. has managed mutual funds since August 1991 and manages
approximately $455 million (as of December 31, 1994) in various BayFunds
Portfolios.

AUTHORITY TO ACT AS INVESTMENT ADVISER. The Glass-Steagall Act and other banking
laws and regulations presently prohibit a bank holding company registered under
the Bank Holding Company Act of 1956, as amended, or any affiliate thereof, from
sponsoring, organizing or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, and from issuing,
underwriting, selling or distributing securities in general. Such laws and
regulations do not prohibit such a holding company or affiliate from acting as
investment adviser, transfer agent or custodian to such an investment company or
from purchasing shares of such a company as agent for and upon the order of
their customer. Each Fund's investment adviser (BayBanks Investment Management,
Inc. and BayBank Boston, N.A.) is subject to such banking laws and regulations.

The Advisers believe that they may perform the investment advisory services for
the Funds con-

templated by their advisory agreement with BayFunds without violating the
Glass-Steagall Act or other applicable banking laws or regulations. Changes in
either federal or state statutes and regulations relating to the permissible
activities of banks and their subsidiaries or affiliates, as well as further
judicial or administrative decisions or interpretations of present or future
statutes and regulations, could prevent the Advisers from continuing to perform
all or a part of the above services for their customers and/or the Funds. In
such event, changes in the operation of the Funds may occur, including the
possible alteration or termination of any automatic or other Fund share
investment and redemption services then being provided, and the Trustees would
consider alternative investment advisers and other means of continuing available
investment services. It is not expected that Fund shareholders would suffer any
adverse financial consequences (if another adviser with equivalent abilities to
BayBanks Investment Management, Inc. and/or BayBank Boston, N.A. is found) as a
result of any of these occurrences.

DISTRIBUTION

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

FEDERATED SECURITIES CORP. IS THE
PRINCIPAL DISTRIBUTOR FOR SHARES OF THE
FUNDS.
- ----

ADMINISTRATION

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

VARIOUS ORGANIZATIONS PROVIDE SERVICES
TO THE FUNDS.
- ----

ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Funds with certain administrative personnel
and services necessary to operate the Funds, such as legal and accounting
services. Federated Administrative Services provides these

at an annual rate as specified in the following table:

The administrative fee received during any fiscal year shall be at least $50,000
for each Fund. Federated Administrative Services may choose voluntarily to
reimburse a portion of its fee at any time.

SHAREHOLDER SERVICING AGENT. BayBank Systems, Inc., Waltham, Massachusetts, is
the Fund's shareholder servicing agent for INVESTMENT SHARES. The Fund may pay
the Shareholder Servicing Agent a fee based on the average daily net asset value
of INVESTMENT SHARES for which it provides shareholder services. These
shareholder services include, but are not limited to, distributing prospectuses
and other information, providing shareholder assistance and communicating or
facilitating purchases and redemptions of INVESTMENT SHARES. This fee will be
equal to .25 of 1% of the Fund's average daily net assets of INVESTMENT SHARES
for which the Shareholder Servicing Agent provides services; however, the
Shareholder Servicing Agent may choose voluntarily to waive all or a portion of
its fee at any time.

CUSTODIAN. The Fifth Third Bank, Cincinnati, Ohio, is custodian for the
securities and cash of the Funds.

LEGAL COUNSEL. Legal counsel is provided by Ropes & Gray, Washington, D.C.,
Counsel to BayFunds, and Sullivan & Worcester, Washington, D.C., Counsel to the
Independent Trustees.

INDEPENDENT AUDITORS. The independent auditors for the Funds are Ernst & Young
LLP, Pittsburgh, Pennsylvania.

CODE OF ETHICS COMPLIANCE

In accordance with industry-wide recommendations as endorsed by the SEC, the
Trust, the advisers and the distributor have revised their respective Codes of
Ethics governing personal securities trading of trustees, directors, officers
and employees. Generally, the Codes implement various restrictions on such
persons, such as requiring them to preclear their securities investments;
banning their short-term trading; prohibiting them from investing in private
placements without prior written approval; restricting trading during periods of
Fund trading; prohibiting them from receiving gifts from any person or entity
doing business with the Fund; and prohibiting them from serving as directors of
public companies without prior approval. In addition, the Codes require such
persons to report their securities holdings and trading activity, and may
subject them to punishment for violations.

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

ADDRESSES

BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
BAYFUNDS MONEY MARKET PORTFOLIO
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

DISTRIBUTOR

Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

INVESTMENT ADVISER TO
BAYFUNDS U.S. TREASURY
MONEY MARKET PORTFOLIO

BayBank Boston, N.A.
175 Federal Street
Boston, Massachusetts 02110

INVESTMENT ADVISER
TO BAYFUNDS MONEY
MARKET PORTFOLIO

BayBanks Investment Management, Inc.
1414 Massachusetts Avenue
Cambridge, Massachusetts 02138

TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT

Supervised Service Company, Inc.
811 Main Street
Kansas City, Missouri 64105

SHAREHOLDER SERVICING AGENT

BayBank Systems, Inc.
One BayBank Technology Place
Waltham, Massachusetts 02154
CUSTODIAN

The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45202

PORTFOLIO ACCOUNTING SERVICES

Federated Services Company
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

COUNSEL TO BAYFUNDS

Ropes & Gray
1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004

COUNSEL TO THE INDEPENDENT TRUSTEES

Sullivan & Worcester
1025 Connecticut Avenue, N.W.
Washington, D.C. 20036

INDEPENDENT AUDITORS

Ernst & Young LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219

BayFunds U.S. Treasury Money Market Portfolio
(Investment Shares and Institutional Shares)
BayFunds Money Market Portfolio
(Investment Shares and Trust Shares)

(Portfolios of BayFundsR)
Combined Statement of Additional Information

Statement dated March 1, 1995

Kenneth G. Condon
11 Dudley Road
Sudbury, MA
Birthdate: August 14, 1947

Trustee

Robert W. Eisenmenger
92 Woodland Street
Natick, MA
Birthdate: June 30, 1926

Trustee

Sara L. Johnson
30 Eaton Court
Wellesley Hills, MA
Birthdate: November 16, 1951

Trustee

Ernest R. May
John F. Kennedy School of Government
Cambridge, MA
Birthdate: November 19, 1928

Trustee

Alvin J. Silk
Graduate School of Business Administration
Harvard University
Soldiers Field Road
Boston, MA
Birthdate: December 31, 1935

Trustee

Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929

President and Treasurer

C. Christine Thomson
Federated Investors Tower
Pittsburgh, PA
Birthdate: September 1, 1957

Vice President and Assistant Treasurer

Vice President, Federated Administrative Services; Vice President and
Assistant Treasurer of certain investment companies distributed by
Federated Securities Corp.

Peter J. Germain
Federated Investors Tower
Pittsburgh, PA
Birthdate: September 3, 1959
Secretary

Senior Corporate Counsel, Federated Investors.

