- --------------------------------------------------------------------------------
BAYFUNDS(R)
- --------------------------------------------------------------------------------
MONEY
- --------------------------------------------------------------------------------
MARKET
- --------------------------------------------------------------------------------
PORTFOLIOS
- --------------------------------------------------------------------------------
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1994
U.S. TREASURY MONEY MARKET PORTFOLIO
INVESTMENT SHARES/INSTITUTIONAL SHARES
MONEY MARKET PORTFOLIO
INVESTMENT SHARES/TRUST SHARES
BAYBANK BOSTON, N.A.
---------------------------------------------------
Investment Adviser to BayFunds U.S. Treasury
Money Market Portfolio
BAYBANKS INVESTMENT MANAGEMENT, INC.
---------------------------------------------------
Investment Adviser to BayFunds Money Market Portfolio
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
200322
G00507-02 (2/95)
PRESIDENT'S MESSAGE AND INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Dear Shareholder:
By almost any measure, the U.S. economy displayed exceptionally strong growth
throughout the year. The Federal Reserve sought to slow the pace of this
activity and curb potential inflationary pressures through six increases in
short-term interest rates. This was a complete reversal of the past several
years, when short-term rates spiralled downward. Although the economy seemed
immune to the Federal Reserve's actions, both the stock and bond markets were
bruised. In stark contrast, the money markets flourished--thus, the expression
"cash was king."
This climate was good news for shareholders in the BayFunds U.S. Treasury Money
Market Portfolio and the BayFunds Money Market Portfolio. For our shareholders
these non-stop interest rate hikes meant higher yields for the entire year and
importantly, still higher yields at year-end.
Looking ahead, the widely held opinion is that additional interest rate hikes
are in the offing during the first half of 1995 to curb the torrid tempo of the
economy.
I will explain in greater detail how the money markets performed in 1994, and
more importantly, how BayBank Boston, N.A., investment adviser to the BayFunds
U.S. Treasury Money Market Portfolio, and BayBanks Investment Management, Inc.,
investment adviser to the BayFunds Money Market Portfolio, managed the
Portfolios in this environment. Finally, I will briefly describe our strategies
for the Portfolios going forward.
MONEY MARKET RECAP
Rising interest rates were the dominant factor governing the money markets in
1994. In an effort to brake the onset of inflation, the Federal Reserve acted to
constrain the growth of the money supply and gradually slow the economy. On six
separate occasions the federal funds rate (the rate at which banks borrow from
one another) was raised in 1994, soaring from 3.0% to 5.5% by year-end. While
the relative measures of inflation have been moderate throughout the year, a
persistent fear of a marked boost in prices leads many market strategists to
believe that more rate increases are inevitable in 1995.
Rising interest rates are typically the bane of bond mutual funds but are a boon
for money market mutual funds. The very short maturities of the instruments
purchased by money market funds allow them to nimbly capitalize on rising rates
and quickly pass on greater amounts of income through their increased yields. At
the start of 1994, money market fund yields had dipped below the 3% threshold
and were at extremely low historical levels. Yet, by year-end the Federal
Reserve's aggressive actions had brought yields up to the point where they were
approaching 5%.
THE IMPORTANCE OF QUALITY
The dual objective of all money market mutual funds is to provide current income
consistent with stability of principal and liquidity. Unfortunately, during 1994
the reputation of some money market funds was tarnished. In a quest to eke out
an extra fraction of a percentage point of yield during the period of very low
interest rates, some funds followed inappropriately aggressive strategies by
purchasing higher yielding, derivative securities. As interest rates skyrocketed
in 1994, those tactics wreaked havoc with the maintenance of a net asset value
per share of $1.00 of
those funds and forced their sponsors to inject capital into the funds. These
investments were clearly unsuitable for a money market fund and subsequent
actions by the U.S. Securities and Exchange Commission have done much to
preclude any future losses through such investment practices. You can take
comfort in knowing that the BayFunds U.S. Treasury Money Market Portfolio and
the BayFunds Money Market Portfolio did not stretch for yield with these
unsuitable investments. Since inception, both Portfolios have maintained a net
asset value of $1.00 per share.*
Let me assure you that both Portfolios follow a conservative investment
approach. We seek to minimize risk by purchasing only top quality investments
and by maintaining average maturities that allow a margin of safety. The
dollar-weighted average maturity for a money market fund cannot exceed 90 days.
In fact, at year-end the average maturity of each Portfolio was below 40 days.
THE YEAR IN REVIEW
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
The Portfolio thrived in 1994, thanks to a combination of rapid institutional
and retail asset growth, a maturity structure designed to match the daily cash
flow swings of BayBank's Precision Sweep(TM) and institutional customers, and
nonstop surges in interest rates.
As many investors displayed their preference for money market investments in
1994, the Portfolio's net assets grew from $537 million to nearly $836
million--an increase of almost 56%. This jump in assets provided economies of
scale for the Portfolio and leverage in its marketplace. This is particularly
evident in the so-called cash markets, where instruments such as repurchase
agreements are tier priced to offer higher yields to larger buyers. Since a
substantial percentage of the Portfolio's investments are overnight and very
short-term repurchase agreements (which are fully collateralized with U.S.
Treasury or U.S. Government agency securities that are guaranteed as to the
payment of principal and interest by the United States), the Portfolio was able
to capture increasingly attractive yields.
BAYFUNDS MONEY MARKET PORTFOLIO
Shareholders in the BayFunds Money Market Portfolio also benefitted from the
rising interest rate environment. Throughout the year, the Portfolio maintained
a relatively short average maturity of between 20-50 days, in anticipation of
additional interest rate increases. This posture provided maximum flexibility
for the Portfolio, with readily available cash to purchase new, higher yielding
securities as they were issued. Very short maturity instruments such as
repurchase agreements and U.S. Government agency floating rate notes (with daily
or weekly interest rate resets) offered the best of all worlds by providing a
competitive yield and excellent credit quality while reflecting upward moves in
interest rates almost immediately.
* No money market fund can guarantee that a stable net asset value will be
maintained. An investment in the Portfolios is neither insured nor guaranteed
by the U.S. government.
FUTURE STRATEGIES FOR THE BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO AND THE
BAYFUNDS MONEY MARKET PORTFOLIO
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
By attempting to maintain a 35-40 day average maturity, the Portfolio expects to
be well positioned to offer a competitive 7-day net yield and to respond to the
likely upward progression of interest rates during the first part of 1995.
Repurchase agreements will continue to be a very large and fundamental component
of the Portfolio's strategy until short-term rates begin to peak. As the
opportunities arise, the Portfolio will attempt to lock in advantageous yields
by maximizing the readily available cash with direct U.S. Treasury purchases.
BAYFUNDS MONEY MARKET PORTFOLIO
The near-term strategy for the BayFunds Money Market Portfolio is similar. We
expect to maintain a short average maturity as long as interest rates continue
on the upswing in order to seek competitive yields for shareholders, and to take
advantage of opportunities to capture favorable yields. As the threat of further
rate hikes retreats, the Portfolio's average maturity will be extended. Since
this Portfolio has broader latitude in its permitted investments, we foresee
that other asset classes such as high quality U.S. commercial paper and other
corporate securities may provide more attractive yield opportunities.
The recent stock and bond market jitters demonstrated that stable investments
such as money market funds (which seek to maintain a net asset value per share
of $1.00) are an important part of a well-diversified investment strategy. If
your investment objective has a longer-term horizon, remember that over time the
returns from stock and bond funds have historically outstripped the performance
of money market funds but with a potentially higher degree of risk. I invite you
to contact your Investment Specialist or Account Officer whenever we can be of
assistance in helping you reach your objectives.
Sincerely,
Richard F. Pollard
President
BayBank Boston, N.A. and BayBanks Investment Management, Inc.
Investment Advisers to the BayFunds U.S. Treasury Money Market Portfolio
and the BayFunds Money Market Portfolio
February 15, 1995
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ -------------------------------------------------------------------------- ------------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS--40.9%
- --------------------------------------------------------------------------------------------
U.S. TREASURY BILLS--10.5%
--------------------------------------------------------------------------
$ 90,000,255 2/15/95-10/19/95 $ 88,024,426
--------------------------------------------------------------------------
U.S. TREASURY NOTES--25.1%
--------------------------------------------------------------------------
210,460,000 3.875%-7.625%, 12/31/94-8/31/95 209,985,286
--------------------------------------------------------------------------
U.S. TREASURY STRIPS--5.3%
--------------------------------------------------------------------------
45,000,175 2/15/95-5/15/95 44,467,906
-------------------------------------------------------------------------- ------------
TOTAL U.S. TREASURY OBLIGATIONS 342,477,618
-------------------------------------------------------------------------- ------------
*REPURCHASE AGREEMENTS--58.9%
- --------------------------------------------------------------------------------------------
41,440,000 Aubrey G. Lanston & Co., Inc., 5.75%, dated 12/30/94, due 1/3/95 41,440,000
--------------------------------------------------------------------------
40,000,000 Dean Witter Reynolds, Inc., 6.00%, dated 12/30/94, due 1/3/95 40,000,000
--------------------------------------------------------------------------
40,000,000 Greenwich Capital Markets, Inc., 5.75%, dated 12/30/94, due 1/3/95 40,000,000
--------------------------------------------------------------------------
100,000,000 HSBC Securities, Inc., 6.00%, dated 12/30/94, due 1/3/95 100,000,000
--------------------------------------------------------------------------
40,000,000 Merrill Lynch Government Securities, Inc., 6.00%, dated 12/30/94, due
1/3/95 40,000,000
--------------------------------------------------------------------------
70,000,000 PaineWebber, Inc., 6.00%, dated 12/30/94, due 1/3/95 70,000,000
--------------------------------------------------------------------------
30,900,000 Salomon Brothers, Inc., 5.95%, dated 12/30/94, due 1/3/95 30,900,000
--------------------------------------------------------------------------
100,000,000 Sanwa Securities (USA) Company, L.P., 6.10%, dated 12/29/94, due 1/5/95 100,000,000
--------------------------------------------------------------------------
30,000,000 Sanwa Securities (USA) Company, L.P., 6.125%, dated 12/30/94,
due 1/3/95 30,000,000
-------------------------------------------------------------------------- ------------
TOTAL REPURCHASE AGREEMENTS 492,340,000
-------------------------------------------------------------------------- ------------
TOTAL INVESTMENTS, AT AMORTIZED COST $834,817,618+
-------------------------------------------------------------------------- ------------
</TABLE>
+ Also represents cost for federal tax purposes.
* Repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
The following abbreviation is used in this portfolio:
STRIPS--Separate Trading of Registered Interest and Principal of Securities.
Note: The categories of investments are shown as a percentage of net assets
($835,821,306) at December 31, 1994.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------
Investments in repurchase agreements $492,340,000
- ---------------------------------------------------------------
Investments in securities 342,477,618
- --------------------------------------------------------------- ------------
Total investments, at amortized cost and value $834,817,618
- ------------------------------------------------------------------------------
Cash 29,881
- ------------------------------------------------------------------------------
Income receivable 3,887,608
- ------------------------------------------------------------------------------
Receivable for Shares sold 14,655
- ------------------------------------------------------------------------------
Deferred expenses 126,296
- ------------------------------------------------------------------------------ ------------
Total assets 838,876,058
- ------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------
Income distribution payable 2,872,843
- ---------------------------------------------------------------
Payable for Shares redeemed 380
- ---------------------------------------------------------------
Accrued expenses 181,529
- --------------------------------------------------------------- ------------
Total liabilities 3,054,752
- ------------------------------------------------------------------------------ ------------
NET ASSETS for 835,821,306 Shares outstanding $835,821,306
- ------------------------------------------------------------------------------ ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ------------------------------------------------------------------------------
Investment Shares ($142,108,809 / 142,108,809 Shares outstanding) $1.00
- ------------------------------------------------------------------------------ ------------
Institutional Shares ($693,712,497 / 693,712,497 Shares outstanding) $1.00
- ------------------------------------------------------------------------------ ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------
Interest $30,647,621
- -------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------
Investment advisory fee $1,428,354
- ------------------------------------------------------------------
Administrative personnel and services fee 750,678
- ------------------------------------------------------------------
Custodian fees 39,858
- ------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees 230,213
- ------------------------------------------------------------------
Trustees' fees 19,490
- ------------------------------------------------------------------
Auditing fees 14,996
- ------------------------------------------------------------------
Legal fees 44,814
- ------------------------------------------------------------------
Portfolio accounting fees 100,126
- ------------------------------------------------------------------
Share registration costs 124,324
- ------------------------------------------------------------------
Printing and postage 32,416
- ------------------------------------------------------------------
Insurance premiums 13,765
- ------------------------------------------------------------------
Miscellaneous 18,228
- ------------------------------------------------------------------
Shareholder services fee--Investment Shares 228,859
- ------------------------------------------------------------------ ----------
Total expenses 3,046,121
- ------------------------------------------------------------------------------- -----------
Net Investment Income $27,601,500
- ------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993*
--------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------
Net investment income $ 27,601,500 $ 12,069,568
- ----------------------------------------------------------- --------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -----------------------------------------------------------
Distributions from net investment income:
- -----------------------------------------------------------
Investment Shares (3,500,115) (395,342)
- -----------------------------------------------------------
Institutional Shares (24,101,385) (11,674,226)
- ----------------------------------------------------------- --------------- --------------
Change in net assets resulting from distributions to
shareholders (27,601,500) (12,069,568)
- ----------------------------------------------------------- --------------- --------------
SHARE TRANSACTIONS--
- -----------------------------------------------------------
Proceeds from sale of Shares 1,970,657,709 1,439,679,366
- -----------------------------------------------------------
Net asset value of Shares issued to shareholders in payment
of distributions declared 5,328,705 1,413,741
- -----------------------------------------------------------
Cost of Shares redeemed (1,677,582,629) (903,675,586)
- ----------------------------------------------------------- --------------- --------------
Change in net assets resulting from Share transactions 298,403,785 537,417,521
- ----------------------------------------------------------- --------------- --------------
Change in net assets 298,403,785 537,417,521
- -----------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------
Beginning of period 537,417,521 --
- ----------------------------------------------------------- --------------- --------------
End of period $ 835,821,306 $ 537,417,521
- ----------------------------------------------------------- --------------- --------------
</TABLE>
* For the period from January 29, 1993 (date of initial public investment) to
December 31, 1993.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS--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
- ----------------------------------------------------------------
</TABLE>
*Reflects operations for the period from January 29, 1993, (date of initial
public investment) to December 31, 1993.
**Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(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
- --------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from January 29, 1993, (date of initial
public investment) to December 31, 1993.
**Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ----------------------------------------------------------------- ------------
<C> <S> <C>
BANKERS ACCEPTANCE--5.5%
- ----------------------------------------------------------------------------------
$ 3,375,000 Barclays Bank PLC, 5.02%-5.68%, 1/6/95-3/3/95 $ 3,363,149
-----------------------------------------------------------------
975,000 CoreStates Bank, 5.00%, 1/30/95 971,073
-----------------------------------------------------------------
6,300,000 Republic National Bank of New York, 4.95%-5.29%, 1/17/95-1/19/95 6,284,779
----------------------------------------------------------------- ------------
TOTAL BANKERS ACCEPTANCE 10,619,001
----------------------------------------------------------------- ------------
*CERTIFICATES OF DEPOSIT--14.9%
- ----------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT-EURO--4.6%
-----------------------------------------------------------------
4,000,000 Barclays Bank PLC, 5.44%, 2/13/95 4,000,785
-----------------------------------------------------------------
5,000,000 Societe Generale Bank, 5.30%, 3/20/95 4,996,369
----------------------------------------------------------------- ------------
Total 8,997,154
----------------------------------------------------------------- ------------
CERTIFICATES OF DEPOSIT-YANKEE--10.3%
-----------------------------------------------------------------
5,000,000 ABN AMRO Bank, 5.08%, 1/12/95 4,999,948
-----------------------------------------------------------------
5,000,000 Banque Nationale de Paris, 5.63%, 2/6/95 5,000,049
-----------------------------------------------------------------
5,000,000 Canadian Imperial Bank of Commerce, 5.25%, 2/14/95 5,000,383
-----------------------------------------------------------------
5,000,000 Societe Generale Bank, 5.18%, 1/23/95 5,000,077
----------------------------------------------------------------- ------------
Total 20,000,457
----------------------------------------------------------------- ------------
TOTAL CERTIFICATES OF DEPOSIT 28,997,611
----------------------------------------------------------------- ------------
*COMMERCIAL PAPER--17.7%
- ----------------------------------------------------------------------------------
FINANCE-COMMERCIAL--2.3%
-----------------------------------------------------------------
4,555,000 General Electric Capital Corp., 5.06%-6.05%, 1/23/95-2/6/95 4,534,752
----------------------------------------------------------------- ------------
FINANCE-CONSUMER--1.3%
-----------------------------------------------------------------
2,500,000 Norwest Financial, Inc., 6.10%, 1/3/95 2,499,153
----------------------------------------------------------------- ------------
FINANCIAL SERVICES--3.8%
-----------------------------------------------------------------
2,500,000 Dean Witter Discover & Co., 5.06%, 1/18/95 2,494,026
-----------------------------------------------------------------
5,033,000 Merrill Lynch & Co., Inc., 5.00%-6.10%, 1/5/95-2/13/95 5,014,376
----------------------------------------------------------------- ------------
Total 7,508,402
----------------------------------------------------------------- ------------
</TABLE>
BAYFUNDS MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ----------------------------------------------------------------- ------------
<C> <S> <C>
*COMMERCIAL PAPER--CONTINUED
- ----------------------------------------------------------------------------------
FOOD & BEVERAGE--0.3%
-----------------------------------------------------------------
$ 600,000 PepsiCo, Inc., 6.05%, 1/10/95 $ 599,093
----------------------------------------------------------------- ------------
FUNDING CORPORATIONS--8.4%
-----------------------------------------------------------------
4,600,000 Corporate Asset Funding Corp., Inc., 4.96%-5.15%, 1/9/95-2/1/95 4,583,933
-----------------------------------------------------------------
2,500,000 Corporate Receivables Corp., 5.00%, 1/9/95 2,497,222
-----------------------------------------------------------------
5,000,000 Falcon Asset Securitization Corp., 5.95%-6.08%, 1/11/95-1/17/95 4,989,112
-----------------------------------------------------------------
3,550,000 Preferred Receivables Funding, 5.90%-6.00%, 1/4/95-1/19/95 3,543,947
-----------------------------------------------------------------
700,000 U.S. West Capital Funding, Inc., 6.00%, 1/3/95 699,767
----------------------------------------------------------------- ------------
Total 16,313,981
----------------------------------------------------------------- ------------
INSURANCE--0.2%
-----------------------------------------------------------------
300,000 USAA Capital Corp., 6.00%, 1/3/95 299,900
----------------------------------------------------------------- ------------
TELECOMMUNICATIONS--1.4%
-----------------------------------------------------------------
2,000,000 American Telephone & Telegraph Co., 6.15%, 3/27/95 1,970,958
-----------------------------------------------------------------
700,000 AT&T Capital Corp., 5.07%, 2/15/95 695,564
----------------------------------------------------------------- ------------
Total 2,666,522
----------------------------------------------------------------- ------------
TOTAL COMMERCIAL PAPER 34,421,803
----------------------------------------------------------------- ------------
CORPORATE NOTES--16.6%
- ----------------------------------------------------------------------------------
BANKING--9.7%
-----------------------------------------------------------------
3,000,000 Chemical Banking Corp., 6.7875%, 6/8/95 3,004,213
-----------------------------------------------------------------
5,000,000 First National Bank of Chicago, 5.10%, 2/2/95 5,000,000
-----------------------------------------------------------------
8,000,000 National Bank of Detroit, 5.00%, 1/5/95 7,999,938
-----------------------------------------------------------------
3,000,000 Republic National Bank of New York, 4.30%, 3/8/95 2,993,831
----------------------------------------------------------------- ------------
Total 18,997,982
----------------------------------------------------------------- ------------
FINANCE-COMMERCIAL--1.7%
-----------------------------------------------------------------
3,250,000 U.S. West Financial Services, Inc., 6.45%, 9/5/95 3,254,066
----------------------------------------------------------------- ------------
FINANCIAL SERVICES--2.6%
-----------------------------------------------------------------
5,000,000 Merrill Lynch & Co., Inc, 5.69%, 4/19/95 5,000,000
----------------------------------------------------------------- ------------
</TABLE>
BAYFUNDS MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ----------------------------------------------------------------- ------------
<C> <S> <C>
CORPORATE NOTES--CONTINUED
- ----------------------------------------------------------------------------------
FOOD & BEVERAGE--2.6%
-----------------------------------------------------------------
$ 5,000,000 PepsiCo., Inc, 5.845%, 4/13/95 $ 5,000,000
----------------------------------------------------------------- ------------
TOTAL CORPORATE NOTES 32,252,048
----------------------------------------------------------------- ------------
U.S. GOVERNMENT AGENCIES--27.3%
- ----------------------------------------------------------------------------------
3,000,000 Federal Farm Credit Bank, 5.03%-5.15%, 1/3/95-3/6/95 2,981,829
-----------------------------------------------------------------
15,850,000 Federal Home Loan Bank, 4.95%-8.60%***, 1/9/95-2/28/95*** 15,811,971
-----------------------------------------------------------------
5,680,000 Federal Home Loan Mortgage Corp., 4.95%-5.7825%***,
1/6/95-1/17/95*** 5,678,528
-----------------------------------------------------------------
14,540,000 Federal National Mortgage Association, 4.81%-5.65%,
1/3/95-2/17/95 14,496,496
-----------------------------------------------------------------
14,000,000 Student Loan Marketing Association, 5.87%-8.55%***,
1/31/95-2/1/95*** 14,014,255
----------------------------------------------------------------- ------------
TOTAL U.S. GOVERNMENT AGENCIES 52,983,079
----------------------------------------------------------------- ------------
**REPURCHASE AGREEMENTS--17.5%
- ----------------------------------------------------------------------------------
25,000,000 Dean Witter Discover & Co., 6.0625%, dated 12/30/94, due 1/3/95 25,000,000
-----------------------------------------------------------------
9,085,000 Salomon Brothers, Inc., 5.95%, dated 12/30/94, due 1/3/95 9,085,000
----------------------------------------------------------------- ------------
TOTAL REPURCHASE AGREEMENTS 34,085,000
----------------------------------------------------------------- ------------
TOTAL INVESTMENTS, AT AMORTIZED COST $193,358,542+
----------------------------------------------------------------- ------------
</TABLE>
+ Also represents cost for federal tax purposes.
* Each issue shows the rate of discount at the time of purchase for discount
issues.
** Repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
*** Range includes variable rate obligations for which the current yields and
next reset dates are shown.
Note: The categories of investments are shown as a percentage of net assets
($194,270,755) at December 31, 1994.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in repurchase agreements $ 34,085,000
- -----------------------------------------------------------------
Investments in securities 159,273,542
- ----------------------------------------------------------------- ------------
Total investments, at amortized cost and value $193,358,542
- --------------------------------------------------------------------------------
Cash 1,656
- --------------------------------------------------------------------------------
Income receivable 1,404,208
- --------------------------------------------------------------------------------
Receivable for Shares sold 403
- --------------------------------------------------------------------------------
Deferred expenses 28,911
- -------------------------------------------------------------------------------- ------------
Total assets 194,793,720
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Income distribution payable 423,852
- -----------------------------------------------------------------
Payable for Shares redeemed 4,811
- -----------------------------------------------------------------
Accrued expenses 94,302
- ----------------------------------------------------------------- ------------
Total liabilities 522,965
- -------------------------------------------------------------------------------- ------------
NET ASSETS FOR 194,270,755 Shares outstanding $194,270,755
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER
SHARE:
- --------------------------------------------------------------------------------
Investment Shares ($57,347,601 / 57,347,601 Shares outstanding) $1.00
- -------------------------------------------------------------------------------- ------------
Trust Shares ($136,923,154 / 136,923,154 Shares outstanding) $1.00
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------
Interest $8,781,726
- ----------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------
Investment advisory fee $ 818,942
- ---------------------------------------------------------------------
Administrative personnel and services fee 215,486
- ---------------------------------------------------------------------
Custodian fees 39,636
- ---------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees 92,985
- ---------------------------------------------------------------------
Trustees' fees 7,532
- ---------------------------------------------------------------------
Auditing fees 16,315
- ---------------------------------------------------------------------
Legal fees 17,801
- ---------------------------------------------------------------------
Portfolio accounting fees 69,785
- ---------------------------------------------------------------------
Share registration costs 61,127
- ---------------------------------------------------------------------
Printing and postage 45,407
- ---------------------------------------------------------------------
Insurance premiums 11,328
- ---------------------------------------------------------------------
Miscellaneous 15,683
- ---------------------------------------------------------------------
Shareholder services fee--Investment Shares 89,758
- --------------------------------------------------------------------- ----------
Total expenses 1,501,785
- ---------------------------------------------------------------------
Deduct--Waiver of investment advisory fee 86,926
- --------------------------------------------------------------------- ----------
Net expenses 1,414,859
- ---------------------------------------------------------------------------------- ----------
Net Investment Income $7,366,867
- ---------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1993
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------
Net investment income $ 7,366,867 $ 5,981,727
- -------------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------------------
Distributions from net investment income
- --------------------------------------------------------------
Investment Shares (1,798,037) (413,353)
- --------------------------------------------------------------
Trust Shares (5,568,830) (5,568,374)
- -------------------------------------------------------------- ------------- -------------
Change in net assets resulting from distributions to
shareholders (7,366,867) (5,981,727)
- -------------------------------------------------------------- ------------- -------------
SHARE TRANSACTIONS--
- --------------------------------------------------------------
Proceeds from sale of Shares 388,449,453 488,436,098
- --------------------------------------------------------------
Net asset value of Shares issued to shareholders in payment of
distributions declared 1,829,315 411,700
- --------------------------------------------------------------
Cost of Shares redeemed (395,663,186) (532,127,430)
- -------------------------------------------------------------- ------------- -------------
Change in net assets resulting from Share transactions (5,384,418) (43,279,632)
- -------------------------------------------------------------- ------------- -------------
Change in net assets (5,384,418) (43,279,632)
- --------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------
Beginning of period 199,655,173 242,934,805
- -------------------------------------------------------------- ------------- -------------
End of period $ 194,270,755 $ 199,655,173
- -------------------------------------------------------------- ------------- -------------
</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
- --------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from January 19, 1993, (date of initial
public offering) to December 31, 1993.
** Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(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 DECEMBER 31, YEAR ENDED,
----------------------------- 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
- ----------------------------------------------
</TABLE>
* Reflects operations for the period from August 1, 1991 (date of initial
public investment) to April 30, 1992. During the period from May 16, 1991
(start of business) to August 1, 1991, net investment income aggregating
$0.01 per share ($1,101) was distributed to Federated Administrative
Services.
** The Fund changed its fiscal year from April 30 to December 31. 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.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS MONEY MARKET PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
BayFunds (the "Trust") is registered under the Investment Company Act of 1940,
as amended (the "Act"), as an open-end, management investment company. The Trust
consists of five diversified portfolios. The following Funds comprise the Trust:
<TABLE>
<CAPTION>
FUND NAMES CLASSES OF SHARES
- ---------------------------------------------------- ------------------------------
<S> <C>
BayFunds U.S. Treasury Money Market Portfolio Investment and Institutional
BayFunds Money Market Portfolio Investment and Trust
BayFunds Short Term Yield Portfolio Investment and Institutional
BayFunds Bond Portfolio Investment and Institutional
BayFunds Equity Portfolio Investment and Institutional
</TABLE>
The financial statements of the following funds (individually referred to as the
"Fund", or collectively as the "Funds") are presented herein:
FUND NAME
BayFunds U.S. Treasury Money Market Portfolio ("U.S. Treasury Fund")
BayFunds Money Market Portfolio ("Money Market Fund").
The financial statements of the other Funds are presented separately. The assets
of each Fund are segregated and a shareholder's interest is limited to the Fund
in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--The Funds' use of the amortized cost method to value
their portfolio securities is in accordance with Rule 2a-7 under the Act.
REPURCHASE AGREEMENTS--It is the policy of the Funds to require a custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Funds to monitor, on
a daily basis, the market value of each repurchase agreement's collateral
to ensure that the value of collateral at least equals the amount of the
repurchase agreement, including accrued interest.
