1933 Act File No. 33-39717
1940 Act File No. 811-6296
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. ..........
Post-Effective Amendment No. 11 .......... X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 11 ......................... X
BAYFUNDS
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
x on February 29, 1996 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
75 days after filing pursuant to paragraph (a)(ii)
on pursuant to paragraph (a)(ii) of Rule 485.
-----------------
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has filed with the Securities and Exchange Commission a declaration
pursuant to Rule 24f-2 under the Investment Company Act of 1940, and:
x filed the Notice required by that Rule on February 15, 1996; or
intends to file the Notice required by that Rule on or about ;
------------
or
during the most recent fiscal year did not sell any securities pursuant to
Rule 24f-2 under the Investment Company Act of 1940, and, pursuant to
Rule 24f-2(b)(2), need not file the Notice.
Copies To:
Margaret A. Sheehan John R. Dudley
Ropes & Gray Sullivan & Worchester
1301 K Street, N.W. 1025 Connecticut Avenue, N.W.
Suite 800, East Washington, DC 20036
Washington, DC 20005
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of BAYFUNDS, which is
comprised of five portfolios (1) BayFunds Money Market Portfolio consisting of
two classes of shares, (a) Trust Shares and (b) Investment Shares; (2)
BayFunds U.S. Treasury Money Market Portfolio consisting of two classes of
shares, (a) Institutional Shares and (b) Investment Shares; (3) BayFunds Bond
Portfolio consisting of two classes of shares, (a) Institutional Shares and
(b) Investment Shares; (4) BayFunds Equity Portfolio consisting of two classes
of shares, (a) Institutional Shares and (b) Investment Shares; and (5)
BayFunds Short Term Yield Portfolio consisting of two classes of shares, (a)
Institutional Shares and (b) Investment Shares relates to all classes of all
portfolios, and is comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page...............(1-5) Cover Page.
Item 2. Synopsis.................(1-5) General Information; (1-5) Summary of
Fund Expenses.
Item 3. Condensed Financial
Information..............(1-5) Financial Highlights; (1-5)
Performance Information.
Item 4. General Description of
Registrant............... (1-5) Key Facts; (1-5) General
Information; (1-5) Matching the Funds to
Your Investment Needs; (1-5) Investment
Objective and Policies; (1-5) Portfolio
Investments; (1-5) Investment Limitations.
Item 5. Management of the Fund...(1,5) Management Distribution and
Administration; (1-2) Investment Advisers;
(3-5) Investment Adviser; (1-5) Authority
to Act as Investment Adviser;
Administrative Arrangements; Administrative
Services; Shareholder Servicing Agent.
Item 6. Capital Stock and Other
Securities...............(1-5) Minimum Balance; Dividends and
Distributions; Confirmations and
Statements; Voting Rights; Tax Information;
Federal Income Tax.
Item 7. Purchase of Securities Being
Offered..................(1-5) Shareholder Manual; (1-5) Pricing of
Shares; (1-5) Additional Information you
Should Know; (1-5) Minimum Investment;
(1b,2b,3b,4b,5b) How to Buy Investment
Shares; (1a, 2a) How to Buy Institutional
and/or Trust Shares; (3a,4a,5a) How to Buy
Institutional Shares.
Item 8. Redemption or Repurchase.(1b, 2b, 3b, 4b, 5b) How to Exchange
Investment Shares; (1b, 2b, 3b, 4b, 5b) How
to Redeem Investment Shares; (1a, 2a) How
to Exchange Institutional and/or Trust
Shares; (1a, 2a) How to Redeem
Institutional and/or Trust Shares; (3a, 4a,
5a) How to Exchange Institutional Shares;
How to Redeem Institutional Shares.
Item 9. Pending Legal Proceedings None.
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page...............(1-5) Cover Page.
Item 11. Table of Contents........(1-5) Table of Contents.
Item 12. General Information and
History..................(1-5) General Information About the Funds.
Item 13. Investment Objectives and
Policies.................(1-5) Investment Objective and Policies of
the Funds; Types of Investments; Investment
Limitations.
Item 14. Management of the Fund...(1-5) BayFunds Management.
Item 15. Control Persons and Principal
Holders of Securities....(1-5) Fund Ownership.
Item 16. Investment Advisory and Other
Services.................(1-5) Investment Advisory Services;
Shareholder Servicing Arrangements; Other
Services; Fund Administration; Transfer
Agent, Dividend Disbursing Agent and
Portfolio Accounting Services; Custodian;
Independent Auditors; Legal Counsel.
Item 17. Brokerage Allocation.....Brokerage Transactions.
Item 18. Capital Stock and Other
Securities...............(1-5) Massachusetts Law.
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered (1-5) Purchasing Shares; Determining
Net Asset Value; Exchange Privileges;
Redeeming Shares.
Item 20. Tax Status...............(1-5) Tax Status.
Item 21. Underwriters.............Not Applicable.
Item 22. Calculation of Performance
Data.....................(1-5) Total Return; Yield; Performance
Comparisons; (1-2) Effective Yield; (1-5)
Appendix.
Item 23. Financial Statements.....(1-5) Incorporated by reference to Annual
Reports dated December 31, 1995.
MONEY MARKET
PORTFOLIOS
U.S. Treasury
Money Market Portfolio
Investment Shares/Institutional Shares
Money Market Portfolio
Investment Shares/Trust Shares
PROSPECTUS
BayBank, N.A.
Investment Adviser for U.S. Treasury Money Market Portfolio
BayBanks Investment Management, Inc.
Investment Adviser for Money Market Portfolio
Federated Securities Corp.
Distributor
March 1, 1996
[LOGO] Printed on recycled paper
G00981-02 (2/96)
Z00402
Mutual Funds at BayBank
BayFunds
BAYFUNDS[LOGO]
MONEY MARKET FUNDS
INVESTMENT SHARES,
INSTITUTIONAL SHARES AND TRUST SHARES
PROSPECTUS
The shares offered in this prospectus represent interests in the INVESTMENT
SHARES, INSTITUTIONAL SHARES, and TRUST SHARES ("Shares") of the following money
market portfolios (individually referred to as a "Fund" or collectively as the
"Funds") of BayFunds, an open-end, management investment company (a mutual
fund):
MONEY MARKET FUNDS
- BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO -- INVESTMENT SHARES AND
INSTITUTIONAL SHARES
- BAYFUNDS MONEY MARKET PORTFOLIO -- INVESTMENT SHARES AND TRUST SHARES
The Funds offer a convenient means of accumulating an interest in a
professionally managed, diversified portfolio of securities. INVESTMENT SHARES
of the Funds are sold primarily to individuals who purchase the Funds through
BayBanks and its affiliates. INSTITUTIONAL SHARES of BAYFUNDS U.S. TREASURY
MONEY MARKET PORTFOLIO are sold to BayBank, N.A., its affiliated and
correspondent banks and other institutions investing for their own account and
on behalf of customers maintaining accounts at such banks and institutions.
TRUST SHARES of BAYFUNDS MONEY MARKET PORTFOLIO are sold to trusts, fiduciaries
and institutions. Shareholders can invest, reinvest, or redeem Shares with no
sales loads or redemption fees imposed by the Funds. Shareholders have access to
other portfolios in BayFunds.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND
ARE NOT ENDORSED OR GUARANTEED BY BAYBANKS, INC., OR ITS SUBSIDIARIES, AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
AN INVESTMENT IN THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUNDS ATTEMPT TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO DO SO.
This prospectus contains the information you should read and know before you
invest in the Funds. Keep this prospectus for future reference.
The Funds have also filed a combined Statement of Additional Information dated
March 1, 1996, with the Securities and Exchange Commission. The information
contained in the combined Statement of Additional Information is incorporated by
reference into this prospectus. To request a copy of the combined Statement of
Additional Information or a paper copy of this prospectus (if you have received
your prospectus electronically) free of charge, shareholders of INVESTMENT
SHARES can call toll-free 1-800-BAY-FUND (1-800-229-3863); shareholders of
INSTITUTIONAL SHARES or TRUST SHARES can call BayBanks Trust Department in
Massachusetts at (617) 273-1700 or toll-free 1-800-462-9999; and BayBanks
Capital Markets customers should call 1-800-554-3311.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated March 1, 1996
- ------------------------------------------------------
- ------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
KEY FACTS
General Information.......................................................... 1
Summary of Fund Expenses..................................................... 2
Financial Highlights......................................................... 6
- --------------------------------------------------------------------------------
MATCHING THE FUNDS TO YOUR INVESTMENT NEEDS
Investment Objective and Policies............................................. 7
U.S. Treasury Fund....................................................... 7
Money Market Fund........................................................ 7
Portfolio Investments......................................................... 8
Investment Limitations....................................................... 12
- --------------------------------------------------------------------------------
SHAREHOLDER MANUAL
Pricing of Shares............................................................ 13
How to Buy Investment Shares................................................. 13
How to Exchange Investment
Shares.................................................................... 15
How To Redeem Investment
Shares.................................................................... 17
How to Buy Institutional Shares
and/or Trust Shares....................................................... 19
How to Exchange Institutional
Shares and/or Trust Shares................................................ 21
How To Redeem Institutional
Shares and/or Trust Shares................................................ 21
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION YOU SHOULD KNOW
Minimum Balance.............................................................. 23
Dividends and Distributions.................................................. 24
Tax Information.............................................................. 24
Performance Information...................................................... 25
Management, Distribution and
Administration............................................................ 25
Code of Ethics Compliance.................................................... 30
- ------------------------------------------------------
- ------------------------------------------------------
KEY FACTS
GENERAL INFORMATION
BayFunds offers you a convenient and affordable way to participate in five
separate, professionally managed, diversified investment portfolios with
distinct investment objectives and policies. This prospectus relates only to the
INVESTMENT SHARES and INSTITUTIONAL SHARES of BAYFUNDS U.S. TREASURY MONEY
MARKET PORTFOLIO ("U.S. TREASURY FUND") and to the INVESTMENT SHARES and TRUST
SHARES of BAYFUNDS MONEY MARKET PORTFOLIO ("MONEY MARKET FUND") (individually, a
"Fund" and collectively, the "Funds").
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------
- BAYFUNDS U.S. TREASURY MONEY MARKET
PORTFOLIO SEEKS TO PROVIDE CURRENT IN-
COME CONSISTENT WITH STABILITY OF
PRINCIPAL AND LIQUIDITY BY INVESTING IN
A PORTFOLIO CONSISTING PRIMARILY OF
SHORT-TERM U.S. TREASURY OBLIGATIONS
WITH REMAINING MATURITIES OF 397 DAYS
OR LESS.
- BAYFUNDS MONEY MARKET PORTFOLIO SEEKS
TO PROVIDE CURRENT INCOME CONSISTENT
WITH STABILITY OF PRINCIPAL AND
LIQUIDITY BY INVESTING IN A PORTFOLIO
OF MONEY MARKET INSTRUMENTS WITH RE-
MAINING MATURITIES OF 397 DAYS OR LESS.
- ----
</TABLE>
As of the date of this prospectus, BayFunds offers shares in three other
portfolios:
- BAYFUNDS BOND PORTFOLIO seeks to achieve high current income and capital
appreciation by investing, under normal market and economic conditions, at
least 65% of the value of its total assets in bonds. The Fund will maintain
a dollar-weighted average maturity of twelve years or less.
- BAYFUNDS SHORT TERM YIELD PORTFOLIO seeks a high level of current income
consistent with preservation of capital by investing in a diversified
portfolio of high-grade debt obligations. This Fund will maintain a
dollar-weighted average portfolio maturity of three years or less.
- - BAYFUNDS EQUITY PORTFOLIO seeks to provide long-term capital appreciation by
investing, under normal market and economic conditions, at least 65% of its
assets in a broadly diversified portfolio of equity securities, with current
income as a secondary investment consideration.
- ------------------------------------------------------
- ------------------------------------------------------
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
BAYFUNDS MONEY MARKET PORTFOLIO
SUMMARY OF FUND EXPENSES -- INVESTMENT SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
U.S. MONEY
TREASURY MARKET
FUND FUND
---------- ---------
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)............................. None None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)............................. None None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)........... None None
Redemption Fees (as a percentage of amount redeemed,
if applicable).................................................. None None
Exchange Fee...................................................... None None
</TABLE>
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
U.S. MONEY
TREASURY MARKET
FUND FUND
---------- ---------
<S> <C> <C> <C> <C>
Management Fee.................................................... 0.20% 0.40%
12b-1 Fee......................................................... None None
Total Other Expenses.............................................. 0.43% 0.47%
Shareholder Servicing Fees............................. 0.25% 0.25%
Other Expenses......................................... 0.18% 0.22%
Total Operating Expenses................................ 0.63% 0.87%
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
BAYFUNDS MONEY MARKET PORTFOLIO
SUMMARY OF FUND EXPENSES -- INVESTMENT SHARES (CONTINUED)
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of U.S Treasury Fund and Money Market Fund
Investment Shares will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Additional Information You
Should Know." Wire-transferred redemptions may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE:
You would pay the following expenses on a $1,000 investment U.S. MONEY
assuming (1) 5% annual return and (2) redemption at the end TREASURY MARKET
of each time period. The Funds charge no redemption fees. FUND FUND
---------- ---------
<S> <C> <C>
1 Year............................................................... $ 6 $ 9
3 Years.............................................................. $20 $ 28
5 Years.............................................................. $35 $ 48
10 Years............................................................. $79 $107
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
- ------------------------------------------------------
- ------------------------------------------------------
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO --
INSTITUTIONAL SHARES
BAYFUNDS MONEY MARKET PORTFOLIO -- TRUST SHARES
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
U.S. TREASURY FUND MONEY MARKET
INSTITUTIONAL FUND
SHARES TRUST SHARES
------------------ ------------
<S> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).................... None None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).................... None None
Contingent Deferred Sales Charge (as a percentage
of original purchase price or redemption proceeds,
as applicable)......................................... None None
Redemption Fees (as a percentage of amount redeemed,
if applicable)......................................... None None
Exchange Fee............................................. None None
</TABLE>
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
U.S. TREASURY FUND MONEY MARKET
INSTITUTIONAL FUND
SHARES TRUST SHARES
------------------ ------------
<S> <C> <C>
Management Fee........................................... 0.20% 0.40%
12b-1 Fee................................................ None None
Total Other Expenses..................................... 0.18% 0.22%
Total Operating Expenses....................... 0.38% 0.62%
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO --
INSTITUTIONAL SHARES
BAYFUNDS MONEY MARKET PORTFOLIO -- TRUST SHARES
SUMMARY OF FUND EXPENSES (CONTINUED)
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of U.S. Treasury Fund--Institutional
Shares and Money Market Fund--Trust Shares will bear, either directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "Additional Information You Should Know." Wire-transferred redemptions may
be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE:
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and U.S. TREASURY FUND MONEY MARKET
(2) redemption at the end of each time period. The INSTITUTIONAL FUND
Funds charge no redemption fees. SHARES TRUST SHARES
------------------ ------------
<S> <C> <C>
1 Year................................................. $ 4 $ 6
3 Years................................................ $ 12 $ 20
5 Years................................................ $ 21 $ 35
10 Years............................................... $ 48 $ 77
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
- ------------------------------------------------------
- ------------------------------------------------------
BAYFUNDS MONEY MARKET PORTFOLIOS
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Ernst & Young LLP, the Trust's
independent auditors. Their report dated February 9, 1996, on the Funds'
financial statements for the year ended December 31, 1995 and on the following
table for the periods presented, is included in the Annual Report to
Shareholders dated December 31, 1995, which is incorporated by reference. This
table should be read in conjunction with the Funds' financial statements and
notes thereto, which may be obtained free of charge from the Trust.
<TABLE>
<CAPTION>
YEAR NET ASSET DISTRIBUTIONS NET ASSET
ENDED VALUE, NET FROM NET VALUE, NET EXPENSE NET ASSETS,
DECEMBER BEGINNING OF INVESTMENT INVESTMENT END OF TOTAL INVESTMENT WAIVER/ END OF PERIOD
31, PERIOD INCOME INCOME PERIOD RETURN(E) EXPENSES INCOME REIMBURSEMENT(G)(000 OMITTED)
- --- ------------ ---------- ------------- --------- ---------- -------- ---------- ---------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT SHARES
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
1993(a) $ 1.00 0.02 (0.02) $1.00 2.41% 0.62%(f) 2.59%(f) 0.07%(f) $ 34,694
1994 $ 1.00 0.04 (0.04) $1.00 3.61% 0.64% 3.65% -- $ 142,109
1995 $ 1.00 0.05 (0.05) $1.00 5.40% 0.63% 5.27% -- $ 248,129
BAYFUNDS MONEY MARKET PORTFOLIO
1993(b) $ 1.00 0.03 (0.03) $1.00 2.58% 0.62%(f) 2.60%(f) 0.11%(f) $ 30,746
1994 $ 1.00 0.04 (0.04) $1.00 3.60% 0.83% 3.46% 0.04% $ 57,348
1995 $ 1.00 0.05 (0.05) $1.00 5.23% 0.87% 5.13% -- $ 53,581
INSTITUTIONAL SHARES
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
1993(a) $ 1.00 0.03 (0.03) $1.00 2.62% 0.35%(f) 2.85%(f) 0.07%(f) $ 502,724
1994 $ 1.00 0.04 (0.04) $1.00 3.87% 0.39% 3.90% -- $ 693,712
1995 $ 1.00 0.06 (0.06) $1.00 5.66% 0.38% 5.51% -- $ 815,449
TRUST SHARES
BAYFUNDS MONEY MARKET PORTFOLIO
1992(c) $ 1.00 0.03 (0.03) $1.00 3.55% 0.48%(f) 4.61%(f) 0.15%(f) $ 280,931
1992(d) $ 1.00 0.02 (0.02) $1.00 2.13% 0.59%(f) 3.13%(f) 0.05%(f) $ 242,935
1993 $ 1.00 0.03 (0.03) $1.00 2.72% 0.59% 2.68% 0.11% $ 168,909
1994 $ 1.00 0.04 (0.04) $1.00 3.75% 0.65% 3.64% 0.04% $ 136,923
1995 $ 1.00 0.05 (0.05) $1.00 5.49% 0.62% 5.40% -- $ 156,552
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<C> <S>
(a) Reflects operations for the period from January 29, 1993 (date of initial public investment) to December 31,
1993.
(b) Reflects operations for the period from January 19, 1993 (date of initial public offering) to December 31,
1993.
(c) 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.
(d) 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.
(e) Based on net asset value, which does not reflect the sales load or contingent deferred sales charge, if
applicable.
(f) Computed on an annualized basis.
(g) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Further information about the Funds' performance is contained in the Annual
Report dated December 31, 1995, which can be obtained free of charge.
- ------------------------------------------------------
- ------------------------------------------------------
MATCHING THE FUNDS TO
YOUR INVESTMENT NEEDS
<TABLE>
<S> <C> <C>
- -----------------------------------------------
THE U.S. TREASURY FUND IS DESIGNED FOR
CONSERVATIVE INVESTORS WHO WANT CURRENT
INCOME, LIQUIDITY AND STABILITY OF
PRINCIPAL AS WELL AS THE EXTRA SECURITY
OF A PORTFOLIO INVESTED ONLY IN
SHORT-TERM U.S. TREASURY OBLIGATIONS
AND REPURCHASE AGREEMENTS
COLLATERALIZED BY SUCH OBLIGATIONS.
THE MONEY MARKET FUND IS DESIGNED FOR
CONSERVATIVE INVESTORS WHO WANT CURRENT
INCOME, LIQUIDITY, AND STABILITY OF
PRINCIPAL.
THE FUNDS SEEK TO MAINTAIN A STABLE
$1.00 SHARE PRICE, REFERRED TO AS NET
ASSET VALUE PER SHARE. WHILE THE FUNDS
CANNOT GUARANTEE A STABLE SHARE PRICE,
THE SHORT-TERM NATURE OF THEIR
INVESTMENTS HELPS TO MINIMIZE PRICE
FLUCTUATIONS.
- ----
</TABLE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of each Fund appear below. The investment
objective of a Fund cannot be changed without the approval of holders of a
majority of that Fund's shares. While there is no assurance that a Fund will
achieve its investment objective, it endeavors to do so by complying with the
various requirements of Rule 2a-7 under the Investment Company Act of 1940 which
regulates money market mutual funds and by following the investment policies
described in this prospectus.
Unless indicated otherwise, the investment policies of a Fund may be changed by
the Board of Trustees ("Trustees") without approval of shareholders.
Shareholders will be notified before any material change in these policies
becomes effective.
For additional information about the investment strategies that the Funds may
employ, and certain investment policies mentioned below, please refer to the
"Portfolio Investments" section of this prospectus and the combined Statement of
Additional Information.
U.S. TREASURY FUND
The investment objective of the U.S. TREASURY FUND is current income consistent
with stability of principal and liquidity. The Fund pursues its investment
objective by investing, under normal market conditions, at least 65% of the
value of its total assets in U.S. Treasury obligations with remaining maturities
of 397 days or less. The average maturity of these securities, computed on a
dollar-weighted basis, will be 90 days or less.
ACCEPTABLE INVESTMENTS. The U.S. TREASURY FUND invests at least 65% of the value
of its total assets in U.S. Treasury obligations. These instruments are issued
by the U.S. government, its agencies, or instrumentalities and are fully
guaranteed as to principal and interest by the United States. They mature in 397
days or less from the date of acquisition, or have a variable rate of interest
adjusted no less frequently than every 397 days, or are purchased pursuant to a
repurchase agreement which provides for repurchase by the seller within 397 days
from the date of acquisition.
MONEY MARKET FUND
The investment objective of the MONEY MARKET FUND is to provide current income
consistent with stability of principal and liquidity. The Fund
pursues its investment objective by investing primarily in a diversified
portfolio of money market instruments with remaining maturities of 397 days or
less. The average maturity of these securities, computed on a dollar-weighted
basis, will be 90 days or less.
ACCEPTABLE INVESTMENTS. The MONEY MARKET FUND invests in high quality money
market instruments that are either rated in the highest short-term rating
category by nationally recognized statistical rating organizations ("NRSROs") or
are of comparable quality to securities having such ratings. Examples of these
instruments include, but are not limited to:
- - domestic issues of corporate debt obligations;
- - commercial paper (including Canadian Commercial Paper and Europaper);
- - certificates of deposit, demand and time deposits, savings shares, bankers'
acceptances, deposit notes and other instruments of domestic and foreign
banks, savings associations and other deposit or thrift institutions ("Bank
Instruments");
- - demand master notes;
- - obligations issued or guaranteed as to payment of principal and interest by
the U.S. government or one of its agencies or instrumentalities ("Government
Securities"); and
- - other money market instruments.
The MONEY MARKET FUND invests only in instruments denominated and payable in
U.S. dollars.
PORTFOLIO INVESTMENTS
GOVERNMENT SECURITIES. The types of Government Securities in which the Funds may
invest generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and, with respect to the MONEY MARKET FUND,
obligations issued or guaranteed by U.S. government agencies or
instrumentalities. These securities are backed by:
- - the full faith and credit of the U.S. Treasury;
- - the issuer's right to borrow from the U.S. Treasury;
- - the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
- - the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
- - Federal Home Loan Banks;
- - Federal Home Loan Mortgage Corporation;
- Farm Credit Banks;
- - The Student Loan Marketing Association; and
- - Federal National Mortgage Association.
ZERO-COUPON AND STRIPPED TREASURY SECURITIES. The Funds may invest in
zero-coupon and stripped Treasury securities. Zero-coupon securities are
debt obligations which are generally issued at a discount and payable in
full at maturity, and which do not provide for current payments of interest
prior to maturity. Zero-coupon securities usually trade at a deep discount
from their face or par value and are subject to greater market value
fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest.
The U.S. Treasury has facilitated transfers of ownership of zero-coupon
securities by accounting separately for the beneficial ownership of
particular interest coupons and corpus payments on Treasury securities
through the Federal Reserve book-entry record-keeping system. The Federal
Reserve program as established by the Treasury De-
partment is known as "STRIPS" or "Separate Trading of Registered Interest
and Principal of Securities." Under the STRIPS program, the Funds will be
able to have beneficial ownership of U.S. Treasury zero-coupon securities
recorded directly in the book-entry record-keeping system in lieu of having
to hold certificates or other evidence of ownership of the underlying U.S.
Treasury securities.
When debt obligations have been stripped of their unmatured interest
coupons by the holder, the stripped coupons are sold separately. The
principal or corpus is sold at a deep discount because the buyer receives
only the right to receive a future fixed payment on the security and does
not receive any rights to periodic cash interest payments. Once stripped or
separated, the corpus and coupons may be sold separately. Typically, the
coupons are sold separately or grouped with other coupons with like
maturity dates and sold in such bundled form. Purchasers of stripped
obligations acquire, in effect, discount obligations that are economically
identical to the zero-coupon securities issued directly by the obligor.
REPURCHASE AGREEMENTS. The securities in which the Funds invest may be purchased
pursuant to repurchase agreements. Repurchase agreements are arrangements in
which banks, broker/dealers, and other recognized financial institutions sell
securities to the Funds and agree at the time of sale to repurchase them at a
mutually agreed upon time and price. To the extent that the seller does not
repurchase the securities from the Funds, the Funds could receive more or less
than the repurchase price on any sale of such securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Funds may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Funds purchase securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Funds to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Funds may pay more or less than the market value of the
securities on the settlement date.
The Funds may dispose of a commitment prior to settlement if their investment
advisers deem it appropriate to do so. In addition, the Funds may enter into
transactions to sell its purchase commitments to third parties at current market
values and simultaneously acquire other commitments to purchase similar
securities at later dates. The Funds may realize short-term profits or losses
upon the sale of such commitments.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Funds may lend their portfolio securities on a short-term basis to
broker/dealers, banks, or other institutional borrowers of securities. The Funds
will limit the amount of portfolio securities they may lend to not more than
one-third of their respective total assets. The Funds will only enter into loan
arrangements with broker/dealers, banks, or other institutions that their
investment advisers have determined are creditworthy under guidelines
established by the Trustees and will receive collateral equal to at least 100%
of the value of the securities loaned.
There is the risk that when lending portfolio securities, the securities may not
be available to the Funds on a timely basis and the Funds may, therefore, lose
the opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bank-
ruptcy or become insolvent, disposition of the securities may be delayed pending
court action.
RESTRICTED AND ILLIQUID SECURITIES. The Funds may invest in restricted
securities. Restricted securities are any securities in which the Funds may
otherwise invest pursuant to their investment objective and policies, but which
are subject to restriction on resale under federal securities law. However, the
Funds will limit investments in illiquid securities, including certain
restricted securities not determined by the Trustees to be liquid,
non-negotiable time deposits, and repurchase agreements providing for settlement
in more than seven days after notice, to 10% of its net assets.
The MONEY MARKET FUND may invest in commercial paper issued in reliance on the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933. Section 4(2) commercial paper is restricted as to disposition under
federal securities law and is generally sold to institutional investors, such as
the MONEY MARKET FUND, who agree that they are purchasing the paper for
investment purposes and not with a view to public distribution. Any resale by
the purchaser must be in an exempt transaction. Section 4(2) commercial paper is
normally resold to other institutional investors like the MONEY MARKET FUND
through or with the assistance of the issuer or investment dealers who make a
market in Section 4(2) commercial paper, thus providing liquidity. The MONEY
MARKET FUND believes that Section 4(2) commercial paper and possibly certain
other restricted securities which meet the criteria for liquidity established by
the Trustees are quite liquid. The MONEY MARKET FUND intends, therefore, to
treat the restricted securities which meet the criteria for liquidity
established by the Trustees, including Section 4(2) commercial paper, as
determined by the MONEY MARKET FUND'S investment adviser, as liquid and not
subject to the investment limitation applicable to illiquid securities. In
addition, because Section 4(2) commercial paper is liquid, the MONEY MARKET FUND
intends to not subject such paper to the limitation applicable to restricted
securities.
REVERSE REPURCHASE AGREEMENTS. The Funds may enter into reverse repurchase
agreements as a temporary measure for extraordinary or emergency purposes and
not for investment leverage purposes. These transactions are similar to
borrowing cash. In a reverse repurchase agreement, a Fund transfers possession
of a portfolio instrument to another person, such as a financial institution,
broker, or dealer, in return for a percentage of the instrument's market value
in cash, and agrees that on a stipulated date in the future the Funds will
repurchase the portfolio instrument by remitting the original consideration plus
interest at an agreed upon rate. When effecting reverse repurchase agreements,
assets of the Fund, in a dollar amount sufficient to make payment for the
obligations to be purchased, are segregated at the trade date, marked to market
daily, and maintained until the transaction is settled.
During the period any reverse repurchase agreements are outstanding, the Funds
will restrict the purchase of portfolio instruments to money market instruments
maturing on or before the expiration date of the reverse repurchase agreements,
but only to the extent necessary to assure completion of the reverse repurchase
agreements.