Trustee Compensation
<TABLE>
<CAPTION>

AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +

*Information is furnished for the fiscal year ended December 31, 1994.
Trustee compensation is included in the calculation of Fund expenses that
is reported in the Summary of Fund Expenses section of the prospectus.
#The aggregate compensation is provided for the Trust which is comprised of
5 portfolios.
+The information is provided for the last calendar year.
Trustee Liability
BayFunds' Declaration of Trust provides that the Trustees are not liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
Investment Advisory Services
Advisers to the Funds
The U.S. Treasury Fund's investment adviser is BayBank Boston, N.A.
("BBNA"). The Money Market Fund's investment adviser is BayBanks Investment
Management, Inc. ("BBIM"). BBNA and BBIM will collectively be referred to
as the "Advisers." The Advisers are wholly-owned subsidiaries of BayBanks,
Inc., a bank holding company organized under the laws of the Commonwealth
of Massachusetts with a number of commercial bank subsidiaries.
Collectively, these bank subsidiaries are referred to in this Statement of
Additional Information as "BayBanks." The Advisers shall not be liable to
BayFunds, the Funds or any shareholder of the Funds for any losses that may
be sustained in the purchase, holding, or sale of any security, or for
anything done or omitted by them, except acts or omissions involving
willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties imposed upon them by their contracts with BayFunds.
Because of the internal controls maintained by BayBanks to restrict the
flow of non-public information, Fund investments are typically made without
any knowledge of BayBanks or its affiliates' lending relationships with an
issuer.
Advisory Fees
For their advisory services, the Advisers receive an annual investment
advisory fee as described in the prospectus.
For the period from January 29, 1993 (date of initial public investment) to
December 31, 1993, and the year ended December 31, 1994, BBNA earned fees
from U.S. Treasury Fund in the amount of $851,157, and $1,428,354,
respectively, none of which was voluntarily waived.
For the years ended December 31, 1992 and 1993, and 1994, BBIM earned fees
from Money Market Fund of $781,926, $893,521, and $818,942 respectively, of
which $48,529, $192,825, and $86,926, respectively, was voluntarily waived.
State Expense Limitation
The Advisers have undertaken to comply with the expense limitation
established by certain states for investment companies whose shares
are registered for sale in those states. If a Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net
assets, 2% per year of the next $70 million of average net assets,
and 1-1/2% per year of the remaining average net assets, each of the
Advisers has agreed to reimburse the Funds for its expenses over the
limitation up to the amount of the advisory fee.
If a Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by an Adviser
will be limited, in any single fiscal year, by the amount of the
investment advisory fee. This arrangement is not part of the
advisory contracts and may be amended or rescinded in the future.
Expenses of a Fund and Shares
Each Fund pays all of its own expenses and its allocable share of
BayFunds' expenses. The expenses borne by a Fund include, but are not
limited to, the cost of: organizing BayFunds and continuing its
existence; Trustee fees; investment advisory and administrative
services; printing prospectuses and other Fund documents for
shareholders; registering BayFunds, the Fund, and the shares with
federal and state securities authorities; taxes and commissions;
issuing, purchasing, repurchasing, and redeeming shares; fees for
custodians, transfer agents, dividend disbursing agents, portfolio
accounting services, and registrars; printing, mailing, auditing,
accounting, and legal expenses; reports to shareholders and
governmental agencies; meetings of Trustees and shareholders and
proxy solicitations therefor; insurance premiums; association
membership dues; and such non-recurring and extraordinary items as
may arise.
At present, the only expenses allocated to shares as a class are
expenses under the Fund's Shareholder Servicing Plan which relate to
the Investment Shares. However, the Trustees reserve the right to
allocate certain other expenses to holders of shares as it deems
appropriate ("Class Expenses"). In any case, Class Expenses would be
limited to: transfer agent fees as identified by the Transfer Agent
as attributable to holders of a class of shares; printing and postage
expenses related to preparing and distributing materials such as
shareholder reports, prospectuses and proxies to current
shareholders; registration fees paid to the Securities and Exchange
Commission and registration fees paid to states; expenses related to
administrative personnel and service as required to support holders
of a class of shares; legal fees relating solely to a class of
shares; and Trustees' fees incurred as a result of issues relating
solely to a class of shares.
Brokerage Transactions
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Advisers look for prompt execution of the order
at a favorable price. In working with dealers, the Advisers will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The Advisers make decisions on portfolio transactions and select
brokers and dealers subject to review by the Trustees.
The Advisers may select brokers and dealers who offer brokerage and
research services. These services may be furnished directly to the Funds or
to the Advisers and may include:
- advice as to the advisability of investing in securities;
- security analysis and reports;
- economic studies;
- industry studies;
- receipt of quotations for portfolio evaluations; and
- similar services.
The Advisers exercise reasonable business judgment in selecting brokers who
offer brokerage and research services to execute securities transactions.
They determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided.
Research services provided by brokers and dealers may be used by the
Advisers in advising the Funds and other accounts. To the extent that
receipt of these services may supplant services for which the Advisers or
their affiliates might otherwise have paid, it would tend to reduce
expenses.
On December 31, 1994, Money Market Fund owned approximately $2,494,000 of
the securities of Dean Witter Discover & Co.; and $10,014,000 of the
securities of Merrill Lynch & Co., both of whom are the Fund's regular
brokers that derive more than 15% of gross revenues from securities-related
activities.
Shareholder Servicing Arrangements
Under a Shareholder Services Plan, the Fund may pay a fee to BayBank
Systems, Inc., as shareholder servicing agent for Investment Shares, for
services provided which are necessary for the maintenance of shareholder
accounts. These activities and services may include, but are not limited
to: providing office space, equipment, telephone facilities, and various
clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments
of client account cash balance; answering routine client inquiries; and
assisting clients in changing dividend options, account designations, and
addresses. For the period ended December 31, 1994, U.S. Treasury Fund and
Money Market Fund paid BayBanks Systems, Inc. $228,859 and $89,758,
respectively, in shareholder services fees with respect to Investment
Shares under the Shareholder Services Plan.
Administrative Services
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Funds for fees as
described in the prospectus.
For the period from January 29, 1993 (date of initial public investment) to
December 31, 1993, and for the year ended December 31, 1994, the U.S.
Treasury Fund incurred costs for administrative fees of $478,865, and
$750,678, respectively, of which $238,788, and $0, respectively, was
voluntarily waived.
For the years ended December 31, 1992, 1993, and 1994, the Money Market
Fund incurred costs for administrative service fees of $286,304, $263,548,
and $215,486, respectively, of which $49,869, $15,149, and $0,
respectively, was voluntarily waived.
For the period from January 29, 1993 (date of initial public investment) to
December 31, 1993, and for the year ended December 31, 1994 Federated
Administrative Services reimbursed $59,801, and $0, respectively, to U.S.
Treasury Fund. For the years ended December 31, 1993, and 1994, Federated
Administrative Services reimbursed $48,336, and $0, respectively, to Money
Market Fund.
Purchasing Shares
The procedures for purchasing Shares are explained in the prospectus.
Conversion to Federal Funds
It is the Funds' policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in Federal funds or be converted into Federal funds. BayBanks acts as the
shareholder's agent in depositing checks and converting them to Federal
funds.
Exchanging Securities for Fund Shares
Each Fund may accept securities in exchange for Shares. A Fund will allow
such exchanges only upon the prior approval of the Fund and a determination
by the Fund and its Adviser that the securities to be exchanged are
acceptable.
Any securities exchanged must meet the investment objective and policies of
the Fund, must have a readily ascertainable market value and must be
liquid. The market value of any securities exchanged in an initial
investment, plus any cash, must be at least $100,000.
Securities accepted by the Fund will be valued in the same manner as the
Fund values its assets. The basis of the exchange will depend upon the net
asset value of Shares on the day the securities are valued. One Share of
the Fund will be issued for each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be
considered in valuing the securities. All interest, dividends, subscription
or other rights attached to the securities become the property of the Fund,
along with the securities.
Determining Net Asset Value
The Funds attempt to stabilize the value of a share at $1.00. The days on
which net asset value is calculated by the Funds are described in the
prospectus.
Use of the Amortized Cost Method
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization
of premium or accumulation of discount rather than at current market value.
The Funds' use of the amortized cost method of valuing portfolio
instruments depends on their compliance with Rule 2a-7 (the "Rule")
promulgated by the SEC under the Investment Company Act of 1940. Under the
Rule, the Trustees must establish procedures reasonably designed to
stabilize the net asset value per share, as computed for purposes of
distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Funds' investment objectives.
Monitoring Procedures
The Trustees' procedures include monitoring the relationship between
the amortized cost value per share and the net asset value per share
based upon available indications of market value. The Trustees will
decide what, if any, steps should be taken if there is a difference
of more than .5 of 1% between the two values. The Trustees will take
any steps they consider appropriate (such as redemption in kind or
shortening the average portfolio maturity) to minimize any material
dilution or other unfair results arising from differences between the
two methods of determining net asset value.
Investment Restrictions
The Rule requires that the Funds limit their investments to
instruments that, in the opinion of the Trustees, present minimal
credit risks and have received the requisite rating from one or more
nationally recognized statistical rating organizations. If the
instruments are not rated, the Trustees must determine that they are
of comparable quality. In purchasing shares of other investment