BAYFUNDS MONEY MARKET PORTFOLIOS
- --------------------------------------------------------------------------------
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 the guidelines and/or
standards reviewed or established by the Board of Trustees (the
"Trustees"). Risks may arise from the potential inability of counterparties
to honor the terms of the repurchase agreement. Accordingly, the Funds
could receive less than the repurchase price on the sale of collateral
securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Funds' policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of their income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Funds may engage in
when-issued or delayed delivery transactions. The Funds record when-issued
securities on the trade date and maintain security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES--The costs incurred by the Funds with respect to
registration of their shares in their first fiscal year, excluding the
initial expense of registering the shares, have been deferred and are being
amortized using the straight-line method not to exceed a period of five
years from the Funds' commencement dates.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At December 31, 1994, capital paid-in aggregated $835,821,306
for U.S. Treasury Fund and $194,270,755 for Money Market Fund. Transactions in
Fund shares were as follows:
BAYFUNDS MONEY MARKET PORTFOLIOS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
U.S. TREASURY FUND MONEY MARKET FUND
------------------------------- ----------------------------
1994 1993* 1994 1993**
-------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT SHARES SHARES SHARES SHARES SHARES
- ---------------------------------- -------------- ------------- ------------ ------------
Shares sold 282,383,296 76,787,705 106,751,503 80,095,432
- ----------------------------------
Shares issued to shareholders in
payment of dividends declared 3,330,375 364,846 1,741,887 384,247
- ----------------------------------
Shares redeemed (178,298,536) (42,458,877) (81,891,510) (49,733,958)
- ---------------------------------- -------------- ------------- ------------ ------------
Net change resulting from
Investment share transactions 107,415,135 34,693,674 26,601,880 30,745,721
- ---------------------------------- -------------- ------------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1994 1993* 1994 1993
-------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
INSTITUTIONAL AND TRUST SHARES SHARES SHARES SHARES SHARES
- ---------------------------------- -------------- ------------- ------------ ------------
Shares sold 1,688,274,413 1,362,891,661 281,697,950 408,340,666
- ----------------------------------
Shares issued to shareholders in
payment of dividends declared 1,998,330 1,048,895 87,428 27,453
- ----------------------------------
Shares redeemed (1,499,284,093) (861,216,709) (313,771,676) (482,393,472)
- ---------------------------------- -------------- ------------- ------------ ------------
Net change resulting from
Institutional and Trust share
transactions 190,988,650 502,723,847 (31,986,298) (74,025,353)
- ---------------------------------- -------------- ------------- ------------ ------------
Net change resulting from
Fund share transactions 298,403,785 537,417,521 (5,384,418) (43,279,632)
- ---------------------------------- -------------- ------------- ------------ ------------
</TABLE>
* For the period from January 29, 1993 (date of initial public investment) to
December 31, 1993.
** For the period from January 19, 1993 (date of initial public offering) to
December 31, 1993.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--BayBank Boston, N.A. and BayBanks Investment
Management, Inc., the investment adviser for U.S. Treasury Fund and Money Market
Fund, respectively (the "Advisers"), receive for their services an annual
investment advisory fee based on a percentage of the Funds' average daily net
assets (see below). The Advisers may voluntarily choose to waive all or a
portion of
BAYFUNDS MONEY MARKET PORTFOLIOS
- --------------------------------------------------------------------------------
their fee. The Advisers can modify or terminate this voluntary waiver at any
time at their sole discretion.
<TABLE>
<CAPTION>
ANNUAL
FUND RATE
- --------------------------------------------- -------
<S> <C>
U.S. Treasury Fund 0.20%
Money Market Fund 0.40%
</TABLE>
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Funds
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with BayBank Systems, Inc., the Funds will pay BayBank Systems, Inc. up to 0.25
of 1% of the average net assets of the Investment Shares for the period. This
fee is to obtain certain services for shareholders and to maintain shareholder
accounts.
PORTFOLIO ACCOUNTING FEES--Federated Services Company ("FServ") maintains the
Funds' accounting records. The fee is based on the level of the Funds' average
net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses were borne initially by FAS.
The Funds have agreed to reimburse FAS for the organizational expenses during
the five year period following the date the Funds first became effective. For
the year ended December 31, 1994, the Funds paid FAS as follows:
<TABLE>
<CAPTION>
INITIAL ORGANIZATIONAL
FUND ORGANIZATIONAL EXPENSES EXPENSES REIMBURSED
- ---------------------------------- --------------------------- ---------------------------
<S> <C> <C>
U.S. Treasury Fund $48,056 $ 7,825
Money Market Fund $60,969 $10,204
</TABLE>
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
BAYFUNDS:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of BayFunds U.S. Treasury Money Market Portfolio
and BayFunds Money Market Portfolio (portfolios of BayFunds), as of December 31,
1994, and the related statements of operations for the year then ended, the
statements of changes in net assets for the year ended December 31, 1994 and for
the period from January 29, 1993 (date of initial public investment) to December
31, 1993 and the financial highlights for the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
BayFunds U.S. Treasury Money Market Portfolio and BayFunds Money Market
Portfolio at December 31, 1994, the results of their operations for the year
then ended, the changes in their net assets for the year ended December 31, 1994
and for the period from January 29, 1993 to December 31, 1993, and the financial
highlights for the periods presented, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
February 6, 1995
<TABLE>
<S> <C>
TRUSTEES OFFICERS
- ---------------------------------------------------------------------------------------------
Kenneth G. Condon Glen R. Johnson
Robert W. Eisenmenger President and Treasurer
Sara L. Johnson C. Christine Thomson
Ernest R. May Vice President and Assistant Treasurer
Alvin J. Silk Peter J. Germain
Secretary
Victor R. Siclari
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or FDIC insured and are not obligations of,
or guaranteed by, BayBank, nor are they federally insured or guaranteed. Your
investment return and principal value will fluctuate so when shares are
redeemed, they may be worth more or less than original cost.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Portfolios' combined prospectus which contains
facts concerning their objectives and policies, management fees, expenses and
other information.
- --------------------------------------------------------------------------------
BAYFUNDS(R)
- --------------------------------------------------------------------------------
INCOME PORTFOLIOS
- --------------------------------------------------------------------------------
AND
- --------------------------------------------------------------------------------
EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1994
Short Term Yield Portfolio
Bond Portfolio
Equity Portfolio
Investment Shares
Institutional Shares
BayBanks Investment Management, Inc.
- ---------------------------------------------
Investment Adviser
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
200324
G00507-03
PRESIDENT'S MESSAGE AND INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Dear Shareholder:
By almost any measure, the U.S. economy displayed exceptionally strong growth
throughout the year. The Federal Reserve sought to slow the pace of activity and
curb potential inflationary pressures through six increases in short-term
interest rates. Although the economy seemed immune to these actions, both the
stock and bond markets were bruised. Bond prices across the maturity spectrum
fell throughout the year and equity prices, despite robust corporate earnings,
were unable to separate themselves from the overall negative sentiment produced
by the rising rates. Looking ahead, with some additional help from the Federal
Reserve, growth in the nation's Gross Domestic Product should slow to a more
sustainable rate, which could bode well for market performance.
I will explain in greater detail how the bond and stock markets performed in
1994, and more importantly, how BayBanks Investment Management Inc., investment
adviser to the BayFunds Short Term Yield, Bond and Equity Portfolios, managed
the Portfolios in this climate. Finally, I will briefly describe our strategies
for the Portfolios going forward.
FIXED INCOME MARKET RECAP
There was one overriding factor driving the fixed income markets in 1994--rising
interest rates. In an effort to brake the onset of inflation, the Federal
Reserve acted to constrain the growth of the money supply and to gradually slow
the economy. On six separate occasions the federal funds rate (the rate at which
banks borrow from one another) was raised, increasing from 3.0% to 5.5% by
year-end. While the relative measures of inflation have been moderate throughout
the year, a persistent fear of a marked boost in prices leads many market
strategists to believe that more rate increases are inevitable in 1995.
A key investment maxim is that rising interest rates are the worst enemy of a
bond investment. For that reason, it was not surprising that all fixed income
investments suffered to a degree during the year. In fact, bonds across all
maturity spectrums had their worst performance results in over sixty years. In
what is known as a "flattening yield curve," short-term interest rates rose more
sharply than intermediate- and long-term rates. According to Lipper Analytical
Services, taxable bond funds fell 3.7% on average for the year. Funds with the
highest risk profile generally suffered greater declines. Overall, investors in
conservatively managed bond funds tended to fare far better as their high
quality investments tended to minimize losses.
THE YEAR IN REVIEW
BAYFUNDS SHORT TERM YIELD PORTFOLIO
We were frustrated by the performance of the BayFunds Short Term Yield Portfolio
in 1994, which fell victim to a sea change in the fixed income markets.
Shorter-term interest rates spiked upwards powerfully and the prices of
investments were marked down to reflect their increasingly unattractive yields.
Unlike a single short-term bond or other fixed income investment, the Portfolio
itself does not have a fixed maturity date. Its investments include a variety of
securities with different maturities that, as a whole, must have a
dollar-weighted average maturity of three years or less. The diversification
effect of this pooling of assets is a prime attraction for a mutual fund. With
the horrible market conditions in 1994, the owner of a single short-term bond
could have held onto the security, with the intention of keeping it until
maturity in order to recoup the entire principal investment. The Portfolio did
not have this same ability. Some Portfolio shareholders decided to lock in
higher yields by purchasing alternative investments and redeemed their shares.
The Portfolio must actively manage its investments to ensure adequate
diversification while providing liquidity to meet shareholder redemptions.
Selling fixed income securities to raise cash in this environment of sharply
rising interest rates and falling prices often forced the Portfolio to realize
losses on portfolio investments. In order to offset these losses, the Portfolio
would need either a strong bond market rally and its accompanying price mark-ups
or it would need to purchase lower quality securities offering a significantly
higher yield to increase its dividend income.
THE IMPORTANCE OF QUALITY
The Portfolio's conservative, high quality investment parameters forbid it from
purchasing speculative, high yielding securities such as emerging markets debt.
More speculative investments can add significant amounts of yield but also bring
a much greater risk level than is acceptable for an investment such as the
Portfolio.
Instead, consistent with the Portfolio's investment policies, we opted to follow
a cautious approach. The Portfolio's investments were restructured toward a
defensive posture, primarily by purchasing current coupon U.S. Treasury
securities during the second half of the year. We believe that the Portfolio's
modest negative return was an acceptable trade-off for the comfort a shareholder
can take from this prudent strategy. Although this was a disappointing year, we
believe the Portfolio is well positioned going forward into 1995.
BAYFUNDS BOND PORTFOLIO
The first half of 1994 produced negative returns for virtually all bond funds as
they were buffeted by the incessant upward movement in interest rates. The
BayFunds Bond Portfolio was no exception. This Portfolio's defensive posture,
sterling credit quality--with an emphasis on U.S. Treasury obligations-- and
relatively large cash position provided an effective safe haven as it weathered
the acute bear market. One example of the defensive posture was maintaining a
shorter average maturity than the index to which we compare the Portfolio's
performance. As rates rose and bond prices were marked down, this tactic
minimized the reverberations on the Portfolio's underlying investments. The
average maturity remained at a fairly steady and moderate range of 4-8 years.
During the second half of the year, the Portfolio began to reap the benefits of
its conservative profile. Some of the cash was put to work in the higher
yielding new issues that became available in the bond markets.
We are satisfied with the Portfolio's relative results under those treacherous
market conditions. The BayFunds Bond Portfolio was able to provide commendable
performance during the difficult first half of the year. In the final six
months, the Portfolio implemented a successful strategy that positions it well
as we proceed into 1995.
FUTURE STRATEGIES FOR THE BAYFUNDS SHORT TERM YIELD
PORTFOLIO AND BAYFUNDS BOND PORTFOLIO
Market sentiment can be an accurate barometer of the future. The widely held
opinion is that additional interest rate hikes are in store during the first
half of 1995 in order to slow the explosive (and unsustainable) pace of economic
activity and to rein in potential inflationary pressures. By mid-year, we
anticipate that the effect of the Federal Reserve's steady tightening of the
money supply will have taken hold; the economic tempo will be moderating. This
should be good news for the bond market.
BAYFUNDS SHORT TERM YIELD PORTFOLIO
The BayFunds Short Term Yield Portfolio will continue to maintain a relatively
defensive posture until the threat of rising interest rates subsides and
inflationary pressures appear firmly under control. The investment foundation of
the Portfolio will continue to be the highest quality investments available,
including U.S. Treasury and U.S. Government agency securities. We expect to
maintain an average maturity in a range of 12-18 months pending the plateau in
interest rates and an overall improvement in market sentiment. The Portfolio is
positioned to participate in any future bond market recovery while minimizing
near-term risk--a cautious approach that should benefit the Portfolio's
shareholders.
BAYFUNDS BOND PORTFOLIO
We believe that this same defensive posture is equally appropriate for the
BayFunds Bond Portfolio. U.S. Treasury, AAA rated asset-backed and high quality
corporate securities (especially industrial issues), will be the backbone of the
Portfolio's holdings. For these same reasons, the Portfolio will maintain a
shorter average maturity than its index. If the yield curve flattens more, we
expect to find greater values for the Portfolio in the shorter and/or longer
maturity segments. This practice of maintaining a moderate average maturity by
concurrently purchasing long-term and short-term securities is commonly known as
a "barbell" strategy. These strategies and the Portfolio's cautious outlook
should keep it well positioned to participate in an improving bond market.
Longer-term investors should continue to be well served by this prudent,
time-tested approach.
STOCK MARKET RECAP
Rising interest rates did not hammer only the bond markets; they dragged down
domestic equity returns for much of 1994. During the period from February
through June, stock prices suffered repeatedly at the hands of four consecutive
Federal Reserve interest rate hikes. The stock market rallied a bit in the
July-October period, as a steady stream of strong corporate earnings cheered
equity investors and refocused attention on company-specific events. This
bullish trend came to an abrupt halt in the waning months of the year. A number
of market shaking events, including the transfer of control in Congress, the
Orange County municipal bankruptcy filing and the collapse of the Mexican peso,
prompted a sell-off. Against that backdrop, U.S. stock mutual funds lost 1.69%
on average for the year per Lipper Analytical Services.
The "value" style of stock picking remained in favor until the fourth quarter,
when early signs began to appear of a renaissance of the "growth" style of stock
selection. Historically, a "growth" focus has dominated market action in periods
of slow economic activity, and this may serve as a leading indicator of the
market's direction in 1995. Since its inception the BayFunds Equity Portfolio
has consistently
pursued a strategy favoring growth stocks and should be well positioned to
reward its long-term shareholders as this investment style comes back into
vogue.