The use of reverse repurchase agreements may enable the Funds to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Funds will be able to avoid selling portfolio instruments at a
disadvantageous time.
BANK INSTRUMENTS. The MONEY MARKET FUND may invest in Bank Instruments which are
either issued by an institution having capital, surplus and undivided profits
over $100 million as of the date of its most recently published financial state-
ments or which are insured by the Bank Insurance Fund ("BIF") or the Savings
Association Insurance Fund ("SAIF"), both of which are administered by the
Federal Deposit Insurance Corporation ("FDIC"). Bank Instruments may include
Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit
("Yankee CDs"), and Eurodollar Time Deposits ("ETDs"). The MONEY MARKET FUND
will treat securities that are credit enhanced with a bank's letter of credit as
Bank Instruments.
DEMAND MASTER NOTES. The MONEY MARKET FUND may purchase demand master notes,
which are short-term borrowing arrangements between a corporation or government
agency and an institutional lender (such as the MONEY MARKET FUND) payable upon
demand by either party. The notice period for demand typically ranges from one
to seven days, and the party may demand full or partial payment. Many master
notes give the MONEY MARKET FUND the option of increasing or decreasing the
principal amount of the master note on a daily or weekly basis within certain
limits. Demand master notes and other short-term credit arrangements usually
provide for floating or variable rates of interest.
CREDIT ENHANCEMENT. Certain of the MONEY MARKET FUND'S acceptable investments
may be credit-enhanced by a guaranty, letter of credit, or insurance. Any
bankruptcy, receivership, or default of the party providing the credit
enhancement will adversely affect the quality and marketability of the
underlying security.
PUTS AND STANDBY COMMITMENTS. The MONEY MARKET FUND may acquire securities that
are subject to puts and standby commitments to repurchase the securities at
their principal amount (usually with accrued interest) within a fixed period
(usually seven days) following a demand by the MONEY MARKET FUND. The puts and
standby commitments may be issued by the issuer of the underlying securities, a
dealer in the securities or by another third party, and may not be transferred
separately from the underlying security. These arrangements are used to provide
the MONEY MARKET FUND with liquidity and not to protect against changes in the
market value of the underlying securities. Puts that are exercisable even after
a payment default on the underlying security may be treated as a form of credit
enhancement.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The MONEY MARKET FUND may
invest in the securities of other investment companies that are money market
funds having investment objectives and policies similar to its own, but it will
not own more than 3% of the total outstanding voting stock of any such
investment company, invest more than 5% of its total assets in any one such
investment company, or invest more than 10% of its total assets in such other
investment companies in general. The MONEY MARKET FUND will invest in other
investment companies primarily for the purpose of investing short-term cash
which has not yet been invested in other portfolio instruments. The MONEY MARKET
FUND'S adviser will waive its investment advisory fee on assets invested in
securities of open-end investment companies.
INVESTMENT RISKS. The ECDs, ETDs, Yankee CDs, and Europaper which the MONEY
MARKET FUND may purchase are subject to different risks than domestic
obligations of domestic banks or corporations. Examples of these risks include
international economic and political developments, foreign governmental
restrictions that may adversely affect the payment of principal or interest,
foreign withholding or other taxes on interest income, difficulties in obtaining
or enforcing a judgment against the issuing entity, and the possible impact of
interruptions in the flow of international currency transactions. Different
risks may also exist for ECDs, ETDs, and Yankee CDs because the banks issuing
these instruments, or their domestic or foreign branches, are not neces-
sarily subject to the same regulatory requirements that apply to domestic banks,
such as reserve requirements, loan limitations, examinations, accounting,
auditing, recordkeeping, and the public availability of information. These
factors will be carefully considered by the MONEY MARKET FUND'S adviser in
selecting investments for the MONEY MARKET FUND.
INVESTMENT LIMITATIONS
The Funds will not:
- borrow money directly or through reverse repurchase agreements (arrangements
in which the Funds sell a portfolio instrument for a percentage of their
cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Funds may borrow money
(either directly or through reverse repurchase agreements) in amounts up to
one-third of the value of their respective total assets and pledge up to 15%
of the value of those assets to secure such borrowings; nor
- with respect to 75% of the value of their respective total assets, invest
more than 5% in securities of any one issuer other than cash, cash items or
securities issued or guaranteed by the government of the United States or
its agencies or instrumentalities and repurchase agreements collateralized
by such securities.
The above limitations cannot be changed without shareholder approval. The
following limitation, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Funds will not:
- invest more than 10% of their respective net assets in illiquid securities,
including repurchase agreements providing for settlement in more than seven
days after notice.
- ------------------------------------------------------
SHAREHOLDER MANUAL
PRICING OF SHARES
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THE TERM "NET ASSET VALUE" PER SHARE
REFERS TO THE VALUE OF ONE FUND SHARE.
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Each Fund attempts to stabilize the net asset value of its Shares at $1.00 by
valuing the portfolio securities using the amortized cost method. Net asset
value per Share for purposes of pricing purchases and redemptions is calculated
by dividing the value of all securities and other assets belonging to a Fund,
less the liabilities charged to the Fund, by the number of outstanding shares of
the Fund.
Neither Fund can guarantee that its net asset value will always remain at $1.00
per Share.
The net asset value of each Fund is determined at 2:00 p.m. (Eastern time) and
as of the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, Monday through Friday, except on: (i) New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day; and (ii) days during which no Shares are
tendered for redemption and no orders to purchase Shares are received.
The Funds offer Shares only on days on which the New York Stock Exchange and the
Federal Reserve Bank of Boston are open for business ("Business Days"). In
addition to the holidays listed above, other non-Business Days include Martin
Luther King Day, Columbus Day and Veteran's Day. If your purchase order for
Shares is received on a non-Business Day by BayBank Systems, Inc. (the
"Shareholder Servicing Agent") with respect to INVESTMENT SHARES, through
BayBanks (as defined later) with respect to TRUST SHARES, or by DST Systems,
Inc. (the "Transfer Agent") with respect to INSTITUTIONAL SHARES, the order will
not be executed until the next Business Day in accordance with the Distributor's
procedures. The Funds and the Distributor reserve the right to reject any
purchase request. Texas residents must purchase Shares through the Distributor
at 1-800-356-2805.
To allow the Advisers (as defined below) to manage the Funds effectively and to
enhance your chances of being eligible to receive that day's dividend, you are
strongly encouraged to initiate all trades (purchases, redemptions, or
exchanges) as early in the day as possible. In addition, in the case of
purchases, exchanges or redemptions of U.S. TREASURY FUND INSTITUTIONAL SHARES
in excess of $5 million, you are strongly encouraged to notify your BayBank
Account Officer at least one day in advance. On those days when either the
Federal Reserve Bank of Boston or the U.S. Government Bond Market closes early,
or, in an Adviser's judgment, closing early is deemed to be in the best interest
of a Fund's shareholders, the right is reserved to advance the time on that day
by which all transactions (purchases, redemptions, or exchanges) must be
received.
HOW TO BUY INVESTMENT SHARES
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INVESTMENT SHARES ARE SOLD "NO-LOAD" --
WITHOUT A SALES LOAD. YOUR MINIMUM
INITIAL INVESTMENT IS ONLY $2,500, OR
$500 IF YOU PARTICIPATE IN THE
AUTOMATIC INVESTMENT PROGRAM OR INVEST
THROUGH AN IRA.
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MINIMUM INVESTMENT. You can become a Fund shareholder with an initial investment
of $2,500, or $500 if you participate in the Automatic Investment Program or
invest through an IRA. You must submit a completed and signed application at the
time of your initial purchase. Subsequent
investments must be in amounts of at least $100, or if you participate in the
Automatic Investment Program or invest through an IRA, the minimum for
additional purchases is $50. The Funds may waive any investment minimums from
time to time. In addition, the Funds may reduce or waive investment minimums for
investors purchasing through qualified BayBanks accounts.
WHEN PURCHASES ARE EFFECTIVE. Purchase orders for INVESTMENT SHARES must be
placed with the Shareholder Servicing Agent by 11:30 a.m. (Eastern time) on a
Business Day in order to be eligible to receive dividends declared that day.
Purchase orders received in good order and accepted by the Funds from the
Transfer Agent by 2:00 p.m. (Eastern time) on a Business Day will be executed at
the net asset value next determined and will begin earning dividends that day.
The Transfer Agent will not communicate your purchase order to the Fund until
the Shareholder Servicing Agent has received the purchase price in Federal funds
or other immediately available funds. If your purchase order is received in good
order and accepted by the Funds from the Transfer Agent after 2:00 p.m. (Eastern
time) and prior to 4:00 p.m. (Eastern time), it will be executed at the net
asset value next determined and INVESTMENT SHARES will begin earning dividends
the next Business Day. When you purchase INVESTMENT SHARES by check, the order
is considered received when the check is converted into Federal funds, normally
within two Business Days. The Shareholder Servicing Agent is responsible for the
prompt transmission of purchase orders received in good order to the Transfer
Agent.
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YOU MAY BUY INVESTMENT SHARES BY PHONE,
MAIL, WIRE, OR IN PERSON THROUGH
BAYBANKS OFFICES.
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BY PHONE. Once you are a Fund shareholder, you may purchase INVESTMENT SHARES by
phone by calling 1-800-BAY-FUND. You must have previously authorized the
specific Fund in writing to accept telephone requests. If you have not done so,
call 1-800-BAY-FUND to receive the necessary form and information on this Fund
feature. Each Fund uses reasonable procedures (including a shareholder identity
test and sending a written confirmation of each telephone transaction) to
confirm that instructions given by telephone are genuine. However, a Fund is not
responsible for the authenticity of telephone instructions or for the losses
caused by fraudulent or unauthorized telephone instructions if the Fund
reasonably believed that the instructions were genuine. For the protection of
investors, all phone communications may be recorded where not otherwise
prohibited by law.
The establishment of certain types of deposit account relationships with
BayBanks may permit the direct deduction of your purchase price from your
BayBanks deposit account. Please call 1-800-BAY-FUND to determine whether your
BayBanks deposit account qualifies.
BY MAIL. If you make your initial INVESTMENT SHARES purchase by mail, you must
send a completed and signed application and a check payable to the specific Fund
and INVESTMENT SHARES class, to:
BayFunds
P.O. Box 889
Burlington, MA 01803
You may obtain an application by calling 1-800-BAY-FUND.
You may make subsequent investments in a Fund at any time by sending a check for
a minimum of $100 ($50 if for an IRA) payable to the specific Fund and
INVESTMENT SHARES class at the following address:
BayFunds
P.O. Box 889
Burlington, MA 01803
You must include either (a) the detachable form that regularly accompanies
confirmation of a prior transaction, (b) a subsequent order form that may be
enclosed in the Fund mailing or can be obtained by calling 1-800-BAY-FUND, or
(c) a letter stating the amount of the investment, the name of the Fund and
INVESTMENT SHARES class, the exact name and address of the account, and your
account number.
If the check does not clear, your purchase order will be canceled and you could
be held liable for associated transaction costs.
BY WIRE. If you are a Fund shareholder, you may purchase additional INVESTMENT
SHARES by wire by first notifying BayBank, as agent for the Transfer Agent, by
phone at 1-800-BAY-FUND and then wiring the funds as follows:
BayBanks
ABA Number: 0110-0174-2
Attention: Mutual Funds Services
For Credit to: (identify the appropriate Fund -- INVESTMENT SHARES) Account
37153931
Further Credit to: (shareholder name and account number)
THROUGH BAYBANKS OFFICES. You may place an order to purchase INVESTMENT SHARES
of a Fund in person through designated BayBanks offices. Purchase orders placed
through BayBanks offices typically would be received by the Transfer Agent
within two Business Days. If you want more prompt processing, you should
consider another method, such as "By Phone."
CORPORATE CUSTOMERS. Corporate customers of BayBanks interested in purchasing
Fund INVESTMENT SHARES should consult their account relationship managers for
procedures applicable to their accounts or call 1-800-554-3311. This prospectus
should be read in conjunction with any materials provided by BayBanks regarding
such procedures.
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YOU CAN BUY INVESTMENT SHARES CONVE-
NIENTLY THROUGH THE AUTOMATIC INVEST-
MENT PROGRAM.
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</TABLE>
AUTOMATIC INVESTMENT PROGRAM. When you participate in the Automatic Investment
Program, you can purchase additional Fund INVESTMENT SHARES in minimum amounts
of $50. You must previously have authorized in writing the total dollar amount
to be deducted automatically from eligible BayBanks deposit accounts or your
deposit account maintained at a domestic financial institution which is an
automated clearing house member, and the frequency of the deductions. The funds
will be invested in INVESTMENT SHARES of the specified Fund at the net asset
value next determined. The Funds may reduce or waive the investment minimums for
investors purchasing through qualified BayBanks accounts.
RETIREMENT PLANS. BayBanks makes INVESTMENT SHARES available for purchase by
IRAs, rollover IRAs and Simplified Employee Pension Plans. For details,
including minimum investments, application forms and other investment
procedures, call 1-800-BAY-FUND.
HOW TO EXCHANGE INVESTMENT SHARES
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IF YOUR INVESTMENT NEEDS CHANGE, YOU
CAN EASILY EXCHANGE A FUND'S INVESTMENT
SHARES FOR INVESTMENT SHARES OF ANY
OTHER BAYFUNDS PORTFOLIO AT NO CHARGE.
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BayFunds consists of the Funds, BayFunds Bond Portfolio, BayFunds Short Term
Yield Portfolio, and BayFunds Equity Portfolio. As an INVESTMENT SHARES
shareholder, you have access to the INVESTMENT SHARES of all the portfolios
("Participating Funds") of BayFunds through an exchange program. You may also
purchase BayFunds Shares of Massachusetts Municipal
Cash Trust with redemption proceeds of a BayFunds Portfolio by calling
1-800-BAY-FUND.
You may exchange INVESTMENT SHARES having a net asset value of at least $100 for
INVESTMENT SHARES of any other Participating Fund in which you have an account.
The minimum initial investment to establish an account in any other
Participating Fund by exchange is $2,500, or $500 if you participate in the
Automatic Investment Program or invest through an IRA. BayFunds does not charge
any exchange fees.
Each exchange is considered a sale of shares of one fund and a purchase of
shares of another fund. Shares submitted for exchange will be redeemed at the
net asset value next determined after receipt of the exchange request by the
Transfer Agent on a Business Day. INVESTMENT SHARES of the Participating Fund to
be acquired will be purchased at the net asset value per share next determined
on a Business Day. Transfers of money between a BayFunds Portfolio and BayFunds
Shares of Massachusetts Municipal Cash Trust will be reflected as a redemption
and purchase on a shareholder's account statement. In a transfer involving the
BayFunds Shares of Massachusetts Municipal Cash Trust, the purchase order will
be placed on the Business Day following the Business Day after which the
redemption order has been executed.
If you do not have an account in the Participating Fund whose INVESTMENT SHARES
you want to acquire, you must establish an account. Prior to any such exchange,
you must receive a copy of the current prospectus of the Participating Fund into
which an exchange is to be effected. This account will be registered in the same
name and, unless you specify otherwise, will have the same dividend and
distribution payment option as you selected with your existing account. If the
new account registration (name, address, and taxpayer identification number) is
not identical to your existing account, please call 1-800-BAY-FUND for the
necessary new account or transfer procedures.
You may find the exchange privilege useful if your investment objectives or
market outlook should change after you invest in any of the INVESTMENT SHARES of
Participating Funds. You may obtain further information on the exchange
privilege and obtain a prospectus by calling 1-800-BAY-FUND.
The exchange privilege is available to shareholders in any state in which
INVESTMENT SHARES of the Participating Funds being acquired may be sold.
BayFunds reserves the right to terminate the exchange privilege at any time on
60 days' notice. Shareholders will be notified if this privilege is terminated.
Depending on the circumstances, an exchange may generate a short-term or
long-term capital gain or loss for federal income tax purposes.
BY PHONE. You may provide instructions for exchanges by telephone between
Participating Funds by calling 1-800-BAY-FUND.
You must have previously authorized the Funds in writing to accept telephone
requests. If you have not done so, call 1-800-BAY-FUND to receive the necessary
form and information on this feature. Each Fund uses reasonable procedures
(including a shareholder identity test and sending a written confirmation of
each telephone transaction) to confirm that instructions given by telephone are
genuine. However, a Fund is not responsible for the authenticity of telephone
instructions or for any losses caused by fraudulent or unauthorized telephone
instructions if the Fund reasonably believed that the instructions were genuine.
BY MAIL. You may send a written request for an exchange to:
BayFunds
P.O. Box 889
Burlington, MA 01803
Your written request must include your name and tax identification number; the
name of the specific Fund and INVESTMENT SHARES; the dollar amount or number of
INVESTMENT SHARES to be redeemed; the name of the fund and class of shares which
are to be purchased; and your account number. Your request must be signed by the
registered owner(s) exactly as required by the account application.
THROUGH BAYBANKS OFFICES. You may place an order to exchange INVESTMENT SHARES
in person through designated BayBanks offices. Exchange orders received through
designated BayBanks offices typically would be received by the Transfer Agent
within two Business Days. For more prompt processing, you should consider
another method, such as "By Phone."
HOW TO REDEEM INVESTMENT SHARES
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WHEN YOU SELL YOUR INVESTMENT
SHARES -- "REDEEM" THEM -- YOU RECEIVE
THE NET ASSET VALUE PER SHARE NEXT
DETERMINED AFTER THE REQUEST IS
RECEIVED BY A FUND IN PROPER FORM.
THERE ARE NO FEES OR OTHER REDEMPTION
CHARGES (EXCEPT FOR REDEMPTIONS BY
WIRE). YOU MAY REDEEM SOME OR ALL OF
YOUR INVESTMENT.
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Each Fund redeems its INVESTMENT SHARES at the net asset value next determined
after the Fund has received your redemption request from the Transfer Agent in
proper form. Redemption requests can be executed only on Business Days. If your
redemption request is received by the Shareholder Servicing Agent on a
non-Business Day, the Transfer Agent will not communicate your redemption
request to the Fund until the next Business Day.
Redemption proceeds may be credited to an eligible BayBanks deposit account,
paid by check, or paid by wire, as you previously designated in your
application. Shareholders of a Fund must place redemption orders with the
Shareholder Servicing Agent by 11:30 a.m. (Eastern time) on a Business Day in
order to be eligible to receive redemption proceeds by wire on the day of
redemption. The Funds ordinarily will make payment for INVESTMENT SHARES
redeemed after proper receipt from the Transfer Agent of the redemption request
and of all documents in proper form within one Business Day to an eligible
BayBanks deposit account, within five Business Days if you requested redemption
proceeds by check, or the same day by wire if the Funds receive your redemption
request from the Transfer Agent by 2:00 p.m. (Eastern time) on the day of
redemption. INVESTMENT SHARES of the Funds redeemed and wired the same day will
not receive the dividend declared on the day of redemption.
SIGNATURE GUARANTEES. If you request a redemption for an amount in excess of
$25,000 (no limitation if the proceeds are being credited to your BayBanks
deposit account), a redemption of any amount to be sent to an address other than
your address of record with the Fund, the transfer of the registration of
INVESTMENT SHARES, or a redemption of any amount payable to someone other than
yourself as the shareholder of record, your signature must be guaranteed on a
written redemption request by a trust company or insured commercial bank; an
insured savings association or savings bank; a member firm of a national or
regional stock exchange; or any other "eligible guarantor institution," as
defined in the Securities Exchange Act of 1934. The Transfer Agent has adopted
standards for accepting signature guarantees from the above institutions.
BayFunds may elect in the future to limit eligible signature guarantors to
institutions that are members of a signature guarantee program. The Funds do not
accept signatures guaranteed by a notary public. BayFunds and its Transfer Agent
reserve the right to amend these standards at any time without notice. If you
have a question about the proper form for redemption requests, call
1-800-BAY-FUND.
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YOU MAY REDEEM INVESTMENT SHARES BY
PHONE, MAIL, WIRE, OR THROUGH BAYBANKS
OFFICES. YOU MAY RECEIVE REDEMPTION
PROCEEDS BY WIRE.
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BY PHONE. You may redeem INVESTMENT SHARES by calling 1-800-BAY-FUND. You must
have previously authorized the Fund in writing to accept telephone requests. If
you have not done so, call 1-800-BAY-FUND to receive the necessary form.
In the event of drastic economic or market changes, you may experience
difficulty in redeeming by telephone. If this occurs, you should consider
another method of redemption, such as "By Mail." The Fund uses reasonable
procedures (including a shareholder identity test and sending a written
confirmation of each telephone transaction) to confirm that instructions given
by telephone are genuine. However, a Fund is not responsible for the
authenticity of telephone instructions or for any losses caused by fraudulent or
unauthorized telephone instructions if the Fund reasonably believed that the
instructions were genuine.
BY MAIL. You may redeem INVESTMENT SHARES by submitting a written request for
redemption to:
BayFunds
P.O. Box 889
Burlington, MA 01803
Your written request must include your name and tax identification number, the
specific Fund's name, the INVESTMENT SHARES name, the dollar amount or number of
INVESTMENT SHARES to be redeemed, and your account number. Your request must be
signed by the registered owner(s) exactly as required by the account
application.
BY WIRE. You may receive redemption proceeds of INVESTMENT SHARES by wire by
calling 1-800-BAY-FUND. Redemption proceeds of at least $1,000 will be wired
directly to the domestic commercial bank and account you previously designated
in writing. You are charged a fee for each wire redemption and the fee is
deducted from your redemption proceeds.
Each Fund reserves the right to wire redemption proceeds within five Business
Days after receiving the redemption order if, in its judgment, an earlier
payment could adversely affect the Fund. However, the redemption order will be
effected at the net asset value next determined after the redemption request is
received by a Fund from the Transfer Agent in proper form. The Funds also
reserve the right to terminate or modify the "By Wire" or "By Phone" redemption
procedures at any time. In that event, shareholders would be promptly notified.
THROUGH BAYBANKS OFFICES. You may place an order to redeem INVESTMENT SHARES in
person through designated BayBanks offices. Redemption orders received through
designated BayBanks offices typically would be received by the Transfer Agent
within two Business Days. For more prompt processing, you should consider
another method, such as "By Phone."
BACKUP WITHHOLDING. The Internal Revenue Service requires that backup
withholding of 31% apply to any redemption or exchange request on an account
that has not certified its taxpayer identification number ("TIN"). Shareholders
who either have not certified their number or applied for a number should be
aware that
backup withholding will apply to any redemption request processed prior to
receipt of a TIN number and certification.
REDEMPTIONS BEFORE PURCHASE INSTRUMENTS CLEAR. If any portion of the Fund's
INVESTMENT SHARES to be redeemed represents an investment made with uncollected
funds, the Funds reserve the right to delay payment of proceeds until the
Shareholder Servicing Agent is reasonably certain that the funds have been
collected, which could take up to five Business Days.
AUTOMATIC WITHDRAWAL PROGRAM. An Automatic Withdrawal Program may be established
for IRA accounts only whereby automatic redemptions are made from the account
and transferred electronically to an eligible BayBanks deposit account or your
deposit account maintained at a domestic financial institution that is an
automated clearing house member. The minimum redemption amount is $100 per
month. Depending upon the amount of the withdrawal payments and the amount of
dividends paid with respect to INVESTMENT SHARES, redemptions may reduce, and
eventually deplete, the shareholder's investment in the Fund. For this reason,
payments under this program should not be considered as yield or income on the
shareholder's investment in the Fund. A shareholder may apply for participation
in this program by calling 1-800-BAY-FUND for further information. If a
shareholder withdraws any funds from the IRA account before reaching age 59 1/2
(except certain withdrawals of excess contributions and regular payments made
over the shareholder's life expectancy), the shareholder will be subject to an
IRS penalty tax of 10% of the taxable amount withdrawn in addition to regular
income taxes on the taxable amount.
HOW TO BUY INSTITUTIONAL SHARES AND/OR TRUST SHARES
MINIMUM INVESTMENT. U.S. TREASURY FUND INSTITUTIONAL SHARES are sold to BayBank,
N.A., its affiliated and correspondent banks and other institutions investing
for their own account and on behalf of customers maintaining accounts at such
banks and institutions. (BayBank, N.A., and such banks and institutions may be
collectively referred to as the "Institution.") The minimum initial investment
by an Institution is $500,000, and subsequent investments must be in amounts of
at least $100,000. An Institution will set minimums for its customers.
U.S. TREASURY FUND INSTITUTIONAL SHARES are sold with no sales load. However,
depending upon the terms of each customer account, an Institution may charge the
customer account fees for services it provides, such as automatic investment,
cash management, dividend payment processing, information regarding customer
position, and sub-accounting with respect to customer accounts. Such fees may
include compensating balance requirements or account maintenance fees, or may be
based on account assets or transactions. Customers should obtain information
about account services and fees directly from their Institution before
authorizing the purchase of INSTITUTIONAL SHARES, and this prospectus should be
read in conjunction with any such information.
MONEY MARKET FUND TRUST SHARES are sold with no sales load. The minimum initial
investment in TRUST SHARES is $10,000. Subsequent investments must be in amounts
of at least $100. The MONEY MARKET FUND may waive any investment minimums from
time to time.
THROUGH BAYBANKS. INSTITUTIONAL SHARES. An institutional customer of BayBanks
may telephone the BayBanks Trust Department toll-free at 1-800-462-9999.
BayBanks Capital Markets customers should call 1-800-554-3311. Participants in
Employee Benefits programs should contact their Plan Administrator.
INSTITUTIONAL SHARES of the U.S. TREASURY FUND may be purchased in accordance
with procedures established by an Institu-
tion in connection with the requirements of its customer accounts. Procedures
applicable to each Institution and each customer account governing the purchase
of INSTITUTIONAL SHARES of the U.S. TREASURY FUND will differ. For example, such
procedures may include instructions under which a customer's account is "swept"
automatically on a daily basis of collected balances in excess of a minimum
agreed to by an Institution and the customer. The U.S. TREASURY FUND expects
that the Institution will transmit orders on behalf of their customers for the
purchase of INSTITUTIONAL SHARES of the U.S. TREASURY FUND arising from
automatic investment programs within one business day of the time the amounts in
excess of the minimum balances are swept. Customers should consult their account
relationship manager at their Institution for further information and procedures
on purchasing INSTITUTIONAL SHARES of the U.S. TREASURY FUND. This prospectus
should be read in conjunction with any materials provided by the Institution
regarding such procedures.
TRUST SHARES. A customer of BayBanks may telephone the BayBanks Trust Department
toll-free at 1-800-462-9999. Participants in Employee Benefits programs should
contact their Plan Administrator. For the protection of investors, all phone
communications may be recorded where not otherwise prohibited by law.
WHEN PURCHASES ARE EFFECTIVE. Orders by an Institution to purchase INSTITUTIONAL
SHARES received in good order and accepted by the U.S. TREASURY FUND from the
Transfer Agent by 2:00 p.m. (Eastern time) on a Business Day will be executed at
the net asset value next determined and will begin earning dividends that day.
The Transfer Agent will not communicate purchase orders to the U.S. TREASURY
FUND until the Transfer Agent receives Federal funds or other available funds.
Orders by an Institution to purchase INSTITUTIONAL SHARES received in good order
and accepted by the U.S. TREASURY FUND from the Transfer Agent after 2:00 p.m.
(Eastern time) and prior to 4:00 p.m. (Eastern time), will be executed at the
net asset value next determined and INSTITUTIONAL SHARES will begin earning
dividends the next Business Day. Each Institution is responsible for
transmitting purchase orders promptly to the U.S. TREASURY FUND in accordance
with the terms of its customer agreements.
Payment may be made to BayBanks either by check or Federal funds. If a purchase
order for TRUST SHARES is received in good order and accepted by the MONEY
MARKET FUND from the Transfer Agent by 2:00 p.m. (Eastern time) on a Business
Day it will be executed at the net asset value next determined and TRUST SHARES
will begin earning dividends that day. The Transfer Agent will not communicate a
purchase order to the MONEY MARKET FUND until BayBanks has received the purchase
price in Federal funds or other immediately available funds. If a purchase order
is received in good order and accepted by the MONEY MARKET FUND from the
Transfer Agent after 2:00 p.m. (Eastern time) and prior to 4:00 p.m. (Eastern
time), it will be executed at the net asset value next determined and TRUST
SHARES will begin earning dividends the next Business Day. When TRUST SHARES are
purchased by check, the order is considered received when the check is converted
into Federal funds, normally within two Business Days. When payment is made with
Federal funds, it should be wired to BayBanks as agent for the Transfer Agent as
follows: ABA No. 0113-0235-7; Wire Order Number 0110-0174-2; Fiduciary Account
Number 03000-002-298-5. Investors not purchasing through BayBanks should consult
their financial institution for wiring instructions. BayBanks is responsible for
the prompt transmission of purchase orders received in good order to the
Transfer Agent.
RETIREMENT PLANS. For information about retirement plan vehicles established by
employers for
their employees which are qualified under Section 401(k) and 403(b) of the
Internal Revenue Code, call BayBank at 1-800-462-9999, extension 4589 or write
to BayBank, Corporate Trust -- New Business Department, 7 New England Executive
Park, Burlington, MA 01803.