companies, the Trustees will review each company's stated investment
policies for consistency with Rule 2a-7. The Rule also requires the
Funds to maintain a dollar-weighted average portfolio maturity (not
more than 90 days) appropriate to the objective of maintaining a
stable net asset value of $1.00 per share. In addition, no
instruments with a remaining maturity of more than 397 days can be
purchased by the Funds.
Should the disposition of a portfolio security result in a dollar-
weighted average portfolio maturity of more than 90 days, the Funds
will invest their available cash to reduce the average maturity to 90
days or less as soon as possible.
The Funds may attempt to increase yield by trading portfolio
securities to take advantage of short-term market variations. This
policy may, from time to time, result in high portfolio turnover.
Under the amortized cost method of valuation, neither the amount of
daily income nor the net asset value is affected by any unrealized
appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on
shares of the Funds computed by dividing the annualized daily income
on the Funds' portfolios by the net asset value computed as above may
tend to be higher than a similar computation made by using a method
of valuation based upon market prices and estimates.
In periods of rising interest rates, the indicated daily yield on
shares of the Funds computed the same way may tend to be lower than a
similar computation made by using a method of calculation based upon
market prices and estimates.
Exchange Privileges
Requirements for Exchange
Upon receipt of proper instructions and required supporting documents,
shares submitted for exchange are redeemed and the proceeds invested in
shares of the other Participating Fund.
Please review the prospectus for further information on the exchange
privileges.
Making an Exchange
Instructions for exchanges may be given in writing. Written instructions
may require a signature guarantee.
Redeeming Shares
The Funds redeem Shares at the next computed net asset value after the
Funds receive the redemption request from the Funds' transfer agent in
proper form. Redemption procedures are explained in the prospectus.
Redemption in Kind
Although the Funds intend to redeem Shares in cash, they reserve the right
under certain circumstances to pay the redemption price in whole or in part
by a distribution of securities from the respective Fund's portfolio.
Redemption in kind will be made in conformity with applicable SEC rules,
taking such securities at the same value employed in determining net asset
value and selecting the securities in a manner the Trustees determine to be
fair and equitable.
BayFunds has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, which obligates the Funds to redeem Shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net
asset value of the respective class during any 90-day period.
Redemption in kind is not as liquid as cash redemption. If redemption is
made kind, shareholders receiving their securities and selling them before
their maturity could receive less than the redemption value of their
securities and could incur transaction costs.
Additional Information You Should Know
Monthly Statements
Shareholders of the Funds who have eligible BayBanks deposit accounts will
receive combined monthly statements containing all information relating to
their deposit account(s) and BayFunds transactions.
Companion Account Availability
Certain BayBanks deposit account customers may elect to open a companion
BayFunds account to facilitate BayFunds transactions.
Massachusetts Law
Under certain circumstances, shareholders may be held personally liable
under Massachusetts law for acts or obligations of BayFunds. To protect
shareholders, BayFunds has filed legal documents with Massachusetts that
expressly disclaim the liability of shareholders for such acts or
obligations of BayFunds. These documents require notice of this disclaimer
to be given in each agreement, obligation, or instrument BayFunds or its
Trustees enter into or sign.
In the unlikely event a shareholder is held personally liable for BayFunds'
obligations, BayFunds is required, by its Declaration of Trust, to use its
property to protect or compensate the shareholder. On request, BayFunds
will defend any claim made and pay any judgment against a shareholder for
any act or obligation of BayFunds. Therefore, financial loss resulting from
liability as a shareholder will occur only if BayFunds cannot meet its
obligations to indemnify shareholders and pay judgments against them from
its assets.
Tax Status
The Funds' Tax Status
The Funds intend to meet the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies in order not to
be liable for Federal income taxes on income and gains distributed to Fund
shareholders. To qualify for this treatment, a Fund must, among other
requirements:
- derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
- derive less than 30% of its gross income from the sale of securities
held, or deemed held, less than three months;
- diversify its holdings according to certain statutory requirements;
and
- distribute to its shareholders at least 90% of its taxable and tax-
exempt income earned during the year.
The Funds will distribute substantially all of their net investment income
and net realized gains at least annually.
Shareholders' Tax Status
Shareholders are subject to Federal income tax on dividends and any short-
term capital gains received as cash or additional shares. No portion of any
income dividend paid by a Fund is eligible for the dividends received
deduction available to corporations. These dividends and any short-term
capital gains are taxable as ordinary income.
Capital Gains
Capital gains experienced by a Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If
for some extraordinary reason a Fund realizes net long-term capital
gains, it will distribute them at least once every 12 months.
Yield
The Funds calculate their yield for both classes of shares daily, based
upon the seven days ending on the day of the calculation, called the "base
period." This yield is computed by:
- determining the net change in the value of a hypothetical account with
a balance of one share at the beginning of the base period, with the
net change excluding capital changes but including the value of any
additional shares purchased with dividends earned from the original
one share and all dividends declared on the original and any purchased
shares;
- dividing the net change in the account's value by the value of the
account at the beginning of the base period to determine the base
period return; and
- multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in
either class of shares, the performance will be reduced for those
shareholders paying those fees.
The yields for the seven day period ended December 31, 1994 were 5.07% and
4.59% for Investment Shares of U.S. Treasury Fund and Money Market Fund,
respectively, and were 5.32% and 4.84% for the Institutional Shares of U.S.
Treasury Fund and Trust Shares of Money Market Fund, respectively.
Effective Yield
The effective yield for both classes of shares of each Fund is computed by
compounding the unannualized base period return by:
- adding 1 to the base period return;
- raising the sum to the 365/7th power; and
- subtracting 1 from the result.
The effective yields for the seven-day period ended December 31, 1994 for
the Investment Shares of U.S. Treasury Fund and Money Market Fund were
5.20% and 4.70%, respectively. The effective yields for the seven-day
period ended December 31, 1994 for Institutional Shares of U.S. Treasury
Fund and Trust Shares of the Money Market Fund were 5.46% and 4.96%,
respectively.
Performance Comparisons
The performance of both classes of shares of each Fund depends upon such
variables as:
- portfolio quality;
- average portfolio maturity;
- type of instruments in which the portfolio is invested;
- changes in interest rates on money market instruments;
- changes in a Fund's or of either class of its shares expenses; and
- the relative amount of a Fund's cash flow.
From time to time the Funds may advertise their performance of both classes
of shares compared to similar funds or portfolios.
Investors may use financial publications and/or indices to obtain a more
complete view of the Funds' performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Funds
use in advertising may include:
- - Lipper Analytical Services, Inc., ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all income dividends and capital gains
distributions, if any. From time to time, the Funds will quote their
Lipper ranking in the money market funds category in advertising and
sales literature.
- - Bank Rate Monitor National Index, Miami Beach, Florida, is a financial
reporting service which publishes weekly average rates of 50 leading
banks and thrift institution money market deposit accounts. The rates
published in the index are an average of the personal account rates
offered on the Wednesday prior to the date of publication by ten of the
largest banks and thrifts in each of the five largest Standard
Metropolitan Statistical Areas. Account minimums range upward from
$2,500 in each institution and compounding methods vary. If more than
one rate is offered, the lowest rate is used. Rates are subject to
change at any time specified by the institution.
- - Donoghue's Money Fund Report publishes annualized yields of hundreds of
money market funds on a weekly basis and through its Money Market
Insight publication reports monthly and year-to-date investment results
for the same money funds.
Advertisements and other sales literature for both classes of shares of
either Fund may refer to total return. Total return is the historic change
in the value of an investment in either Funds' classes of shares based on
the monthly reinvestment of dividends over a specified period of time.
Financial Statements
The financial statements for the fiscal year ended December 31, 1994, are
incorporated herein by reference to the Annual Report of the Funds dated
December 31, 1994 (File No. 811-6296). You may request a copy of the Annual
Report free of charge by writing the Funds or by calling 1-800-BAY-FUND.
Appendix
Standard and Poor's Ratings Group Corporate Bond Rating Definitions
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's
Ratings Group. Capacity to pay interest and repay principal is extremely
strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
Moody's Investors Service, Inc., Corporate Bond Rating Definitions
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
Fitch Investors Service, Inc., Bond Rating Definitions
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA."
Standard and Poor's Ratings Group Commercial Paper Rating Definitions
A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Moody's Investors Service, Inc., Commercial Paper Rating Definitions
P-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-
1 repayment capacity will normally be evidenced by the following
characteristics:
--Leading market positions in well established industries.
--High rates of return on funds employed.
--Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
--Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
--Well-established access to a range of financial markets and assured
sources of alternate liquidity.
P-2--Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above, but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Fitch Investors Service, Inc., Short-Term Debt Rating Definitions
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment only slightly less in degree than issues rated
F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the F-1+ and F-1 ratings.