THE YEAR IN REVIEW
BAYFUNDS EQUITY PORTFOLIO
The first quarter of 1994 was a trying period for most U.S. stock funds,
including the Portfolio. Investors were unnerved by the rapid succession of
interest rate increases and the repercussion was steep negative returns on
domestic stocks. The Portfolio's bottom-up approach is not driven by short-term
concerns; rather, in our stock selection process we consistently emphasize
corporate earnings power and reasonable price valuations. The widespread
negative tone of the market offered us many attractive buying opportunities. Our
steadfast commitment to earnings growth and sector diversification strategies
were rewarded during the rest of the year as the Portfolio logged a positive
return for the latter nine months.
For the year, larger capitalization stocks in the capital goods section and
traditional growth stocks across all sectors were in favor as nervous investors
pursued stability. This was best illustrated by the positive twelve month return
of the S&P 500 Index, which is dominated by such companies. The Portfolio
typically does not overweight these types of stocks since they generally do not
provide the earnings power that we seek in our investments. In contrast, the
Portfolio's investment holdings typically have on average twice the five year
earnings growth rate and one quarter the market capitalization of the companies
in the S&P 500 Index. The Portfolio's mandate to seek out faster growing,
innovative companies should reward the patient investor if the inherent value of
these companies is recognized by the market.
FUTURE STRATEGY FOR THE BAYFUNDS EQUITY PORTFOLIO
The BayFunds Equity Portfolio will continue to seek out those companies which
offer the strongest growth potential and the greatest likelihood of producing
above-average earnings. This strategy invariably will lead us to the highest
growth sectors of the market, which in 1994 was technology stocks. At the same
time adherence to our diversification mandate ensures that the Portfolio will
have representation across all market sectors. This strategy provides a hedge
for the Portfolio's shareholders in the event that any one sector is
disproportionately punished by investors.
The expected peak in interest rates and slowdown in the economy should further
focus the equity markets on company fundamentals. Long-term shareholders should
patiently anticipate the return to favor of the Portfolio's investment style and
they should be well served in the year ahead.
My closing message is just as timely today as it was six months ago. Focus on
your long-term investment goals and disregard these market jitters. Take a look
at your investment strategy and make sure that it incorporates these three
fundamentals:
- Maintain a long-term perspective on the market.
- Manage your risk by diversifying your investments.
- Follow a regular investment plan.
I invite you to contact your Investment Specialist or Account Officer if you
have any questions about the course of action that is most appropriate in
helping you reach your investment goals.
Sincerely,
Richard F. Pollard
President
BayBanks Investment Management, Inc.
Investment Adviser to BayFunds Short Term Yield Portfolio,
BayFunds Bond Portfolio and BayFunds Equity Portfolio
February 15, 1995
BAYFUNDS SHORT TERM YIELD PORTFOLIO--
INVESTMENT SHARES
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN BAYFUNDS SHORT TERM YIELD PORTFOLIO--
INVESTMENT SHARES*
The graph below illustrates the hypothetical investment of $10,000 in the
BayFunds Short Term Yield Portfolio--Investment Shares (the "Fund") from January
29, 1993 to December 31, 1994 compared to the Merrill Lynch 1-3 Year U.S.
Treasury Index.+
Graphic presentation appears here. See Appendix A
<TABLE>
<CAPTION>
BayFunds
Short Term Merrill Lynch
Yield Portfolio- 1-3 Year U.S.
Measurement Period Institu- Treasury
(Fiscal Year Covered) tional Shares Index
<S> <C> <C>
1-29-93 10000 10000
12-31-93 10396 10433
12-31-94 10039 10492
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIOD ENDED DECEMBER 31, 1994
1 Year............................................................. (3.43%)
Start of Performance January 29, 1993.............................. 0.20%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. MUTUAL FUNDS ARE NOT
BANK DEPOSITS OR FDIC INSURED AND ARE NOT OBLIGATIONS OF, OR GUARANTEED BY,
BAYBANK, NOR ARE THEY FEDERALLY INSURED OR GUARANTEED. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
* The Fund's performance assumes the reinvestment of all dividends and
distributions. The Merrill Lynch 1-3 Year U.S. Treasury Index has been
adjusted to reflect reinvestment of dividends on securities in the index.
+ The Merrill Lynch 1-3 Year U.S. Treasury Index is not adjusted to reflect
sales loads, expenses, or other fees that the SEC requires to be reflected in
the Fund's performance. This index is unmanaged.
BAYFUNDS SHORT TERM YIELD PORTFOLIO--
INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN BAYFUNDS SHORT TERM YIELD PORTFOLIO--
INSTITUTIONAL SHARES*
The graph below illustrates the hypothetical investment of $10,000 in the
BayFunds Short Term Yield Portfolio--Institutional Shares (the "Fund") from
December 31, 1993 to December 31, 1994 compared to the Merrill Lynch 1-3 Year
U.S. Treasury Index.+
Graphic presentation appears here. See Appendix B.
<TABLE>
<CAPTION>
BayFunds
Short Term Merrill Lynch
Yield Portfolio- 1-3 Year U.S.
Measurement Period Institu- Treasury In-
(Fiscal Year Covered) tional Shares Index
<S> <C> <C>
12-31-93 10000 10000
12-31-94 9681 10057
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIOD ENDED DECEMBER 31, 1994
1 Year............................................................. (3.19%)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. MUTUAL FUNDS ARE NOT
BANK DEPOSITS OR FDIC INSURED AND ARE NOT OBLIGATIONS OF, OR GUARANTEED BY,
BAYBANK, NOR ARE THEY FEDERALLY INSURED OR GUARANTEED. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
* The Fund's performance assumes the reinvestment of all dividends and
distributions. The Merrill Lynch 1-3 Year U.S. Treasury Index has been
adjusted to reflect reinvestment of dividends on securities in the index.
+ The Merrill Lynch 1-3 Year U.S. Treasury Index is not adjusted to reflect
sales loads, expenses, or other fees that the SEC requires to be reflected in
the Fund's performance. This index is unmanaged.
BAYFUNDS BOND PORTFOLIO--INVESTMENT SHARES
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN BAYFUNDS BOND PORTFOLIO--
INVESTMENT SHARES*
The graph below illustrates the hypothetical investment of $10,000 in the
BayFunds Bond Portfolio--Investment Shares (the "Fund") from January 29, 1993 to
December 31, 1994 compared to the Lehman Brothers Intermediate
Government/Corporate Index.+
Graphic presentation appears here. See Appendix C.
<TABLE>
<CAPTION>
Lehman
Brothers
Intermediate
Govern-
BayFunds Bond ment/
Measurement Period Portfolio - Corporate
(Fiscal Year Covered) Class B Index
<S> <C> <C>
1-29-93 10000 10000
12-31-93 10797 10671
12-31-94 10541 10465
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIOD ENDED DECEMBER 31, 1994
1 Year............................................................. (2.37%)
Start of Performance January 29, 1993.............................. 2.78%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. MUTUAL FUNDS ARE NOT
BANK DEPOSITS OR FDIC INSURED AND ARE NOT OBLIGATIONS OF, OR GUARANTEED BY,
BAYBANK, NOR ARE THEY FEDERALLY INSURED OR GUARANTEED. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
* The Fund's performance assumes the reinvestment of all dividends and
distributions. The Lehman Brothers Intermediate Government/Corporate Index has
been adjusted to reflect reinvestment of dividends on securities in the index.
+ The Lehman Brothers Intermediate Government/Corporate Index is not adjusted to
reflect sales loads, expenses, or other fees that the SEC requires to be
reflected in the Fund's performance. This index is unmanaged.
BAYFUNDS BOND PORTFOLIO--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN BAYFUNDS BOND PORTFOLIO--
INSTITUTIONAL SHARES*
The graph below illustrates the hypothetical investment of $10,000 in the
BayFunds Bond Portfolio--Institutional Shares (the "Fund") from December 31,
1993 to December 31, 1994 compared to the Lehman Brothers Intermediate
Government/Corporate Index.+
Graphic presentation appears here. See Appendix D.
<TABLE>
<CAPTION>
Lehman
Brothers In-
termediate
Govern-
BayFunds Bond ment/
Measurement Period Portfolio - Corporate
(Fiscal Year Covered) Class A Index
<S> <C> <C>
12-31-93 10000 10000
12-31-94 9786 9807
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIOD ENDED DECEMBER 31, 1994
1 Year............................................................. (2.14%)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. MUTUAL FUNDS ARE NOT
BANK DEPOSITS OR FDIC INSURED AND ARE NOT OBLIGATIONS OF, OR GUARANTEED BY,
BAYBANK, NOR ARE THEY FEDERALLY INSURED OR GUARANTEED. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
* The Fund's performance assumes the reinvestment of all dividends and
distributions. The Lehman Brothers Intermediate Government/Corporate Index has
been adjusted to reflect reinvestment of dividends on securities in the index.
+ The Lehman Brothers Intermediate Government/Corporate Index is not adjusted to
reflect sales loads, expenses, or other fees that the SEC requires to be
reflected in the Fund's performance. This index is unmanaged.
BAYFUNDS EQUITY PORTFOLIO--INVESTMENT SHARES
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN BAYFUNDS EQUITY PORTFOLIO--
INVESTMENT SHARES*
The graph below illustrates the hypothetical investment of $10,000 in the
BayFunds Equity Portfolio--Investment Shares (the "Fund") from January 29, 1993
to December 31, 1994 compared to the Standard and Poor's 500 Index (S&P 500).+
Graphic presentation appears here. See Appendix E.
<TABLE>
<CAPTION>
BayFunds
Equity Standard and
Measurement Period Portfolio - Poor's 500
(Fiscal Year Covered) Class A Index
<S> <C> <C>
1-29-93 10000 10000
12-31-93 11128 10902
12-31-94 10769 11046
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIOD ENDED DECEMBER 31, 1994
1 Year............................................................. (3.23%)
Start of Performance January 29, 1993.............................. 3.93%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. MUTUAL FUNDS ARE NOT
BANK DEPOSITS OR FDIC INSURED AND ARE NOT OBLIGATIONS OF, OR GUARANTEED BY,
BAYBANK, NOR ARE THEY FEDERALLY INSURED OR GUARANTEED. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
* The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P 500 has been adjusted to reflect reinvestment of
dividends on securities in the index.
+ The S&P 500 is not adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. This index is
unmanaged.
BAYFUNDS EQUITY PORTFOLIO--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN BAYFUNDS EQUITY PORTFOLIO--
INSTITUTIONAL SHARES*
The graph below illustrates the hypothetical investment of $10,000 in the
BayFunds Equity Portfolio--Institutional Shares (the "Fund") from December 31,
1993 to December 31, 1994 compared to the Standard and Poor's 500 Index (S&P
500).+
Graphic presentation appears here. See Appendix F.
<TABLE>
<CAPTION>
BayFunds
Equity Standard and
Measurement Period Portfolio - Poor's 500
(Fiscal Year Covered) Class A Index
<S> <C> <C>
12-31-93 10000 10000
12-31-94 9702 10132
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIOD ENDED DECEMBER 31, 1994
1 Year............................................................. (2.98%)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. MUTUAL FUNDS ARE NOT
BANK DEPOSITS OR FDIC INSURED AND ARE NOT OBLIGATIONS OF, OR GUARANTEED BY,
BAYBANK, NOR ARE THEY FEDERALLY INSURED OR GUARANTEED. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
* The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P 500 has been adjusted to reflect reinvestment of
dividends on securities in the index.
+ The S&P 500 is not adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. This index is
unmanaged.
BAYFUNDS SHORT TERM YIELD PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ -----------
<C> <S> <C>
ASSET-BACKED SECURITIES--25.9%
- -----------------------------------------------------------------------------------
AUTO LOANS--14.7%
------------------------------------------------------------------
$ 4,862,476 Ford Credit Grantor Trust, Series 1994B, Class A, 7.30%, 10/15/99 $ 4,812,295
------------------------------------------------------------------
3,895,046 Ford Motor Credit Corp., Series 1994-A, Class A, 6.35%, 5/17/99 3,812,276
------------------------------------------------------------------
5,000,000 Premier Auto Trust, Series 1994-4, Class A4, 6.45%, 5/2/98 4,834,375
------------------------------------------------------------------ -----------
Total 13,458,946
------------------------------------------------------------------ -----------
BANK CREDIT CARDS--8.5%
------------------------------------------------------------------
2,750,000 Chase Manhattan Credit Card Master Trust, Series 1991-2, Class A,
7.65%, 11/15/98 2,745,682
------------------------------------------------------------------
5,000,000 MBNA Credit Card Trust, Series 1991-A, Class A, 8.25%, 6/30/98 5,004,650
------------------------------------------------------------------ -----------
Total 7,750,332
------------------------------------------------------------------ -----------
FINANCE CREDIT CARDS--2.7%
------------------------------------------------------------------
2,500,000 Discover Card Trust, Series 91-C, Class A, 7.20%, 4/16/98 2,486,700
------------------------------------------------------------------ -----------
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST, $23,962,852) 23,695,978
------------------------------------------------------------------ -----------
CORPORATE VARIABLE RATE INSTRUMENTS--5.5%
- -----------------------------------------------------------------------------------
FINANCIAL SERVICES--5.5%
------------------------------------------------------------------
3,000,000 Bear, Stearns & Co., Inc., 7.19%*, 3/9/99 3,010,320
------------------------------------------------------------------
2,000,000 Salomon Brothers, Inc., 6.568%*, 4/5/99 1,988,680
------------------------------------------------------------------ -----------
TOTAL CORPORATE VARIABLE RATE INSTRUMENTS
(IDENTIFIED COST, $5,000,000) 4,999,000
------------------------------------------------------------------ -----------
GOVERNMENT AGENCIES--6.5%
- -----------------------------------------------------------------------------------
6,000,000 Federal Home Loan Bank, 4.60%-7.875%, 3/27/95-3/1/99
(IDENTIFIED COST, $6,136,925) 5,967,920
------------------------------------------------------------------ -----------
TREASURY OBLIGATIONS--39.0%
- -----------------------------------------------------------------------------------
36,000,000 U.S. Treasury Notes, 6.875%-7.75%, 2/15/95-11/15/97
(IDENTIFIED COST, $36,029,664) 35,709,610
------------------------------------------------------------------ -----------
</TABLE>
BAYFUNDS SHORT TERM YIELD PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ -----------
<C> <S> <C>
**REPURCHASE AGREEMENT--22.5%
- -----------------------------------------------------------------------------------
$20,570,000 Aubrey G. Lanston & Co., Inc., 5.75%, dated 12/30/94, due 1/3/95
(AT AMORTIZED COST) $20,570,000
------------------------------------------------------------------ -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $91,699,441) $90,942,508+
------------------------------------------------------------------ -----------
</TABLE>
* Denotes variable rate and floating rate obligations for which the current
yield is shown.