HOW TO EXCHANGE INSTITUTIONAL SHARES AND/OR TRUST SHARES
BayFunds consists of the Funds, BayFunds Bond Portfolio, BayFunds Short Term
Yield Portfolio, and BayFunds Equity Portfolio. Customers may access the
INSTITUTIONAL SHARES or TRUST SHARES of all of these portfolios of BayFunds
("Participating Funds") through an exchange program. In addition, institutions
may purchase BayFunds Shares of Massachusetts Municipal Cash Trust with
redemption proceeds of a BayFunds Portfolio. A customer of BayBanks may
telephone the BayBanks Trust Department toll-free at 1-800-462-9999. BayBanks
Capital Markets customers should call 1-800-554-3311. Participants in Employee
Benefits programs should contact their Plan Administrator. Procedures will be
established by each Institution in connection with the requirements of its
customer accounts and the Participating Funds. Customers should contact their
trust relationship officer or Institution to obtain further information on
exchange privileges. Prior to any such exchange, a customer must receive a copy
of the current prospectus of the Participating Fund into which an exchange is to
be effected.
The exchange privilege is available to shareholders in any state in which
Participating Funds' shares being acquired may be sold.
HOW TO REDEEM INSTITUTIONAL SHARES AND/OR TRUST SHARES
INSTITUTIONAL SHARES of the U.S. TREASURY FUND may be redeemed in accordance
with procedures established by an Institution in connection with the
requirements of its customer accounts. Procedures applicable to each Institution
and each customer account governing the redemption of INSTITUTIONAL SHARES of
the U.S. TREASURY FUND will differ. Customers should contact their Institution
for further information. Each Institution is responsible for transmitting
redemption orders promptly to the U.S. TREASURY FUND and crediting customers'
accounts with redemption proceeds on a timely basis. The U.S. TREASURY FUND does
not impose any sales loads or redemption fees on redemptions of INSTITUTIONAL
SHARES. The U.S. TREASURY FUND assesses no charges for wiring redemption
proceeds. However, Institutions may charge customer accounts for redemption
services. Information relating to such redemption services and charges, if any,
are available from the Institutions.
The MONEY MARKET FUND redeems TRUST SHARES at their net asset value next
determined after the MONEY MARKET FUND has received the redemption request from
the Transfer Agent in proper form. The MONEY MARKET FUND does not impose any
sales loads or redemption fees on redemptions of TRUST SHARES.
WHEN REDEMPTIONS ARE EFFECTIVE. Redemption orders are effected at the net asset
value per INSTITUTIONAL SHARE next determined after proper receipt of the
redemption request by the U.S. TREASURY FUND from the Transfer Agent in proper
form. Institutions may transmit redemption orders by telephoning the Transfer
Agent. Payment for redemption orders received by the Transfer Agent by 2:00 p.m.
(Eastern time) on a Business Day will be wired the same day to the Institution
for credit to customer accounts that day. INSTITUTIONAL SHARES so redeemed will
not be eligible to receive the dividend declared on the redemption date. Payment
for redemption orders received after 2:00 p.m. (Eastern time) or on a
non-Business Day will normally be wired in Federal funds to the Institution for
credit to customer accounts on the next Business Day. The U.S. TREASURY FUND
reserves the right to wire re-
demption proceeds within five Business Days after receiving the redemption order
if, in its judgment, an earlier payment could adversely affect the U.S. TREASURY
FUND.
Redemption requests for TRUST SHARES can be executed only on Business Days. If a
redemption request is received through BayBanks on a non-Business Day, the
Transfer Agent will not communicate the redemption request to the MONEY MARKET
FUND until the next Business Day.
BY TELEPHONE. A customer of BayBanks may telephone the BayBanks Trust Department
toll-free at 1-800-462-9999. BayBanks Capital Markets customers should call
1-800-554-3311. Participants in Employee Benefits programs should contact their
Plan Administrator. Redemption proceeds may be paid by check or paid by wire.
The MONEY MARKET FUND ordinarily will make payment for TRUST SHARES redeemed
after proper receipt from the Transfer Agent of the redemption request the same
day by wire if the MONEY MARKET FUND receives the redemption request from the
Transfer Agent by 2:00 p.m. (Eastern time) on the day of redemption. TRUST
SHARES redeemed and wired on the same day will not receive the dividend declared
on the day of redemption. Payment for TRUST SHARES of the MONEY MARKET FUND
redeemed by check will be within five Business Days. The MONEY MARKET FUND
reserves the right to wire redemption proceeds within five Business Days after
receiving the order if, in its judgment, an earlier payment could adversely
affect the MONEY MARKET FUND. If at any time the MONEY MARKET FUND shall
determine it necessary to terminate or modify this method of redemption,
shareholders would be promptly notified.
An authorization form permitting the MONEY MARKET FUND to accept telephone
requests must first be completed. Authorization forms and information on this
service are available from BayBanks or (for Texas residents) the Distributor. In
the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "By Mail," should be considered. The MONEY MARKET
FUND uses reasonable procedures (including a shareholder identity test and
sending a written confirmation of each telephone transaction) to confirm that
instructions given by telephone are genuine. However, the MONEY MARKET FUND is
not responsible for the authenticity of telephone instructions or for any losses
caused by fraudulent or unauthorized telephone instructions if the MONEY MARKET
FUND reasonably believed that the instructions were genuine.
BY MAIL. A shareholder who is a customer of BayBanks may redeem TRUST SHARES of
the MONEY MARKET FUND by sending a written request to BayBanks. The written
request should include the shareholder's name, the Fund name, the TRUST SHARES
name, the account number, and the TRUST SHARE or dollar amount requested, and
should be signed by each registered owner exactly as the TRUST SHARES are
registered. For assistance in redeeming by mail, a customer of BayBanks may
telephone the BayBanks Trust Department toll-free at 1-800-462-9999. BayBanks
Capital Markets customers should call 1-800-554-3311. Participants in Employee
Benefits programs should contact their Plan Administrator.
Except for 401(k) plan participants and administrators, shareholders requesting
a redemption of $25,000 or more (no limitation if the proceeds are being
credited to a BayBanks deposit account), a redemption of any amount to be sent
to an address other than that on record with the MONEY MARKET FUND, a transfer
of the registration of TRUST SHARES, or a redemption payable other than to the
shareholder of record, must have signatures on written redemption requests
guaranteed by:
- - a trust company or insured commercial bank;
- - an insured savings association or a savings bank;
- - a member firm of a national or regional stock exchange; or
- - any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Transfer Agent has adopted standards for accepting signature guarantees from
the above institutions. The MONEY MARKET FUND may elect in the future to limit
eligible signature guarantees to institutions that are members of a signature
guarantee program. The MONEY MARKET FUND does not accept signatures guaranteed
by a notary public. The MONEY MARKET FUND and the Transfer Agent reserve the
right to amend these standards at any time without notice.
REDEMPTIONS BEFORE PURCHASE INSTRUMENTS CLEAR. If any portion of a Fund's
INSTITUTIONAL SHARES or TRUST SHARES to be redeemed represents an investment
made with uncollected funds, the Fund reserves the right to delay payment of
proceeds until BayBanks is reasonably certain that the funds have been
collected, which could take up to five Business Days.
- ------------------------------------------------------
ADDITIONAL INFORMATION YOU SHOULD KNOW
MINIMUM BALANCE
Due to the high cost of maintaining accounts with low balances, a Fund may
redeem Shares (other than in retirement plan accounts or IRAs) and send the
shareholder the proceeds if, due to shareholder redemptions, an account balance
falls below a minimum value of:
- $1,000 for INVESTMENT SHARES;
- $100,000 for INSTITUTIONAL SHARES of the U.S. TREASURY FUND; or
- $10,000 for TRUST SHARES of the MONEY MARKET FUND.
However, before Shares are redeemed to close an account, the shareholder or the
Institution, as applicable, will be notified in writing and given 60 days to
purchase additional Shares to meet the minimum balance requirement. The Funds
reserve the right to amend this standard upon 60 days' prior written notice to
shareholders. The Funds also reserve the right to redeem their Shares
involuntarily or to make payment for redemptions in the form of securities if it
appears appropriate to do so in light of their responsibilities under the
Investment Company Act of 1940. Customers of Institutions should consult their
relevant account agreements for any applicable balance requirements.
CONFIRMATIONS AND STATEMENTS. Confirmations are sent at least monthly to the
Institutions or shareholders of record to report transactions such as purchases
and redemptions as well as dividends paid during the month. However, BayBank IRA
customers will receive quarterly statements for their accounts.
INSTITUTIONAL SHARES of the U.S. TREASURY FUND will be held of record by the
Institutions or in the name of a nominee of the Institutions. Beneficial
ownership of INSTITUTIONAL SHARES of the U.S. TREASURY FUND will be recorded by
the Institutions and reflected in statements of account provided by the
Institutions to their customers. It is the responsibility of the Institutions to
provide the customers with confirmations and statements of account with respect
to INSTITUTIONAL SHARES transactions made for their accounts at the Institutions
in accordance with procedures established by the Institutions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from a Fund's net investment income are declared daily to shareholders
of record (normally the Institutions in the case of the U.S. TREASURY FUND)
immediately following the 2:00 p.m. (Eastern time) pricing of shares.
Shareholders of INVESTMENT SHARES elect in writing how they wish to receive
dividends and distributions. Such shareholders may choose automatic reinvestment
in additional INVESTMENT SHARES at the net asset value next determined on the
payment dates, automatic credit to an eligible BayBanks deposit account, or
payment by check. If such shareholders fail to select an option, all
distributions will be reinvested in additional INVESTMENT SHARES.
With respect to the INSTITUTIONAL SHARES of the U.S. TREASURY FUND, dividends
are paid monthly within five Business Days after the end of such calendar month.
Institutions may elect to (a) have their dividends and distributions
automatically reinvested in additional INSTITUTIONAL SHARES of the U.S. TREASURY
FUND at the net asset value next determined on the payment dates, (b) receive
their dividends and distributions in cash, or (c) receive a combination of
additional INSTITUTIONAL SHARES of the U.S. TREASURY FUND and cash. It is
expected that customers of an Institution's automatic investment program will
receive all dividends and distributions of the U.S. TREASURY FUND in cash
credited to their account pursuant to the terms of their agreement with an
Institution; all other customers should contact their Institution for further
information about dividend elections.
With respect to the TRUST SHARES of MONEY MARKET FUND, dividends are paid
monthly and will be reinvested on payment dates in additional TRUST SHARES of
the MONEY MARKET FUND unless cash payments are requested by writing to the MONEY
MARKET FUND or BayBanks as appropriate.
The amount of dividends payable to INSTITUTIONAL SHARES of the U.S. TREASURY
FUND and TRUST SHARES of the MONEY MARKET FUND will exceed that of INVESTMENT
SHARES of the corresponding Fund by the difference between class expenses and
shareholder servicing fees borne by shares of each respective class of shares of
the Fund. (Currently, there are no differences in class expenses other than
shareholder servicing fees.)
Neither Fund expects to realize any net long-term capital gains. If for some
extraordinary reason a Fund realizes net long-term capital gains, it will
distribute them at least annually.
TAX INFORMATION
<TABLE>
<S> <C> <C>
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THIS DISCUSSION OF TAXES IS FOR GENERAL
INFORMATION ONLY. PLEASE CONSULT YOUR
OWN TAX ADVISER ABOUT YOUR PARTICULAR
SITUATION.
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</TABLE>
FEDERAL INCOME TAX. Each Fund intends to meet requirements of the Internal
Revenue Code applicable to regulated investment companies in order not to be
liable for any Federal income taxes on income and gains distributed to the
Fund's shareholders. Each Fund will distribute
substantially all of its net investment income and net realized gains at least
annually.
Each Fund will be treated as a single, separate entity for Federal income tax
purposes.
Unless otherwise exempt, shareholders are required to pay Federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares. Distributions
from a Fund's net investment income and short-term capital gains will be taxed
as ordinary income and will not be eligible for the dividends received deduction
available to corporations.
Early each year, each Fund will notify its shareholders of the amount and tax
status of distributions paid to the shareholder for the preceding year.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
<TABLE>
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YOU CAN FOLLOW EACH FUND'S PERFORM-
ANCE.
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</TABLE>
From time to time, in advertisements or in reports to shareholders, the total
return and yield performance of the Funds may be quoted and compared to those of
other mutual funds with similar investment objectives and to relevant money
market indices or to rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
For example, the performance of the Funds may be compared to data prepared by
Lipper Analytical Services, Inc., a widely recognized independent service which
monitors the performance of mutual funds.
National financial publications in which total return and yield performance data
are reported include The Wall Street Journal, The New York Times, Forbes, or
Money magazine. Publications of a local or regional nature, such as The Boston
Globe or The Boston Herald, may also be used in comparing the total return and
yield performance of the Funds.
The yield of the Shares represents the annualized rate of income earned on an
investment in the Shares over a seven-day period. It is the annualized dividends
earned during the period on the investment shown as a percentage of the
investment. The effective yield is calculated similarly to the yield, but, when
annualized, the income earned by an investment in the Shares is assumed to be
reinvested daily. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment.
Total return represents the change, over a specified period of time, in the
value of an investment in the Shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
Yield, effective yield and total return will be calculated separately for
INSTITUTIONAL SHARES of the U.S. TREASURY FUND, TRUST SHARES of the MONEY MARKET
FUND and INVESTMENT SHARES of each of the Funds. Expense differences between
INSTITUTIONAL SHARES of the U.S. TREASURY FUND, TRUST SHARES of the MONEY MARKET
FUND and INVESTMENT SHARES of each of the Funds may affect the performance of
each class.
MANAGEMENT, DISTRIBUTION AND
ADMINISTRATION
BayFunds was established as a Massachusetts business trust under a Declaration
of Trust dated April 1, 1991. The Declaration of Trust permits BayFunds to offer
separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one
portfolio may be offered in separate classes. With respect to the Funds, as of
the date of this prospectus, the Trustees have established two classes of
shares, INVESTMENT SHARES and INSTITUTIONAL SHARES of the U.S. TREASURY FUND and
INVESTMENT SHARES and TRUST SHARES of the MONEY MARKET FUND.
INVESTMENT SHARES of the Funds are offered primarily to individuals who purchase
shares through BayBanks and its affiliates. INSTITUTIONAL SHARES of the U.S.
TREASURY FUND are sold to BayBank, N.A., its affiliated and correspondent banks
and other institutions investing for their own account and on behalf of
customers maintaining accounts at such banks and institutions. TRUST SHARES of
the MONEY MARKET FUND are sold to trusts, fiduciaries and institutions.
<TABLE>
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AS A SHAREHOLDER, YOU ARE ENTITLED TO
VOTE ON CERTAIN MATTERS.
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</TABLE>
VOTING RIGHTS. Each share of a Fund gives the shareholder one vote in Trustee
elections and other matters submitted to shareholders for vote. All shares of
each portfolio in BayFunds have equal voting rights except that, in matters
affecting only a particular fund or class, only shares of that particular fund
or class are entitled to vote.
As a Massachusetts business trust, BayFunds is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in BayFunds' or a Fund's operation and for the election of Trustees
under certain circumstances. As of February 5, 1996, Express & Co., Boston,
Massachusetts, acting in various capacities for numerous accounts, was the owner
of record of 719,660,923 INSTITUTIONAL SHARES (82%) of the U.S. TREASURY FUND
and, therefore, may be deemed to control the U.S. TREASURY FUND within the
meaning of the Investment Company Act of 1940, and be able to affect the outcome
of certain matters presented for a vote of shareholders. As of February 5, 1996,
Slatt & Co., Burlington, Massachusetts, acting in various capacities for
numerous accounts, was the owner of record of 163,437,588 TRUST SHARES (95%) of
the MONEY MARKET FUND and, therefore, may be deemed to control the MONEY MARKET
FUND within the meaning of the Investment Company Act of 1940, and be able to
affect the outcome of certain matters presented for a vote of shareholders.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of BayFunds' outstanding
shares of all portfolios entitled to vote.
<TABLE>
<S> <C> <C>
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A BOARD OF TRUSTEES SUPERVISES
BAYFUNDS.
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</TABLE>
BayFunds is managed by a Board of Trustees. The Trustees are responsible for
managing BayFunds' business affairs and for exercising all BayFunds' powers
except those reserved for the shareholders.
INVESTMENT ADVISERS
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<S> <C> <C>
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ACTING UNDER THE DIRECTION OF THE
TRUSTEES, THE ADVISERS MAKE INVESTMENT
DECISIONS FOR THE FUNDS. THE ADVISERS
HAVE EXTENSIVE INVESTMENT EXPERIENCE
AND ARE SUBSIDIARIES OF A LEADING NEW
ENGLAND FINANCIAL SERVICES
ORGANIZATION.
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</TABLE>
Pursuant to investment advisory contracts with BayFunds, investment decisions
for the U.S. TREASURY FUND are made by BayBank, N.A., and investment decisions
for the MONEY MARKET FUND are made by BayBanks Investment Management, Inc., the
Funds' investment advisers (individually referred to as the "Adviser," and
collectively as the "Advisers"), subject to direc-
tion by the Trustees. The Advisers continually conduct investment research and
supervision for the respective Funds and are responsible for the purchase and
sale of portfolio instruments, for which they receive an annual fee from the
respective Fund.
ADVISORY FEES. BayBank, N.A., receives an annual investment advisory fee equal
to .20 of 1% of the U.S. TREASURY FUND's average daily net assets. BayBanks
Investment Management, Inc. receives an annual investment advisory fee equal to
.40 of 1% of the MONEY MARKET FUND's average daily net assets. The Advisers have
undertaken to reimburse the respective Funds, up to the amount of the advisory
fees, for operating expenses in excess of limitations established by certain
states. The Advisers also may voluntarily choose to waive a portion of their
fees or reimburse the Funds for certain other expenses, but reserve the right to
terminate such waiver or reimbursement at any time at their sole discretion.
ADVISERS' BACKGROUND. The Advisers are wholly-owned subsidiaries of BayBanks,
Inc., a bank holding company organized under the laws of the Commonwealth of
Massachusetts. BayBanks, Inc. through its banking subsidiaries (hereinafter
"BayBanks") and affiliates, offers a full range of financial services to the
public, including depository services, commercial lending, cash management,
brokerage, retail banking, mortgage banking, and investment advisory and trust
services. As part of their regular banking operations, BayBanks may make loans
to public companies. Thus, it may be possible, from time to time, for the Funds
to hold or acquire the securities of issuers which are also lending clients of
BayBanks. The lending relationship will not be a factor in the selection of
securities.
BayBank, N.A., Adviser to the U.S. TREASURY FUND, manages approximately $1.1
billion (as of December 31, 1995) in the U.S. TREASURY FUND. BayBank, N.A.,
through its Capital Markets Division, manages more than $2.6 billion of assets
in the investment portfolios of BayBanks, Inc. BayBank, N.A., is the successor
to BayBank Boston, N.A., the former adviser to the U.S. TREASURY FUND. BayBank,
N.A. was created in order to restructure the banking subsidiaries of BayBanks
into a single national bank, effective October 31, 1995.
BayBanks Investment Management, Inc., the Adviser for the MONEY MARKET FUND, is
a registered investment adviser and provides investment advisory services for
trust and other managed assets. BayBanks Investment Management, Inc. was
established as a separate subsidiary of BayBanks, Inc. in 1985, but its
predecessor division and personnel have been providing investment advisory
services to BayBanks' customers for more than 65 years. As of December 31, 1995,
the Trust Division of BayBank, a state-chartered affiliate of BayBanks
Investment Management, Inc., acted as custodian for assets totaling $5.4
billion. Of this amount, BayBanks Investment Management, Inc. managed $1.7
billion of discretionary assets. BayBanks Investment Management, Inc., and
BayBanks have been managing commingled funds for over twenty years. At the
present time BayBanks Investment Management, Inc. serves as adviser to 6 such
commingled funds with total assets of approximately $308 million. BayBanks
Investment Management, Inc. has managed mutual funds since August 1991 and
manages approximately $448 million (as of December 31, 1995) in various BayFunds
Portfolios.
On December 12, 1995, BayBanks entered into a definitive Agreement and Plan of
Reorganization, whereby BayBanks, Inc. would be acquired by Bank of Boston
Corp., a bank holding company headquartered in Boston, Massachusetts (the
"Acquisition"). As a result, upon completion of the Acquisition, all existing
subsidiaries of BayBanks, Inc., including the Advisers, would become
subsidiaries of Bank of Boston Corp. The Acquisition is expected to be completed
on or
before June 30, 1996, pending approval by both companies' shareholders as well
as the receipt of various regulatory approvals and the completion of other
closing conditions.
Under the provisions of the Investment Company Act of 1940, completion of the
Acquisition would result in an assignment, and therefore automatic termination,
of the Advisers' current investment advisory contracts with the Funds (the
"Termination"). Accordingly, prior to the completion of the Acquisition, the
Trustees of the Funds will meet to consider matters relating to the Termination.
It is anticipated that a Special Meeting of Fund Shareholders will be held to
seek, among other things, approval of new investment advisory contracts with the
successors to the Advisers ("New Contracts") on behalf of the Funds. It is
anticipated that the terms of the New Contracts would be substantively the same
as the terms of the present contracts, except for the effective date which, in
the case of the New Contracts, is expected to be on or before the consummation
of the Acquisition. It is anticipated that shareholders as of a certain record
date in 1996 will receive a proxy statement discussing these matters in detail,
and will be entitled to vote at the Special Meeting.
AUTHORITY TO ACT AS INVESTMENT ADVISER. The Glass-Steagall Act and other banking
laws and regulations presently prohibit a bank holding company registered under
the Bank Holding Company Act of 1956, or any affiliate thereof, from sponsoring,
organizing or controlling a registered, open-end investment company continuously
engaged in the issuance of its shares, and from issuing, underwriting, selling
or distributing securities in general. Such laws and regulations do not prohibit
such a holding company or affiliate from acting as investment adviser, transfer
agent or custodian to such an investment company or from purchasing shares of
such a company as agent for and upon the order of their customer. Each Fund's
investment adviser (BayBanks Investment Management, Inc. and BayBank, N.A., ) is
subject to such banking laws and regulations.
The Advisers believe that they may perform the investment advisory services for
the Funds contemplated by their advisory agreement with BayFunds without
violating the Glass-Steagall Act or other applicable banking laws or
regulations. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present or future statutes and regulations, could prevent the
Advisers from continuing to perform all or a part of the above services for
their customers and/or the Funds. If this happens, changes in the operation of
the Funds may occur, including the possible alteration or termination of any
automatic or other Fund share investment and redemption services then being
provided, and the Trustees would consider alternative investment advisers and
other means of continuing available investment services. It is not expected that
Fund shareholders would suffer any adverse financial consequences (if another
adviser with equivalent abilities to BayBanks Investment Management, Inc. and/or
BayBank, N.A., is found) as a result of any of these occurrences.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state laws.
DISTRIBUTION
<TABLE>
<S> <C> <C>
- -----------------------------------------------
FEDERATED SECURITIES CORP. IS THE
PRINCIPAL DISTRIBUTOR FOR SHARES OF THE
FUNDS.
- ----
</TABLE>
Federated Securities Corp. is the principal distributor (the "Distributor") for
Shares of the Funds. It is a Pennsylvania corporation organized on November 14,
1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
ADMINISTRATIVE ARRANGEMENTS. The Distributor may pay financial institutions such
as banks, fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide certain services to shareholders. These services may
include, but are not limited to, distributing prospectuses and other
information, providing accounting assistance, and communicating or facilitating
purchases and redemptions of Shares. Any fees paid for these services by the
Distributor will be reimbursed by the Adviser and not the Funds.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings association) from being an underwriter or distributor of most
securities. In the event the Glass-Steagall Act is deemed to prohibit depository
institutions from acting in the administrative capacities described above or
should Congress relax current restrictions on depository institutions, the
Trustees will consider appropriate changes in the administrative services.
ADMINISTRATION
<TABLE>
<S> <C> <C>
- -----------------------------------------------
VARIOUS ORGANIZATIONS PROVIDE SERVICES
TO THE FUNDS.
- ----
</TABLE>
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Funds with certain administrative personnel
and services necessary to operate the Funds, such as legal and accounting
services. Federated Administrative Services provides these at an annual rate as
specified in the following table:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE
MAXIMUM DAILY NET ASSETS
ADMINISTRATIVE FEE OF BAYFUNDS
- ------------------- -------------------------
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess
of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least $50,000
for each Fund. Federated Administrative Services may choose voluntarily to
reimburse a portion of its fee at any time.
SHAREHOLDER SERVICING AGENT. BayBank Systems, Inc., Waltham, Massachusetts, is
the Funds' shareholder servicing agent for INVESTMENT SHARES. The Funds may pay
the Shareholder Servicing Agent a fee based on the average daily net asset value
of INVESTMENT SHARES for which it provides shareholder services. These
shareholder services include, but are not limited to, distributing prospectuses
and other information, providing shareholder assistance and communicating or
facilitating purchases and redemptions of INVESTMENT SHARES. This fee will be
equal to .25 of 1% of the Funds' average daily net assets of INVESTMENT SHARES
for which the Shareholder Servicing Agent provides services; however, the
Shareholder Servicing Agent may choose volun-
tarily to waive all or a portion of its fee at any time.
As a subsidiary of BayBanks, Inc., the Shareholder Servicing Agent would also be
affected by the Acquisition described above. It is anticipated that the Trustees
will also consider continuing substantively the same arrangement for shareholder
servicing subsequent to the Acquisition. In any event, a shareholder vote to
continue these services is not required.
CODE OF ETHICS COMPLIANCE
In accordance with industry-wide recommendations as endorsed by the Securities
and Exchange Commission, the Trust, the Advisers and the Distributor have
revised their respective Codes of Ethics governing personal securities trading
of trustees, directors, officers and employees. Generally, the Codes implement
various restrictions on such persons, such as requiring them to preclear their
securities investments; banning their short-term trading; prohibiting them from
investing in private placements without prior written approval; restricting
trading during periods of Fund trading; prohibiting them from receiving gifts
from any person or entity doing business with the Fund; and prohibiting them
from serving as directors of public companies without prior approval. In
addition, the Codes require such persons to report their securities holdings and
trading activity, and may subject them to punishment for violations.
- ------------------------------------------------------
- ------------------------------------------------------
ADDRESSES
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
BAYFUNDS MONEY MARKET PORTFOLIO
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
INVESTMENT ADVISER TO
BAYFUNDS MONEY
MARKET PORTFOLIO
BayBanks Investment Management, Inc.
155 Federal Street
Boston, Massachusetts 02110
INVESTMENT ADVISER TO
BAYFUNDS U.S. TREASURY
MONEY MARKET PORTFOLIO
BayBank, N.A.
175 Federal Street
Boston, Massachusetts 02110
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
DST Systems, Inc.
210 West 10th Street
Kansas City, Missouri 64105
SHAREHOLDER SERVICING AGENT
BayBank Systems, Inc.
One BayBank Technology Place
Waltham, Massachusetts 02154
CUSTODIAN
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45202
PORTFOLIO ACCOUNTING SERVICES
Federated Administrative Services
Federated Investors Tower
Pittsburgh, PA 15222-3779
COUNSEL TO BAYFUNDS
Ropes & Gray
1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
COUNSEL TO THE INDEPENDENT TRUSTEES
Sullivan & Worcester
1025 Connecticut Avenue, N.W.
Washington, D.C. 20036
INDEPENDENT AUDITORS
Ernst & Young LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219
[THIS PAGE INTENTIONALLY LEFT BLANK]
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
(INVESTMENT SHARES AND INSTITUTIONAL SHARES)
BAYFUNDS MONEY MARKET PORTFOLIO
(INVESTMENT SHARES AND TRUST SHARES)
(PORTFOLIOS OF BAYFUNDS(R))
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This combined Statement of Additional Information should be read with
the prospectus for BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO ("U.S.
TREASURY FUND") and BAYFUNDS MONEY MARKET PORTFOLIO ("MONEY MARKET FUND")
(individually referred to as a "Fund" or collectively as the "Funds"),
dated March 1, 1996. This Statement is not a prospectus itself. Customers
of BayBanks and its affiliates may request a copy of a prospectus or a
paper copy of this combined Statement of Additional Information, if it was
received electronically, free of charge by calling toll free at 1-800-BAY-
FUND (1-800-229-3863). Customers of BayBanks Trust Department may call
(617) 273-1700 in Massachusetts or toll free 1-800-462-9999 ext. 4589.