1042301-B (2/95)

PART C. OTHER INFORMATION.

Item 24. Financial Statements and Exhibits:

(a) Financial Statements (9.);
(b) Exhibits:
(1) Copy of Declaration of Trust of the Registrant (1.);
(i) Copy of Amendment to the Declaration of Trust of
the Registrant (3.);
(ii) Copy of Amendment to the Declaration of Trust of
the Registrant (5.);
(iii) Conformed Copy of Amendment No. 4 to the
Declaration of Trust; (8.)
(2) Copy of By-Laws of the Registrant (1.);
(3) Not applicable;
(4) Copy of Specimen Certificate for Shares of Beneficial
Interest of the Registrant (5.);
(5) (i) Conformed copy of Investment Advisory
Contract between the Registrant and BayBanks
Investment Management, Inc. (8.);
(ii) Conformed copy of Investment Advisory Contract
between the Registrant and BayBank Boston,
N.A.(8.);
(6) Copy of Distributor's Contract of the Registrant; (5.);
(i) Conformed copy of Exhibit C to the Distributor's
Contract of the Registrant to add Investment
Shares and Institutional Shares of BayFunds Bond
Portfolio, BayFunds Equity Portfolio, BayFunds
Short Term Yield Portfolio, and BayFunds U.S.
Treasury Money Market Portfolio, and to add
Investment Shares and Trust Shares of BayFunds
Money Market Portfolio; (10.)
(7) Not applicable;
(8) Copy of Custodian Agreement of the Registrant (1.);
(9) (i) Conformed Copy of Shareholder Services Plan
and Related Agreement (7.);
(a) Copy of Schedule A to Shareholder
Services Agreement; (10.)

1. Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed on April 5, 1991. (File
No. 33-39717 and 811-6296)
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed on December 6, 1991.
(File No. 33-39717 and 811-6296)
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 on Form N1-A filed on October 2, 1992. (File No. 33-
39717 and 811-6296)
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N1-A filed on July 30, 1993. (File No. 33-
39717 and 811-6296)
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N1-A filed on November 2, 1993. (File No. 33-
39717 and 811-6296)
9. Response is incorporated by reference to the Annual Report of each
Fund dated December 31, 1994. (File No. 811-6296)
10. Response is incorporated by reference to Post-Effective Ammendment
No. 9 on Form N1-A filed on April 14, 1994 (File No. 33-39717 and 811-
6296)
(ii) Conformed Copy of Fund Accounting and
Shareholder Recordkeeping Agreement between
Registrant and Federated Services Company
(7.);
(a) Copy of Schedule A of Fund Accounting and
Shareholder Recordkeeping Agreement between
Registrant and Federated Services Company;
(10.)
(iii) Copy of Administrative Services Agreement
between Registrant and Federated
Administrative Services (6.);
(iv) Conformed Copy of Transfer Agency Agreement
between Registrant and Investors Financial
Services Company (7.);
(10) Copy of Opinion and Consent of Counsel as to
legality of shares being registered (1.);
(11) Copy of Consent of Independent Auditors; +
(12) Not applicable;
(13) Copy of Initial Capital Understanding (2.);
(14) Not applicable;
(15) Not applicable;
(16) Schedule for Computation of Fund Performance Data
(7.);
(17) Financial Data Schedules; +
(18) Opinion and Consent of Counsel as to Availability
of Rule 485(b); +
(19) Power of Attorney (6.);