** Repurchase agreement is fully collateralized by U.S. government and/or agency
obligations based on market prices at the date of the portfolio.
+ The cost of investments for federal tax purposes amounts to $91,699,441. The
net unrealized depreciation of investments on a federal tax basis amounts to
$756,933, which is comprised of $771,775 depreciation and $14,842
appreciation at December 31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($91,504,458) at December 31, 1994.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS SHORT TERM YIELD PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------
Investment in repurchase agreement $20,570,000
- ------------------------------------------------------------------
Investments in securities 70,372,508
- ------------------------------------------------------------------ -----------
Total investments, at value (identified and tax cost $91,699,441) $ 90,942,508
- --------------------------------------------------------------------------------
Receivable for investments sold 2,746,792
- --------------------------------------------------------------------------------
Income receivable 879,954
- --------------------------------------------------------------------------------
Receivable for Shares sold 118,256
- --------------------------------------------------------------------------------
Deferred expenses 56,338
- -------------------------------------------------------------------------------- ------------
Total assets 94,743,848
- --------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------
Payable to Bank 2,746,307
- ------------------------------------------------------------------
Income distribution payable 310,062
- ------------------------------------------------------------------
Payable for Shares redeemed 138,613
- ------------------------------------------------------------------
Accrued expenses 44,408
- ------------------------------------------------------------------ -----------
Total liabilities 3,239,390
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 10,002,132 Shares outstanding $ 91,504,458
- -------------------------------------------------------------------------------- ------------
NET ASSETS CONSISTS OF:
- --------------------------------------------------------------------------------
Paid-in capital $103,866,505
- --------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (756,933)
- --------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (11,605,114)
- -------------------------------------------------------------------------------- ------------
Total Net Assets $ 91,504,458
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- --------------------------------------------------------------------------------
Investment Shares ($34,993,211 / 3,825,005 Shares outstanding) $9.15
- -------------------------------------------------------------------------------- ------------
Institutional Shares ($56,511,247 / 6,177,127 Shares outstanding) $9.15
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS SHORT TERM YIELD PORTFOLIO
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------
Interest $ 7,452,529
- --------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------
Investment advisory fee $681,886
- ---------------------------------------------------------------------
Administrative personnel and services fee 143,915
- ---------------------------------------------------------------------
Custodian fees 19,397
- ---------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees 57,688
- ---------------------------------------------------------------------
Trustees' fees 6,605
- ---------------------------------------------------------------------
Auditing fees 14,462
- ---------------------------------------------------------------------
Legal fees 13,622
- ---------------------------------------------------------------------
Portfolio accounting fees 60,330
- ---------------------------------------------------------------------
Share registration costs 39,584
- ---------------------------------------------------------------------
Printing and postage 34,465
- ---------------------------------------------------------------------
Insurance premiums 7,852
- ---------------------------------------------------------------------
Miscellaneous 9,890
- ---------------------------------------------------------------------
Shareholder services fee-Investment Shares 140,687
- --------------------------------------------------------------------- --------
Total expenses 1,230,383
- -------------------------------------------------------------------------------- -----------
Net Investment Income 6,222,146
- -------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------
Net realized gain (loss) on investments (11,529,693)
- --------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments 513,580
- -------------------------------------------------------------------------------- -----------
Net realized and unrealized gain (loss) on investments (11,016,113)
- -------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations ($4,793,967)
- -------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS SHORT TERM YIELD PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------
1994 1993*
------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------
Net investment income $ 6,222,146 $ 6,672,689
- --------------------------------------------------------------
Net realized gain (loss) on investments ($11,534,248 and
$70,866 net losses, respectively, as computed for federal
tax purposes) (11,529,693) (75,421)
- --------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of
investments 513,580 (1,270,513)
- -------------------------------------------------------------- ------------- ------------
Change in net assets resulting from operations (4,793,967) 5,326,755
- -------------------------------------------------------------- ------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------------------
Distributions from net investment income:
- --------------------------------------------------------------
Investment Shares (2,556,438) (6,672,689)
- --------------------------------------------------------------
Institutional Shares (3,665,708) --
- -------------------------------------------------------------- ------------- ------------
Change in net assets resulting from distributions to
shareholders (6,222,146) (6,672,689)
- -------------------------------------------------------------- ------------- ------------
SHARE TRANSACTIONS--
- --------------------------------------------------------------
Proceeds from sale of Shares 126,448,882 218,527,684
- --------------------------------------------------------------
Net asset value of Shares issued to shareholders in payment of
distributions declared 2,224,772 1,608,290
- --------------------------------------------------------------
Cost of Shares redeemed (199,453,887) (45,489,236)
- -------------------------------------------------------------- ------------- ------------
Change in net assets resulting from Share transactions (70,780,233) 174,646,738
- -------------------------------------------------------------- ------------- ------------
Change in net assets (81,796,346) 173,300,804
- --------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------
Beginning of period 173,300,804 --
- -------------------------------------------------------------- ------------- ------------
End of period $ 91,504,458 $173,300,804
- -------------------------------------------------------------- ------------- ------------
</TABLE>
* For the period from January 29, 1993 (date of initial public investment) to
December 31, 1993.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS SHORT TERM YIELD PORTFOLIO
FINANCIAL HIGHLIGHTS--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 $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%
- -------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from January 29, 1993 (date of initial
public investment) to December 31, 1993.
** Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge,
if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(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)
<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
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ -----------
<C> <C> <S> <C>
ASSET-BACKED SECURITIES--7.6%
- -----------------------------------------------------------------------------------
$ 1,000,000 First Deposit Master Trust 1993-2, Class A, 5.75%, 6/15/2001 $ 930,310
------------------------------------------------------------------
235,713 Merrill Lynch & Co. Asset-Backed Corp., Class A2, 5.125%, 7/15/98 230,778
------------------------------------------------------------------
1,000,000 NationsBank Credit Card Master Trust, Class A, 4.75%, 9/15/98 942,180
------------------------------------------------------------------
1,000,000 Premier Auto Trust 1994-1, Class A3, 4.75%, 2/2/2000 939,680
------------------------------------------------------------------
73,641 Shawmut National Auto Receivable 1992-A, Class A, 5.55%, 11/15/97 73,042
------------------------------------------------------------------
500,000 Standard Credit Card Master Trust 1993-3, Class A, 5.50%, 2/7/2000 453,590
------------------------------------------------------------------
1,000,000 Standard Credit Card Master Trust 1994-2, Class A, 7.25%, 4/7/2008 911,250
------------------------------------------------------------------
194,940 Volvo Auto Receivables Grantor Trust, Class A, 5.45%, 12/15/98 191,589
------------------------------------------------------------------ -----------
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST, $4,002,081) 4,672,419
------------------------------------------------------------------ -----------
CORPORATE BONDS--23.3%
- -----------------------------------------------------------------------------------
AUTOMOTIVE--4.1%
------------------------------------------------------------------
1,000,000 Chrysler Financial Corp., 8.125%, 12/15/96 998,060
------------------------------------------------------------------
500,000 Ford Motor Co., 7.50%, 11/15/99 480,795
------------------------------------------------------------------
1,000,000 General Motors Corp., Deb., 9.40%, 7/15/2021 1,038,210
------------------------------------------------------------------ -----------
Total 2,517,065
------------------------------------------------------------------ -----------
BANKING--5.3%
------------------------------------------------------------------
1,250,000 Bank One Milwaukee N.A., Sub. Note, 6.625%, 4/15/2003 1,122,562
------------------------------------------------------------------
1,000,000 NCNB Corp., Deb., 9.50%, 6/1/2004 1,055,430
------------------------------------------------------------------
1,000,000 Norwest Corp., 6.00%, 3/15/2000 902,300
------------------------------------------------------------------
200,000 Royal Bank of Scotland Capital Group, 10.125%, 3/1/2004 217,884
------------------------------------------------------------------ -----------
Total 3,298,176
------------------------------------------------------------------ -----------
CHEMICALS--1.4%
------------------------------------------------------------------
500,000 Dow Chemical Co., 9.35%, 3/15/2002 513,060
------------------------------------------------------------------
300,000 Rohm & Haas, 9.80%, 4/15/2020 333,831
------------------------------------------------------------------ -----------
Total 846,891
------------------------------------------------------------------ -----------
</TABLE>
BAYFUNDS BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ -----------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- -----------------------------------------------------------------------------------
CONSUMER--0.5%
------------------------------------------------------------------
$ 300,000 American General Finance Corp., 7.15%, 5/15/97 $ 292,794
------------------------------------------------------------------ -----------
FINANCIAL SERVICES--2.9%
------------------------------------------------------------------
1,000,000 Dean Witter Discover & Co., Note, 6.25%, 3/15/2000 897,140
------------------------------------------------------------------
1,000,000 Salomon, Inc., MTN, 5.26%, 2/10/99 916,900
------------------------------------------------------------------ -----------
Total 1,814,040
------------------------------------------------------------------ -----------
FOOD & BEVERAGE--1.3%
------------------------------------------------------------------
500,000 Coca-Cola Enterprises, Inc., 7.875%, 2/1/2002 486,585
------------------------------------------------------------------
300,000 Grand Metropolitan Investment, PLC, 9.00%, 8/15/2011 311,313
------------------------------------------------------------------ -----------
Total 797,898
------------------------------------------------------------------ -----------
INSURANCE--3.0%
------------------------------------------------------------------
1,000,000 Enhance Financial Services Group, Inc., 6.75%, 3/1/2003 895,000
------------------------------------------------------------------
1,000,000 MBIA, Inc., 8.20%, 10/1/2022 928,320
------------------------------------------------------------------ -----------
Total 1,823,320
------------------------------------------------------------------ -----------
MACHINERY, EQUIPMENT & AUTO--0.7%
------------------------------------------------------------------
500,000 Ingersoll-Rand Co., 6.875%, 2/1/2003 455,830
------------------------------------------------------------------ -----------
RETAIL--0.8%
------------------------------------------------------------------
500,000 Sears, Roebuck & Co., 9.46%, 6/20/2000 516,220
------------------------------------------------------------------ -----------
TRANSPORTATION--2.8%
------------------------------------------------------------------
1,000,000 Ryder Systems, Inc., 8.375%, 2/15/2017 937,770
------------------------------------------------------------------
987,231 Southwest Airlines Co., 6.26%, 9/24/2012 800,002
------------------------------------------------------------------ -----------
Total 1,737,772
------------------------------------------------------------------ -----------
UTILITIES--0.5%
------------------------------------------------------------------
300,000 Rural Electric Cooperative Grantor Trust CTF, 10.11%, 12/15/2017 325,821
------------------------------------------------------------------ -----------
TOTAL CORPORATE BONDS (IDENTIFIED COST, $16,662,505) 14,425,827
------------------------------------------------------------------ -----------
</TABLE>
BAYFUNDS BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ -----------
<C> <C> <S> <C>
U.S. GOVERNMENT AGENCIES--8.8%
- -----------------------------------------------------------------------------------
$ 2,000,000 Federal Home Loan Mortgage Corp., Note, 7.74%, 6/1/2004 $ 1,895,625
------------------------------------------------------------------
582,788 Federal National Mortgage Association, Pass Thru, 10.50%, 5/1/2012 616,147
------------------------------------------------------------------
2,000,000 Federal National Mortgage Association, 4.15%-9.05%,
1/17/97-5/10/2021 1,973,438
------------------------------------------------------------------
1,000,000 Tennessee Valley Authority, MTN, 7.318%, 5/31/99 958,650
------------------------------------------------------------------ -----------
TOTAL U.S. GOVERNMENT AGENCIES (IDENTIFIED COST, $5,667,767) 5,443,860
------------------------------------------------------------------ -----------
U.S. TREASURY OBLIGATIONS--57.8%
- -----------------------------------------------------------------------------------
3,000,000 U.S. Treasury Bond, 7.50%, 11/15/2024 2,869,680
------------------------------------------------------------------
32,700,000 U.S. Treasury Notes, 3.875%-8.50%, 4/30/95-7/15/98 32,825,319
------------------------------------------------------------------ -----------
TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST, $36,171,914) 35,694,999
------------------------------------------------------------------ -----------
*REPURCHASE AGREEMENT--1.5%
- -----------------------------------------------------------------------------------
910,000 Aubrey G. Lanston & Co., Inc., 5.75%, dated 12/30/94, due 1/1/95
(AT AMORTIZED COST) 910,000
------------------------------------------------------------------ -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $63,414,267) $61,147,105+
------------------------------------------------------------------ -----------
</TABLE>
* Repurchase agreement is fully collateralized by U.S. Treasury obligations
based on market prices at the date of the portfolio.
+ The cost of investments for federal tax purposes amounts to $63,416,455. The
net unrealized depreciation on a federal tax basis amounts to $2,269,350,
which is comprised of $32,961 appreciation and $2,302,311 depreciation at
December 31, 1994.