BayBanks Capital Markets customers should call 1-800-554-3311. Terms used
herein are as defined by the BayFunds Money Market Portfolios prospectus
unless otherwise noted.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated March 1, 1996
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
GENERAL INFORMATION ABOUT THE FUNDS 1
INVESTMENT OBJECTIVE AND POLICIES OF THE
FUNDS 1
When-Issued and Delayed Delivery
Transactions 1
Repurchase Agreements 1
Reverse Repurchase Agreements 1
Lending of Portfolio Securities 1
Ratings 2
Types of Investments 2
Credit Enhancement 2
Restricted and Illiquid Securities 2
Investment Limitations 3
Regulatory Compliance 5
BAYFUNDS MANAGEMENT 6
Trustees and Officers 6
Fund Ownership 8
Trustee Compensation 8
Trustee Liability 8
INVESTMENT ADVISORY SERVICES 8
Advisers to the Funds 8
Advisory Fees 9
BROKERAGE TRANSACTIONS 9
SHAREHOLDER SERVICING ARRANGEMENTS 10
OTHER SERVICES 10
Fund Administration 10
Transfer Agent, Dividend Disbursing
Agent and Portfolio Accounting
Services 10
Custodian 10
Independent Auditors 10
Legal Counsel 10
PURCHASING SHARES 11
Conversion to Federal Funds 11
Exchanging Securities for Fund Shares 11
DETERMINING NET ASSET VALUE 11
Use of the Amortized Cost Method 11
EXCHANGE PRIVILEGES 12
Requirements for Exchange 12
Making an Exchange 12
REDEEMING SHARES 12
Redemption in Kind 12
ADDITIONAL INFORMATION YOU SHOULD KNOW 12
Monthly Statements 12
Companion Account Availability 12
MASSACHUSETTS LAW 13
TAX STATUS 13
The Funds' Tax Status 13
Shareholders' Tax Status 13
TOTAL RETRUN 13
YIELD 14
EFFECTIVE YIELD 14
PERFORMANCE COMPARISONS 14
FINANCIAL STATEMENTS 15
APPENDIX 16
GENERAL INFORMATION ABOUT THE FUNDS
The Funds are portfolios of BayFunds, which was established as a
Massachusetts business trust under a Declaration of Trust dated April 1,
1991.
The portfolios of BayFunds are: BAYFUNDS U.S. TREASURY MONEY MARKET
PORTFOLIO; BAYFUNDS MONEY MARKET PORTFOLIO; BAYFUNDS BOND PORTFOLIO; BAYFUNDS
SHORT TERM YIELD PORTFOLIO; and BAYFUNDS EQUITY PORTFOLIO. This Statement of
Additional Information relates only to the U.S. TREASURY FUND and MONEY MARKET
FUND.
The U.S. TREASURY FUND and MONEY MARKET FUND are offered in two classes of
shares. The U.S. TREASURY FUND is offered in INVESTMENT SHARES and
INSTITUTIONAL SHARES. The MONEY MARKET FUND is offered in INVESTMENT SHARES
and TRUST SHARES. Collectively the classes will be referred to as "Shares."
INVESTMENT OBJECTIVE AND POLICIES OF THE FUNDS
The prospectus for the Funds discusses each Fund's investment objective and
the policies each Fund employs to achieve that objective. The following
discussion supplements the description of the Funds' investment policies in
the Funds' prospectus. The Funds' investment objectives cannot be changed
without approval of shareholders. Unless indicated otherwise, the investment
policies described in the prospectus may be changed by the Board of Trustees
("Trustees") without the approval of each Fund's shareholders. Shareholders
will be notified before any material changes in these policies become
effective.
THE FOLLOWING POLICIES APPLY TO BOTH FUNDS.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Funds may engage in when-issued and delayed delivery transactions.
These transactions are made to secure what is considered to be an advantageous
price or yield for the Funds. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Funds
sufficient to make payment for the securities to be purchased are segregated
on the Funds' records at the trade date. These assets are marked to market
daily and are maintained until the transaction has been settled. The Funds do
not intend to engage in when-issued and delayed delivery transactions to an
extent that would cause the segregation of more than 20% of the total value of
their respective assets.
REPURCHASE AGREEMENTS
The Funds, their custodian, or sub-custodian will take possession of the
securities subject to repurchase agreements, and these securities will be
marked to market daily. To the extent that the original seller does not
repurchase the securities from a Fund, the Fund could receive less than the
repurchase price on any sale of such securities. In the event that such a
defaulting seller filed for bankruptcy or became insolvent, disposition of
such securities by the Fund might be delayed pending court action. The Funds
believe that under the regular procedures normally in effect for custody of
the Funds' portfolio securities subject to repurchase agreements, a court of
competent jurisdiction would rule in favor of the Funds and allow retention or
disposition of such securities. The Funds will only enter into repurchase
agreements with banks and other recognized financial institutions such as
broker/dealers which are deemed by the Funds' advisers to be creditworthy
pursuant to guidelines established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Funds may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase agreement,
a Fund transfers possession of a portfolio instrument to another person, such
as a financial institution, broker, or dealer, in return for a percentage of
the instrument's market value in cash, and agrees that on a stipulated date in
the future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate.
When effecting reverse repurchase agreements, liquid assets of a Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.
LENDING OF PORTFOLIO SECURITIES
The collateral received when each Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities increase,
the borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays a Fund any dividends or
interest paid on such securities. Loans are subject to termination at the
option of a Fund or the borrower. A Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of
the interest earned on the cash or equivalent collateral to the borrower or
placing broker.
RATINGS
An NRSRO's highest rating category is determined without regard for sub-
categories and gradations. For example, securities rated A-1 or A-1+ by
Standard & Poor's Ratings Group ("S&P"), Prime-1 by Moody's Investors Service,
Inc. ("Moody's"), D-1 or D-1+ by Duff & Phelps Rating Co. ("D&P"), or F-1+ or
F-1 by Fitch Investors Service, Inc. ("Fitch") are all considered rated in the
highest short-term rating category. The Funds will follow applicable
regulations in determining whether a security rated by more than one NRSRO can
be treated as being in the highest short-term rating category. See "Regulatory
Compliance."
THE FOLLOWING POLICIES APPLY TO THE U.S. TREASURY FUND ONLY.
TYPES OF INVESTMENTS
The U.S. TREASURY FUND invests primarily in short-term U.S. Treasury
obligations with remaining maturities of 397 days or less and repurchase
agreements collateralized by such obligations. These may include direct
obligations of the U.S. Treasury (such as U.S. Treasury bills, notes, bonds,
and STRIPs) and obligations issued or guaranteed as to principal and interest
by the U.S. government. Examples of such obligations are:
o Export-Import Bank;
o General Services Administration;
o Government National Mortgage Association; and
o Small Business Administration.
THE FOLLOWING POLICIES APPLY TO THE MONEY MARKET FUND ONLY.
The MONEY MARKET FUND invests primarily in money market instruments with
remaining maturities of 397 days or less and which include, but are not
limited to, commercial paper, demand master notes, domestic and foreign bank
instruments, U.S. government obligations, corporate debt obligations and
repurchase agreements.
BANK INSTRUMENTS
The instruments of domestic banks and savings associations whose
deposits are insured by the Bank Insurance Fund or the Savings
Association Insurance Fund, both of which are administered by the Federal
Deposit Insurance Corporation, such as certificates of deposit, demand
and time deposits, savings shares, and bankers' acceptances, are not
necessarily guaranteed by those organizations. In addition, the Fund may
invest in the following U.S. dollar-denominated instruments:
o Eurodollar Certificates of Deposit which are issued by foreign
branches of U.S. or foreign banks;
o Eurodollar Time Deposits, which are deposits in foreign branches of
U.S. or foreign banks;
o Canadian Time Deposits, which are deposits issued by branches of major
Canadian banks located in the United States; and
o Yankee Certificates of Deposit, which are certificates of deposit
issued by U.S. branches of foreign banks and held in the United
States.
CREDIT ENHANCEMENT
The MONEY MARKET FUND typically evaluates the credit quality and ratings of
credit-enhanced securities based upon the financial condition and ratings of
the party providing the credit enhancement (the "credit enhancer"), rather
than the issuer. Generally, the MONEY MARKET FUND will not treat credit-
enhanced securities as being issued by the credit enhancer for diversification
purposes. However, under certain circumstances, applicable regulations may
require the MONEY MARKET FUND to treat securities as having been issued by
both the issuer and the credit enhancer.
RESTRICTED AND ILLIQUID SECURITIES
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under the Securities and Exchange Commission ("SEC")
Staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933. Rule 144A is a non-exclusive safe harbor for certain
secondary market transactions involving securities subject to restrictions on
resale under federal securities laws. Rule 144A provides an exemption from
registration for resales of otherwise restricted securities to qualified
institutional buyers. Rule 144A was expected to further enhance the liquidity
of the secondary market for securities eligible for resale under Rule 144A.
The MONEY MARKET FUND believes that the Staff of the SEC has left the question
of determining the liquidity of all restricted securities (eligible for resale
under Rule 144A) to the Trustees. The Trustees consider the following criteria
in determining the liquidity of certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
INVESTMENT LIMITATIONS
THE FOLLOWING LIMITATIONS APPLY TO BOTH FUNDS.
SELLING SHORT AND BUYING ON MARGIN
The Funds will not sell any securities short or purchase any
securities on margin but may obtain such short-term credits as may be
necessary for clearance of purchases and sales of securities. With
respect to U.S. TREASURY FUND, the deposit or payment of initial or
variation margin in connection with financial futures contracts or
related options transactions is not considered the purchase of a security
on margin.
PLEDGING ASSETS
The Funds will not mortgage, pledge or hypothecate any assets except
to secure permitted borrowings. In those cases, the Funds may pledge
assets having a market value not exceeding the lesser of the dollar
amounts borrowed or 15% of the value of total assets of the Funds at the
time of the pledge.
LENDING CASH OR SECURITIES
The Funds will not lend any of their assets, except portfolio
securities up to one-third of the value of their total assets. This shall
not prevent the Funds from purchasing or holding bonds, debentures,
notes, certificates of indebtedness, or other debt securities, entering
into repurchase agreements, or engaging in other transactions where
permitted by the Funds' investment objectives, policies, and limitations
or the Declaration of Trust.
INVESTING IN COMMODITIES AND REAL ESTATE
The Funds will not purchase or sell commodities, commodity contracts,
or commodity futures contracts. The Funds will not purchase or sell real
estate, including limited partnership interests in real estate, although
they may invest in securities of issuers whose business involves the
purchase or sale of real estate or in securities which are secured by
real estate or interests in real estate.
UNDERWRITING
The Funds will not underwrite any issue of securities, except as they may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with their
investment objectives, policies and limitations.
INVESTING IN RESTRICTED SECURITIES
The Funds will not purchase restricted securities if immediately
thereafter more than 5% (for the U.S. TREASURY FUND) or more than 10%
(for the MONEY MARKET FUND) of the net assets of the Fund, as applicable,
taken at market value, would be invested in such securities (except for
commercial paper issued under Section 4(2) of the Securities Act of 1933
and certain other restricted securities which meet the criteria for
liquidity as established by the Trustees.)
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the value of their total assets, the Funds will
not purchase securities issued by any issuer (other than cash, cash items
or securities issued or guaranteed by the government of the United States
or its agencies or instrumentalities and repurchase agreements
collateralized by such securities) if as a result more than 5% of the
value of its total assets would be invested in the securities of that
issuer. Also, the Funds will not purchase more than 10% of the
outstanding voting securities of any one issuer.
THE FOLLOWING LIMITATIONS APPLY TO THE U.S. TREASURY FUND ONLY.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The U.S. TREASURY FUND will not issue senior securities except that
the U.S. TREASURY FUND may borrow money directly or through reverse
repurchase agreements as a temporary measure for extraordinary or
emergency purposes and then only in amounts not in excess of one-third of
the value of the U.S. TREASURY FUND'S total assets; provided that, while
borrowings exceed 5% of the U.S. TREASURY FUND'S total assets, any such
borrowings will be repaid before additional investments are made. The
U.S. TREASURY FUND will not borrow money or engage in reverse repurchase
agreements for investment leverage purposes.
CONCENTRATION OF INVESTMENTS
The U.S. TREASURY FUND will not purchase securities which would cause 25%
or more of the value of the U.S. TREASURY FUND'S total assets at the time
of purchase to be invested in the securities of one or more issuers
conducting their principal activities in the same industry; provided that
there is no limitation with respect to obligations issued or guaranteed
by the U.S. government, its agencies or instrumentalities.
THE FOLLOWING LIMITATIONS APPLY TO THE MONEY MARKET FUND ONLY.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The MONEY MARKET FUND will not issue senior securities except that the
MONEY MARKET FUND may borrow money directly or through reverse repurchase
agreements in amounts up to one-third of the value of its total assets
including the amounts borrowed. The MONEY MARKET FUND will not borrow
money or engage in reverse repurchase agreements for investment leverage,
but rather as a temporary, extraordinary, or emergency measure or to
facilitate management of the portfolio by enabling the MONEY MARKET FUND
to meet redemption requests when the liquidation of portfolio securities
is deemed to be inconvenient or disadvantageous. The MONEY MARKET FUND
will not purchase any securities while borrowings in excess of 5% of the
value of its total assets are outstanding.
CONCENTRATION OF INVESTMENTS
The MONEY MARKET FUND will not invest more than 25% of the value of its
total assets in any one industry, except it may invest more than 25% of
the value of its total assets in time and demand deposits, certificates
of deposit, and other instruments of domestic banks, and U.S. branches of
foreign banks, or U.S. government obligations, or instruments secured by
these money market instruments, such as repurchase agreements for U.S.
government obligations.
The above investment limitations cannot be changed without shareholder
approval. The Funds do not consider the issuance of separate classes of shares
to involve the issuance of "senior securities" within the meaning of the
investment limitation set forth above. The following limitations, however, may
be changed by the Trustees without shareholder approval. Shareholders will be
notified before any material change in these limitations becomes effective.
THE FOLLOWING LIMITATIONS APPLY TO BOTH FUNDS.
INVESTING IN ILLIQUID SECURITIES
The Funds will not invest more than 10% of the value of their net assets
in illiquid securities, including repurchase agreements providing for
settlement more than seven days after notice, certain restricted
securities determined by the Trustees not to be liquid, and non-
negotiable time deposits with maturities over seven days.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Funds will limit their investment in other investment companies that
are money market funds having investment objectives and policies similar
to their own, to no more than 3% of the total outstanding voting stock of
any such investment company, invest not more than 5% of their total
assets in any one investment company, or invest no more than 10% of their
total assets in investment companies in general. The Funds will purchase
securities of closed-end investment companies only in open market
transactions involving only customary brokers' commissions. However,
these limitations are not applicable if the securities are acquired in a
merger, consolidation, or acquisition of assets. It should be noted that
investment companies incur certain expenses such as management fees, and,
therefore, any investment by a Fund in shares of another investment
company would be subject to such duplicate expenses. The Funds will
invest in other investment companies primarily for the purpose of
investing their short-term cash on a temporary basis. The advisers will
waive their investment advisory fee on assets invested in securities of
open-end investment companies.
ARBITRAGE TRANSACTIONS
The Funds will not enter into transactions for the purpose of engaging in
arbitrage.
DEALING IN PUTS AND CALLS
The Funds will not invest in puts, calls, straddles, spreads or any
combination of them.
THE FOLLOWING LIMITATIONS APPLY TO THE MONEY MARKET FUND ONLY.
INVESTING IN NEW ISSUERS
The MONEY MARKET FUND will not invest more than 5% of the value of its
total assets in securities of issuers which have records of less than
three years of continuous operations, including the operations of any
predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
BAYFUNDS
The MONEY MARKET FUND will not purchase or retain the securities of any
issuer if the officers and Trustees of BayFunds or the Funds' investment
advisers owning individually more than 1/2 of 1% of the issuer's
securities together own more than 5% of the issuer's securities.
INVESTING IN MINERALS
The MONEY MARKET FUND will not purchase interests in oil, gas, or other
mineral exploration or development programs or leases, except it may
purchase the securities of issuers which invest in or sponsor such
programs.
Except with respect to borrowing money, if a percentage limitation is adhered
to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a
violation of such restriction.
The Funds do not expect to borrow money or pledge securities in excess of 5%
of the value of their net assets during the coming fiscal year.
For purposes of its policies and limitations, the Funds consider
certificates of deposit and demand and time deposits issued by a U.S. branch
of a domestic bank or savings associations having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment to be
"cash items."
REGULATORY COMPLIANCE
The Funds may follow non-fundamental operating policies that are more
restrictive than their fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply
with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940. In particular, the Funds
will comply with the various requirements of Rule 2a-7 which regulates money
market mutual funds. For example, with limited exceptions, Rule 2a-7 prohibits
the investment of more than 5% of each Fund's total assets in the securities
of any one issuer, although each Fund's investment limitation only requires
such 5% diversification with respect to 75% of its assets. The Funds will
invest more than 5% of each Funds assets in any one issuer only under the
circumstances permitted by Rule 2a-7. The Funds will also determine the
effective maturity of their investments, as well as their ability to consider
a security as having received the requisite short-term ratings by NRSROs,
according to Rule 2a-7. The Funds may change these operational policies to
reflect changes in the laws and regulations without the approval of their
shareholders.
BAYFUNDS MANAGEMENT
TRUSTEES AND OFFICERS
Trustees and Officers are listed with their addresses, principal
occupations, and present positions, including any affiliation with BayBanks
Investment Management, Inc., BayBank , N.A., BayBanks, Inc., Federated
Investors, Federated Securities Corp., and Federated Administrative
Services.
Officers and Trustees are listed with their addresses, principal occupations,
and present positions.
Kenneth G. Condon
11 Dudley Road
Sudbury, MA
Birthdate: August 14, 1947
Trustee
Treasurer (since June 1992) and Vice President for Financial Affairs (1984
through present), Boston University; Member, BayBank Trust Advisory Board;
Member, Regional Strategic Planning Committee, BayBanks, Inc.; Director,
Seragen, Inc.; Director, WABU-TV; Trustee and Chairman of the Finance/Audit
Committee, Newbury College; formerly, Director and Member of Audit Committee,
BayBank Harvard Trust Co.; Director and Treasurer of the Boston Chapter of the
Financial Executives Institute.
Robert W. Eisenmenger
92 Woodland Street
Natick, MA
Birthdate: June 30, 1926
Trustee
Consultant; formerly, First Vice President of the Federal Reserve Bank of
Boston, and Executive Director for Priced Services for the Federal Reserve
System; Trustee, Massachusetts Congregational Fund; Trustee and Consultant,
Cape Cod Five Cents Savings Bank.
Sara L. Johnson
30 Eaton Court
Wellesley Hills, MA
Birthdate: November 16, 1951
Trustee
Chief Regional Economist (since 1995) and Principal (since 1992), Director
of Regional Forecasting, Managing Economist for Regional Information Group's
Eastern Regions (1988-1991) and Senior Economist, U.S. Economic Service (1983-
1988), DRI/McGraw Hill.
Ernest R. May
John F. Kennedy School of Government
Cambridge, MA
Birthdate: November 19, 1928
Trustee
Charles Warren Professor of History, Harvard University; Chair, Board of
Visitors, Joint Military Intelligence College; Chair, Board of Control, John
Anson Kittredge Educational Fund; Director, Charles Warren Center for Studies
in American History, Harvard University.
Alvin J. Silk
Graduate School of Business Administration
Harvard University
Soldiers Field Road
Boston, MA
Birthdate: December 31, 1935
Trustee
Co-Chairman, Marketing Area and Lincoln Filene Professor of Business
Administration, Graduate School of Business Administration, Harvard University
(1988- present); formerly, Erwin H. Schell Professor of Management, Sloan
School of Management, Massachusetts Institute of Technology; formerly,
Director, BayBank Systems, Inc.; Trustee, Marketing Science Institute;
Director, Reed and Barton, Inc.
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President and Treasurer
Trustee, Federated Investors; President and/or Trustee of certain
investment companies distributed by Federated Securities Corp.; staff member,
Federated Securities Corp. and Federated Administrative Services.
C. Christine Thomson
Federated Investors Tower
Pittsburgh, PA
Birthdate: September 1, 1957
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and
Assistant Treasurer of certain investment companies distributed by Federated
Securities Corp.
Victor R. Siclari
Federated Investors Tower
Pittsburgh, PA
Birthdate: November 17, 1961
Secretary
Corporate Counsel, Federated Investors; formerly, Attorney, Morrison &
Foerster (law firm).
FUND OWNERSHIP
Officers and Trustees own less than 1% of each of the Funds' outstanding
shares.
As of February 5, 1996, the following shareholder of record owned 5% or
more of the outstanding INSTITUTIONAL SHARES of U.S. TREASURY FUND:
Slatt & Co., Burlington, Massachusetts owned approximately 159,729,596
shares (18%); and Express & Co., Boston, Massachusetts owned approximately
719,660,923 shares (82%).
As of February 5, 1996, the following shareholder of record owned 5%
or more of the outstanding TRUST SHARES of the MONEY MARKET FUND: Slatt & Co.,
Burlington, Massachusetts owned approximately 163,437,588 shares (95%).
TRUSTEES' COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM
TRUST TRUST*#
Kenneth G. Condon $ 11,600
Trustee
Robert W. Eisenmenger $ 10,000
Trustee
Sarah L. Johnson $ 10,000
Trustee
Ernest R. May $ 10,000
Trustee
Alvin J. Silk $ 8,750
Trustee
*Information is furnished for the fiscal year ended December 31, 1995.
#The aggregate compensation is provided for the Trust which is comprised of 5
portfolios.
TRUSTEE LIABILITY
BayFunds' Declaration of Trust provides that the Trustees are not liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISERS TO THE FUNDS
The U.S. TREASURY FUND'S investment adviser is BayBank, N.A. Prior to
October 31, 1995, BayBank Boston, N.A. served as the U.S. TREASURY FUND'S
adviser. (For purposes of this Statement of Additional Information, BayBank
Boston, N.A. and BayBank, N.A., may hereinafter collectively be referred to as
"BBNA".)
The MONEY MARKET FUND's investment adviser is BayBanks Investment Management,
Inc. ("BBIM").
BBNA and BBIM will collectively be referred to as the "Advisers." The
Advisers are wholly-owned subsidiaries of BayBanks, Inc., a bank holding
company organized under the laws of the Commonwealth of Massachusetts with a
number of bank subsidiaries. Collectively, these bank subsidiaries are
referred to in this Statement of Additional Information as "BayBanks." The
Advisers shall not be liable to BayFunds, the Funds or any shareholder of the
Funds for any losses that may be sustained in the purchase, holding, or sale
of any security, or for anything done or omitted by them, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon them by their contracts with
BayFunds.
Because of the internal controls maintained by BayBanks to restrict the flow
of non-public information, Fund investments are typically made without any
knowledge of BayBanks or its affiliates' lending relationships with an issuer.
ADVISORY FEES
For their advisory services, the Advisers receive an annual investment
advisory fee as described in the prospectus.
For the fiscal year ended December 31, 1995, 1994, and for the period from
January 29, 1993 (date of initial public investment) to December 31, 1993,
BBNA earned fees from U.S. TREASURY FUND in the amount of $1,978,781,
$1,428,354, and $851,157, respectively, none of which were voluntarily
waived.
For the fiscal years ended December 31, 1995, 1994, and 1993, BBIM earned
fees from MONEY MARKET FUND of $869,240, $818,942, and $893,521, respectively,
of which $0, $86,926, and $192,825, respectively, was voluntarily waived.
STATE EXPENSE LIMITATION
The Advisers have undertaken to comply with the expense limitation
established by certain states for investment companies whose shares are
registered for sale in those states. If a Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1-1/2% per
year of the remaining average net assets, each of the Advisers has agreed
to reimburse the Funds for its expenses over the limitation up to the
amount of the advisory fee.
If a Fund's monthly projected operating expenses exceed this limitation,
the investment advisory fee paid will be reduced by the amount of the
excess, subject to an annual adjustment. If the expense limitation is
exceeded, the amount to be reimbursed by an Adviser will be limited, in
any single fiscal year, by the amount of the investment advisory fee.
This arrangement is not part of the advisory contracts and may be amended
or rescinded in the future.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Advisers look for prompt execution of the order at
a favorable price. In working with dealers, the Advisers will generally use
those who are recognized dealers in specific portfolio instruments, except
when a better price and execution of the order can be obtained elsewhere. The
Advisers make decisions on portfolio transactions and select brokers and
dealers subject to review by the Trustees. The Advisers may select brokers
and dealers who offer brokerage and research services. These services may be
furnished directly to the Funds or to the Advisers and may include:
advice as to the advisability of investing in securities;
security analysis and reports; economic studies; industry studies; receipt of
quotations for portfolio evaluations; and similar services.
Research services provided by brokers and dealers may be used by the
Advisers in advising the Funds and other accounts. To the extent that receipt
of these services may supplant services for which the Advisers or their
affiliates might otherwise have paid, it would tend to reduce expenses.
The Advisers exercise reasonable business judgment in selecting brokers who
offer brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research services
provided.
On December 31, 1995, MONEY MARKET FUND owned approximately $8,780,000 of
the securities of Dean Witter Discover & Co.; $9,622,000 of the securities of
Merrill Lynch & Co.; $3,241,000 of the securities of Smith Barney, Inc.; and
$5,000,000 of the securities of Bear, Sterns & Co., Inc., all of whom are the
Fund's regular brokers that derive more than 15% of gross revenues from
securities-related activities.
Although investment decisions for the Funds are made independently from
those of other accounts managed by the Advisers, investments of the type the
Funds may make may also be made by those other accounts. When the Funds and
one or more other accounts managed by the Advisers are prepared to invest in,
or desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by the Advisers
to be equitable to each. In some cases, this procedure may adversely affect
the price paid or received by the Funds or the size of the position obtained
or disposed of by the Funds. In other cases, however, it is believed that
coordination and the ability to participate in volume transactions will be to
the benefit of the Funds.
SHAREHOLDER SERVICING ARRANGEMENTS
Under a Shareholder Services Plan, the Fund may pay a fee to BayBank
Systems, Inc., as shareholder servicing agent for INVESTMENT SHARES, for
services provided which are necessary for the maintenance of shareholder
accounts. These activities and services may include, but are not limited to:
providing office space, equipment, telephone facilities, and various clerical,
supervisory, computer, and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing purchase
and redemption transactions and automatic investments of client account cash
balance; answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses. For the period ended
December 31, 1995, U.S. TREASURY FUND and MONEY MARKET FUND paid BayBanks
Systems, Inc. $497,414 and $136, 565 respectively, in shareholder services
fees with respect to INVESTMENT SHARES under the Shareholder Services Plan.
OTHER SERVICES
FUND ADMINISTRATION
Federated Administrative Services ("FAS"), a subsidiary of Federated
Investors, provides administrative personnel and services to the Funds for
fees as described in the prospectus.
For the fiscal year ended December 31, 1995, 1994, and for the period from
January 29, 1993 (date of initial public investment) to December 31, 1993, the
U.S. TREASURY FUND incurred costs for administrative fees of $ 997,552,
$750,678, and $478,865, respectively, of which $0, $0, and $238,788,
respectively, was voluntarily waived. For the fiscal years ended
December 31, 1995, 1994, and for the period from January 29, 1993 (date
of initial public investment) to December 31, 1993, FAS reimbursed $0, $0, and
$59,801, respectively, to U.S. TREASURY FUND. For the fiscal years ended
December 31, 1995, 1994, and 1993, the MONEY MARKET FUND incurred costs for
administrative service fees of $219,346, $215,486, and $263,548, respectively,
of which $0, $0, and $15,149, respectively, was voluntarily waived.
For the fiscal years ended December 31, 1995, 1994, and 1993, FAS
reimbursed $0, $0, and $48,336, respectively, to MONEY MARKET FUND.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND PORTFOLIO ACCOUNTING SERVICES
DST Systems, Inc., Kansas City, Missouri, is transfer agent for the Shares of
the Funds and dividend disbursing agent for the Funds. The Funds' Transfer
Agent maintains a Share account for each shareholder of record of INVESTMENT
SHARES of the Funds and of TRUST SHARES of the MONEY MARKET FUND. Share
certificates are not issued.
FAS provides portfolio accounting services for the Funds. Prior to January 16,
1996, Federated Services Company, an affiliate of FAS and subsidiary of
Federated Investors, provided the portfolio accounting services.
CUSTODIAN
The Fifth Third Bank, Cincinnati, Ohio, is custodian for the securities and
cash of the Funds.
INDEPENDENT AUDITORS
The independent auditors for the Funds are Ernst & Young LLP, Pittsburgh,
Pennsylvania.
LEGAL COUNSEL
Legal counsel is provided by Ropes & Gray, Washington, D.C., Counsel to
BayFunds, and Sullivan & Worcester, Washington, D.C., Counsel to the
Independent Trustees.
PURCHASING SHARES
The procedures for purchasing Shares are explained in the prospectus.
CONVERSION TO FEDERAL FUNDS
It is the Funds' policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
Federal funds or be converted into Federal funds. BayBanks acts as the
shareholder's agent in depositing checks and converting them to Federal funds.