+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed on April 5, 1991. (File No.
33-39717 and 811-6296)
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed on June 3, 1991. (File No. 33-39717
and 811-6296)
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 on Form N1-A filed on February 23, 1993. (File No. 33-
39717 and 811-6296)
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N1-A filed on July 30, 1993. (File No. 33-
39717 and 811-6296)
10. Response is incorporated by reference to Post-Effective Ammendment
No. 9 on Form N1-A filed on April 14, 1994 (File No. 33-39717 and 811-
6296)

Item 25. Persons Controlled by or Under Common Control with Registrant

None

Item 26. Number of Holders of Securities:

Number of Record Holders
Title of Class January 31, 1995

Shares of beneficial interest
(no par value)
BayFunds Money Market Portfolio -
Trust Shares 5
BayFunds Money Market Portfolio -
Investment Shares 7,482
BayFunds U.S. Treasury Money Market
Portfolio-Institutional Shares 3
BayFunds U.S. Treasury Money Market
Portfolio-Investment Shares 9,496
BayFunds Bond Portfolio
Institutional Shares 1
BayFunds Bond Portfolio
Investment Shares 872
BayFunds Equity Portfolio
Institutional Shares 1
BayFunds Equity Portfolio
Investment Shares 4,501
BayFunds Short Term Yield Portfolio
Institutional Shares 1
BayFunds Short Term Yield Portfolio
Investment Shares 5,030

Item 27. Indemnification: (2.)

2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed on June 3, 1991. (File No. 33-39717
and 811-6296)
Item 28. Business and Other Connections of Investment Adviser:

The principal executive officers and directors of the Fund's
investment advisers are set forth below. All officers and
directors are employed by the advisers, BayBanks Inc., and/or
an affiliate. BayBanks Investment Management, Inc., adviser to
BayFunds Money Market Portfolio, BayFunds Bond Portfolio,
BayFunds Equity Portfolio, and BayFunds Short Term Yield
Portfolio, is headquartered at 1414 Massachusetts Avenue,
Cambridge, Massachusetts 02138. BayBank Boston, N.A., adviser
to BayFunds U.S. Treasury Money Market Portfolio, is
headquartered at 175 Federal Street, Boston, Massachusetts
02110.

Officers of BayBanks Investment Management, Inc.

Officers
Other Substantial
Position with Business, Profession,
Name the Adviser Vocation or Employment

Richard F. Pollard President and Chief Vice Chairman,
Executive Officer BayBanks, Inc., BayBank,
and BayBank Boston, N.A.;
Chairman, BayBanks
Brokerage Services, Inc.

Richard W. Gula Executive Vice President
William M. Crozier, Jr. Chairman of the Board Chairman of the Board,
President, and Chief
Executive Officer,
BayBanks, Inc., and
BayBanks Associates,
Inc.; Chairman of the
Board, BayBank, and
BayBank Boston, N.A.
Directors of BayBanks Investment Management, Inc.

Name Principal Occupation

Richard F. Pollard Vice Chairman, BayBanks, Inc.
Ilene Beal Executive Vice President, BayBanks, Inc.
William M. Crozier, Jr. Chairman of the Board, President, and Chief Executive
Officer, BayBanks, Inc.
L. Sumner Hopkins II Executive Vice President, BayBanks Investment
Management, Inc.

Officers of BayBank Boston, N.A.

Other Substantial
Position with Business, Profession,
Name BayBank Boston, N.A. Vocation or Employment

William M. Crozier, Jr. Chairman of the Board Chairman of the Board,
President, and Chief
Executive Officer,
BayBanks, Inc., and
BayBanks Associates, Inc.;
Chairman of the Board,
BayBank and BayBank
Boston, N.A.

Richard F. Pollard President and Chairman of the Board,
Chief Executive President and Chief
Officer Executive Officer,
BayBanks Funance & Leasing
Co., Inc.; Chairman of the
Board, BayBank
Connecticut, N.A., Vice
Chairman of BayBanks, Inc.

Michael W. Vasily Cashier Executive Vice President,
BayBanks, Inc.; Senior
Executive Vice President,
BayBank and BayBanks
Associates, Inc.

William W. Abendroth General Counsel Director of Legal Affairs,
BayBanks, Inc.General
Counsel, BayBank and
BayBank Boston, N.A.

Trumbull C. Curtiss Senior Executive Vice Senior Executive Vice
President President, BayBank and
BayBank Boston, N.A.

Jacques P. Fiechter Senior Executive Vice Senior Executive Vice
President President and Senior
Commercial Real Estate
Officer, BayBank

Grady B. Hedgespeth Regional President

Theresa A. Pasley Executive Vice President

Joseph V. Roller II Executive Vice President Managing Director, BayBank
Systems, Inc.

Tingey H. Sewall Executive Vice President Executive Vice President,
BayBank

Hedwig M. Veith Executive Vice President Executive Vice President,
BayBank Systems, Inc. and
BayBank, Director of Human
Resources, BayBanks, Inc.
Directors of BayBank Boston, N.A.

Name Principal Occupation

John A. Cervieri, Jr. Chairman and President, Property Capital
Associates
William M. Crozier, Jr. Chairman of the Board and President, BayBanks,
Inc.
Robert L. Gable Chairman, President and Chief Executive Officer,
Unitrode Corporation
Samuel J. Gerson Chairman of the Board and Chief Executive Officer,
Filene's Basement
Norman E. MacNeil Chairman of the Board, Ark-Les Corporation
Arlene A. McNamee Executive Director, Catholic Social Services,
Diocese of Fall River
Thomas R. Piper Senior Associate Dean and Professor, Harvard
University Graduate School of Business
Administration
Richard F. Pollard Vice Chairman of the Board, BayBanks, Inc.
Glenn P. Strehle Vice President for Finance and Treasurer,
Massachusetts Institute of Technology
Joseph H. Torras Chairman of the Board and President, Preco
Corporation
Item 29. Principal Underwriters:

(a) Federated Securities Corp., the Distributor for shares of the
Registrant, also acts as principal underwriter for the
following open-end investment companies: Alexander Hamilton
Funds; American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Cash Management Trust; Automated
Government Money Trust; BayFunds; The Biltmore Funds; The
Biltmore Municipal Funds; California Municipal Cash Trust; Cash
Trust Series, Inc.; Cash Trust Series II; DG Investor Series;
Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs
Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust;
Federated Government Trust; Federated Growth Trust; Federated
High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Intermediate Government Trust; Federated
Master Trust; Federated Municipal Trust; Federated Short-
Intermediate Government Trust; Federated Short-Term U.S.
Government Trust; Federated Stock Trust; Federated Tax-Free
Trust; Federated U.S. Government Bond Fund; First Priority
Funds; First Union Funds; Fixed Income Securities, Inc.;
Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress
Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.;
Fountain Square Funds; Fund for U.S. Government Securities,
Inc.; Government Income Securities, Inc.; High Yield Cash
Trust; Independence One Mutual Funds; Insight Institutional
Series, Inc.; Insurance Management Series; Intermediate
Municipal Trust; International Series Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty Equity Income
Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty
Municipal Securities Fund, Inc.; Liberty U.S. Government Money
Market Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust;
Managed Series Trust; Marshall Funds, Inc.; Money Market
Management, Inc.; The Medalist Funds; Money Market Obligations
Trust; Money Market Trust; The Monitor Funds; Municipal
Securities Income Trust; Newpoint Funds; New York Municipal
Cash Trust; 111 Corcoran Funds; Peachtree Funds; The Planters
Funds; RIMCO Monument Funds; The Shawmut Funds; Short-Term
Municipal Trust; SouthTrust Vulcan Funds; Star Funds; The
Starburst Funds; The Starburst Funds II; Stock and Bond Fund,
Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free
Instruments Trust; Tower Mutual Funds; Trademark Funds; Trust
for Financial Institutions; Trust for Government Cash Reserves;
Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Vision Fiduciary Funds, Inc.; Vision
Group of Funds, Inc.; and World Investment Series, Inc.

Federated Securities Corp. also acts as principal underwriter
for the following closed-end investment company: Liberty Term
Trust, Inc.- 1999.

(b)

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

Richard B. Fisher Director, Chairman, Chief --
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, and
Asst. Treasurer, Federated
Securities Corp.

Edward C. Gonzales Director, Executive Vice --
Federated Investors Tower President, and Treasurer,
Pittsburgh, PA 15222-3779 Federated Securities
Corp.

John W. McGonigle Director, Executive Vice --
Federated Investors Tower President, and Assistant
Pittsburgh, PA 15222-3779 Secretary, Federated
Securities Corp.

John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust
Pittsburgh, PA 15222-3779 Federated Securities Corp.

Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

H. Joseph Kennedy Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John B. Bohnet Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard W. Boyd Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Kevin J. Crenny Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Daniel T. Culbertson Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Joseph L. Epstein Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

Michael D. Fitzgerald Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

David C. Glabicki Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Craig S. Gonzales Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

William J. Kerns Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Dennis M. Laffey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Stephen A. LaVersa Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Francis J. Matten, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard C. Mihm Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

R. Jeffrey Niss Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Robert D. Oehlschlager Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Charles A. Robison Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John C. Shelar, Jr. Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jamie M. Teschner Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Paul A. Uhlman Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Michael P. Wolff Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Philip C. Hetzel Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

Charlene H. Jennings Assistant Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

S. Elliott Cohan Secretary, Assistant
Federated Investors Tower Federated Securities Corp. Secretary
Pittsburgh, PA 15222-3779

Item 30. Location of Accounts and Records:

All accounts and records required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and
Rules 31a-3 promulgated thereunder are maintained at one of
the following locations:

Registrant Federated Investors Tower
Pittsburgh, PA 15222-3779

Supervised Service Company, Inc. 811 Main Street
Transfer Agent, Dividend Kansas City, Missouri 64105
Disbursing Agent

Portfolio Record Keeper Federated Services Company
Federated Investors Tower
Pittsburgh, PA 15222-3779

BayBank Systems, Inc. One BayBank Technology Place
Shareholder Servicing Agent Waltham, MA 02154

Federated Administrative Services Federated Investors Tower
Administrator Pittsburgh, PA 15222-3779

BayBanks Investment 1414 Massachusetts Avenue
Management Inc. Cambridge, MA 02138
Investment Adviser to
BayFunds Money Market Portfolio,
BayFunds Bond Portfolio,
BayFunds Equity Portfolio, and
BayFunds Short Term Yield Portfolio
BayBank Boston, N.A. 175 Federal Street
Investment Adviser to Boston, MA 02110
BayFunds U.S. Treasury
Money Market Portfolio
The Fifth Third Bank 38 Fountain Square Plaza
Custodian Cincinnati, OH 45202

Item 31. Management Services: Not applicable.

Item 32. Undertakings:

Registrant hereby undertakes to comply with the provisions
of Section 16(c) of the 1940 Act with respect to the removal
of Trustees and the calling of special shareholder meetings
by shareholders.

Registrant hereby undertakes to furnish each person to whom
a prospectus is delivered a copy of the Registrant's latest
annual report to shareholders, upon request and without
charge.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, BAYFUNDS, has duly
caused this Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of
Pittsburgh and Commonwealth of Pennsylvania, on the 22nd day of
February, 1995.

BAYFUNDS

BY: /s/Victor R. Siclari
Victor R. Siclari, Assistant Secretary
Attorney in Fact for John F. Donahue
February 22, 1995

Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:

NAME TITLE DATE

By: /s/Victor R. Siclari
Victor R. Siclari Attorney In Fact February 22, 1995
ASSISTANT SECRETARY For the Persons
Listed Below

NAME TITLE

Glen R. Johnson* President and Treasurer
(Principal Financial and
Accounting Officer)

Kenneth B. Condon* Trustee

Robert W. Eisenmenger* Trustee

Sara L. Johnson* Trustee

Ernest P. May* Trustee

Alvin J. Silk* Trustee

* By Power of Attorney

</TABLE>

Exhibit (11) under N-1A
Exhibit 23 under Item 601/Reg SK

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors" and to the use of our report dated
February 6, 1995, in Post-Effective Amendment Number 10 to the Registration
Statement (Form N-1A Number 33-39717) and the related prospectuses of
BayFunds (BayFunds Bond Portfolio, BayFunds Equity Portfolio, BayFunds
Money Market Portfolio, BayFunds U.S. Treasury Money Market Portfolio and
BayFunds Short Term Yield Portfolio) dated March 1, 1995.

By: ERNST & YOUNG
Ernst & Young
Boston, Massachusetts
February 21, 1995

Exhibit (18) under N-1A
Exhibit 23 under Item 601/Reg SK

Ropes & Gray
1001 Pennsylvania Avenue, N.W.
Suite 1200 South
Washington, D.C. 20004

WRITER'S DIRECT DIAL NUMBER: (202) 626-3903

February 22, 1995

HAND DELIVERED

Filing Desk
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549

Re: BayFunds (the "Trust")
File Nos. 33-39717 and 811-6296

Dear Sir or Madam:

Ropes & Gray has acted as counsel to the Trust in connection with the
preparation of this Post-Effective Amendment. I hereby certify that this
Post-Effective Amendment No. 10 does not contain disclosure that would
render it ineligible to become effective under Securities Act Rule 485(b).

Ropes & Gray hereby consents to the filing of this letter with this
Post-Effective Amendment.