The following abbreviation is used in this portfolio:
MTN--Medium Term Note
Note: The categories of investments are shown as a percentage of net assets
$(61,755,315) at December 31, 1994.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments at value (identified cost, $63,414,267, and tax cost,
$63,416,455) $61,147,105
- --------------------------------------------------------------------------------
Cash 2,474
- --------------------------------------------------------------------------------
Income receivable 997,084
- --------------------------------------------------------------------------------
Receivable for Shares sold 2,060
- --------------------------------------------------------------------------------
Deferred expenses 36,196
- -------------------------------------------------------------------------------- -----------
Total assets 62,184,919
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Income distribution payable $313,651
- ---------------------------------------------------------------------
Payable for Shares redeemed 83,645
- ---------------------------------------------------------------------
Accrued expenses 32,308
- --------------------------------------------------------------------- --------
Total liabilities 429,604
- -------------------------------------------------------------------------------- -----------
NET ASSETS FOR 6,561,764 Shares outstanding $61,755,315
- -------------------------------------------------------------------------------- -----------
NET ASSETS CONSISTS OF:
- --------------------------------------------------------------------------------
Paid-in capital $66,286,116
- --------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (2,267,162)
- --------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (2,263,639)
- -------------------------------------------------------------------------------- -----------
Total Net Assets $61,755,315
- -------------------------------------------------------------------------------- -----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- --------------------------------------------------------------------------------
Investment Shares ($5,135,661 / 545,691 Shares outstanding) $9.41
- -------------------------------------------------------------------------------- -----------
Institutional Shares ($56,619,654 / 6,016,073 Shares outstanding) $9.41
- -------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS BOND PORTFOLIO
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------
Interest $4,368,883
- --------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------
Investment advisory fee $417,260
- ---------------------------------------------------------------------
Administrative personnel and services fee 73,256
- ---------------------------------------------------------------------
Custodian fees 9,319
- ---------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees 24,756
- ---------------------------------------------------------------------
Trustees' fees 3,057
- ---------------------------------------------------------------------
Auditing fees 14,513
- ---------------------------------------------------------------------
Legal fees 7,672
- ---------------------------------------------------------------------
Portfolio accounting fees 60,032
- ---------------------------------------------------------------------
Share registration costs 34,427
- ---------------------------------------------------------------------
Printing and postage 28,188
- ---------------------------------------------------------------------
Insurance premiums 4,181
- ---------------------------------------------------------------------
Miscellaneous 8,693
- ---------------------------------------------------------------------
Shareholder services fee--Investment Shares 15,327
- --------------------------------------------------------------------- --------
Total expenses 700,681
- -------------------------------------------------------------------------------- -----------
Net Investment Income 3,668,202
- -------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------
Net realized gain (loss) on investments (2,263,688)
- --------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (2,924,221)
- -------------------------------------------------------------------------------- -----------
Net realized and unrealized gain (loss) on investments (5,187,909)
- -------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations ($1,519,707)
- -------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------
1994 1993*
------------ -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------
Net investment income $ 3,668,202 $ 3,821,708
- -----------------------------------------------------------------------
Net realized gain (loss) on investments ($2,261,500 net loss and
$742,614 net gain, respectively, as computed for federal tax purposes) (2,263,688) 742,614
- -----------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (2,924,221) 657,059
- ----------------------------------------------------------------------- ------------ -----------
Change in net assets resulting from operations (1,519,707) 5,221,381
- ----------------------------------------------------------------------- ------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS--
- -----------------------------------------------------------------------
Distributions from net investment income:
- -----------------------------------------------------------------------
Investment Shares (341,107) (3,821,708)
- -----------------------------------------------------------------------
Institutional Shares (3,327,095) --
- -----------------------------------------------------------------------
Distributions from net realized gains:
- -----------------------------------------------------------------------
Investment Shares -- (742,565)
- ----------------------------------------------------------------------- ------------ -----------
Change in net assets resulting from distributions to shareholders (3,668,202) (4,564,273)
- ----------------------------------------------------------------------- ------------ -----------
SHARE TRANSACTIONS--
- -----------------------------------------------------------------------
Proceeds from sale of Shares 83,396,750 84,401,252
- -----------------------------------------------------------------------
Net asset value of Shares issued to shareholders in payment of
distributions declared 323,304 180,690
- -----------------------------------------------------------------------
Cost of Shares redeemed (94,856,372) (7,159,508)
- ----------------------------------------------------------------------- ------------ -----------
Change in net assets resulting from Share transactions (11,136,318) 77,422,434
- ----------------------------------------------------------------------- ------------ -----------
Change in net assets (16,324,227) 78,079,542
- -----------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------
Beginning of period 78,079,542 --
- ----------------------------------------------------------------------- ------------ -----------
End of period $ 61,755,315 $78,079,542
- ----------------------------------------------------------------------- ------------ -----------
</TABLE>
* For the period from January 29, 1993 (date of initial public investment) to
December 31, 1993.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS BOND PORTFOLIO
FINANCIAL HIGHLIGHTS--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%
- ---------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from January 29, 1993 (date of initial
public investment) to
December 31, 1993.
** Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios
shown above.
(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)
<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
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
COMMON STOCKS--94.9%
- ----------------------------------------------------------------------------------
AEROSPACE--1.4%
------------------------------------------------------------------
13,000 Loral Corp. $ 492,375
------------------------------------------------------------------
11,500 Martin-Marietta Corp. 510,313
------------------------------------------------------------------
2,700 Raytheon Co. 172,463
------------------------------------------------------------------
9,500 Watkins Johnson Co. 282,625
------------------------------------------------------------------ ------------
Total 1,457,776
------------------------------------------------------------------ ------------
AUTOS & TRUCKS--1.5%
------------------------------------------------------------------
33,900 Ford Motor Co. 949,200
------------------------------------------------------------------
16,100 General Motors Corp. 680,225
------------------------------------------------------------------ ------------
Total 1,629,425
------------------------------------------------------------------ ------------
BANKS--4.9%
------------------------------------------------------------------
16,750 Banc One Funding Corp. 425,031
------------------------------------------------------------------
13,100 Bancorp Hawaii, Inc. 332,412
------------------------------------------------------------------
6,025 First Interstate Bancorp 407,441
------------------------------------------------------------------
3,525 First Tennessee National Corp. 143,644
------------------------------------------------------------------
36,500 Mid-Atlantic Corp. 967,250
------------------------------------------------------------------
25,000 NationsBank Corp. 1,128,125
------------------------------------------------------------------
40,000 NBD Bancorp, Inc. 1,095,000
------------------------------------------------------------------
7,500 Regions Financial Corp. 232,500
------------------------------------------------------------------
3,400 Wells Fargo & Co. 493,000
------------------------------------------------------------------ ------------
Total 5,224,403
------------------------------------------------------------------ ------------
BEVERAGES--2.2%
------------------------------------------------------------------
16,000 Anheuser Busch Co., Inc. 814,000
------------------------------------------------------------------
26,200 Coca-Cola Co. 1,349,300
------------------------------------------------------------------
4,400 PepsiCo, Inc. 159,500
------------------------------------------------------------------ ------------
Total 2,322,800
------------------------------------------------------------------ ------------
</TABLE>
BAYFUNDS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- ----------------------------------------------------------------------------------
BROADCASTING--0.2%
------------------------------------------------------------------
3,815 CBS, Inc. $ 211,256
------------------------------------------------------------------ ------------
BUILDING & CONSTRUCTION--1.7%
------------------------------------------------------------------
12,900 * Champion Enterprises 393,450
------------------------------------------------------------------
59,900 Clayton Homes, Inc. 943,425
------------------------------------------------------------------
10,525 Foster Wheeler Corp. 313,119
------------------------------------------------------------------
9,000 Skyline Corp. 173,250
------------------------------------------------------------------ ------------
Total 1,823,244
------------------------------------------------------------------ ------------
BUILDING MATERIALS--0.8%
------------------------------------------------------------------
17,000 Texas Industries, Inc. 599,250
------------------------------------------------------------------
4,200 Vulcan Materials Co. 212,625
------------------------------------------------------------------ ------------
Total 811,875
------------------------------------------------------------------ ------------
CAPITAL GOODS--0.2%
------------------------------------------------------------------
5,200 PACCAR, Inc. 230,100
------------------------------------------------------------------ ------------
CHEMICALS--1.4%
------------------------------------------------------------------
16,000 Dexter Corp. 348,000
------------------------------------------------------------------
5,700 Dow Chemical Co. 383,325
------------------------------------------------------------------
5,000 Du Pont (E.I.) deNemours & Co., Inc. 281,250
------------------------------------------------------------------
10,400 Hanna, M.A. Co. 247,000
------------------------------------------------------------------
3,100 Monsanto Co. 218,550
------------------------------------------------------------------ ------------
Total 1,478,125
------------------------------------------------------------------ ------------
CHEMICALS-SPECIAL--0.6%
------------------------------------------------------------------
28,500 * Airgas, Inc. 605,625
------------------------------------------------------------------ ------------
COMMERCIAL SERVICES--2.0%
------------------------------------------------------------------
30,000 CPI Corp. 536,250
------------------------------------------------------------------
12,100 Manpower, Inc. 340,312
------------------------------------------------------------------
12,200 Ogden Corp. 228,750
------------------------------------------------------------------
</TABLE>
BAYFUNDS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- ----------------------------------------------------------------------------------
COMMERCIAL SERVICES--CONTINUED
------------------------------------------------------------------
17,200 Olsten Corp. $ 546,100
------------------------------------------------------------------
19,600 Rollins, Inc. 448,350
------------------------------------------------------------------ ------------
Total 2,099,762
------------------------------------------------------------------ ------------
COMPUTERS--10.2%
------------------------------------------------------------------
44,200 * 3Com Corp. 2,279,063
------------------------------------------------------------------
21,000 Adobe System, Inc. 624,750
------------------------------------------------------------------
14,400 * Cisco Systems, Inc. 505,800
------------------------------------------------------------------
31,600 * Compaq Computer Corp. 1,248,200
------------------------------------------------------------------
14,700 International Business Machines 1,080,450
------------------------------------------------------------------
14,100 * Microsoft Corp. 861,863
------------------------------------------------------------------
26,700 * Oracle System Corp. 1,178,138
------------------------------------------------------------------
16,000 * Quantum Corp. 242,000
------------------------------------------------------------------
31,700 * Sequent Computer Systems, Inc. 626,075
------------------------------------------------------------------
44,800 * Sun Microsystems, Inc. 1,590,400
------------------------------------------------------------------
38,600 * Tandem Computers, Inc. 661,025
------------------------------------------------------------------ ------------
Total 10,897,764
------------------------------------------------------------------ ------------
CONTAINERS--1.2%
------------------------------------------------------------------
24,000 Ball Corp. 756,000
------------------------------------------------------------------
16,000 * Sealed Air Corp. 580,000
------------------------------------------------------------------ ------------
Total 1,336,000
------------------------------------------------------------------ ------------
DIVERSIFIED--1.0%
------------------------------------------------------------------
57,000 * Raymond Corp. 1,054,500
------------------------------------------------------------------ ------------
DRUGS--4.5%
------------------------------------------------------------------
22,600 * Amgen, Inc. 1,333,400
------------------------------------------------------------------
22,400 * Cordis Corp. 1,355,200
------------------------------------------------------------------
13,100 * Forest Laboratories, Inc. 610,787
------------------------------------------------------------------
</TABLE>
BAYFUNDS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- ----------------------------------------------------------------------------------
DRUGS--CONTINUED
------------------------------------------------------------------
10,600 Johnson & Johnson $ 580,350
------------------------------------------------------------------
13,550 Schering-Plough, Inc. 1,002,700
------------------------------------------------------------------ ------------
Total 4,882,437
------------------------------------------------------------------ ------------
ELECTRICAL EQUIPMENT--1.0%
------------------------------------------------------------------
18,000 Ametek, Inc. 303,750
------------------------------------------------------------------
11,000 Augat, Inc. 207,625
------------------------------------------------------------------
12,200 Duracell International, Inc. 529,175
------------------------------------------------------------------ ------------
Total 1,040,550
------------------------------------------------------------------ ------------
ELECTRONICS--2.7%
------------------------------------------------------------------
5,250 Diebold, Inc. 215,906
------------------------------------------------------------------
30,800 * International Rectifier Co. 746,900
------------------------------------------------------------------
11,500 Linear Technology Corp. 569,250
------------------------------------------------------------------
5,700 Motorola, Inc. 329,888
------------------------------------------------------------------
15,300 Sensormatic Electronics Corp. 550,800
------------------------------------------------------------------
9,000 * Symbol Technologies, Inc. 277,875
------------------------------------------------------------------
7,700 Tektronix, Inc. 263,725
------------------------------------------------------------------ ------------
Total 2,954,344
------------------------------------------------------------------ ------------
ENTERTAINMENT--0.3%
------------------------------------------------------------------
6,200 Polygram, ADR 285,975
------------------------------------------------------------------ ------------
FINANCIAL SERVICES--3.4%
------------------------------------------------------------------
37,300 Equifax, Inc. 983,787
------------------------------------------------------------------
18,400 First Financial Mgmt. Corp. 1,133,900
------------------------------------------------------------------
34,800 Green Tree Financial Corp. 1,057,050
------------------------------------------------------------------
11,800 Reuters Hldgs. PLC, ADR 517,725
------------------------------------------------------------------ ------------
Total 3,692,462
------------------------------------------------------------------ ------------
</TABLE>
BAYFUNDS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- ----------------------------------------------------------------------------------
FOODS--2.5%
------------------------------------------------------------------
35,500 American Maize Products Co. $ 900,812
------------------------------------------------------------------
24,900 ConAgra, Inc. 778,125
------------------------------------------------------------------
34,700 IBP, Inc. 1,049,675
------------------------------------------------------------------ ------------
Total 2,728,612
------------------------------------------------------------------ ------------
HOSPITAL SUPPLIES & SERVICES--4.3%
------------------------------------------------------------------
21,000 * Biomet, Inc. 294,000
------------------------------------------------------------------
9,500 * HealthCare COMPARE Corp. 324,187
------------------------------------------------------------------
19,000 Invacare Corp. 650,750
------------------------------------------------------------------
22,200 Medtronic, Inc. 1,234,875
------------------------------------------------------------------
16,700 Omnicare, Inc. 732,712
------------------------------------------------------------------
22,200 Stryker Corp. 815,850
------------------------------------------------------------------
13,350 U.S. Healthcare, Inc. 550,688
------------------------------------------------------------------ ------------
Total 4,603,062
------------------------------------------------------------------ ------------
HOUSEHOLD FURNITURE/APPLIANCE--0.4%
------------------------------------------------------------------
7,500 Lancaster Colony Corp. 220,312
------------------------------------------------------------------
12,000 Newell Co. 252,000
------------------------------------------------------------------ ------------
Total 472,312
------------------------------------------------------------------ ------------
INDUSTRIAL MACHINERY--0.7%
------------------------------------------------------------------
16,700 * Applied Materials, Inc. 705,575
------------------------------------------------------------------ ------------
INSURANCE--3.2%
------------------------------------------------------------------
30,400 AFLAC, Inc. 972,800
------------------------------------------------------------------
15,900 AON Corp. 508,800
------------------------------------------------------------------
2,850 * Alleghany Corp. 433,200
------------------------------------------------------------------
10,400 American Premier Underwriters 269,100
------------------------------------------------------------------