EXCHANGING SECURITIES FOR FUND SHARES
Each Fund may accept securities in exchange for Shares. A Fund will allow such
exchanges only upon the prior approval of the Fund and a determination by the
Fund and its Adviser that the securities to be exchanged are acceptable.
Any securities exchanged must meet the investment objective and policies of
the Fund, must have a readily ascertainable market value and must be liquid.
The market value of any securities exchanged in an initial investment, plus
any cash, must be at least $100,000.
Securities accepted by the Fund will be valued in the same manner as the Fund
values its assets. The basis of the exchange will depend upon the net asset
value of Shares on the day the securities are valued. One Share of the Fund
will be issued for each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription or other
rights attached to the securities become the property of the Fund, along with
the securities.
DETERMINING NET ASSET VALUE
The Funds attempt to stabilize the value of a Share at $1.00. The days on
which net asset value is calculated by the Funds are described in the
prospectus.
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Funds' use of the amortized cost method of valuing portfolio instruments
depends on their compliance with Rule 2a-7 (the "Rule") promulgated by the SEC
under the Investment Company Act of 1940. Under the Rule, the Trustees must
establish procedures reasonably designed to stabilize the net asset value per
share, as computed for purposes of distribution and redemption, at $1.00 per
share, taking into account current market conditions and the Funds' investment
objectives.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a difference of more than
.5 of 1% between the two values. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Funds limit their investments to instruments
that, in the opinion of the Trustees, present minimal credit risks and
have received the requisite rating from one or more nationally recognized
statistical rating organizations. If the instruments are not rated, the
Trustees must determine that they are of comparable quality. In
purchasing shares of other investment companies, the Trustees will review
each company's stated investment policies for consistency with Rule 2a-7.
The Rule also requires the Funds to maintain a dollar-weighted average
portfolio maturity (not more than 90 days) appropriate to the objective
of maintaining a stable net asset value of $1.00 per share. In addition,
no instruments with a remaining maturity of more than 397 days can be
purchased by the Funds.
Should the disposition of a portfolio security result in a dollar-
weighted average portfolio maturity of more than 90 days, the Funds will
invest their available cash to reduce the average maturity to 90 days or
less as soon as possible.
The Funds may attempt to increase yield by trading portfolio securities
to take advantage of short-term market variations. This policy may, from
time to time, result in high portfolio turnover. Under the amortized cost
method of valuation, neither the amount of daily income nor the net asset
value is affected by any unrealized appreciation or depreciation of the
portfolio.
In periods of declining interest rates, the indicated daily yield on
Shares of the Funds computed by dividing the annualized daily income on
the Funds' portfolios by the net asset value computed as above may tend
to be higher than a similar computation made by using a method of
valuation based upon market prices and estimates.
In periods of rising interest rates, the indicated daily yield on
Shares of the Funds computed the same way may tend to be lower than a
similar computation made by using a method of calculation based upon
market prices and estimates.
EXCHANGE PRIVILEGES
REQUIREMENTS FOR EXCHANGE
Upon receipt of proper instructions and required supporting documents, shares
submitted for exchange are redeemed and the proceeds invested in shares of the
other Participating Fund.
Please review the prospectus for further information on the exchange
privileges.
MAKING AN EXCHANGE
Instructions for exchanges may be given in writing. Written instructions may
require a signature guarantee.
REDEEMING SHARES
The Funds redeem Shares at the next computed net asset value after the Funds
receive the redemption request from the Funds' transfer agent in proper form.
Redemption procedures are explained in the prospectus.
REDEMPTION IN KIND
Although the Funds intend to redeem Shares in cash, they reserve the right
under certain circumstances to pay the redemption price in whole or in part by
a distribution of securities from the respective Fund's portfolio.
Redemption in kind will be made in conformity with applicable SEC rules,
taking such securities at the same value employed in determining net asset
value and selecting the securities in a manner the Trustees determine to be
fair and equitable.
BayFunds has elected to be governed by Rule 18f-1 under the Investment Company
Act of 1940, which obligates the Funds to redeem Shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net asset
value of the respective class during any 90-day period.
Redemption in kind is not as liquid as cash redemption. If redemption is made
kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur transaction costs.
ADDITIONAL INFORMATION YOU SHOULD KNOW
MONTHLY STATEMENTS
Shareholders of the Funds who have eligible BayBanks deposit accounts will
receive combined monthly statements containing all information relating to
their deposit account(s) and BayFunds transactions.
COMPANION ACCOUNT AVAILABILITY
Certain BayBanks deposit account customers may elect to open a companion
BayFunds account to facilitate BayFunds transactions.
MASSACHUSETTS LAW
Under certain circumstances, shareholders may be held personally liable under
Massachusetts law for acts or obligations of BayFunds. To protect
shareholders, BayFunds has filed legal documents with Massachusetts that
expressly disclaim the liability of shareholders for such acts or obligations
of BayFunds. These documents require notice of this disclaimer to be given in
each agreement, obligation, or instrument BayFunds or its Trustees enter into
or sign.
In the unlikely event a shareholder is held personally liable for BayFunds'
obligations, BayFunds is required, by its Declaration of Trust, to use its
property to protect or compensate the shareholder. On request, BayFunds will
defend any claim made and pay any judgment against a shareholder for any act
or obligation of BayFunds. Therefore, financial loss resulting from liability
as a shareholder will occur only if BayFunds cannot meet its obligations to
indemnify shareholders and pay judgments against them from its assets.
TAX STATUS
THE FUNDS' TAX STATUS
The Funds intend to meet the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies in order not to be
liable for Federal income taxes on income and gains distributed to Fund
shareholders. To qualify for this treatment, a Fund must, among other
requirements:
o derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
o derive less than 30% of its gross income from the sale of securities held,
or deemed held, less than three months;
o diversify its holdings according to certain statutory requirements; and
o distribute to its shareholders at least 90% of its taxable and tax-exempt
income earned during the year.
The Funds will distribute substantially all of their net investment income and
net realized gains at least annually.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to Federal income tax on dividends and any short-term
capital gains received as cash or additional shares. No portion of any income
dividend paid by a Fund is eligible for the dividends received deduction
available to corporations. These dividends and any short-term capital gains
are taxable as ordinary income.
CAPITAL GAINS
Capital gains experienced by a Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If for
some extraordinary reason a Fund realizes net long-term capital gains, it
will distribute them at least once every 12 months.
TOTAL RETURN
For the fiscal year ended December 31, 1995 and for the period from January
29, 1993 (date of initial public investment) to December 31, 1995, the average
annual total return for INVESTMENT SHARES of U.S. TREASURY FUND was 5.40% and
3.90%, respectively. For the fiscal year ended December 31, 1995 and for the
period from January 29, 1993 (date of initial public investment) to December
31, 1995, the average annual total return for INSTITUTIONAL SHARES of U.S.
TREASURY FUND was 5.66% and 4.15%, respectively.
For the fiscal year ended December 31, 1995 and for the period from January
19, 1993 (date of initial public investment) to December 31, 1995, the average
annual total return for INVESTMENT SHARES of MONEY MARKET FUND was 5.23% and
3.86%, respectively. For the fiscal year ended December 31, 1995 and for the
period from April 19, 1991 (date of initial public investment) to December 31,
1995, the average annual total return for TRUST SHARES of MONEY MARKET FUND
was 5.49% and 4.05%, respectively.
Average annual total return for both classes of Shares of each Fund is the
average compounded rate of return for a given period that would equate a
$1,000 initial investment to the ending redeemable value of that investment.
The ending redeemable value is computed by multiplying the number of shares
owned at the end of the period by the net asset value per share at the end of
the period. The number of shares owned at the end of the period is based on
the number of shares purchased at the beginning of the period with $1,000,
adjusted over the period by any additional shares, assuming the monthly
reinvestment of all dividends and distributions.
YIELD
The yields for the seven day period ended December 31, 1995 were 5.16% and
5.41% for INVESTMENT SHARES and INSTITUTIONAL SHARES of U.S. TREASURY FUND,
respectively.
The yields for the seven day period ended December 31, 1995 were 4.98% and
5.23% for INVESTMENT SHARES and TRUST SHARES of MONEY MARKET FUND,
respectively.
The Funds calculate their yield for both classes of Shares daily, based
upon the seven days ending on the day of the calculation, called the "base
period." This yield is computed by:
o determining the net change in the value of a hypothetical account with a
balance of one share at the beginning of the base period, with the net
change excluding capital changes but including the value of any additional
shares purchased with dividends earned from the original one share and all
dividends declared on the original and any purchased shares;
o dividing the net change in the account's value by the value of the account
at the beginning of the base period to determine the base period return;
and
o multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in either
class of shares, the performance will be reduced for those shareholders paying
those fees.
EFFECTIVE YIELD
The effective yields for the seven day period ended December 31, 1995 were
5.29% and 5.56% for INVESTMENT SHARES and INSTITUTIONAL SHARES of U.S.
TREASURY FUND, respectively.
The effective yields for the seven day period ended December 31, 1995 were
5.11% and 5.37% for INVESTMENT SHARES and TRUST SHARES of MONEY MARKET FUND,
respectively.
The effective yield for both classes of Shares of each Fund is computed by
compounding the unannualized base period return by:
o adding 1 to the base period return;
o raising the sum to the 365/7th power; and
o subtracting 1 from the result.
PERFORMANCE COMPARISONS
The performance of both classes of Shares of each Fund depends upon such
variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates on money market instruments;
o changes in a Fund's or of either class of its Shares expenses;
and
o the relative amount of a Fund's cash flow.
From time to time the Funds may advertise their performance of both classes
of Shares compared to similar funds or portfolios.
Investors may use financial publications and/or indices to obtain a more
complete view of the Funds' performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index
used, prevailing market conditions, portfolio compositions of other funds, and
methods used to value portfolio securities and compute offering price. The
financial publications and/or indices which the Funds use in advertising may
include:
o LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories
by making comparative calculations using total return. It also produces
indices of larger mutual funds that are intended to track specific fund
categories. Total return assumes the reinvestment of all income dividends
and capital gains distributions, if any. From time to time, the Funds will
quote their Lipper ranking in the applicable category or against a specific
Lipper index in advertising or sales literature.
oBANK RATE MONITOR NATIONAL INDEX, Miami Beach, Florida, is a financial
reporting service which publishes weekly average rates of 50 leading banks
and thrift institution money market deposit accounts. The rates published in
the index are an average of the personal account rates offered on the
Wednesday prior to the date of publication by ten of the largest banks and
thrifts in each of the five largest Standard Metropolitan Statistical Areas.
Account minimums range upward from $2,500 in each institution and
compounding methods vary. If more than one rate is offered, the lowest rate
is used. Rates are subject to change at any time specified by the
institution.
oDONOGHUE'S MONEY FUND REPORT publishes annualized yields of hundreds of
money market funds on a weekly basis and through its Money Market Insight
publication reports monthly and year-to-date investment results for the same
money funds.
Advertisements and other sales literature for both classes of shares of either
Fund may refer to total return. Total return is the historic change in the
value of an investment in either Funds' classes of shares based on the monthly
reinvestment of dividends over a specified period of time.
FINANCIAL STATEMENTS
The financial statements for the fiscal year ended December 31, 1995, are
incorporated herein by reference to the Annual Report of the Funds dated
December 31, 1995 (File No. 811-6296). You may request a copy of the Annual
Report free of charge by writing the Funds or by calling 1-800-BAY-FUND.
APPENDIX
STANDARD AND POOR'S RATINGS GROUP CORPORATE BOND RATING DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's
Ratings Group. Capacity to pay interest and repay principal is extremely
strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATING DEFINITIONS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
FITCH INVESTORS SERVICE, INC., BOND RATING DEFINITIONS
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA--Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA."
DUFF & PHELPS ("D&P") LONG-TERM DEBT RATINGS
AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for U.S. Treasury debt.
AA--High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATING DEFINITIONS
A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATING DEFINITIONS
P-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following
characteristics:
--Leading market positions in well established industries.
--High rates of return on funds employed.
--Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
--Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
--Well-established access to a range of financial markets and assured
sources of alternate liquidity.
P-2--Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
FITCH INVESTORS SERVICE, INC., SHORT-TERM DEBT RATING DEFINITIONS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment only slightly less in degree than issues rated F-
1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the F-1+ and F-1 ratings.
DUFF & PHELPS SHORT-TERM DEBT RATINGS
D-1+--Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below U.S. Treasury short-term obligations.
D-1-- Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
D-1- -- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very
small.
D-2-- Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
Cusip 072782204
Cusip 072782105
Cusip 072782709
Cusip 072782600
1042301-B (2/96)
INCOME PORTFOLIOS
& EQUITY PORTFOLIO
Bond Portfolio
Short Term Yield Portfolio
Equity Portfolio
PROSPECTUS
Investment Shares
Institutional Shares
BayBanks Investment Management, Inc.
Investment Adviser
Federated Securities Corp.
Distributor
March 1, 1996
[LOGO] Printed on recycled paper
G00981-01 (2/96)
Z00411
Mutual Funds At BayBank
BayFunds
BAYFUNDS
INCOME FUNDS AND EQUITY FUND
INVESTMENT SHARES AND INSTITUTIONAL SHARES
PROSPECTUS
The shares offered in this prospectus represent interests in the INVESTMENT
SHARES and INSTITUTIONAL SHARES ("Shares") of the following income and equity
portfolios of BayFunds, an open-end, management investment company (a mutual
fund):
INCOME FUNDS
- BAYFUNDS BOND PORTFOLIO
- BAYFUNDS SHORT TERM YIELD PORTFOLIO
EQUITY FUND
- BAYFUNDS EQUITY PORTFOLIO
This prospectus relates only to the INCOME FUNDS and EQUITY FUND (individually
referred to as a "Fund" or collectively as the "Funds"). The Funds offer a
convenient means of accumulating an interest in a professionally managed,
diversified portfolio of securities. INVESTMENT SHARES of the Funds are sold
primarily to individuals who purchase Shares through BayBanks and its
affiliates. INSTITUTIONAL SHARES of the Funds are offered primarily to trusts,
fiduciaries and other institutions. Shareholders can invest, reinvest, or redeem
Shares with no sales loads or redemption fees imposed by the Funds. Shareholders
have access to other portfolios in BayFunds.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND
ARE NOT ENDORSED OR GUARANTEED BY BAYBANKS, INC., OR ITS SUBSIDIARIES, AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in the Funds. Keep this prospectus for future reference.
The Funds have also filed a combined Statement of Additional Information dated
March 1, 1996, with the Securities and Exchange Commission. The information
contained in the combined Statement of Additional Information is incorporated by
reference into this prospectus. To request a copy of the combined Statement of
Additional Information or a paper copy of this prospectus (if you have received
your prospectus electronically), free of charge, shareholders of INVESTMENT
SHARES can call toll-free 1-800-BAY-FUND (1-800-229-3863) and shareholders of
INSTITUTIONAL SHARES may call toll-free 1-800-462-9999 ext. 4589 during normal
business hours.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated March 1, 1996
- ------------------------------------------------------
- ------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
KEY FACTS
General Information.......................................................... 1
Summary of Fund Expenses..................................................... 2
Financial Highlights......................................................... 6
- --------------------------------------------------------------------------------
MATCHING THE FUNDS TO YOUR INVESTMENT NEEDS
Investment Objective and Policies............................................. 8
Bond Fund................................................................ 8
Short Term Yield Fund.................................................... 9
Equity Fund............................................................. 10
Portfolio Investments........................................................ 10
Investment Limitations....................................................... 17
- --------------------------------------------------------------------------------
SHAREHOLDER MANUAL
Pricing of Shares............................................................ 18
How to Buy Investment Shares................................................. 19
How to Exchange Investment
Shares.................................................................... 21
How to Redeem Investment
Shares.................................................................... 22
How to Buy Institutional Shares.............................................. 24
How to Exchange Institutional
Shares.................................................................... 24
How to Redeem Institutional
Shares.................................................................... 25
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION YOU SHOULD KNOW
Minimum Balance.............................................................. 26
Dividends and Distributions.................................................. 26
Tax Information.............................................................. 27
Performance Information...................................................... 27
Management, Distribution and
Administration............................................................ 28
Code of Ethics Compliance.................................................... 32
- ------------------------------------------------------
- ------------------------------------------------------
KEY FACTS
GENERAL INFORMATION
BayFunds offers you a convenient and affordable way to participate in five
separate, professionally managed, diversified investment portfolios with
distinct investment objectives and policies. This prospectus relates only to the
INVESTMENT SHARES and INSTITUTIONAL SHARES of BAYFUNDS BOND PORTFOLIO ("BOND
FUND"), BAYFUNDS SHORT TERM YIELD PORTFOLIO ("SHORT TERM YIELD FUND"), and
BAYFUNDS EQUITY PORTFOLIO ("EQUITY FUND") (individually, a "Fund" and
collectively, the "Funds").
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------
- BAYFUNDS BOND PORTFOLIO SEEKS TO
ACHIEVE HIGH CURRENT INCOME AND CAPITAL
APPRECIATION BY INVESTING, UNDER NORMAL
MARKET AND ECONOMIC CONDITIONS, AT
LEAST 65% OF THE VALUE OF ITS TOTAL
ASSETS IN BONDS. THE FUND WILL MAINTAIN
A DOLLAR-WEIGHTED AVERAGE MATURITY OF
TWELVE YEARS OR LESS.
- BAYFUNDS SHORT TERM YIELD PORTFOLIO
SEEKS A HIGH LEVEL OF CURRENT INCOME
CONSISTENT WITH PRESERVATION OF CAPITAL
BY INVESTING IN A DIVERSIFIED PORTFOLIO
OF HIGH-GRADE DEBT OBLIGATIONS. THE
FUND WILL MAINTAIN A DOLLAR-WEIGHTED
AVERAGE PORTFOLIO MATURITY OF THREE
YEARS OR LESS.
- BAYFUNDS EQUITY PORTFOLIO SEEKS TO PRO-
VIDE LONG-TERM CAPITAL APPRECIATION BY
INVESTING, UNDER NORMAL MARKET AND
ECONOMIC CONDITIONS, AT LEAST 65% OF
ITS ASSETS IN A BROADLY DIVERSIFIED
PORTFOLIO OF EQUITY SECURITIES, WITH
CURRENT INCOME AS A SECONDARY
INVESTMENT CONSIDERATION.
- ----
</TABLE>
As of the date of this prospectus, BayFunds offers shares in two other
portfolios:
- - BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO seeks to provide current income
consistent with stability of principal and liquidity by investing in a
portfolio consisting primarily of short-term U.S. Treasury obligations with
remaining maturities of 397 days or less.
- - BAYFUNDS MONEY MARKET PORTFOLIO seeks to provide current income consistent
with stability of principal and liquidity by investing in a portfolio of money
market instruments with remaining maturities of 397 days or less.
- ------------------------------------------------------
- ------------------------------------------------------
BAYFUNDS INCOME AND EQUITY PORTFOLIOS
SUMMARY OF FUND EXPENSES -- INVESTMENT SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
SHORT TERM
BOND YIELD EQUITY
FUND FUND FUND
---- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).................. None None None
Maximum Sales Load Imposed on Reinvested Dividends (as
a percentage of offering price)...................... None None None
Contingent Deferred Sales Charge (as a percentage
of original purchase price or redemption proceeds,
as applicable)....................................... None None None
Redemption Fees (as a percentage of amount redeemed, if
applicable).......................................... None None None
Exchange Fee........................................... None None None
</TABLE>
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
SHORT TERM
BOND YIELD EQUITY
FUND FUND FUND
---- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Management Fee......................................... 0.60% 0.50% 0.70%
12b-1 Fee.............................................. None None None
Total Other Expenses................................... 0.58% 0.62% 0.53%
Shareholder Servicing Fees.................. 0.25% 0.25% 0.25%
Other Expenses.............................. 0.33% 0.37% 0.28%
Total Operating Expenses..................... 1.18% 1.12% 1.23%
</TABLE>
The Annual Operating Expenses for the Bond Fund, Short Term Yield Fund, and
Equity Fund were 1.29%, 1.11%, and 1.30%, respectively, for the fiscal year
ended December 31, 1995. The Annual Operating Expenses in the table above are
based on expenses expected to be incurred during the fiscal year ending December
31, 1996.
- ------------------------------------------------------
- ------------------------------------------------------
BAYFUNDS INCOME AND EQUITY PORTFOLIOS
SUMMARY OF FUND EXPENSES -- INVESTMENT SHARES (CONTINUED)
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Bond Fund, Short Term Yield Fund, and
Equity Fund will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Additional Information You
Should Know." Wire-transferred redemptions may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE:
You would pay the following expenses on a $1,000 SHORT
investment assuming (1) 5% annual return and TERM
(2) redemption at the end of each time period. The BOND YIELD EQUITY
Funds charge no redemption fees. FUND FUND FUND
---- ------ ------
<S> <C> <C> <C>
1 Year.............................................................. $ 12 $ 11 $ 13
3 Years............................................................. $ 37 $ 36 $ 39
5 Years............................................................. $ 65 $ 62 $ 68
10 Years............................................................ $143 $136 $149
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
- ------------------------------------------------------
- ------------------------------------------------------
BAYFUNDS INCOME AND EQUITY PORTFOLIOS
SUMMARY OF FUND EXPENSES -- INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
SHORT TERM
BOND YIELD EQUITY
FUND FUND FUND
---- ---------- ------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).................. None None None
Maximum Sales Load Imposed on Reinvested Dividends (as
a percentage of offering price)...................... None None None
Contingent Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds, as
applicable).......................................... None None None
Redemption Fees (as a percentage of amount redeemed, if
applicable).......................................... None None None
Exchange Fee........................................... None None None
</TABLE>
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
SHORT TERM
BOND YIELD EQUITY
FUND FUND FUND
---- ---------- ------
<S> <C> <C> <C>
Management Fee......................................... 0.60% 0.50% 0.70%
12b-1 Fee.............................................. None None None
Total Other Expenses................................... 0.33% 0.37% 0.28%
Total Operating Expenses..................... 0.93% 0.87% 0.98%
</TABLE>
The Annual Operating Expenses for the Bond Fund, Short Term Yield Fund, and
Equity Fund were 1.04%, 0.86%, and 1.05%, respectively, for the fiscal year
ended December 31, 1995. The Annual Operating Expenses in the table above are
based on expenses expected to be incurred during the fiscal year ending December
31, 1996.
- ------------------------------------------------------
- ------------------------------------------------------
BAYFUNDS INCOME AND EQUITY PORTFOLIOS
SUMMARY OF FUND EXPENSES -- INSTITUTIONAL SHARES (CONTINUED)
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Bond Fund, Short Term Yield Fund, and
Equity Fund will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Additional Information You
Should Know." Wire-transferred redemptions may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE:
You would pay the following expenses on a $1,000 SHORT
investment assuming (1) 5% annual return and TERM
(2) redemption at the end of each time period. The BOND YIELD EQUITY
Funds charge no redemption fees. FUND FUND FUND
---- ------ ------
<S> <C> <C> <C>
1 Year.............................................................. $ 9 $ 9 $ 10
3 Years............................................................. $ 30 $ 28 $ 31
5 Years............................................................. $ 51 $ 48 $ 54
10 Years............................................................ $114 $107 $120
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
- ------------------------------------------------------
- ------------------------------------------------------
BAYFUNDS INCOME AND EQUITY PORTFOLIOS
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Ernst & Young LLP, the Trust's
independent auditors. Their report dated February 9, 1996, on the Funds'
financial statements for the year ended December 31, 1995 and on the following
table for the periods presented, is included in the Annual Report to
Shareholders dated December 31, 1995, which is incorporated by reference. This
table should be read in conjunction with the Funds' financial statements and
notes thereto, which may be obtained free of charge from the Trust.
<TABLE>
<CAPTION>
DIVIDENDS TO
DIVIDENDS TO SHAREHOLDERS
NET ASSET NET REALIZED SHAREHOLDERS DISTRIBUTIONS FROM NET
VALUE, NET AND UNREALIZED TOTAL FROM FROM NET IN EXCESS OF NET REALIZED GAIN
YEAR ENDED BEGINNING OF INVESTMENT GAIN/(LOSS) ON INVESTMENT INVESTMENT INVESTMENT ON INVESTMENT
DECEMBER 31, PERIOD INCOME INVESTMENTS OPERATIONS INCOME INCOME TRANSACTIONS
- ---------------- ------------ ---------- -------------- ---------- ------------ ---------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT SHARES
BAYFUNDS BOND PORTFOLIO
1993(a) $10.00 0.55 0.24 0.79 (0.55) -- (0.10)
1994 $10.14 0.49 (0.73) (0.24) (0.49) -- --
1995 $ 9.41 0.57 0.90 1.47 (0.57) -- --
BAYFUNDS SHORT TERM YIELD PORTFOLIO
1993(a) $10.00 0.48 (0.09) 0.39 (0.48) -- --
1994 $ 9.91 0.43 (0.76) (0.33) (0.43) -- --
1995 $ 9.15 0.53 0.13 0.66 (0.53) -- --
BAYFUNDS EQUITY PORTFOLIO
1993(a) $10.00 0.14 0.98 1.12 (0.14) -- --
1994 $10.98 0.09 (0.44) (0.35) (0.09) -- --
1995 $10.54 0.07 3.32 3.39 (0.07) 0.00(b) (0.82)
INSTITUTIONAL SHARES
BAYFUNDS BOND PORTFOLIO
1994 $10.14 0.52 (0.73) (0.21) (0.52) -- --
1995 $ 9.41 0.60 0.90 1.50 (0.60) -- --
BAYFUNDS SHORT TERM YIELD PORTFOLIO
1994 $ 9.91 0.45 (0.76) (0.31) (0.45) -- --
1995 $ 9.15 0.55 0.13 0.68 (0.55) -- --
BAYFUNDS EQUITY PORTFOLIO
1994 $10.98 0.11 (0.44) (0.33) (0.11) -- --
1995 $10.54 0.10 3.32 3.42 (0.10) 0.00(b) (0.82)
</TABLE>
- --------------------------------------------------------------------------------
(a) Reflects operations for the period from January 29, 1993 (date of initial
public investment) to December 31, 1993.
(b) Distribution in excess of net investment income was a result of certain book
and tax timing differences. This distribution does not represent a return of
capital for federal income tax purposes, and did not round to a penny.
(c) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(d) Computed on an annualized basis.
(e) 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)
Further information about the Funds' performance is contained in the Annual
Report dated December 31, 1995, which can be obtained free of charge.
- ------------------------------------------------------
- ------------------------------------------------------
<TABLE>
<CAPTION>
NET ASSET
VALUE, NET EXPENSE NET ASSETS, PORTFOLIO
TOTAL END OF TOTAL INVESTMENT WAIVER/ END OF PERIOD TURNOVER
DISTRIBUTIONS PERIOD RETURN (C) EXPENSES INCOME REIMBURSEMENT (E) (000 OMITTED) RATE
- ------------- --------- ---------- -------- ---------- ----------------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(0.65) $ 10.14 7.97% 0.70%(d) 5.84%(d) 0.23%(d) $ 78,080 74%
(0.49) $ 9.41 (2.37%) 1.19% 5.09% -- $ 5,136 134%
(0.57) $ 10.31 16.08% 1.29% 5.80% -- $ 6,757 161%
(0.48) $ 9.91 3.96% 0.60%(d) 5.19%(d) 0.16%(d) $ 173,301 98%
(0.43) $ 9.15 (3.43%) 1.04% 4.42% -- $ 34,993 148%
(0.53) $ 9.28 7.37% 1.11% 5.75% -- $ 21,101 167%
(0.14) $ 10.98 11.28% 0.75%(d) 1.56%(d) 0.24%(d) $ 111,687 81%
(0.09) $ 10.54 (3.23%) 1.26% 0.81% -- $ 28,903 108%
(0.89) $ 13.04 32.24% 1.30% 0.56% -- $ 31,543 76%
(0.52) $ 9.41 (2.14%) 0.99% 5.29% -- $ 56,619 134%
(0.60) $ 10.31 16.36% 1.04% 6.06% -- $ 55,675 161%
(0.45) $ 9.15 (3.19%) 0.80% 4.66% -- $ 56,511 148%
(0.55) $ 9.28 7.64% 0.86% 6.00% -- $ 40,196 167%
(0.11) $ 10.54 (2.98%) 1.02% 1.05% -- $ 78,312 108%
(0.92) $ 13.04 32.59% 1.05% 0.81% -- $ 88,216 76%
</TABLE>
- --------------------------------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
MATCHING THE FUNDS TO
YOUR INVESTMENT NEEDS
<TABLE>
<S> <C> <C>
- -----------------------------------------------
IF YOU ARE SEEKING HIGH CURRENT INCOME
AND CAPITAL APPRECIATION, THEN THE BOND
FUND MAY BE A SUITABLE INVESTMENT.