Sincerely,

/s/ Margaret A. Sheehan
Margaret A. Sheehan

MAS/cjg

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> BayFunds Bond Portfolio
Institutional Shares

<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1994
<PERIOD-END> Dec-31-1994
<INVESTMENTS-AT-COST> 63,414,267
<INVESTMENTS-AT-VALUE> 61,147,105
<RECEIVABLES> 999,144
<ASSETS-OTHER> 38,670
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 62,184,919
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 429,604
<TOTAL-LIABILITIES> 429,604
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 66,286,116
<SHARES-COMMON-STOCK> 6,016,073
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,263,639)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,267,162)
<NET-ASSETS> 56,619,654
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,368,883
<OTHER-INCOME> 0
<EXPENSES-NET> 700,681
<NET-INVESTMENT-INCOME> 3,668,202
<REALIZED-GAINS-CURRENT> (2,263,688)
<APPREC-INCREASE-CURRENT> (2,924,221)
<NET-CHANGE-FROM-OPS> (1,519,707)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,327,095
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,080,115
<NUMBER-OF-SHARES-REDEEMED> 2,069,077
<SHARES-REINVESTED> 5,035
<NET-CHANGE-IN-ASSETS> (16,324,227)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 49
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 417,260
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 700,681
<AVERAGE-NET-ASSETS> 74,688,970
<PER-SHARE-NAV-BEGIN> 10.140
<PER-SHARE-NII> 0.520
<PER-SHARE-GAIN-APPREC> (0.730)
<PER-SHARE-DIVIDEND> 0.520
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.410
<EXPENSE-RATIO> 99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> BayFunds Bond Portfolio
Investment Shares

<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1994
<PERIOD-END> Dec-31-1994
<INVESTMENTS-AT-COST> 63,414,267
<INVESTMENTS-AT-VALUE> 61,147,105
<RECEIVABLES> 999,144
<ASSETS-OTHER> 38,670
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 62,184,919
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 429,604
<TOTAL-LIABILITIES> 429,604
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 66,286,116
<SHARES-COMMON-STOCK> 545,691
<SHARES-COMMON-PRIOR> 7,700,664
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,263,639)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,267,162)
<NET-ASSETS> 5,135,661
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,368,883
<OTHER-INCOME> 0
<EXPENSES-NET> 700,681
<NET-INVESTMENT-INCOME> 3,668,202
<REALIZED-GAINS-CURRENT> (2,263,688)
<APPREC-INCREASE-CURRENT> (2,924,221)
<NET-CHANGE-FROM-OPS> (1,519,707)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 341,107
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 230,919
<NUMBER-OF-SHARES-REDEEMED> 7,414,329
<SHARES-REINVESTED> 28,437
<NET-CHANGE-IN-ASSETS> (16,324,227)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 49
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 417,260
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 700,681
<AVERAGE-NET-ASSETS> 74,688,970
<PER-SHARE-NAV-BEGIN> 10.140
<PER-SHARE-NII> 0.490
<PER-SHARE-GAIN-APPREC> (0.730)
<PER-SHARE-DIVIDEND> 0.490
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.410
<EXPENSE-RATIO> 119
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> BayFunds Equity Portfolio
Institutional Shares

<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1994
<PERIOD-END> Dec-31-1994
<INVESTMENTS-AT-COST> 97,952,274
<INVESTMENTS-AT-VALUE> 103,858,748
<RECEIVABLES> 3,704,646
<ASSETS-OTHER> 49,820
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 107,613,214
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 398,268
<TOTAL-LIABILITIES> 398,268
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 103,919,258
<SHARES-COMMON-STOCK> 7,432,502
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 17,731
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,628,517)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,906,474
<NET-ASSETS> 78,312,319
<DIVIDEND-INCOME> 2,030,614
<INTEREST-INCOME> 383,403
<OTHER-INCOME> 0
<EXPENSES-NET> 1,265,014
<NET-INVESTMENT-INCOME> 1,149,003
<REALIZED-GAINS-CURRENT> (538,539)
<APPREC-INCREASE-CURRENT> (4,173,943)
<NET-CHANGE-FROM-OPS> (3,563,479)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 901,108
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,663,093
<NUMBER-OF-SHARES-REDEEMED> 2,231,618
<SHARES-REINVESTED> 1,027
<NET-CHANGE-IN-ASSETS> (4,472,079)
<ACCUMULATED-NII-PRIOR> 14,927
<ACCUMULATED-GAINS-PRIOR> (2,089,978)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 816,295
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,265,014
<AVERAGE-NET-ASSETS> 122,126,283
<PER-SHARE-NAV-BEGIN> 10.980
<PER-SHARE-NII> 0.110
<PER-SHARE-GAIN-APPREC> (0.440)
<PER-SHARE-DIVIDEND> 0.110
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.540
<EXPENSE-RATIO> 102
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> BayFunds Equity Portfolio
Investment Shares

<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1994
<PERIOD-END> Dec-31-1994
<INVESTMENTS-AT-COST> 97,952,274
<INVESTMENTS-AT-VALUE> 103,858,748
<RECEIVABLES> 3,704,646
<ASSETS-OTHER> 49,820
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 107,613,214
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 398,268
<TOTAL-LIABILITIES> 398,268
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 103,919,258
<SHARES-COMMON-STOCK> 2,743,093
<SHARES-COMMON-PRIOR> 10,175,978
<ACCUMULATED-NII-CURRENT> 17,731
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,628,517)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,906,474
<NET-ASSETS> 28,902,627
<DIVIDEND-INCOME> 2,030,614
<INTEREST-INCOME> 383,403
<OTHER-INCOME> 0
<EXPENSES-NET> 1,265,014
<NET-INVESTMENT-INCOME> 1,149,003
<REALIZED-GAINS-CURRENT> (538,539)
<APPREC-INCREASE-CURRENT> (4,173,943)
<NET-CHANGE-FROM-OPS> (3,563,479)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 245,091
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,287,398
<NUMBER-OF-SHARES-REDEEMED> 8,743,159
<SHARES-REINVESTED> 22,876
<NET-CHANGE-IN-ASSETS> (4,472,079)
<ACCUMULATED-NII-PRIOR> 14,927
<ACCUMULATED-GAINS-PRIOR> (2,089,978)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 816,295
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,265,014
<AVERAGE-NET-ASSETS> 122,126,283
<PER-SHARE-NAV-BEGIN> 10.980
<PER-SHARE-NII> 0.090
<PER-SHARE-GAIN-APPREC> (0.440)
<PER-SHARE-DIVIDEND> 0.090
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.540
<EXPENSE-RATIO> 126
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> BayFunds Money Market Portfolio
Trust Shares