25,200 Jefferson-Pilot Corp. 1,307,250
------------------------------------------------------------------ ------------
Total 3,491,150
------------------------------------------------------------------ ------------
</TABLE>
BAYFUNDS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- ----------------------------------------------------------------------------------
LODGING--0.3%
------------------------------------------------------------------
13,050 La Quinta Inns, Inc. $ 278,944
------------------------------------------------------------------ ------------
MACHINERY--2.0%
------------------------------------------------------------------
6,200 Briggs & Stratton Corp. 203,050
------------------------------------------------------------------
5,000 Caterpillar, Inc. 275,625
------------------------------------------------------------------
13,500 * Clark Equipment Corp. 732,375
------------------------------------------------------------------
18,000 Giddings & Lewis, Inc. 265,500
------------------------------------------------------------------
12,300 * Novellus Systems, Inc. 615,000
------------------------------------------------------------------ ------------
Total 2,091,550
------------------------------------------------------------------ ------------
METALS--1.2%
------------------------------------------------------------------
15,900 Handy & Harman 244,462
------------------------------------------------------------------
17,400 Phelps Dodge Corp. 1,076,625
------------------------------------------------------------------ ------------
Total 1,321,087
------------------------------------------------------------------ ------------
MISCELLANEOUS--0.7%
------------------------------------------------------------------
6,100 Danaher Corp. 318,725
------------------------------------------------------------------
5,600 Johnston Controls, Inc. 274,400
------------------------------------------------------------------
13,000 Quixote Corp. 143,000
------------------------------------------------------------------ ------------
Total 736,125
------------------------------------------------------------------ ------------
OFFICE EQUIPMENT--0.7%
------------------------------------------------------------------
15,250 * Cabletron Systems, Inc. 709,125
------------------------------------------------------------------ ------------
OFFICE EQUIPMENT-SERVICES--0.3%
------------------------------------------------------------------
5,900 Computer Associates International, Inc. 286,150
------------------------------------------------------------------ ------------
OIL-DOMESTIC--1.4%
------------------------------------------------------------------
14,500 Ashland Oil, Inc. 500,250
------------------------------------------------------------------
36,200 Sun, Inc. 1,040,750
------------------------------------------------------------------ ------------
Total 1,541,000
------------------------------------------------------------------ ------------
</TABLE>
BAYFUNDS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- ----------------------------------------------------------------------------------
OIL-INTERNATIONAL--6.4%
------------------------------------------------------------------
18,000 Amoco Corp. $ 1,064,250
------------------------------------------------------------------
27,214 British Petroleum, PLC 2,173,718
------------------------------------------------------------------
14,000 Chevron Corp. 624,750
------------------------------------------------------------------
9,550 Exxon Corp. 580,162
------------------------------------------------------------------
22,600 Mobil Corp. 1,904,050
------------------------------------------------------------------
4,800 Royal Dutch Petroleum Co. 516,000
------------------------------------------------------------------ ------------
Total 6,862,930
------------------------------------------------------------------ ------------
OIL-SUPPLIES & CONSTRUCTION--0.3%
------------------------------------------------------------------
11,100 Halliburton Co. 367,687
------------------------------------------------------------------ ------------
PAPER--2.6%
------------------------------------------------------------------
14,900 International Paper Co. 1,123,087
------------------------------------------------------------------
13,100 Mead Corp. 636,987
------------------------------------------------------------------
14,400 Scott Paper Co. 995,400
------------------------------------------------------------------ ------------
Total 2,755,474
------------------------------------------------------------------ ------------
PHOTO & OPTICAL--0.5%
------------------------------------------------------------------
16,500 Polaroid Corp. 536,250
------------------------------------------------------------------ ------------
PLASTICS--0.9%
------------------------------------------------------------------
21,900 Premark International, Inc. 980,025
------------------------------------------------------------------ ------------
PUBLISHING & PRINTING--0.7%
------------------------------------------------------------------
5,700 Belo (A.H.) Corp. 322,050
------------------------------------------------------------------
9,500 Meredith Corp. 442,938
------------------------------------------------------------------ ------------
Total 764,988
------------------------------------------------------------------ ------------
RAILROAD--0.6%
------------------------------------------------------------------
12,700 Illinois Cent. Corp. 390,525
------------------------------------------------------------------
7,900 Kansas City Southern Industries, Inc. 243,913
------------------------------------------------------------------ ------------
Total 634,438
------------------------------------------------------------------ ------------
</TABLE>
BAYFUNDS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- ----------------------------------------------------------------------------------
RESTAURANT/FOOD SERVICE--1.0%
------------------------------------------------------------------
27,600 McDonalds Corp. $ 807,300
------------------------------------------------------------------
12,200 Morrison Restaurants, Inc. 298,900
------------------------------------------------------------------ ------------
Total 1,106,200
------------------------------------------------------------------ ------------
RETAIL-DRUG--1.4%
------------------------------------------------------------------
38,700 Rite Aid Corp. 904,612
------------------------------------------------------------------
13,100 Walgreen Co. 573,125
------------------------------------------------------------------ ------------
Total 1,477,737
------------------------------------------------------------------ ------------
RETAIL-GENERAL--2.1%
------------------------------------------------------------------
9,025 Dayton Hudson Corp. 638,519
------------------------------------------------------------------
13,400 Fingerhut Corp. 207,700
------------------------------------------------------------------
23,700 Lowe's Companies, Inc. 823,575
------------------------------------------------------------------
25,800 * Office Depot, Inc. 619,200
------------------------------------------------------------------ ------------
Total 2,288,994
------------------------------------------------------------------ ------------
RETAIL-GROCERY--2.1%
------------------------------------------------------------------
31,200 * Kroger Co., Inc. 752,700
------------------------------------------------------------------
48,100 * Safeway, Inc. 1,533,187
------------------------------------------------------------------ ------------
Total 2,285,887
------------------------------------------------------------------ ------------
RETAIL-SPECIAL LINE--2.7%
------------------------------------------------------------------
31,200 * Best Buy, Inc. 975,000
------------------------------------------------------------------
7,250 Blair Corp. 290,000
------------------------------------------------------------------
34,900 * Burlington Coat Factory 410,075
------------------------------------------------------------------
17,900 Gap, Inc. 545,950
------------------------------------------------------------------
10,925 Limited, Inc. 198,016
------------------------------------------------------------------
13,900 * Michaels Stores, Inc. 483,025
------------------------------------------------------------------ ------------
Total 2,902,066
------------------------------------------------------------------ ------------
</TABLE>
BAYFUNDS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- ----------------------------------------------------------------------------------
SHOES/LEATHER--0.8%
------------------------------------------------------------------
7,000 Reebok International, Ltd. $ 276,500
------------------------------------------------------------------
24,500 Wolverine World Wide, Inc. 630,875
------------------------------------------------------------------ ------------
Total 907,375
------------------------------------------------------------------ ------------
SOAPS & TOILETRIES--2.7%
------------------------------------------------------------------
21,200 Colgate-Palmolive Co. 1,343,550
------------------------------------------------------------------
20,200 Gillette Co. 1,509,950
------------------------------------------------------------------ ------------
Total 2,853,500
------------------------------------------------------------------ ------------
STEEL--0.2%
------------------------------------------------------------------
4,700 Nucor Corp. 260,850
------------------------------------------------------------------ ------------
TELECOMMUNICATIONS--2.8%
------------------------------------------------------------------
6,100 * ADC Telecommunications, Inc. 305,000
------------------------------------------------------------------
30,400 * Andrew Corp. 1,588,400
------------------------------------------------------------------
22,400 Telecommunication Corp. of New Zealand, ADR 1,150,800
------------------------------------------------------------------ ------------
Total 3,044,200
------------------------------------------------------------------ ------------
TEXTILES--0.3%
------------------------------------------------------------------
7,900 Springs Industries, Inc. 292,300
------------------------------------------------------------------ ------------
TOBACCO--1.0%
------------------------------------------------------------------
14,300 American Brands 536,250
------------------------------------------------------------------
10,200 Philip Morris Cos., Inc. 586,500
------------------------------------------------------------------ ------------
Total 1,122,750
------------------------------------------------------------------ ------------
TRUCKING & SHIPPING--1.5%
------------------------------------------------------------------
12,800 * Federal Express Corp. 771,200
------------------------------------------------------------------
13,800 Werner Enterprises, Inc. 327,750
------------------------------------------------------------------
10,200 Xtra Corp. 459,000
------------------------------------------------------------------ ------------
Total 1,557,950
------------------------------------------------------------------ ------------
UTILITY-ELECTRIC--2.2%
------------------------------------------------------------------
43,600 American Electric Power Co., Inc. 1,433,350
------------------------------------------------------------------
2,375 Dominion Resources, Inc. 84,906
------------------------------------------------------------------
</TABLE>
BAYFUNDS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- ---------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- ----------------------------------------------------------------------------------
UTILITY-ELECTRIC--CONTINUED
------------------------------------------------------------------
7,900 Houston Industries, Inc. $ 281,438
------------------------------------------------------------------
13,400 Northern States Power Co., MN 589,600
------------------------------------------------------------------ ------------
Total 2,389,294
------------------------------------------------------------------ ------------
UTILITY-TELEPHONE--3.2%
------------------------------------------------------------------
27,300 Ameritech Corp. 1,102,238
------------------------------------------------------------------
7,300 BellSouth Corp. 395,113
------------------------------------------------------------------
12,400 GTE Corp. 376,650
------------------------------------------------------------------
28,400 Sprint Corp. 784,550
------------------------------------------------------------------
10,500 Telefonos De Mexico Sa., ADR 430,500
------------------------------------------------------------------
8,300 U.S. West, Inc. 295,687
------------------------------------------------------------------ ------------
Total 3,384,738
------------------------------------------------------------------ ------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $95,872,274) 101,778,748
------------------------------------------------------------------ ------------
**REPURCHASE AGREEMENT--1.9%
- ----------------------------------------------------------------------------------
$2,080,000 Aubrey G. Lanston & Co., Inc., 5.75%, dated 12/30/94, due 1/3/95
(AT AMORTIZED COST) 2,080,000
------------------------------------------------------------------ ------------
TOTAL INVESTMENTS (IDENTIFIED COST, $97,952,274) $103,858,748+
------------------------------------------------------------------ ------------
</TABLE>
* Non-income producing.
** Repurchase agreement is fully collateralized by U.S. Treasury obligations
based on market prices at the date of the portfolio.
+ The cost of investments for federal tax purposes amounts to $98,034,048. The
net unrealized appreciation of investments on a federal tax basis amounts to
$5,824,700, which is comprised of $10,784,882 appreciation and $4,960,182
depreciation at December 31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($107,214,946) at December 31, 1994.
The following abbreviation is used in this portfolio:
ADR--American Depositary Receipt
(See Notes which are integral part of the Financial Statements)
BAYFUNDS EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------
Investments at value (identified cost, $97,952,274, and tax cost, $98,034,048) $103,858,748
- -------------------------------------------------------------------------------
Cash 7,777
- -------------------------------------------------------------------------------
Receivable for investments sold 3,592,114
- -------------------------------------------------------------------------------
Income receivable 107,063
- -------------------------------------------------------------------------------
Receivable for Shares sold 5,469
- -------------------------------------------------------------------------------
Deferred expenses 42,043
- ------------------------------------------------------------------------------- ------------
Total assets 107,613,214
- -------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------
Payable for Shares redeemed $350,420
- --------------------------------------------------------------------
Accrued expenses 47,848
- -------------------------------------------------------------------- --------
Total liabilities 398,268
- ------------------------------------------------------------------------------- ------------
NET ASSETS FOR 10,175,595 Shares outstanding $107,214,946
- ------------------------------------------------------------------------------- ------------
NET ASSETS CONSISTS OF:
- -------------------------------------------------------------------------------
Paid-in capital $103,919,258
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 5,906,474
- -------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (2,628,517)
- -------------------------------------------------------------------------------
Undistributed net investment income 17,731
- ------------------------------------------------------------------------------- ------------
Total Net Assets $107,214,946
- ------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- -------------------------------------------------------------------------------
Investment Shares ($28,902,627 / 2,743,093 Shares outstanding) $10.54
- ------------------------------------------------------------------------------- ------------
Institutional Shares ($78,312,319 / 7,432,502 Shares outstanding) $10.54
- ------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------
Interest $ 383,403
- --------------------------------------------------------------------------------
Dividends 2,030,614
- -------------------------------------------------------------------------------- -----------
Total income 2,414,017
- --------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------
Investment advisory fee $816,295
- ---------------------------------------------------------------------
Administrative personnel and services fee 122,769
- ---------------------------------------------------------------------
Custodian fees 29,689
- ---------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees 39,135
- ---------------------------------------------------------------------
Trustees' fees 5,012
- ---------------------------------------------------------------------
Auditing fees 14,431
- ---------------------------------------------------------------------
Legal fees 9,535
- ---------------------------------------------------------------------
Portfolio accounting fees 59,627
- ---------------------------------------------------------------------
Share registration costs 39,299
- ---------------------------------------------------------------------
Printing and postage 39,437
- ---------------------------------------------------------------------
Insurance premiums 7,215
- ---------------------------------------------------------------------
Miscellaneous 8,320
- ---------------------------------------------------------------------
Shareholder services fee--Investment Shares 74,250
- --------------------------------------------------------------------- --------
Total expenses 1,265,014
- -------------------------------------------------------------------------------- -----------
Net Investment Income 1,149,003
- -------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------
Net realized gain (loss) on investments (538,539)
- --------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (4,173,943)
- -------------------------------------------------------------------------------- -----------
Net realized and unrealized gain (loss) on investments (4,712,482)
- -------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations ($3,563,479)
- -------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------------
1994 1993*
------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------
Net investment income $ 1,149,003 $ 1,251,973
- ----------------------------------------------------------------
Net realized gain (loss) on investments ($456,765 and $2,089,978
net loss, respectively, as computed for federal tax purposes) (538,539) (2,089,978)
- ----------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of
investments (4,173,943) 10,080,417
- ---------------------------------------------------------------- ------------- ------------
Change in net assets resulting from operations (3,563,479) 9,242,412
- ---------------------------------------------------------------- ------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------
Distributions from net investment income:
- ----------------------------------------------------------------
Investment Shares (245,091) (1,237,046)
- ----------------------------------------------------------------
Institutional Shares (901,108) --
- ---------------------------------------------------------------- ------------- ------------
Change in net assets resulting from distributions
to shareholders (1,146,199) (1,237,046)
- ---------------------------------------------------------------- ------------- ------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------------
Proceeds from sale of Shares 118,436,160 113,880,236
- ----------------------------------------------------------------
Net asset value of Shares issued to shareholders in payment
of distributions declared 251,323 214,740
- ----------------------------------------------------------------
Cost of Shares redeemed (118,449,884) (10,413,317)
- ---------------------------------------------------------------- ------------- ------------
Change in net assets resulting from Share transactions 237,599 103,681,659
- ---------------------------------------------------------------- ------------- ------------
Change in net assets (4,472,079) 111,687,025
- ----------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------
Beginning of period 111,687,025 --
- ---------------------------------------------------------------- ------------- ------------
End of period (including undistributed net investment income
of $17,731 and $14,927, respectively) $ 107,214,946 $111,687,025
- ---------------------------------------------------------------- ------------- ------------
</TABLE>
* For the period from January 29, 1993 (date of initial public investment) to
December 31, 1993.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS--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%
- -----------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from January 29, 1993 (date of initial
public investment) to December 31, 1993.
** Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge,
if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(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)
<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)
BAYFUNDS INCOME AND EQUITY PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
BayFunds (the "Trust") is registered under the Investment Company Act of 1940,
as amended (the "Act"), as an open-end, management investment company. The Trust
consists of five diversified portfolios. The following Funds comprise the Trust:
<TABLE>
<S> <C>
FUND NAME CLASSES OF SHARES
- ---------------------------------------------------------- ---------------------------------
BayFunds U.S. Treasury Money Market Portfolio Investment and Institutional
BayFunds Money Market Portfolio Investment and Trust
BayFunds Short Term Yield Portfolio Investment and Institutional
BayFunds Bond Portfolio Investment and Institutional
BayFunds Equity Portfolio Investment and Institutional
</TABLE>
The financial statements of the following Funds (individually referred to as the
"Fund", or collectively as the "Funds") are presented herein:
<TABLE>
<S> <C>
FUND NAME
- ----------------------------------------------------------
BayFunds Short Term Yield Portfolio ("Short Term Yield Fund")
BayFunds Bond Portfolio ("Bond Fund")
BayFunds Equity Portfolio ("Equity Fund")
</TABLE>
The financial statements of the other Funds are presented separately. The assets
of each Fund are segregated and a shareholder's interest is limited to the Fund
in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. These
policies are in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
INVESTMENT VALUATIONS--U.S. government securities are generally valued at the bid prices
as furnished by an independent pricing service. Corporate bonds (and other fixed-income
and asset- backed securities) are valued at the last sale price reported on national
securities exchanges on that day, if available. Otherwise, corporate bonds (and other
fixed-income and asset-backed securities) and short-term securities are valued at the
prices provided by an independent pricing service. Listed equity securities are valued at
the last sale price reported on national securities exchanges. Unlisted securities (and
private placement securities) are generally valued at the prices provided by an
independent pricing service. Short-term securities with remaining maturities of sixty
days or less may be valued at amortized cost, which approximates fair market value.
</TABLE>
BAYFUNDS INCOME AND EQUITY PORTFOLIOS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
REPURCHASE AGREEMENTS--It is the policy of the Funds to require a custodian bank to take
possession, to have legally segregated in the Federal Reserve Book Entry System, or to
have segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been established
by the Funds to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least equals the amount
of the repurchase agreement, including accrued interest.
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' adviser to
be creditworthy pursuant to the guidelines and/or standards reviewed or established by
the Board of Trustees (the "Trustees").
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Interest income and expenses are
accrued daily. Bond premium and discount, if applicable, are amortized as required by the
Internal Revenue Code, as amended (the "Code").
FEDERAL TAXES--It is the Funds' policy to comply with the provisions of the Code
applicable to regulated investment companies and to distribute to shareholders each year
substantially all of their income. Accordingly, no provisions for federal tax are
necessary.
At December 31, 1994, the Short Term Yield Portfolio, Bond Portfolio and Equity
Portfolio, for federal tax purposes, had capital loss carryforwards of $11,605,114,
$2,261,500 and $2,546,743, respectively, which will reduce the Funds' taxable income
arising from future net realized gain on investments, if any, to the extent permitted by
the Code, and thus will reduce the amount of the distributions to shareholders which
would otherwise be necessary to relieve the Funds of any liability for federal tax.
Pursuant to the Code, such capital loss carryforwards will expire in 2001 ($70,866) and
2002 ($11,534,248) for the Short Term Yield Fund, 2002 ($2,261,500) for the Bond Fund and
2001 ($2,089,978) and 2002 ($456,765) for the Equity Fund.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Funds may engage in when-issued or
delayed delivery transactions. The Funds record when-issued securities on the trade date
and maintain security positions such that sufficient liquid assets will be available to
make payment for the securities purchased. Securities purchased on a when-issued or
delayed delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES--The costs incurred by the Funds with respect to registration of their
shares in their first fiscal year, excluding the initial expense of registering the
shares, have been deferred and are being amortized using the straight-line method not to
exceed a period of five years from the Funds' commencement dates.
OTHER--Investment transactions are accounted for on the trade date.
</TABLE>
BAYFUNDS INCOME AND EQUITY PORTFOLIOS
- --------------------------------------------------------------------------------
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
----------------------------------------------------------------------------------------
SHORT TERM YIELD FUND BOND FUND EQUITY FUND
---------------------------- -------------------------- --------------------------
INVESTMENT SHARES SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ------------------------ ----------- ------------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 1,918,640 $ 18,619,735 230,919 $ 2,260,644 1,287,398 $ 13,811,479
- ------------------------
Shares issued to
shareholders in payment
of dividends declared 233,107 2,224,668 28,437 275,587 22,876 240,568
- ------------------------
Shares redeemed (15,805,052) (154,332,616) (7,414,329) (74,732,279) (8,743,159) (94,789,797)
- ------------------------ ----------- ------------- ---------- ------------ ---------- ------------
Net change resulting
from Investment share
transactions (13,653,305) ($133,488,213) (7,154,973) ($72,196,048) (7,432,885) ($80,737,750)
- ------------------------ ----------- ------------- ---------- ------------ ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
SHORT TERM YIELD FUND BOND FUND EQUITY FUND
---------------------------- -------------------------- --------------------------
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ------------------------ ----------- ------------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 10,916,607 $ 107,829,147 8,080,115 $ 81,136,106 9,663,093 $104,624,681
- ------------------------
Shares issued to
shareholders in payment
of dividends declared 11 104 5,035 47,717 1,027 10,755
- ------------------------
Shares redeemed (4,739,491) (45,121,271) (2,069,077) (20,124,093) (2,231,618) (23,660,087)
- ------------------------ ----------- ------------- ---------- ------------ ---------- ------------
Net change resulting
from Institutional
share transactions 6,177,127 62,707,980 6,016,073 61,059,730 7,432,502 80,975,349
- ------------------------ ----------- ------------- ---------- ------------ ---------- ------------
Total net change
resulting from Fund
share transactions (7,476,178) ($ 70,780,233) (1,138,900) ($11,136,318) (383) $ 237,599
- ------------------------ ----------- ------------- ---------- ------------ ---------- ------------
</TABLE>
BAYFUNDS INCOME AND EQUITY PORTFOLIOS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
--------------------------------------------------------------------------------------
SHORT TERM YIELD FUND BOND FUND EQUITY FUND
--------------------------- ------------------------- --------------------------
INVESTMENT SHARES* SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -------------------------- ----------- ------------ ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 21,881,054 $218,527,684 8,380,954 $84,401,252 11,146,082 $113,880,236
- --------------------------
Shares issued to
shareholders in payment of
dividends declared 161,469 1,608,290 17,528 180,690 19,788 214,740
- --------------------------
Shares redeemed (4,564,213) (45,489,236) (697,818) (7,159,508) (989,892) (10,413,317)
- -------------------------- ----------- ------------ ---------- ----------- ---------- ------------
Net change resulting
from Investment share
transactions 17,478,310 174,646,738 7,700,664 77,422,434 10,175,978 103,681,659
- -------------------------- ----------- ------------ ---------- ----------- ---------- ------------
Total net change
resulting from Fund
share transactions 17,478,310 $174,646,738 7,700,664 $77,422,434 10,175,978 $103,681,659
- -------------------------- ----------- ------------ ---------- ----------- ---------- ------------
</TABLE>
* For the period from January 29, 1993 (date of initial public investment) to
December 31, 1993.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--BayBanks Investment Management, Inc., the Trust's
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee based on a percentage of each Fund's average daily net
assets (see below). The Adviser may voluntarily choose to waive all or a portion
of its fee. The Adviser can modify or terminate this voluntary waiver at any
time at its sole discretion.
<TABLE>
<CAPTION>
ANNUAL
FUND RATE
- ----------------------------- -----------------------------
<S> <C> <C>
Short Term Yield Fund 0.50%
Bond Fund 0.60%
Equity Fund 0.70%
</TABLE>
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Funds
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with BayBank Systems, Inc., the Funds will pay BayBank Systems, Inc. up to 0.25
of 1% of the average net assets of the Investment Shares for the period. This
fee is to obtain certain services for shareholders and to maintain the
shareholder accounts.
BAYFUNDS INCOME AND EQUITY PORTFOLIOS
- --------------------------------------------------------------------------------
PORTFOLIO ACCOUNTING FEES--Federated Services Company ("FServ") maintains the
Funds' accounting records. The fee is based on the level of the Funds' average
net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses were borne initially by FAS.
The Funds have agreed to reimburse FAS for the organizational expenses during
the five year period following December 31, 1993 (the date the Funds became
effective). For the year ended December 31, 1994, the Funds paid FAS as follows:
<TABLE>
<CAPTION>
INITIAL ORGANIZATIONAL
FUND ORGANIZATIONAL EXPENSES EXPENSES REIMBURSED
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Short Term Yield Fund $50,458 6,773
Bond Fund $52,861 7,108
Equity Fund $48,533 6,741
</TABLE>
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities and in kind
conversions, for the year ended December 31, 1994, were as follows:
<TABLE>
<CAPTION>
FUND PURCHASES SALES
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Short Term Yield Fund $174,063,208 $260,914,990
Bond Fund $ 80,672,384 $ 98,590,147
Equity Fund $117,289,730 $115,952,186
</TABLE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
BAYFUNDS:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of BayFunds Short Term Yield Portfolio, BayFunds
Bond Portfolio, and BayFunds Equity Portfolio (portfolios of BayFunds) as of
December 31, 1994, and the related statements of operations for the year then
ended and the statements of changes in net assets, and financial highlights for
the year ended December 31, 1994 and for the period from January 29, 1993 (date
of initial public investment) to December 31, 1993. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994, by correspondence with the custodian and broker. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
BayFunds Short Term Yield Portfolio, BayFunds Bond Portfolio, and BayFunds
Equity Portfolio at December 31, 1994, and the results of their operations for
the year then ended and the changes in their net assets and financial highlights
for the year ended December 31, 1994 and for the period from January 29, 1993 to
December 31, 1993, presented in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
February 6, 1995
<TABLE>
<S> <C>
TRUSTEES OFFICERS
- ---------------------------------------------------------------------------------------------
Kenneth G. Condon Glen R. Johnson
Robert W. Eisenmenger President and Treasurer
Sara L. Johnson C. Christine Thomson
Ernest R. May Vice President and Assistant Treasurer
Alvin J. Silk Peter J. Germain
Secretary
Victor R. Siclari
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or FDIC insured and are not obligations of,
or guaranteed by, BayBank, nor are they federally insured or guaranteed. Your
investment return and principal value will fluctuate so when shares are
redeemed, they may be worth more or less than original cost.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Portfolios' combined prospectus which contains
facts concerning their objectives and policies, management fees, expenses and
other information.
APPENDIX A
A. The graphic presentation is a line graph displaying the change in
value of hypothetical $10,000 purchases of the BayFunds Short Term Yield
Portfolio-Investment Shares (the "Fund") and the Merrill Lynch 1-3 Year
U.S. Treasury Index (the "Index"). The Fund is represented by a bold
line. The Index is represented by a dotted line. The "y" axis reflects
the cost of the investment. The "x" axis reflects computation periods
from the Fund's start of performance, January 29, 1993, through December
31, 1994. The ending value of the hypothetical investment in the Fund
is $10,039. The ending value of the hypothetical investment in the
Index is $10,492. These values are stated in the right margin.
APPENDIX B
A. The graphic presentation is a line graph displaying the change in
value of hypothetical $10,000 purchases of the BayFunds Short Term Yield
Portfolio-Institutional Shares (the "Fund") and the Merrill Lynch 1-3
Year U.S. Treasury Index (the "Index"). The Fund is represented by a
bold line. The Index is represented by a dotted line. The "y" axis
reflects the cost of the investment. The "x" axis reflects computation
periods from the Fund's start of performance, December 31, 1993, through
December 31, 1994. The ending value of the hypothetical investment in
the Fund is $9,681. The ending value of the hypothetical investment in
the Index is $10,057. These values are stated in the right margin.
APPENDIX C
A. The graphic presentation is a line graph displaying the change in
value of hypothetical $10,000 purchases of the BayFunds Bond Portfolio-
Investment Shares (the "Fund") and the Lehman Brothers Intermediate
Government/Corporate Index (the "Index"). The Fund is represented by a
bold line. The Index is represented by a dotted line. The "y" axis
reflects the cost of the investment. The "x" axis reflects computation
periods from the Fund's start of performance, January 29, 1993, through
December 31, 1994. The ending value of the hypothetical investment in
the Fund is $10,541. The ending value of the hypothetical investment in
the Index is $10,465. These values are stated in the right margin.
APPENDIX D
A. The graphic presentation is a line graph displaying the change in
value of hypothetical $10,000 purchases of the BayFunds Bond Portfolio-
Institutional Shares (the "Fund") and the Lehman Brothers Intermediate
Government/Corporate Index (the "Index"). The Fund is represented by a
bold line. The Index is represented by a dotted line. The "y" axis
reflects the cost of the investment. The "x" axis reflects computation
periods from the Fund's start of performance, December 31, 1993, through
December 31, 1994. The ending value of the hypothetical investment in
the Fund is $9,786. The ending value of the hypothetical investment in
the Index is $9,807. These values are stated in the right margin.
APPENDIX E
A. The graphic presentation is a line graph displaying the change in
value of hypothetical $10,000 purchases of the BayFunds Equity Portfolio-
Investment Shares (the "Fund") and the Standard & Poor's 500 Index (the
"Index"). The Fund is represented by a bold line. The Index is
represented by a dotted line. The "y" axis reflects the cost of the
investment. The "x" axis reflects computation periods from the Fund's
start of performance, January 29, 1993, through December 31, 1994. The
ending value of the hypothetical investment in the Fund is $10,769. The
ending value of the hypothetical investment in the Index is $11,046.
These values are stated in the right margin.
APPENDIX F
A. The graphic presentation is a line graph displaying the change in
value of hypothetical $10,000 purchases of the BayFunds Equity Portfolio-
Institutional Shares (the "Fund") and the Standard & Poor's 500 Index
(the "Index"). The Fund is represented by a bold line. The Index is
represented by a dotted line. The "y" axis reflects the cost of the
investment. The "x" axis reflects computation periods from the Fund's
start of performance, December 31, 1993, through December 31, 1994. The
ending value of the hypothetical investment in the Fund is $9,702. The
ending value of the hypothetical investment in the Index is $10,132.
These values are stated in the right margin.