IF YOU ARE SEEKING HIGH CURRENT INCOME
AND GREATER PRICE STABILITY THAN A
LONG-TERM BOND FUND PROVIDES, THEN THE
SHORT TERM YIELD FUND MAY BE A SUITABLE
INVESTMENT. THE AVERAGE MATURITY OF THE
FUND'S HOLDINGS WILL BE KEPT TO THREE
YEARS OR LESS IN ORDER TO LIMIT
FLUCTUATIONS IN SHARE PRICE.
IF YOU ARE SEEKING LONG-TERM CAPITAL
APPRECIATION AND CURRENT INCOME IS NOT
YOUR PRIMARY CONSIDERATION, THEN THE
EQUITY FUND MAY BE A SUITABLE INVEST-
MENT.
- ----
</TABLE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of each Fund appear below. The investment
objective of a Fund cannot be changed without the approval of holders of a
majority of that Fund's shares. While there is no assurance that a Fund will
achieve its investment objective, it endeavors to do so by following the
investment policies described in this prospectus.
Unless indicated otherwise, the investment policies of a Fund may be changed by
the Board of Trustees ("Trustees") without approval of shareholders.
Shareholders will be notified before any material change in these policies
becomes effective.
For additional information about the investment strategies that the Funds may
employ, and certain investment policies mentioned below, please refer to the
"Portfolio Investments" section of this prospectus and the combined Statement of
Additional Information.
BOND FUND
The investment objective of the BOND FUND is high current income and capital
appreciation. Under normal market and economic conditions, the Fund pursues its
investment objective by investing at least 65% of the value of its total assets
in bonds. The Fund intends to maintain a dollar-weighted average portfolio
maturity of twelve years or less.
<TABLE>
<S> <C> <C>
- -----------------------------------------------
THE BOND FUND BUYS ONLY INVESTMENT
GRADE U.S. DOLLAR-DENOMINATED DEBT
OBLIGATIONS.
- ----
</TABLE>
ACCEPTABLE INVESTMENTS. The investment grade debt securities in which the BOND
FUND invests are rated by one or more nationally recognized statistical rating
organizations ("NRSROs") in one of the four highest rating categories at the
time of purchase (e.g., AAA, AA, A or BBB by Standard & Poor's Ratings Group
("S&P"), Duff & Phelps Credit Rating Co. ("D&P"), or Fitch Investor Services,
Inc. ("Fitch"), or Aaa, Aa, A or Baa by Moody's Investor Services, Inc.
("Moody's")). The BOND FUND may purchase commercial paper rated by one or more
NRSROs in their highest category at the time of purchase (e.g., A-1 by S&P,
Prime-1 by Moody's, D-1 by D&P, or F-1 by Fitch). The BOND FUND may also invest
in unrated debt securities that are determined by its investment adviser to be
of comparable quality to securities having such ratings. Acceptable investments
include the following:
- - Government Securities (as defined below);
- - domestic issues of corporate debt obligations;
- - asset-backed securities rated in one of the two highest ratings categories
by an NRSRO, or if unrated, of comparable quality in the judgment of the
adviser;
- - U.S. dollar-denominated debt obligations of foreign issuers;
- - certificates of deposit, demand and time deposits, savings shares, bankers'
acceptances, deposit notes and other instruments of domestic and foreign
banks, savings associations and other deposit or thrift institutions;
- - commercial paper;
- - repurchase agreements;
- - money market instruments; and
- - money market mutual funds.
The adviser attempts to manage the BOND FUND'S total performance, which includes
both changes in principal value of the BOND FUND'S portfolio and income earned,
by anticipating opportunities in the capital markets and risks of changes in
market interest rates. When the adviser expects that market interest rates may
decline, which would cause prices of outstanding bonds to rise, it generally
extends the average maturity of the BOND FUND'S portfolio. When the adviser
expects that market interest rates may rise, which would cause prices of
outstanding bonds to decline, it generally shortens the average maturity of the
BOND FUND'S portfolio. Further, the adviser attempts to improve the BOND FUND'S
total return by weighing the relative value of alternative bond issues having
similar maturities in selecting portfolio securities. By actively managing the
BOND FUND'S portfolio in this manner, the adviser seeks to provide capital
appreciation during periods of falling interest rates and protection against
capital depreciation during periods of rising rates.
SHORT TERM YIELD FUND
The investment objective of the SHORT TERM YIELD FUND is a high level of current
income consistent with preservation of capital. Under normal market and economic
conditions, the Fund pursues its investment objective by investing in a
diversified portfolio of high-grade debt obligations, which may include bonds,
notes, debentures, asset-backed and mortgage-backed securities, commercial
paper, bank instruments, and money market instruments. The Fund will maintain a
dollar-weighted average portfolio maturity of three years or less.
<TABLE>
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THE SHORT TERM YIELD FUND BUYS ONLY
HIGH-GRADE U.S. DOLLAR-DENOMINATED DEBT
OBLIGATIONS.
- ----
</TABLE>
ACCEPTABLE INVESTMENTS. The high-grade debt obligations in which the SHORT TERM
YIELD FUND invests are rated by one or more NRSROs in one of the three highest
rating categories at the time of purchase (e.g., AAA, AA or A by S&P, D&P, or
Fitch, or Aaa, Aa or A by Moody's). The SHORT TERM YIELD FUND may purchase
commercial paper rated by one or more NRSROs in one of their two highest
categories at the time of purchase (e.g., A-1 or A-2 by S&P, Prime-1 or Prime-2
by Moody's, D-1 or D-2 by D&P, or F-1 or F-2 by Fitch). The SHORT TERM YIELD
FUND may also invest in unrated debt securities that are determined by its
adviser to be of comparable quality to securities having such ratings. The SHORT
TERM YIELD FUND will limit its investment in commercial paper rated in the
second highest rating category by one or more NRSROs to not more than 10% of net
assets.
Acceptable investments include the following:
- Government Securities (as defined below);
- corporate debt obligations, including medium-term notes and variable rate
demand notes;
- asset-backed securities rated in one of the two highest ratings categories
by a NRSRO, or if unrated, of comparable quality in the judgment of the
adviser;
- commercial paper (including Canadian Commercial Paper and Europaper);
- certificates of deposit, demand and time deposits, savings shares, bankers'
acceptances, deposit notes and other instruments of domestic and foreign
banks, savings associations and other deposit or thrift institutions;
- medium and short-term credit facilities, including demand notes and
participations in revolving credit facilities;
- U.S. dollar-denominated debt obligations of foreign issuers;
- repurchase agreements;
- money market instruments; and
- money market mutual funds.
EQUITY FUND
The investment objective of the EQUITY FUND is long-term capital appreciation.
Current income is a secondary consideration in the selection of investments.
Under normal market and economic conditions, the Fund pursues its investment
objective by investing at least 65% of the value of its total assets in a
broadly diversified portfolio of equity securities. The stock selection process
emphasizes the securities of those companies which the EQUITY FUND'S adviser
believes offer the potential for long-term, above-average capital appreciation.
In making portfolio investments, the adviser assesses characteristics such as
financial condition, earnings momentum, earnings variability, trading liquidity,
market valuation, potential for capital gains, and other investment criteria.
Securities of other companies may be attractive in the pursuit of investment
value across all sectors of the stock market, or by virtue of other economic or
financial factors the adviser deems important in the pursuit of the EQUITY
FUND'S investment objective.
ACCEPTABLE INVESTMENTS. Acceptable investments include the following:
- common stocks of U.S. or foreign companies which are either listed on
domestic or foreign exchanges or traded in over-the-counter markets
(including American Depository Receipts), preferred stock of such companies,
warrants, and securities convertible into or exchangeable for common stock
of such companies;
- stock index futures;
- fixed rate notes and bonds and adjustable and variable rate notes of
companies whose common stock the Fund may acquire;
- zero coupon convertible securities;
- certificates of deposit, demand and time deposits, savings shares, bankers'
acceptances, deposit notes and other instruments of domestic and foreign
banks, savings associations and other deposit or thrift institutions;
- repurchase agreements;
- money market instruments; and
- - money market mutual funds.
PORTFOLIO INVESTMENTS
GOVERNMENT SECURITIES. Except as noted under "Temporary Investments," only the
BOND FUND and SHORT TERM YIELD FUND may purchase obligations issued or
guaranteed as to payment of principal and interest by the U.S. government or one
of its agencies or instrumentalities ("Government Securities"). The types of
Government Securities in which these Funds may invest generally include direct
obligations of the U.S. Treasury (such as U.S. Treasury bills, notes, and bonds)
and obligations issued or guaranteed by
U.S. government agencies or instrumentalities. These securities are backed by:
- the full faith and credit of the U.S. Treasury;
- the issuer's right to borrow from the U.S. Treasury;
- the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
- the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
- Federal Home Loan Banks;
- Federal Home Loan Mortgage Corporation ("FHLMC");
- Farm Credit Banks;
- The Student Loan Marketing Association; and Federal National Mortgage
Association ("FNMA").
ZERO-COUPON AND STRIPPED TREASURY SECURITIES. The BOND FUND and SHORT TERM
YIELD FUND may invest in zero-coupon and stripped Treasury securities.
Zero-coupon securities are debt obligations which are generally issued at a
discount and payable in full at maturity, and which do not provide for
current payments of interest prior to maturity. Zero-coupon securities
usually trade at a deep discount from their face or par value and are
subject to greater market value fluctuations from changing interest rates
than debt obligations of comparable maturities which make current
distributions of interest.
The Treasury has facilitated transfers of ownership of zero-coupon
securities by accounting separately for the beneficial ownership of
particular interest coupons and corpus payments on Treasury securities
through the Federal Reserve book-entry record-keeping system. The Federal
Reserve program as established by the Treasury Department is known as
"STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities." Under the STRIPS program, the Funds will be able to have
beneficial ownership of U.S. Treasury zero-coupon securities recorded
directly in the book-entry record-keeping system in lieu of having to hold
certificates or other evidence of ownership of the underlying U.S. Treasury
securities.
When debt obligations have been stripped of their unmatured interest
coupons by the holder, the stripped coupons are sold separately. The
principal or corpus is sold at a deep discount because the buyer receives
only the right to receive a future fixed payment on the security and does
not receive any rights to periodic cash interest payments. Once stripped or
separated, the corpus and coupons may be sold separately. Typically, the
coupons are sold separately or grouped with other coupons with like
maturity dates and sold in such bundled form. Purchasers of stripped
obligations acquire, in effect, discount obligations that are economically
identical to the zero-coupon securities issued directly by the obligor.
VARIABLE RATE DEMAND NOTES. The SHORT TERM YIELD FUND may purchase variable rate
demand notes, which are long-term corporate debt instruments that have variable
or floating interest rates and provide the SHORT TERM YIELD FUND with the right
to tender the security for repurchase at its stated principal amount plus
accrued interest. Such securities typically bear interest at a rate that is
intended to cause the securities to trade at par. The interest rate may float or
be adjusted at regular intervals (ranging from daily to annually), and is
normally based on a published interest rate or interest rate index. Many
variable rate demand notes allow the SHORT TERM YIELD FUND to demand the
repurchase of the security
on not more than seven days prior notice. Other notes only permit the SHORT TERM
YIELD FUND to tender the security at the time of each interest rate adjustment
or at other fixed intervals.
ASSET-BACKED SECURITIES. The BOND FUND and SHORT TERM YIELD FUND may purchase
asset-backed securities. Asset-backed securities are created by the grouping of
certain governmental, government related and private loans, receivables and
other lender assets into pools. Interests in these pools are sold as individual
securities. Payments from the asset pools may be divided into several different
tranches of debt securities, with some tranches entitled to receive regular
installments of principal and interest, other tranches entitled to receive
regular installments of interest, with principal payable at maturity or upon
specified call dates, and other tranches only entitled to receive payments of
principal and accrued interest at maturity or upon specified call dates.
Different tranches of securities will bear different interest rates, which may
be fixed or floating. Because the loans held in the asset pool often may be
prepaid without penalty or premium, asset-backed securities are generally
subject to higher prepayment risks than most other types of debt instruments.
Prepayment risks on mortgage securities tend to increase during periods of
declining mortgage interest rates, because many borrowers refinance their
mortgages to take advantage of the more favorable rates. Depending upon market
conditions, the yield that the BOND FUND and the SHORT TERM YIELD FUND receive
from the reinvestment of such prepayments, or any scheduled principal payments,
may be lower than the yield on the original mortgage security. As a consequence,
mortgage securities may be a less effective means of "locking in" interest rates
than other types of debt securities having the same stated maturity and may also
have less potential for capital appreciation. For certain types of asset pools,
such as collateralized mortgage obligations, prepayments may be allocated to one
tranche of securities ahead of other tranches, in order to reduce the risk of
prepayment for the other tranches.
Prepayments may result in a capital loss to the BOND FUND and the SHORT TERM
YIELD FUND to the extent that the prepaid mortgage securities were purchased at
a market premium over their stated principal amount. Conversely, the prepayment
of mortgage securities purchased at a market discount from their stated
principal amount will accelerate the recognition of interest income by the BOND
FUND and the SHORT TERM YIELD FUND, which would be taxed as ordinary income when
distributed to the shareholders.
The credit characteristics of asset-backed securities also differ in a number of
respects from those of traditional debt securities. The credit quality of most
asset-backed securities depends primarily upon the credit quality of the assets
underlying such securities, how well the entity issuing the securities is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement to such
securities.
NON-MORTGAGE RELATED ASSET-BACKED SECURITIES. The BOND FUND and the SHORT TERM
YIELD FUND may invest in non-mortgage related asset-backed securities, including
interests in pools of receivables, such as credit card and accounts receivable
and motor vehicle and other installment purchase obligations and leases. These
securities may be in the form of pass-through instruments or asset-backed
obligations. The securities are issued by non-governmental entities and carry no
direct or indirect U.S. government guarantee.
Non-mortgage related asset-backed securities present certain risks that are not
presented by mortgage-related asset-backed securities described below.
Primarily, these securities do not have the benefit of the same security
interest in the related collateral. Credit card receivables are generally
unsecured and the debtors are entitled
to the protection of a number of state and federal consumer credit laws, many of
which give such debtors the right to set off certain amounts owed on the credit
cards, thereby reducing the balance due. Most issuers of asset-backed securities
backed by motor vehicle installment purchase obligations permit the servicer of
such receivables to retain the possession of the underlying obligations. If the
servicer sells these obligations to another party, there is a risk that the
purchaser would acquire an interest superior to that of the holders of the
related asset-backed securities. Further, if a vehicle is registered in one
state and is then reregistered because the owner and obligor moves to another
state, such registration could defeat the original security interest in the
vehicle in certain cases. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws, the
trustee for the holders of asset-backed securities backed by automobile
receivables may not have a proper security interest in all of the obligations
backing such receivables. Therefore, there is the possibility that recoveries on
repossessed collateral may not, in some cases, be available to support payments
on these securities.
MORTGAGE-RELATED ASSET-BACKED SECURITIES. The BOND FUND and the SHORT TERM YIELD
FUND may also invest in various mortgage-related asset-backed securities. These
types of investments may include adjustable rate mortgage securities,
collateralized mortgage obligations, real estate mortgage investment conduits,
or other securities collateralized by or representing an interest in real estate
mortgages (collectively, "mortgage securities"). Many mortgage securities are
issued or guaranteed by U.S. government agencies.
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS"). ARMS are pass-through
mortgage securities representing interests in adjustable rather than fixed
interest rate mortgages. The ARMS in which the BOND FUND and the SHORT TERM
YIELD FUND invest are issued by the Government National Mortgage
Association ("GNMA"), FNMA, and FHLMC and are actively traded. The
underlying mortgages which collateralize ARMS issued by GNMA are fully
guaranteed by the Federal Housing Administration ("FHA") or Veterans
Administration ("VA"), while those collateralizing ARMS issued by FHLMC or
FNMA are typically conventional residential mortgages conforming to strict
underwriting size and maturity constraints.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs are debt obligations
collateralized by mortgage loans or mortgage pass-through securities.
Typically, CMOs are collateralized by GNMA, FNMA or FHLMC certificates, but
may be collateralized by whole loans or private pass-through securities.
The BOND FUND and the SHORT TERM YIELD FUND may invest in CMOs which are
rated AAA by a NRSRO, and which may be: (a) collateralized by pools of
mortgages in which each mortgage is guaranteed as to payment of principal
and interest by an agency or instrumentality of the U.S. government; (b)
collateralized by pools of mortgages in which payment of principal and
interest is guaranteed by the issuer and such guarantee is collateralized
by U.S. government securities; or (c) securities in which the proceeds of
the issuance are invested in mortgage securities and payment of the
principal and interest is supported by the credit of an agency or
instrumentality of the U.S. government.
OBLIGATIONS OF FOREIGN ISSUERS. The BOND FUND and the SHORT TERM YIELD FUND may
invest in debt obligations of foreign issuers which are U.S. dollar-denominated
and traded on domestic or foreign exchanges or in the over-the-counter market,
including American Depositary Receipts
("ADRs"). In addition, the EQUITY FUND may invest in debt obligations and equity
securities of foreign issuers which are U.S. dollar-denominated and traded on
domestic or foreign exchanges or, in the over-the-counter market, including
ADRs. Obligations of foreign issuers may include debt obligations of
supranational entities, which include international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, and international banking institutions and related government
agencies. Examples of these include, but are not limited to, the International
Bank for Reconstruction and Development (World Bank), European Investment Bank,
Asian Development Bank and InterAmerican Development Bank. Different risks may
also exist with respect to investments of foreign banks because the banks
issuing these instruments, or their domestic or foreign branches, are not
necessarily subject to the same regulatory requirements that apply to domestic
banks, such as reserve requirements, loan requirements, loan limitations,
examinations, accounting, auditing, and recordkeeping, and the public
availability of information. These factors will be carefully considered by the
Funds' adviser in selecting investments for the Funds. As a matter of practice,
the EQUITY FUND will not invest in the securities of a foreign issuer if the
risks associated with such investment appear substantial. (See the combined
Statement of Additional Information for additional risk disclosure on non-ADR
foreign obligations.)
RESTRICTED AND ILLIQUID SECURITIES. The Funds may invest in restricted
securities. Restricted securities are any securities in which the Funds may
otherwise invest pursuant to their investment objectives and policies, but which
are subject to restriction on resale under federal securities law. Such
restrictions often impact the marketability of the investment. However, the
Funds will limit investments in illiquid securities, including certain
restricted securities not determined by the Trustees to be liquid,
non-negotiable time deposits, over-the-counter options (in the case of the
EQUITY FUND), and repurchase agreements providing for settlement in more than
seven days after notice, to 15% of their respective net assets.
The Funds may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) commercial paper is restricted as to disposition under federal
securities law and is generally sold to institutional investors, such as the
Funds, who agree that they are purchasing the paper for investment purposes and
not with a view to public distribution. Any resale by the purchaser must be in
an exempt transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Funds through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity. The Funds believe that Section 4(2) commercial paper
and possibly certain other restricted securities which meet the criteria for
liquidity established by the Trustees are quite liquid. The Funds intend,
therefore, to treat the restricted securities which meet the criteria for
liquidity established by the Trustees, including Section 4(2) commercial paper,
as determined by the adviser, as liquid and not subject to the investment
limitation applicable to illiquid securities. In addition, because Section 4(2)
commercial paper is liquid, the Funds intend to not subject such paper to the
limitation applicable to restricted securities.
REPURCHASE AGREEMENTS. Certain securities in which the Funds invest may be
purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell securities to the Funds and agree at the time of sale to
repurchase them at a
mutually agreed upon time and price. To the extent that the seller does not
repurchase the securities from the Funds, the Funds could receive more or less
than the repurchase price on any sale of such securities.
REVERSE REPURCHASE AGREEMENTS. The Funds may enter into reverse repurchase
agreements as a temporary measure for extraordinary or emergency purposes and
not for investment leverage purposes. These transactions are similar to
borrowing cash. In a reverse repurchase agreement, a Fund transfers possession
of a portfolio instrument to another person, such as a financial institution,
broker, or dealer, in return for a percentage of the instrument's market value
in cash, and agrees that on a stipulated date in the future the Fund will
repurchase the portfolio instrument by remitting the original consideration plus
interest at an agreed upon rate.
When effecting reverse repurchase agreements, assets of the Fund, in a dollar
amount sufficient to make payment for the obligations to be purchased, are
segregated at the trade date, marked to market daily, and maintained until the
transaction is settled.
The use of reverse repurchase agreements may enable the Funds to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Funds will be able to avoid selling portfolio instruments at a
disadvantageous time.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Funds may purchase securities
on a when issued or delayed delivery basis. These transactions are arrangements
in which the Funds purchase securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Funds to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Funds may pay more or less than the market value of the
securities on the settlement date.
The Funds may dispose of a commitment prior to settlement if the adviser deems
it appropriate to do so. In addition, the Funds may enter into transactions to
sell their purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Funds may realize short-term profits or losses upon the sale of such
commitments.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Funds may lend their portfolio securities on a short-term or long-term basis, or
both, to broker/dealers, banks, or other institutional borrowers of securities.
The Funds will limit the amount of portfolio securities they may lend to not
more than one-third of their respective total assets. The Funds will only enter
into loan arrangements with broker/dealers, banks, or other institutions which
the adviser has determined are creditworthy under guidelines established by the
Trustees and will receive collateral equal to at least 100% of the value of the
securities loaned.
There is the risk that when lending portfolio securities, the securities may not
be available to the Funds on a timely basis and the Funds may, therefore, lose
the opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
TEMPORARY INVESTMENTS. For defensive purposes only, the Funds may also invest in
cash and cash items during times of unusual market conditions and to maintain
liquidity. Cash items may include short-term obligations such as:
- with respect to the BOND FUND and the EQUITY FUND, commercial paper rated
A-1 by S&P, Prime-1 by Moody's D-1 by D&P, or F-1 by Fitch;
- with respect to the SHORT TERM YIELD FUND, commercial paper rated A-1 or A-2
by S&P, Prime-1 or Prime-2 by Moody's, D-1 or D-2 by D&P, or F-1 or F-2 by
Fitch;
- Government Securities; and
- repurchase agreements.
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THE BOND FUND'S DOLLAR-WEIGHTED AVER-
AGE PORTFOLIO MATURITY WILL NOT EXCEED
TWELVE YEARS. THE SHORT TERM YIELD
FUND'S DOLLAR-WEIGHTED AVERAGE
PORTFOLIO MATURITY WILL NOT EXCEED
THREE YEARS.
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AVERAGE PORTFOLIO MATURITY. None of the Funds maintain a stable net asset value.
However, to the extent consistent with the BOND FUND'S investment objective of
high current income and capital appreciation, the adviser will seek to limit the
magnitude of fluctuations in the BOND FUND'S net asset value by limiting the
dollar-weighted average maturity of the BOND FUND'S portfolio to twelve years or
less. Similarly, to the extent consistent with the SHORT TERM YIELD FUND'S
investment objective of current income, the adviser will seek to limit the
magnitude of fluctuations in the SHORT TERM YIELD FUND'S net asset value by
limiting the dollar-weighted average maturity of the SHORT TERM YIELD FUND'S
portfolio to three years or less. Securities with shorter maturities generally
have less price movement than securities of comparable quality with longer
maturities. In periods of anticipated rising interest rates, a greater portion
of the assets of the BOND FUND and the SHORT TERM YIELD FUND may be invested in
securities the value of which are believed to be less sensitive to interest rate
changes. However, the prices of fixed income securities fluctuate inversely to
the direction of interest rates.
PORTFOLIO TURNOVER. Although the Funds do not intend to invest for the purpose
of seeking short-term profits, securities in a FUND'S portfolio will be sold
whenever the adviser believes it is appropriate to do so in light of a Fund's
investment objective, without regard to the length of time a particular security
may have been held. The adviser does not anticipate that the annual portfolio
turnover rate will generally exceed 200% for the BOND FUND, 200% for the SHORT
TERM YIELD FUND, or 150% for the EQUITY FUND under normal market conditions. The
high portfolio turnover rates may lead to increased costs and may also result in
higher taxes paid by the Funds' shareholders.
RATINGS. As noted above, the BOND FUND only may invest in debt securities that
are investment grade; that is, rated Baa or higher by Moody's, or BBB or higher
by S&P, D&P, or Fitch, or, if unrated, judged by the adviser to be of comparable
quality. Moody's, S&P, D&P, and Fitch believe that securities rated Baa or BBB,
while of investment grade, have speculative characteristics with respect to the
issuer's capacity to pay interest and repay principal. If an investment grade
security loses its rating or has its rating reduced after the BOND FUND has
purchased it, the BOND FUND is not required to sell the security from its
portfolio; however, the adviser will endeavor to dispose of the security as soon
as practicable thereafter, taking into account existing market conditions.
Downgrades of ratings of debt securities purchased by the SHORT TERM YIELD FUND
and EQUITY FUND will be evaluated on a case by case basis by the adviser. The
adviser will determine whether or not the downgraded security continues to be an
acceptable investment. If not, the security will be sold.
FUTURES AND OPTIONS TRANSACTIONS. The EQUITY FUND may engage in the following
futures and options transactions.
WRITING COVERED OPTIONS. The EQUITY FUND may write (i.e., sell) covered call
options. By writing a call option, the EQUITY FUND becomes obligated during
the term of the option to deliver the securities underlying the option upon
payment of the exercise price.
THE EQUITY FUND MAY ONLY WRITE "COVERED" CALL OPTIONS. This means that so
long as the EQUITY FUND is obligated as the writer of a call option, it
will own the underlying securities subject to the option or, in the case of
call options on U.S. Treasury bills, the EQUITY FUND might own
substantially similar U.S. Treasury bills.
The principal reason for writing call options is to obtain, through a
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. The EQUITY FUND receives a premium from
writing a call option which it retains whether or not the option is
exercised. By writing a call option, the EQUITY FUND might lose the
potential for gain on the underlying security while the option is open.
Prior to the exercise of an option, the EQUITY FUND has the right to buy
out the option position at the then prevailing price.
FUTURES CONTRACTS. The EQUITY FUND may purchase and sell stock index futures
contracts to hedge all or a portion of its portfolio against changes in the
price of its portfolio securities, but will not engage in futures transactions
for speculative purposes.
FUTURES AND OPTIONS TRADING MARKETS. Futures and options in which the EQUITY
FUND will trade must be listed on national securities exchanges. Exchanges on
which such options currently are traded are the Chicago Board Options Exchange
and the New York, American, Pacific and Philadelphia Stock Exchanges.
RISKS. When the EQUITY FUND writes a covered call option, the EQUITY FUND
risks not participating in any rise in the value of the underlying
security. When the EQUITY FUND uses futures as a hedging device, there is a
risk that the prices of the securities subject to the futures contract may
not correlate perfectly with the prices of the securities in the EQUITY
FUND'S portfolio. This may cause the futures contract to react differently
than the portfolio securities to market changes. In addition, the adviser
could be incorrect in its expectations about the direction or extent of
market factors, such as interest rate and stock price movements. In these
events, the EQUITY FUND may lose money on the futures contract.
It is not certain that a secondary market for positions in futures
contracts will exist at all times. Although the adviser will consider
liquidity before entering into transactions, there is no assurance that a
liquid secondary market will exist for any particular futures contract at
any point in time. The EQUITY FUND'S ability to establish and close out
futures positions depends on this secondary market.
The EQUITY FUND may not purchase or sell futures contracts if immediately
thereafter the sum of the amount of margin deposits on the EQUITY FUND'S
existing futures positions and premiums paid for related options would
exceed 5% of the market value of the EQUITY FUND'S total assets.
INVESTMENT LIMITATIONS
The Funds will not borrow money directly or through reverse repurchase
agreements (arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set date) or
pledge securities except, under certain circumstances, the Funds may borrow
(either directly or through
reverse repurchase agreements) up to one-third of the value of their respective
total assets and pledge up to 15% of the value of those assets to secure such
borrowings.
With respect to 75% of the value of total assets, each Fund will invest no more
than 5% in securities of any one issuer or acquire more than 10% of the
outstanding voting securities of any one issuer, other than cash, cash items or
securities issued or guaranteed by the government of the United States or its
agencies or instrumentalities and repurchase agreements collateralized by U.S.
government securities.
The above limitations cannot be changed without shareholder approval.
------------------------------------------------------
SHAREHOLDER MANUAL
PRICING OF SHARES
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THE TERM "NET ASSET VALUE" PER SHARE
REFERS TO THE VALUE OF ONE FUND SHARE.
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</TABLE>
Each Fund's net asset value per share fluctuates. Net asset value per share for
purposes of pricing purchases and redemptions is calculated by dividing the
market value of all securities and other assets belonging to a Fund, less the
liabilities charged to the Fund, by the number of outstanding shares of the
Fund. The net asset value for INVESTMENT SHARES of a Fund may be less than that
of INSTITUTIONAL SHARES of a Fund due to the variance in daily net income
realized by each class as a result of shareholder servicing fees incurred by the
INVESTMENT SHARES. Such variance will reflect only accrued net income to which
the shareholders of a particular class are entitled.