<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1994
<PERIOD-END> Dec-31-1994
<INVESTMENTS-AT-COST> 193,358,542
<INVESTMENTS-AT-VALUE> 193,358,542
<RECEIVABLES> 1,404,611
<ASSETS-OTHER> 30,567
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 194,793,720
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 522,965
<TOTAL-LIABILITIES> 522,965
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 194,270,755
<SHARES-COMMON-STOCK> 136,923,154
<SHARES-COMMON-PRIOR> 168,909,452
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 136,923,154
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,781,726
<OTHER-INCOME> 0
<EXPENSES-NET> 1,414,859
<NET-INVESTMENT-INCOME> 7,366,867
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,366,867
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,568,830
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 281,697,950
<NUMBER-OF-SHARES-REDEEMED> 313,771,676
<SHARES-REINVESTED> 87,428
<NET-CHANGE-IN-ASSETS> 5,384,418
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 818,942
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,501,785
<AVERAGE-NET-ASSETS> 204,735,385
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.040
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.040
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> BayFunds Money Market Portfolio
Investment Shares

<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1994
<PERIOD-END> Dec-31-1994
<INVESTMENTS-AT-COST> 193,358,542
<INVESTMENTS-AT-VALUE> 193,358,542
<RECEIVABLES> 1,404,611
<ASSETS-OTHER> 30,567
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 194,793,720
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 522,965
<TOTAL-LIABILITIES> 522,965
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 194,270,755
<SHARES-COMMON-STOCK> 57,347,601
<SHARES-COMMON-PRIOR> 30,745,721
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 57,347,601
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,781,726
<OTHER-INCOME> 0
<EXPENSES-NET> 1,414,859
<NET-INVESTMENT-INCOME> 7,366,867
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,366,867
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,798,037
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 106,751,503
<NUMBER-OF-SHARES-REDEEMED> 81,891,510
<SHARES-REINVESTED> 1,741,887
<NET-CHANGE-IN-ASSETS> 5,384,418
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 818,942
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,501,785
<AVERAGE-NET-ASSETS> 204,735,385
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.040
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.040
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> BayFunds Short Term Yield Portfolio
Institutional Shares

<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1994
<PERIOD-END> Dec-31-1994
<INVESTMENTS-AT-COST> 91,699,441
<INVESTMENTS-AT-VALUE> 90,942,508
<RECEIVABLES> 3,745,002
<ASSETS-OTHER> 56,338
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 94,743,848
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,239,390
<TOTAL-LIABILITIES> 3,239,390
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 103,866,505
<SHARES-COMMON-STOCK> 6,177,127
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (11,605,114)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (756,933)
<NET-ASSETS> 56,511,247
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,452,529
<OTHER-INCOME> 0
<EXPENSES-NET> 1,230,383
<NET-INVESTMENT-INCOME> 6,222,146
<REALIZED-GAINS-CURRENT> (11,529,693)
<APPREC-INCREASE-CURRENT> 513,580
<NET-CHANGE-FROM-OPS> (4,793,967)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,665,708
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,916,607
<NUMBER-OF-SHARES-REDEEMED> 4,739,491
<SHARES-REINVESTED> 11
<NET-CHANGE-IN-ASSETS> (81,796,346)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (75,421)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 681,886
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,230,383
<AVERAGE-NET-ASSETS> 143,342,321
<PER-SHARE-NAV-BEGIN> 9.910
<PER-SHARE-NII> 0.450
<PER-SHARE-GAIN-APPREC> (0.760)
<PER-SHARE-DIVIDEND> 0.450
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.150
<EXPENSE-RATIO> 80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> BayFunds Short Term Yield Portfolio
Investment Shares

<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1994
<PERIOD-END> Dec-31-1994
<INVESTMENTS-AT-COST> 91,699,441
<INVESTMENTS-AT-VALUE> 90,942,508
<RECEIVABLES> 3,745,002
<ASSETS-OTHER> 56,338
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 94,743,848
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,239,390
<TOTAL-LIABILITIES> 3,239,390
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 103,866,505
<SHARES-COMMON-STOCK> 3,825,005
<SHARES-COMMON-PRIOR> 17,478,310
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (11,605,114)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (756,933)
<NET-ASSETS> 34,993,211
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,452,529
<OTHER-INCOME> 0
<EXPENSES-NET> 1,230,383
<NET-INVESTMENT-INCOME> 6,222,146
<REALIZED-GAINS-CURRENT> (11,529,693)
<APPREC-INCREASE-CURRENT> 513,580
<NET-CHANGE-FROM-OPS> (4,793,967)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,556,438
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,918,640
<NUMBER-OF-SHARES-REDEEMED> 15,805,052
<SHARES-REINVESTED> 233,107
<NET-CHANGE-IN-ASSETS> (81,796,346)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (75,421)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 681,886
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,230,383
<AVERAGE-NET-ASSETS> 143,342,321
<PER-SHARE-NAV-BEGIN> 9.910
<PER-SHARE-NII> 0.430
<PER-SHARE-GAIN-APPREC> (0.760)
<PER-SHARE-DIVIDEND> 0.430
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.150
<EXPENSE-RATIO> 104
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> BayFunds U.S. Treasury Money Market Portfolio
Institutional Shares

<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1994
<PERIOD-END> Dec-31-1994
<INVESTMENTS-AT-COST> 834,817,618
<INVESTMENTS-AT-VALUE> 834,817,618
<RECEIVABLES> 3,902,263
<ASSETS-OTHER> 156,177
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 838,876,058
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,054,752
<TOTAL-LIABILITIES> 3,054,752
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 835,821,306
<SHARES-COMMON-STOCK> 693,712,497
<SHARES-COMMON-PRIOR> 502,723,847
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 693,712,497
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 30,647,621
<OTHER-INCOME> 0
<EXPENSES-NET> 3,046,121
<NET-INVESTMENT-INCOME> 27,601,500
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 27,601,500
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 24,101,385
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,688,274,413
<NUMBER-OF-SHARES-REDEEMED> 1,499,284,093
<SHARES-REINVESTED> 1,998,330
<NET-CHANGE-IN-ASSETS> 298,403,785
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,428,354
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,046,121
<AVERAGE-NET-ASSETS> 714,199,169
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.040
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.040
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 39
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> BayFunds U.S. Treasury Money Market Portfolio
Investment Shares

<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1994
<PERIOD-END> Dec-31-1994
<INVESTMENTS-AT-COST> 834,817,618
<INVESTMENTS-AT-VALUE> 834,817,618
<RECEIVABLES> 3,902,263
<ASSETS-OTHER> 156,177
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 838,876,058
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,054,752
<TOTAL-LIABILITIES> 3,054,752
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 835,821,306
<SHARES-COMMON-STOCK> 142,108,809
<SHARES-COMMON-PRIOR> 34,693,674
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 142,108,809
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 30,647,621
<OTHER-INCOME> 0
<EXPENSES-NET> 3,046,121
<NET-INVESTMENT-INCOME> 27,601,500
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 27,601,500
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,500,115
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 282,383,296
<NUMBER-OF-SHARES-REDEEMED> 178,298,536
<SHARES-REINVESTED> 3,330,375
<NET-CHANGE-IN-ASSETS> 298,403,785
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,428,354
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,046,121
<AVERAGE-NET-ASSETS> 714,199,169
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.040
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.040
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>