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value of a
Fund's portfolio securities that its net asset value might be materially
affected; (ii) days during which no Shares are tendered for redemption and no
orders to purchase Shares are received; and (iii) the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
The Funds offer Shares only on days on which the New York Stock Exchange and the
Federal Reserve Bank of Boston are open for business ("Business Days"). In
addition to the holidays listed above, other non-Business Days include
Martin Luther King Day, Columbus Day and Veteran's Day. If BayBank Systems, Inc.
(the "Shareholder Servicing Agent") receives your purchase order on a
non-Business Day, the order will not be executed until the next Business Day in
accordance with the Distributor's procedures. The Funds and the Distributor
reserve the right to reject any purchase request.
WHEN PURCHASES ARE EFFECTIVE. When a purchase order is received in good order
and accepted by a Fund from DST Systems, Inc. (the "Transfer Agent") by 4:00
p.m. (Eastern time) on a Business Day, it will be executed at the net asset
value next determined. The Transfer Agent will not communicate purchase orders
to the Fund until the Shareholder Servicing Agent has received the purchase
price in Federal funds or other immediately available funds. When Shares are
purchased by check, the order is considered received when the check is converted
into Federal funds, normally within two Business Days. BayBanks (as defined
later) acts as the shareholder's agent in depositing checks and converting them
to Federal funds. Texas residents must purchase Shares of the Funds through the
Distributor at 1-800-356-2805.
HOW TO BUY INVESTMENT SHARES
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INVESTMENT SHARES ARE SOLD "NO-LOAD" --
WITHOUT A SALES LOAD. YOUR MINIMUM
INITIAL INVESTMENT IS ONLY $2,500, OR
$500 IF YOU PARTICIPATE IN THE
AUTOMATIC INVESTMENT PROGRAM OR INVEST
THROUGH AN IRA.
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</TABLE>
MINIMUM INVESTMENT. You can become a Fund shareholder with an initial investment
of $2,500, or $500 if you participate in the Automatic Investment Program or
invest through an IRA. You must submit a completed application at the time of
your initial purchase. Subsequent investments must be in amounts of at least
$100, or if you participate in the Automatic Investment Program or invest
through an IRA, the minimum for additional Investment Share purchases is $50.
The Funds may waive any investment minimums from time to time. In addition, the
Funds may reduce or waive investment minimums for investors purchasing through
qualified BayBanks accounts.
The Shareholder Servicing Agent is responsible for prompt transmission of
purchase orders to the Transfer Agent.
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SUBSEQUENT PURCHASES MAY BE MADE BY
PHONE, MAIL, WIRE, OR IN PERSON THROUGH
BAYBANKS OFFICES.
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</TABLE>
BY PHONE. Once you are a Fund shareholder, you may purchase INVESTMENT SHARES by
phone by calling 1-800-BAY-FUND.
You must have previously authorized the specific Fund in writing to accept
telephone requests. If you have not done so, call 1-800-BAY-FUND to receive the
necessary form and information on this Fund feature. Each Fund uses reasonable
procedures (including a shareholder identity test and sending a written
confirmation of each telephone transaction) to confirm that instructions given
by telephone are genuine. However, a Fund is not responsible for the
authenticity of telephone instructions or for the losses caused by fraudulent or
unauthorized telephone instructions if the Fund reasonably believed that the
instructions were genuine. For the protection of investors, all phone
communications may be recorded where not otherwise prohibited by law.
The establishment of certain types of deposit account relationships with
BayBanks may permit the direct deduction of your purchase price from your
BayBanks deposit account. Please call 1-800-BAY-FUND to determine whether your
BayBanks deposit account qualifies.
BY MAIL. If you make your initial purchase by mail, you must send a completed
and signed application and a check payable to the specific Fund and class of
shares, to:
BayFunds
P.O. Box 889
Burlington, MA 01803
You may obtain an application by calling 1-800-BAY-FUND.
You may make subsequent investments in a Fund at any time by sending a check for
a minimum of $100 ($50 if for an IRA) payable to the specific Fund and class of
shares at the following address:
BayFunds
P.O. Box 889
Burlington, MA 01803
You must include either (a) the detachable form that regularly accompanies
confirmation of a prior transaction, (b) a subsequent order form that may be
enclosed in the Fund mailing or can be obtained by calling 1-800-BAY-FUND, or
(c) a letter stating the amount of the investment, the name of the Fund and
class of shares, the exact name and address of the account, and your account
number.
If the check does not clear, your purchase order will be canceled and you could
be held liable for associated transaction costs.
BY WIRE. If you are a Fund shareholder, you may purchase additional INVESTMENT
SHARES by wire by first notifying BayBank, as agent for the Transfer Agent, by
phone at 1-800-BAY-FUND and then wiring the funds as follows:
BayBank
ABA Number: 0110-0174-2
Attention: Mutual Funds Services
For Credit to: (identify the appropriate Fund -- INVESTMENT SHARES) Account
37153931
Further Credit to: (shareholder name and account number)
THROUGH BAYBANKS OFFICES. You may place an order to purchase INVESTMENT SHARES
of a Fund in person through designated BayBanks offices. Purchase orders placed
through BayBanks offices typically would be received by the Transfer Agent
within two Business Days. If you want more prompt processing, you should
consider another method, such as "By Phone."
CORPORATE CUSTOMERS. Corporate customers of BayBanks interested in purchasing
INVESTMENT SHARES should consult their account relationship managers for
procedures applicable to their accounts or call 1-800-554-3311. This prospectus
should be read in conjunction with any materials provided by BayBanks regarding
such procedures.
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YOU CAN BUY INVESTMENT SHARES CONVEN-
IENTLY THROUGH THE AUTOMATIC INVEST-
MENT PROGRAM.
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</TABLE>
AUTOMATIC INVESTMENT PROGRAM. When you participate in the Automatic Investment
Program, you can purchase additional INVESTMENT SHARES in minimum amounts of
$50. You must previously have authorized in writing the total dollar amount to
be deducted automatically from eligible BayBanks deposit accounts or your
deposit account maintained at a domestic financial institution which is an
automated clearing house member, and the frequency of the deductions. The funds
will be invested in INVESTMENT SHARES of the specified Fund at the net asset
value next determined. The Funds may reduce or waive the investment minimums for
investors purchasing through qualified BayBanks accounts.
RETIREMENT PLANS. BayBanks makes available for purchase Fund INVESTMENT SHARES
for investment by IRAs, rollover IRAs and Simplified Employee Pension Plans. For
details, including minimum investments, application forms and other investment
procedures, call 1-800-BAY-FUND.
HOW TO EXCHANGE INVESTMENT SHARES
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IF YOUR INVESTMENT NEEDS CHANGE, YOU
CAN EASILY EXCHANGE A FUND'S INVESTMENT
SHARES FOR INVESTMENT SHARES OF ANY
OTHER BAYFUNDS PORTFOLIO AT NO CHARGE.
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</TABLE>
BayFunds consists of the Funds, the BAYFUNDS U.S. TREASURY MONEY MARKET
PORTFOLIO and the BAYFUNDS MONEY MARKET PORTFOLIO. As a shareholder, you have
access to the INVESTMENT SHARES of all the portfolios ("Participating Funds") of
BayFunds through an exchange program. You may also purchase BayFunds Shares of
Massachusetts Municipal Cash Trust with redemption proceeds of a BayFunds
Portfolio by calling 1-800-BAY-FUND.
You may exchange INVESTMENT SHARES having a net asset value of at least $100 for
INVESTMENT SHARES of any other Participating Fund in which you have an account.
The minimum initial investment to establish an account in any other
Participating Fund by exchange is $2,500, or $500 if you participate in the
Automatic Investment Program or invest through an IRA. BayFunds does not charge
any exchange fees.
Each exchange is considered a sale of shares of one fund and a purchase of
shares of another fund. Shares submitted for exchange will be redeemed at the
net asset value next determined after receipt of the exchange request by the
Transfer Agent on a Business Day. INVESTMENT SHARES of the Participating Fund to
be acquired will be purchased at the net asset value per share next determined
on a Business Day. Transfers of money between a BayFunds Portfolio and BayFunds
Shares of Massachusetts Municipal Cash Trust will be reflected as a redemption
and purchase on a shareholder's account statement. In a transfer involving the
BayFunds Shares of Massachusetts Municipal Cash Trust, the purchase order will
be placed on the Business Day following the Business Day after which the
redemption order has been executed.
If you do not have an account in the Participating Fund whose INVESTMENT SHARES
you want to acquire, you must establish an account. Prior to any such exchange,
you must receive a copy of the current prospectus of the INVESTMENT SHARES of
the Participating Fund into which an exchange is to be effected. This account
will be registered in the same name and, unless you specify otherwise, will have
the same dividend and distribution payment option as you selected with your
existing account. If the new account registration (name, address, and taxpayer
identification number) is not identical to your existing account, please call
1-800-BAY-FUND for the necessary new account or transfer procedures.
You may find the exchange privilege useful if your investment objectives or
market outlook should change after you invest in any of the INVESTMENT SHARES of
Participating Funds. You may obtain further information on the exchange
privilege and obtain a prospectus by calling 1-800-BAY-FUND.
The exchange privilege is available to shareholders in any state in which
Participating Funds' shares being acquired may be sold.
BayFunds reserves the right to terminate the exchange privilege at any time on
60 days' notice. Shareholders will be notified if this privilege is terminated.
Depending on the circumstances, an exchange may generate a short-term or
long-term capital gain or loss for federal income tax purposes.
BY PHONE. You may provide instructions for exchanges by telephone between
Participating Funds by calling 1-800-BAY-FUND.
You must have previously authorized the Funds in writing to accept telephone
requests. If you have not done so, call 1-800-BAY-FUND to receive the necessary
form and information on this feature. Each Fund uses reasonable procedures
(including a shareholder identity test and sending a written confirmation of
each telephone transaction) to confirm that instructions given by telephone are
genuine. However, a Fund is not responsible for the authenticity of telephone
instructions or for any losses caused by fraudulent or unauthorized telephone
instructions if the Fund reasonably believed that the instructions were genuine.
BY MAIL. You may send a written request for an exchange to:
BayFunds
P.O. Box 889
Burlington, MA 01803
Your written request must include your name and tax identification number; the
name of the specific Fund and class of shares; the dollar amount or number of
INVESTMENT SHARES to be redeemed; the name of the Fund and class of shares in
which shares are to be purchased; and your account number. Your request must be
signed by the registered owner(s) exactly as required by the account
application.
THROUGH BAYBANKS OFFICES. You may place an order to exchange INVESTMENT SHARES
in person through designated BayBanks offices. Exchange orders received through
designated BayBanks offices typically would be received by the Transfer Agent
within two Business Days. For more prompt processing, you should consider
another method, such as "By Phone."
HOW TO REDEEM INVESTMENT SHARES
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WHEN YOU SELL YOUR INVESTMENT
SHARES -- "REDEEM" THEM -- YOU RECEIVE
THE NET ASSET VALUE PER SHARE NEXT
DETERMINED AFTER THE REQUEST IS
RECEIVED BY A FUND IN PROPER FORM.
THERE ARE NO FEES OR OTHER REDEMPTION
CHARGES (EXCEPT FOR REDEMPTIONS BY
WIRE). YOU MAY REDEEM SOME OR ALL OF
YOUR INVESTMENT.
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</TABLE>
Each Fund redeems its INVESTMENT SHARES at the net asset value next determined
after the Fund has received your redemption request from the Transfer Agent in
proper form. Redemption requests can be executed only on Business Days. If your
redemption request is received by the Shareholder Servicing Agent on a
non-Business Day, the Transfer Agent will not communicate your redemption
request to the Fund until the next Business Day.
The Funds ordinarily will make payment for INVESTMENT SHARES redeemed after
proper receipt from the Transfer Agent of the redemption request and of all
documents in proper form within five Business Days. Redemption proceeds may be
credited to an eligible BayBanks deposit account, paid by check, or paid by
wire, as you previously designated in your application.
SIGNATURE GUARANTEES. If you request a redemption for an amount in excess of
$25,000 (no limitation if the proceeds are being credited to your BayBanks
deposit account), a redemption of any amount to be sent to an address other than
your address of record with the Fund, the transfer of the registration of
INVESTMENT SHARES, or a redemption of any amount payable to someone other than
yourself as the shareholder of record, your signature must be guaranteed on a
written redemption request by a trust company or insured commercial bank; an
insured savings association or savings bank; a member firm of a national or
regional stock exchange; or any other "eligible guarantor institution," as
defined in the Securities Exchange Act of 1934. The Transfer Agent has adopted
standards for accepting signature guarantees from the above institutions.
BayFunds may elect in the future to limit eligible signature guarantors to
institutions that are members of a signature guarantee program. The Funds do not
accept signatures guaranteed by a notary public. BayFunds and its Transfer Agent
reserve the right to amend these standards at any time without notice. If you
have a question about the
proper form for redemption requests, call 1-800-BAY-FUND.
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YOU MAY REDEEM INVESTMENT SHARES BY
PHONE, MAIL, WIRE, OR THROUGH BAYBANKS
OFFICES.
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</TABLE>
BY PHONE. You may redeem INVESTMENT SHARES by calling 1-800-BAY-FUND. You must
have previously authorized the Fund in writing to accept telephone requests. If
you have not done so, call 1-800-BAY-FUND to receive the necessary form.
In the event of drastic economic or market changes, you may experience
difficulty in redeeming by telephone. If this occurs, you should consider
another method of redemption, such as "By Mail." The Fund uses reasonable
procedures (including a shareholder identity test and sending a written
confirmation of each telephone transaction) to confirm that instructions given
by telephone are genuine. However, a Fund is not responsible for the
authenticity of telephone instructions or for any losses caused by fraudulent or
unauthorized telephone instructions if the Fund reasonably believed that the
instructions were genuine.
BY MAIL. You may redeem INVESTMENT SHARES by submitting a written request for
redemption to:
BayFunds
P.O. Box 889
Burlington, MA 01803
Your written request must include your name and tax identification number, the
specific Fund's name, the class of shares name, the dollar amount or number of
INVESTMENT SHARES to be redeemed, and your account number. Your request must be
signed by the registered owner(s) exactly as required by the account
application.
BY WIRE. You may receive redemption proceeds of INVESTMENT SHARES by wire by
calling 1-800-BAY-FUND. Redemption proceeds of at least $1,000 will be wired
directly to the domestic commercial bank and account you previously designated
in writing. You are charged a fee for each wire redemption and the fee is
deducted from your redemption proceeds.
Each Fund reserves the right to wire redemption proceeds within five Business
Days after receiving the redemption order if, in its judgment, an earlier
payment could adversely affect the Fund. However, the redemption order will be
effected at the net asset value next determined after the redemption request is
received by a Fund from the Transfer Agent in proper form. The Funds also
reserve the right to terminate or modify the "By Wire" or "By Phone" redemption
procedures at any time. In that event, shareholders would be promptly notified.
THROUGH BAYBANKS OFFICES. You may place an order to redeem INVESTMENT SHARES in
person through designated BayBanks offices. Redemption orders received through
designated BayBanks offices typically would be received by the Transfer Agent
within two Business Days. For more prompt processing, you should consider
another method, such as "By Phone."
BACKUP WITHHOLDING. The Internal Revenue Service requires that backup
withholding of 31% apply to any redemption or exchange request on an account
that has not certified its taxpayer identification number ("TIN"). Shareholders
who either have not certified their number or applied for a number should be
aware that backup withholding will apply to any redemption request processed
prior to receipt of a TIN number and certification.
REDEMPTIONS BEFORE PURCHASE INSTRUMENTS CLEAR. If any portion of a Fund's
INVESTMENT SHARES to be redeemed represents an investment made with uncollected
funds, the Fund reserves the right to delay payment of proceeds until the
Shareholder Servicing Agent is reasonably cer-
tain that the funds have been collected, which could take up to five Business
Days.
AUTOMATIC WITHDRAWAL PROGRAM. An Automatic Withdrawal Program may be established
for IRA accounts only whereby automatic redemptions are made from the account
and transferred electronically to an eligible BayBanks deposit account or your
deposit account maintained at a domestic financial institution that is an
automated clearing house member. The minimum redemption amount is $100 per
month. Depending upon the amount of the withdrawal payments and the amount of
dividends paid with respect to INVESTMENT SHARES, redemptions may reduce, and
eventually deplete, the shareholder's investment in the Fund. For this reason,
payments under this program should not be considered as yield or income on the
shareholder's investment in the Fund. A shareholder may apply for participation
in this program by calling 1-800-BAY-FUND for further information. If a
shareholder withdraws any funds from the IRA account before reaching age 59 1/2
(except certain withdrawals of excess contributions and regular payments made
over the shareholder's life expectancy), the shareholder will be subject to an
IRS penalty tax of 10% of the taxable amount withdrawn in addition to regular
income taxes on the taxable amount.
HOW TO BUY INSTITUTIONAL SHARES
INSTITUTIONAL SHARES are offered to trusts, fiduciaries and other institutions
(collectively referred to as the "Institution"). The minimum initial investment
by an Institution is $10,000, and subsequent investments must be in amounts of
at least $100. The Funds may waive any investment minimums from time to time. An
Institution will set minimums for its customers.
INSTITUTIONAL SHARES are purchased and redeemed with no sales loads or
redemption fees imposed by the Funds. Depending upon the terms of each customer
account, an Institution may charge the customer account fees for services it
provides, such as automatic investment, cash management, dividend payment
processing, information regarding customer position, and sub-accounting with
respect to customer accounts. Such fees may include compensating balance
requirements or account maintenance fees, or may be based on account assets or
transactions. Customers should obtain information about account services and
fees directly from their Institution before authorizing the purchase of
INSTITUTIONAL SHARES, and this prospectus should be read in conjunction with any
such information.
INSTITUTIONAL SHARES may be purchased in accordance with procedures established
by an Institution in connection with the requirements of its customer accounts.
Procedures applicable to each Institution and each customer account governing
the purchase of INSTITUTIONAL SHARES will differ. Each Institution is
responsible for prompt transmission of purchase orders to the Funds in
accordance with terms of its customer agreements.
Customers should consult their trust account relationship manager at this
Institution for further information and procedures on purchasing INSTITUTIONAL
SHARES. This prospectus should be read in conjunction with any materials
provided by the Institution regarding such procedures.
RETIREMENT PLANS. For information about retirement plan vehicles established by
employers for their employees which are qualified under Section 401(k) and
403(b) of the Internal Revenue Code, call BayBank at 1-800-462-9999, extension
4589 or write to BayBank, Corporate Trust--New Business Department, 7 New
England Executive Park, Burlington, MA 01803.
HOW TO EXCHANGE INSTITUTIONAL SHARES
BayFunds consists of the Funds, the BayFunds U.S. Treasury Money Market
Portfolio and the BayFunds Money Market Portfolio. Institutions
may access all of these portfolios ("Participating Funds") of BayFunds through
an exchange program. Institutions may also purchase BayFunds Shares of
Massachusetts Municipal Cash Trust with redemption proceeds of a BayFunds
Portfolio. A customer of BayBanks may telephone the BayBanks Trust Department
toll-free at 1-800-462-9999. BayBanks Capital Markets customers should call
1-800-554-3311. Participants in Employee Benefits programs should contact their
Plan Administrator.
Procedures will be established by each Institution in connection with the
requirements of its customer accounts and the Participating Funds. Customers
should contact their Institution to obtain further information on exchange
privileges. Prior to any such exchange, the Institution must provide a copy of
the current prospectus of the Participating Fund into which an exchange is to be
effected. The exchange privilege is available to shareholders in any state in
which the Participating Fund's shares being acquired may be sold.
HOW TO REDEEM INSTITUTIONAL SHARES
INSTITUTIONAL SHARES may be redeemed in accordance with procedures established
by an Institution in connection with the requirements of its customer accounts.
Procedures applicable to each Institution and each customer account governing
the redemption of INSTITUTIONAL SHARES will differ. Customers should contact
their Institution for further information. Each Institution is responsible for
transmitting redemption orders promptly to the Funds and crediting customers'
accounts with redemption proceeds on a timely basis.
Redemption orders are effective at the net asset value per share next determined
after proper receipt of the redemption request by the Fund from the Transfer
Agent in proper form. Redemption orders can be executed only on Business Days.
If your redemption request is received by the Transfer Agent on a non-Business
Day, the Transfer Agent will not communicate your redemption request to the Fund
until the next Business Day. Payment for redemption orders received by the
Transfer Agent by 4:00 p.m. (Eastern time) on a Business Day will normally be
wired the next Business Day to the Institution for credit to customer accounts.
INSTITUTIONAL SHARES so redeemed will not be eligible to receive the dividend
declared on the redemption date. Payment for redemption orders received after
4:00 p.m. (Eastern time) or on a non-Business Day will normally be wired in
Federal funds to the Institution for credit to customer accounts on the Business
Day following the Business Day on which the redemption order is effected.
The Funds assess no charges for wiring redemption proceeds. However,
Institutions may charge customer accounts for redemption services. Information
relating to such redemption services and charges, if any, are available from the
Institutions.
The Funds reserve the right to wire redemption proceeds within five Business
Days after receiving the redemption order if, in their judgment, an earlier
payment could adversely affect the Funds.
REDEMPTIONS BEFORE PURCHASE INSTRUMENTS CLEAR. If any portion of a Fund's
INSTITUTIONAL SHARES to be redeemed represents an investment made with
uncollected funds, the Fund reserves the right to delay payment of proceeds
until the Shareholder Servicing Agent is reasonably certain that the funds have
been collected, which could take up to five Business Days.
- ------------------------------------------------------
ADDITIONAL INFORMATION YOU SHOULD KNOW
MINIMUM BALANCE
Due to the high cost of maintaining accounts with low balances, a Fund may
redeem Shares (other than in retirement plan accounts or IRAs) and send the
shareholder the proceeds if, due to shareholder redemptions:
- your INVESTMENT SHARES account balance falls below a minimum value of
$1,000, or
- an Institution's INSTITUTIONAL SHARES account falls below $10,000.
However, before Shares are redeemed to close an account, the shareholder or
Institution will be notified in writing and given 60 days to purchase additional
Shares to meet the minimum balance requirement. The Funds reserve the right to
amend this standard upon 60 days' prior written notice to shareholders. The
Funds also reserve the right to redeem their Shares involuntarily or to make
payment for redemptions in the form of securities if it appears appropriate to
do so in light of their responsibilities under the Investment Company Act of
1940. Customers of Institutions should consult their relevant account agreements
for any applicable balance requirements.
CONFIRMATIONS AND STATEMENTS. Shareholders of INVESTMENT SHARES will receive
confirmations of each purchase, exchange or redemption. Monthly statements are
sent to report transactions such as purchases and redemptions, as well as
dividends paid during the month. However, BayBank IRA customers will receive
quarterly statements for their accounts.
INSTITUTIONAL SHARES will be held of record by the Institutions or in the name
of a nominee of the Institutions. Beneficial ownership of INSTITUTIONAL SHARES
will be recorded by the Institutions and reflected in statements of account
provided by the Institutions to their customers. It is the responsibility of the
Institutions to provide the customers with confirmations and statements of
account with respect to INSTITUTIONAL SHARE transactions made for their accounts
at the Institutions in accordance with procedures established by the
Institutions. Confirmations are sent to the Institutions (at least monthly in
the case of the INCOME FUNDS and at least quarterly in the case of the EQUITY
FUND) to report transactions such as purchases and redemptions as well as
dividends paid.
DIVIDENDS AND DISTRIBUTIONS
Dividends from the net investment income of the BOND FUND and the SHORT TERM
YIELD FUND are declared daily, immediately prior to the 4:00 p.m. (Eastern time)
pricing of the Shares. Dividends of the BOND FUND and the SHORT TERM YIELD FUND
are paid monthly within five Business Days after the end of such calendar month
to all shareholders invested in such Funds on the record date. Dividends from
the EQUITY FUND'S net investment income are declared and paid quarterly within
five Business Days after the end of such calendar quarter to all shareholders
invested in the EQUITY FUND on the record date. Net realized capital gains of
the Funds are distributed at least annually.
Shareholders of INVESTMENT SHARES elect in writing how they wish to receive
dividends and distributions. Such shareholders may choose automatic reinvestment
in additional INVESTMENT SHARES at the net asset value next determined on the
payment dates, automatic credit to an eligible BayBanks deposit account, or
payment by check. If such shareholders fail to select an option, all
distributions will be reinvested in additional INVESTMENT SHARES.
Institutions holding INSTITUTIONAL SHARES may elect to (a) have their dividends
and distributions automatically reinvested in additional INSTI-
TUTIONAL SHARES at the net asset value next determined on the payment dates, (b)
receive their dividends and distributions in cash, or (c) receive a combination
of additional INSTITUTIONAL SHARES and cash. It is expected that customers of an
Institution's automatic investment program will receive all dividends and
distributions in cash credited to their account pursuant to the terms of their
agreement with an Institution; all other customers should contact their
Institution for further information about dividend elections.
The amount of dividends payable to INSTITUTIONAL SHARES of a Fund will be
greater than those payable to its INVESTMENT SHARES by the difference between
any class expenses and the shareholder servicing fees borne by shares of each
respective class of Shares of the Fund. (Currently, there are no differences in
class expenses other than shareholder servicing fees.)
TAX INFORMATION
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THIS DISCUSSION OF TAXES IS FOR GENERAL
INFORMATION ONLY. PLEASE CONSULT YOUR
OWN TAX ADVISER ABOUT YOUR PARTICULAR
SITUATION.
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</TABLE>
FEDERAL INCOME TAX. Each Fund intends to meet requirements of the Internal
Revenue Code applicable to regulated investment companies in order not to be
liable for any Federal income taxes on income and gains distributed to the
Fund's shareholders. Each Fund will distribute substantially all of its net
investment income and net realized gains at least annually.
Each Fund will be treated as a single, separate entity for Federal income tax
purposes.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional Shares. Distributions
from the Funds' net investment income and short-term capital gains of the BOND
FUND and the SHORT TERM YIELD FUND will be taxed as ordinary income and will not
be eligible for the dividends received deduction available to corporations.
However, the dividends received deduction for corporations will apply to
ordinary income distributions of the EQUITY FUND to the extent the distribution
represents amounts that would qualify for the dividends received deduction to
the EQUITY FUND if the EQUITY FUND were a regular corporation, and to the extent
designated by the EQUITY FUND as so qualifying. These dividends and any
short-term capital gains are taxable as ordinary income. Distributions of net
long-term capital gains will be taxed as such regardless of how long the Shares
have been held.
Early each year, each Fund will notify its shareholders of the amount and tax
status of distributions paid to the shareholder for the preceding year.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local laws.
PERFORMANCE INFORMATION
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YOU CAN FOLLOW EACH FUND'S PERFORMANCE.
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</TABLE>
From time to time, in advertisements or in reports to shareholders, the total
return and yield performance of the Funds may be quoted and compared to those of
other mutual funds with similar investment objectives and to relevant bond or
equity indices or to rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
For example, the performance of the Funds may be compared to data prepared by
Lipper Analytical Services, Inc., a widely recog-
nized independent service which monitors the performance of mutual funds.
National financial publications in which total return and yield performance data
are reported may include The Wall Street Journal, The New York Times, Forbes, or
Money magazine. Publications of a local or regional nature, such as The Boston
Globe or The Boston Herald, may also be used in comparing the total return and
yield performance of the Funds.
Total return represents the change, over a specified period of time, in the
value of an investment in Shares after reinvesting all income and capital gains
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of Shares is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by Shares
over a thirty-day period by the net asset value per share of Shares on the last
day of the period. This number is then annualized using semi-annual compounding.
The yield does not necessarily reflect income actually earned by Shares and,
therefore, may not correlate to the dividends or other distributions paid to
shareholders.
Yield and total return will be calculated separately for both classes of shares
of the Funds. Expense differences between INVESTMENT SHARES and INSTITUTIONAL
SHARES may affect the performance of each class.
Shares of the Funds are sold without any sales load or other similar
non-recurring charges.
DISTRIBUTION RATE. The Funds may quote non-standardized yield in the form of a
distribution rate.
The BOND FUND calculates its yield daily, as of the date preceding the
calculation, based upon the thirty days ending on the day of the calculation.
This yield is computed by:
- - adding the average daily interest accrued to the average daily discount
earned (including original issue discount) per share on the Fund's
portfolio for that thirty-day period, exclusive of gains or losses on
portfolio instruments;
- - subtracting the average daily provision for expenses per share for the
thirty-day period;
- - multiplying by 365 days; and
- - dividing by the thirty-day average net asset value per share.
The SHORT TERM YIELD FUND calculates its yield daily, as of the date preceding
the calculation, based upon the thirty days ending on the day of the
calculation. This yield is computed by:
- - adding the average daily interest accrued to the average daily original
issue discount earned per share on the Fund's portfolio for that thirty-day
period, exclusive of gains or losses on portfolio instruments, including
short-term capital gains;
- - subtracting the average daily provision for expenses per share for the
thirty-day period;
- - multiplying by the number of days in the current month times twelve; and
- - dividing by the thirty-day average net asset value per share.
The EQUITY FUND calculates its annualized current net yield daily as of the date
preceding the calculation. The calculation is made by:
- - dividing the most recent quarterly dividend (including any short-term
capital gains) times four by
- - the offering price per share for that day.
MANAGEMENT, DISTRIBUTION AND
ADMINISTRATION
BayFunds was established as a Massachusetts business trust under a Declaration
of Trust dated April 1, 1991. The Declaration of Trust permits
BayFunds to offer separate series of shares of beneficial interest representing
interests in separate portfolios of securities. The shares in any one portfolio
may be offered in separate classes. With respect to the INCOME FUNDS and EQUITY
FUND, as of the date of this prospectus, the Trustees have established two
classes of shares, INVESTMENT SHARES and INSTITUTIONAL SHARES. INVESTMENT SHARES
are designed primarily for individuals who purchase the Funds through BayBanks
and its affiliates. INSTITUTIONAL SHARES are offered primarily to trusts,
fiduciaries and other institutions.
<TABLE>
<S> <C> <C>
- -----------------------------------------------
AS A SHAREHOLDER, YOU ARE ENTITLED TO
VOTE ON CERTAIN MATTERS.
- ----
</TABLE>
VOTING RIGHTS. Each Share of a Fund gives the shareholder one vote in Trustee
elections and other matters submitted to shareholders for vote. All Shares of
each portfolio in BayFunds have equal voting rights except that, in matters
affecting only a particular Fund or class of Shares, only Shares of that
particular Fund or class are entitled to vote.
As a Massachusetts business trust, BayFunds is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in BayFunds' or a Fund's operation and for the election of Trustees
under certain circumstances. As of February 5, 1996, Slatt & Co., Burlington,
Massachusetts, acting in various capacities for numerous accounts, was the owner
of record of 5,454,378 INSTITUTIONAL SHARES (91%) of the BOND FUND; of 4,348,975
INSTITUTIONAL SHARES(100%) of the SHORT TERM YIELD FUND; and of 6,491,804
INSTITUTIONAL SHARES (95%) of the EQUITY FUND; and therefore, may be deemed to
control the respective Funds within the meaning of the Investment Company Act of
1940, and be able to affect the outcome of certain matters presented for a vote
of shareholders. Trustees may be removed by the Trustees or by shareholders at a
special meeting. A special meeting of shareholders shall be called by the
Trustees upon the written request of shareholders owning at least 10% of
BayFunds' outstanding shares of all portfolios entitled to vote.
<TABLE>
<S> <C> <C>
- -----------------------------------------------
A BOARD OF TRUSTEES SUPERVISES
BAYFUNDS.
- ----
</TABLE>
BayFunds is managed by a Board of Trustees. The Trustees are responsible for
managing BayFunds' business affairs and for exercising all BayFunds' powers
except those reserved for the shareholders.
INVESTMENT ADVISER
<TABLE>
<S> <C> <C>
- -----------------------------------------------
ACTING UNDER THE DIRECTION OF THE
TRUSTEES, THE ADVISER MAKES INVESTMENT
DECISIONS FOR THE FUNDS. THE ADVISER
HAS EXTENSIVE INVESTMENT EXPERIENCE AND
IS A SUBSIDIARY OF A LEADING NEW
ENGLAND FINANCIAL SERVICES
ORGANIZATION.
- ----
</TABLE>
Pursuant to an investment advisory contract with BayFunds, investment decisions
for the Funds are made by BayBanks Investment Management, Inc., the Funds'
investment adviser (the "Adviser"), subject to direction by the Trustees. The
Adviser continually conducts investment research and supervision for the Funds
and is responsible for the purchase and sale of portfolio instruments, for which
it receives an annual fee from the Funds.
ADVISORY FEES. The Adviser receives an annual investment advisory fee equal to
.60 of 1% of the average daily net assets of the BOND FUND, .50 of 1% of the
average daily net assets of the SHORT TERM YIELD FUND, and .70 of 1% of the
average daily net assets of the EQUITY FUND. The Adviser has undertaken to
reimburse the Funds, up to the amount of the advisory fee, for operating
expenses in excess of limitations established by
certain states. The Adviser may also voluntarily choose to waive a portion of
its fee or reimburse the Funds for certain other expenses, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND. The Adviser is a wholly-owned subsidiary of BayBanks,
Inc., a bank holding company organized under the laws of the Commonwealth of
Massachusetts. BayBanks, Inc., through its banking subsidiaries (hereinafter
"BayBanks") and affiliates, offers a full range of financial services to the
public, including depository services, commercial lending, cash management,
brokerage, retail banking, mortgage banking, and investment advisory and trust
services. As part of their regular banking operations, BayBanks may make loans
to public companies. Thus, it may be possible, from time to time, for the Funds
to hold or acquire the securities of issuers which are also lending clients of
BayBanks. The lending relationship will not be a factor in the selection of
securities.
The Adviser is a registered investment adviser and provides investment advisory
services for trust and other managed assets. The Adviser was established as a
separate subsidiary of BayBanks, Inc. in 1985, but its predecessor division and
personnel have been providing investment advisory services to BayBanks'
customers for more than 65 years. As of December 31, 1995, the Trust Division of
BayBank, N.A., a national banking association and an affiliate of the Adviser,
acted as custodian for assets totaling $5.4 billion. Of this amount, the Adviser
managed $1.7 billion of discretionary assets. The Adviser and BayBanks have been
managing commingled funds for over twenty years. At the present time, the
Adviser serves as adviser to 6 such commingled funds with total assets of
approximately $308 million. The Adviser has managed mutual funds since August
1991 and manages approximately $448 million (as of December 31, 1995) in various
BayFunds Portfolios.
BayBank, N.A., an affiliate of the Adviser, through its Capital Markets
Division, manages more than $2.6 billion of assets in the investment portfolios
of BayBanks, Inc. BayBank, N.A. manages approximately $1.1 billion (as of
December 31, 1995) in the BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO.
BayBank, N.A., is the successor to BayBank Boston, N.A., the former adviser to
the BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO. BayBank, N.A. was created in
order to restructure the banking subsidiaries of BayBanks into a single national
bank, effective October 31, 1995.
Investment decisions for BOND FUND, SHORT TERM YIELD FUND, and EQUITY FUND are
made by an investment committee of the Adviser.
On December 12, 1995, BayBanks entered into a definitive Agreement and Plan of
Reorganization, whereby BayBanks, Inc. would be acquired by Bank of Boston
Corp., a bank holding company headquartered in Boston, Massachusetts (the
"Acquisition"). As a result, upon completion of the Acquisition, all existing
subsidiaries of BayBanks, Inc., including the Adviser, would become subsidiaries
of Bank of Boston Corp. The Acquisition is expected to be completed on or before
June 30, 1996, pending approval by both companies' shareholders as well as the
receipt of various regulatory approvals and the completion of other closing
conditions.
Under the provisions of the Investment Company Act of 1940, completion of the
Acquisition would result in an assignment, and therefore automatic termination,
of the Adviser's current investment advisory contract with the Funds (the
"Termination"). Accordingly, prior to the completion of the Acquisition, the
Trustees of the Funds will meet to consider matters relating to the Termination.
It is anticipated that a Special Meeting of Fund Shareholders will be held to
seek, among other things, approval of a new investment advisory contract with
the successor to the Adviser ("New Contract") on behalf of the
Funds. It is anticipated that terms of the New Contract would be substantively
the same as the terms of the present contract, except for the effective date
which, in the case of the New Contract, is expected to be on or before the
consummation of the Acquisition. It is anticipated that shareholders as of a
certain record date in 1996 will receive a proxy statement discussing these
matters in detail, and will be entitled to vote at the Special Meeting.
AUTHORITY TO ACT AS INVESTMENT ADVISER. The Glass-Steagall Act and other banking
laws and regulations presently prohibit a bank holding company registered under
the Bank Holding Company Act of 1956, or any affiliate thereof, from sponsoring,
organizing or controlling a registered, open-end investment company continuously
engaged in the issuance of its shares, and from issuing, underwriting, selling
or distributing securities in general. Such laws and regulations do not prohibit
such a holding company or affiliate from acting as investment adviser, transfer
agent or custodian to such an investment company or from purchasing shares of
such a company as agent for and upon the order of their customer. The Funds'
investment adviser, (BayBanks Investment Management, Inc.) is subject to such
banking laws and regulations.
The Adviser believes that it may perform the investment advisory services for
the Funds contemplated by its advisory agreement with BayFunds without violating
the Glass-Steagall Act or other applicable banking laws or regulations. Changes
in either federal or state statutes and regulations relating to the permissible
activities of banks and their subsidiaries or affiliates, as well as further
judicial or administrative decisions or interpretations of present or future
statutes and regulations, could prevent the Adviser from continuing to perform
all or a part of the above services for its customers and/or the Funds. In this
event, changes in the operation of the Funds may occur, including the possible
alteration or termination of any automatic or other Fund share investment and
redemption services then being provided, and the Trustees would consider
alternative investment advisers and other means of continuing available
investment services. It is not expected that Fund shareholders would suffer any
adverse financial consequences (if another adviser with equivalent abilities to
BayBanks Investment Management, Inc. is found) as a result of any of these
occurrences.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state laws.
DISTRIBUTION
<TABLE>
<S> <C> <C>
- -----------------------------------------------
FEDERATED SECURITIES CORP. IS THE
PRINCIPAL DISTRIBUTOR FOR SHARES OF THE
FUNDS.
- ----
</TABLE>
Federated Securities Corp. is the principal distributor (the "Distributor") for
Shares of the Funds. It is a Pennsylvania corporation organized on November 14,
1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
ADMINISTRATIVE ARRANGEMENTS. The Distributor may pay financial institutions such
as banks, fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide certain services to shareholders. These services may
include, but are not limited to, distributing prospectuses and other
information, providing accounting assistance, and communicating or facilitating
purchases and redemptions of Shares. Any fees paid for these services by the
Distributor will be reimbursed by the Adviser and not the Funds.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings association) from being an underwriter or distributor of most
securities. In the event the Glass-Steagall Act is deemed to prohibit depository
institutions from acting in the administrative capacities described above or
should Congress relax current restrictions on depository institutions, the
Trustees will consider appropriate changes in the administrative services.
ADMINISTRATION
<TABLE>
<S> <C> <C>
- -----------------------------------------------
VARIOUS ORGANIZATIONS PROVIDE SERVICES
TO THE FUNDS.
- ----
</TABLE>
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Funds with certain administrative personnel
and services necessary to operate the Funds, such as legal and accounting
services. Federated Administrative Services provides these at an annual rate as
specified in the following table:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE
MAXIMUM DAILY NET ASSETS
ADMINISTRATIVE FEE OF BAYFUNDS
- ------------------ -------------------------
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess
of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least $50,000
for each Fund. Federated Administrative Services may choose voluntarily to
reimburse a portion of its fee at any time.
SHAREHOLDER SERVICING AGENT. BayBank Systems, Inc., Waltham, Massachusetts, is
the Funds' shareholder servicing agent (the "Shareholder Servicing Agent") for
INVESTMENT SHARES. The Funds may pay the Shareholder Servicing Agent a fee based
on the average daily net asset value of INVESTMENT SHARES for which it provides
shareholder services. These shareholder services include, but are not limited
to, distributing prospectuses and other information, providing shareholder
assistance and communicating or facilitating purchases and redemptions of
INVESTMENT SHARES. This fee will be equal to .25 of 1% of a Fund's average daily
net assets of INVESTMENT SHARES for which the Shareholder Servicing Agent
provides services; however, the Shareholder Servicing Agent may choose
voluntarily to waive all or a portion of its fee at any time.
As a subsidiary of BayBanks, Inc., the Shareholder Servicing Agent would also be
affected by the Acquisition described above. It is anticipated that the Trustees
will also consider continuing substantively the same arrangement for shareholder
servicing subsequent to the Acquisition. In any event, a shareholder vote to
continue these services is not required.
CODE OF ETHICS COMPLIANCE
In accordance with industry-wide recommendations as endorsed by the Securities
and Exchange Commission, the Trust, the Adviser and the Distributor have revised
their respective Codes of Ethics governing personal securities trading of
trustees, directors, officers and employees. Generally, the Codes implement
various restrictions on such persons, such as requiring them to preclear their
securities investments; banning their short-term trading; prohibiting them from
investing in private placements without prior written approval; restricting
trading during periods of Fund trading; prohibiting them from receiving gifts
from any person or entity doing business with the Fund; and prohibiting them
from serving as directors of public companies without prior approval. In
addition, the Codes require such persons to report their securities holdings and
trading activity, and may subject them to punishment for violations.
- ------------------------------------------------------
- ------------------------------------------------------
ADDRESSES
BAYFUNDS BOND PORTFOLIO AND
BAYFUNDS SHORT TERM YIELD PORTFOLIO,
BAYFUNDS EQUITY PORTFOLIO
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
INVESTMENT ADVISER
BayBanks Investment Management, Inc.
155 Federal Street
Boston, Massachusetts 02110
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
DST Systems, Inc.
210 West 10th Street
Kansas City, Missouri 64105
SHAREHOLDER SERVICING AGENT
BayBank Systems, Inc.
One BayBank Technology Place
Waltham, Massachusetts 02154
CUSTODIAN
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45202
PORTFOLIO ACCOUNTING SERVICES
Federated Administrative Services
Federated Investors Tower
Pittsburgh, PA 15222-3779
COUNSEL TO BAYFUNDS
Ropes & Gray
1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
COUNSEL TO THE INDEPENDENT TRUSTEES
Sullivan & Worcester
1025 Connecticut Avenue, N.W.
Washington, D.C. 20036
INDEPENDENT AUDITORS
Ernst & Young LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219
BAYFUNDS BOND PORTFOLIO
BAYFUNDS SHORT TERM YIELD PORTFOLIO
BAYFUNDS EQUITY PORTFOLIO
(INVESTMENT AND INSTITUTIONAL SHARES)
(PORTFOLIOS OF BAYFUNDS(R))
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This combined Statement of Additional Information should be read with
the combined prospectus for BAYFUNDS BOND PORTFOLIO ("BOND FUND"), BAYFUNDS
SHORT TERM YIELD PORTFOLIO ("SHORT TERM YIELD FUND"), and BAYFUNDS EQUITY
PORTFOLIO ("EQUITY FUND") (individually referred to as a "Fund" or
collectively as the "Funds"), dated March 1, 1996. This Statement is not a
prospectus. Customers of BayBanks and its affiliates may request a copy of
a prospectus or a paper copy of this combined Statement of Additional
Information, if you have received it electronically, free of charge by
calling toll free at 1-800-BAY-FUND (1-800-229-3863) for INVESTMENT SHARES.
Customers of BayBanks Trust Department may call (617) 273-1700 in
Massachusetts or toll free 1-800-462-9999 ext. 4589 during normal business
hours for INSTITUTIONAL SHARES. Terms used herein are as defined the
BayFunds Income Portfolios and Equity Portfolio prospectus unless noted
otherwise.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated March 1, 1996
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
GENERAL INFORMATION ABOUT THE FUNDS 1
INVESTMENT OBJECTIVES AND POLICIES OF THE
FUNDS 1
TYPES OF INVESTMENTS 1
Bank Instruments 1
Obligations of Foreign Issuers 1
Repurchase Agreements 1
Reverse Repurchase Agreements 1
When-Issued and Delayed Delivery
Transactions 2
Lending of Portfolio Securities 2
Portfolio Turnover 2
Weighted Average Portfolio Maturity 2
Table of Contents
Duration 3
Mortgage-Backed Asset-Backed Securities 3
Credit Facilities 5
Credit Enhancement 5
Demand Features 5
Convertible Securities 5
Warrants 6
Stock Index Futures Contracts 6
"Margin" in Futures Transactions 6
Investment Limitations 6
BAYFUNDS MANAGEMENT 9
Trustees and Officers 9
Fund Ownership 11
Trustee Compensation 11
Trustee Liability 11
INVESTMENT ADVISORY SERVICES 11
Adviser to the Funds 11
Advisory Fees 12
BROKERAGE TRANSACTIONS 12
SHAREHOLDER SERVICING ARRANGEMENTS 13
Table of Contents
OTHER SERVICES 13
Fund Administration 13
Transfer Agent, Dividend Disbursing Agent
and Portfolio Accounting Services 13
Custodian 13
Independent Auditors 13
Legal Counsel 13
PURCHASING SHARES 14
Exchanging Securities for Shares of the
Funds 14
DETERMINING NET ASSET VALUE 14
Determining Market Value of Securities 14
EXCHANGE PRIVILEGES 14
Requirements for Exchange 14
Making an Exchange 14
REDEEMING SHARES 14
Redemption in Kind 15
ADDITIONAL INFORMATION YOU SHOULD KNOW 15
Monthly Statements 15
Companion Account Availability 15
MASSACHUSETTS LAW 15
Table of Contents
TAX STATUS 15
The Funds' Tax Status 15
TOTAL RETURN 16
YIELD 16
PERFORMANCE COMPARISONS 16
FINANCIAL STATEMENTS 18
APPENDIX 19
GENERAL INFORMATION ABOUT THE FUNDS
The Funds are portfolios of BayFunds, which was established as a
Massachusetts business trust under a Declaration of Trust dated April 1,
1991.
The portfolios of BayFunds are: BAYFUNDS U.S. TREASURY MONEY MARKET
PORTFOLIO; BAYFUNDS MONEY MARKET PORTFOLIO; BAYFUNDS BOND PORTFOLIO;
BAYFUNDS SHORT TERM YIELD PORTFOLIO; and BAYFUNDS EQUITY PORTFOLIO. This
combined Statement of Additional Information relates only to the BOND
FUND, the SHORT TERM YIELD FUND, and EQUITY FUND.
The Funds are offered in two classes of shares, INVESTMENT SHARES and
INSTITUTIONAL SHARES. Collectively, the classes will be referred to as
"Shares."
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
The prospectus for the Funds discusses each Fund's investment objective
and the policies each Fund employs to achieve that objective. The
following discussion supplements the description of the Funds' investment
policies in the prospectus. The Funds' investment objectives cannot be
changed without approval of shareholders. Unless indicated otherwise, the
investment policies described in the prospectus may be changed by the
Board of Trustees ("Trustees") without the approval of each Fund's
shareholders. Shareholders will be notified before any material changes
in these policies become effective.
TYPES OF INVESTMENTS
THE FOLLOWING POLICIES APPLY TO ALL THREE FUNDS.
BANK INSTRUMENTS
The Funds only invest in those bank instruments ("Bank Instruments")
which are either issued by an institution having capital, surplus and
undivided profits over $100 million or insured by the Bank Insurance Fund
or the Savings Association Insurance Fund, both of which are administered
by the Federal Deposit Insurance Corporation. Bank Instruments may
include Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates
of Deposit ("Yankee CDs"), Eurodollar Time Deposits ("ETDs") and Canadian
Time Deposits.
OBLIGATIONS OF FOREIGN ISSUERS
Obligations of a foreign issuer may present greater risks than
investments in U.S. securities, including higher transaction costs as
well as the imposition of additional taxes by foreign governments. In
addition, investments in foreign issuers may include additional risks
associated with less complete financial information about the issuers,
less market liquidity, and political instability. Future political and
economic developments, the possible imposition of withholding taxes on
interest income, the possible seizure or nationalization of foreign
holdings, the possible establishment of exchange controls, or the
adoption of other governmental restrictions, might adversely affect the
payment of principal and interest on obligations of foreign issuers. As a
matter of practice, the Funds will not invest in the obligations of a
foreign issuer if any such risk appears to the Funds' adviser to be
substantial.
REPURCHASE AGREEMENTS
The Funds, their custodian, or sub-custodian will take possession of the
securities subject to repurchase agreements, and these securities will be
marked to market daily. To the extent that the original seller does not
repurchase the securities from a Fund, the Fund could receive more or
less than the repurchase price on any sale of such securities. In the
event that such a defaulting seller filed for bankruptcy or became
insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Funds believe that, under the regular
procedures normally in effect for custody of the Funds' portfolio
securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Funds and allow retention or
disposition of such securities. The Funds will only enter into repurchase
agreements with banks and other recognized financial institutions, such
as broker/dealers, which are deemed by the Funds' adviser to be
creditworthy pursuant to guidelines established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Funds may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, a Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in
return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future the Fund will repurchase
the portfolio instrument by remitting the original consideration plus
interest at an agreed upon rate.
When effecting reverse repurchase agreements, liquid assets of a Fund, in
a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked
to market daily and maintained until the transaction is settled.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Funds may engage in when-issued and delayed delivery transactions.
These transactions are made to secure what is considered to be an
advantageous price or yield for the Funds. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid
assets of the Funds sufficient to make payment for the securities to be
purchased are segregated on the Funds' records at the trade date. These
assets are marked to market daily and are maintained until the
transaction has been settled. The Funds do not intend to engage in when-
issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of their respective
assets.
LENDING OF PORTFOLIO SECURITIES
The collateral received when each Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays a
Fund any dividends or interest paid on such securities. Loans are subject
to termination at the option of a Fund or the borrower. A Fund may pay
reasonable administrative and custodial fees in connection with a loan
and may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker.
PORTFOLIO TURNOVER
Although the Funds do not intend to invest for the purpose of seeking
short-term profits, securities in a Fund's portfolio will be sold
whenever the adviser believes it is appropriate to do so in light of a
Fund's investment objective, without regard to the length of time a
particular security may have been held.
The adviser does not anticipate that a Fund's annual portfolio
turnover rate will exceed 200% for the BOND FUND or 150% for the EQUITY
FUND under normal market conditions. Although it was expected that the
portfolio turnover rate for SHORT TERM YIELD FUND would not exceed 150%
for the year ended December 31, 1995, the actual rate was 167%. The
higher portfolio turnover rate was due primarily to a repositioning of
the SHORT TERM YIELD FUND'S investments to respond to the volatility of
short-term interest rates. In addition, the SHORT TERM YIELD FUND was
able to achieve positive results by swapping into relatively more
attractive sectors of the fixed income market as the year progressed.
The anticipated annual rate of portfolio turnover for SHORT TERM YIELD
FUND is generally not expected to exceed 200% in the future.
For the year ended December 31, 1995, the portfolio turnover rates for
BOND FUND, SHORT TERM YIELD FUND, and EQUITY FUND were 161%, 167%, and
76%, respectively. For the year ended December 31, 1994, the portfolio
turnover rates for BOND FUND, SHORT TERM YIELD FUND, and EQUITY FUND were
134%, 148%, and 108%, respectively.
THE FOLLOWING POLICIES APPLY TO THE BOND FUND AND SHORT TERM YIELD
FUND ONLY.
WEIGHTED AVERAGE PORTFOLIO MATURITY
The BOND FUND and SHORT TERM YIELD FUND will determine their dollar-
weighted average portfolio maturity by assigning a "weight" to each
portfolio security based upon the pro rata market value of such portfolio
security in comparison to the market value of the entire portfolio. The
remaining maturity of each portfolio security is then multiplied by its
weight, and the results are added together to determine the weighted
average maturity of the portfolio. For purposes of calculating their
dollar-weighted average portfolio maturity, the BOND FUND and SHORT TERM
YIELD FUND will: (a) treat asset-backed securities as having a maturity
equal to their estimated weighted-average maturity; and (b) treat
variable and floating rate instruments as having a remaining maturity
commensurate with the period remaining until the next scheduled
adjustment to the instrument's interest rate. The average maturity of
asset-backed securities will be calculated based upon assumptions
established by the adviser as to the probable amount of principal
prepayments weighted by the period until such prepayments are expected to
be received.
DURATION
Duration is a commonly used measure of the potential volatility of the
price of a debt security, or the aggregate market value of a portfolio of
debt securities, prior to maturity. Duration measures the magnitude of
the change in the price of a debt security relative to a given change in
the market rate of interest. The duration of a debt security depends on
three primary variables: the security's coupon rate, maturity date, and
level of market interest rates for similar debt securities. Generally,
debt securities with lower coupons or longer maturities will have a
longer duration than securities with higher coupons or shorter
maturities.
Duration is calculated by dividing the sum of the time-weighted values of
cash flows of a security or portfolio of securities, including principal
and interest payments, by the sum of the present values of the cash
flows. Certain debt securities, such as asset-backed securities, may be
subject to prepayment at irregular intervals. The duration of these
instruments will be calculated based upon assumptions established by the
investment adviser as to the probable amount and sequence of principal
prepayments.
Mathematically, duration is measured as follows:
Duration = PVCF1(1)/PVTCF + PVCF2(2)/PVTCF + PVCF3(3)/PVTCF + ... +
PVCF4(4)/PVTCF
where
PVCFt = the present value of the cash flow in period t discounted at the
prevailing yield-to-maturity
t = the period when the cash flow is received
n = remaining number of periods until maturity
PVTCF = total present value of the cash flow from the bond where the
present value is determined using the prevailing yield-to-maturity
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
Mortgage-backed and asset-backed securities generally pay back
principal and interest over the life of the security. At the time the
BOND FUND and SHORT TERM YIELD FUND reinvest the payments and any
unscheduled prepayments of principal received, the BOND FUND and SHORT
TERM YIELD FUND may receive a rate of interest which is actually lower
than the rate of interest paid on these securities ("prepayment risks").
Mortgage-backed and asset-backed securities are subject to higher
prepayment risks than most other types of debt instruments with
prepayment risks because the underlying mortgage loans or the collateral
supporting asset-backed securities may be prepaid without penalty or
premium.
Prepayment risks on mortgage-backed securities tend to increase during
periods of declining mortgage interest rates because many borrowers
refinance their mortgages to take advantage of the more favorable rates.
Prepayments on mortgage-backed securities are also affected by other
factors, such as the frequency with which people sell their homes or
elect to make unscheduled payments on their mortgages. Although asset-
backed securities generally are less likely to experience substantial
prepayments than are mortgage-backed securities, certain of the factors
that affect the rate of prepayments on mortgage-backed securities also
affect the rate of prepayments on asset-backed securities. In addition,
at the time the BOND FUND and SHORT TERM YIELD FUND reinvest the payments
and any unscheduled prepayments of principal received, the Funds may
receive a rate of interest which is actually lower than the rate of
interest paid on these securities.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the
benefit of the same security interest in the related collateral. Credit
card receivables are generally unsecured and the debtors are entitled to
the protection of a number of state and federal consumer credit laws,
many of which give such debtors the right to set off certain amounts owed
on credit cards, thereby reducing the balance due. Most issuers of asset-
backed securities backed by motor vehicle installment purchase
obligations permit the servicer of such receivables to retain possession
of the underlying obligations. If the servicer sells these obligations to
another party, there is a risk that the purchaser would acquire an
interest superior to that of the holders of the related asset-backed
securities. Further, if a vehicle is registered in one state and is then
reregistered because the owner and obligor moves to another state, such
reregistration could defeat the original security interest in the vehicle
in certain cases. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of asset-backed securities backed by
automobile receivables may not have a proper security interest in all of
the obligations backing such receivables. Therefore, there is the
possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS")
The BOND FUND and SHORT TERM YIELD FUND may invest in CMOs.
Privately-issued CMOs generally represent an ownership interest in a
pool of federal agency mortgage pass-through securities such as
those issued by the Government National Mortgage Association. The
terms and characteristics of the mortgage instruments may vary among
pass-through mortgage loan pools.
The market for such CMOs has expanded considerably since their
inception. The size of the primary issuance market and the active
participation in the secondary market by securities dealers and
other investors make government-related pools highly liquid.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS")
REMICs are offerings of multiple class real estate mortgage-backed
securities which qualify and elect treatment as such under
provisions of the Internal Revenue Code. Issuers of REMICs may take
several forms, such as trusts, partnerships, corporations,
associations, or segregated pools of mortgages. Once REMIC status is
elected and obtained, the entity is not subject to federal income
taxation. Instead, income is passed through the entity and is taxed
to the person or persons who hold interests in the REMIC. A REMIC
interest must consist of one or more classes of "regular interests,"
some of which may offer adjustable rates of interest, and a single
class of "residual interests." To qualify as a REMIC, substantially
all the assets of the entity must be in assets directly or
indirectly secured principally by real property.
RESETS OF INTEREST
The interest rates paid on some of the Adjustable Rate Mortgage
Securities ("ARMS"), CMOs, and REMICs in which the BOND FUND and
SHORT TERM YIELD FUND invest will be readjusted at intervals of one
year or less to an increment over some predetermined interest rate
index. There are two main categories of indices: those based on U.S.
Treasury securities and those derived from a calculated measure,
such as a cost of funds index or a moving average of mortgage rates.
Commonly utilized indices include the one-year, three-year and five-
year constant maturity Treasury Note rates, the three-month Treasury
Bill rate, the six-month Treasury Bill rate, the one-month or three-
month London Interbank Offered Rate ("LIBOR") and the National
Median Cost of Funds. Some indices, such as the three-month and six-
month Treasury Bill rate, closely mirror changes in market interest
rate levels. Others tend to lag changes in market rate levels and
tend to have somewhat less volatile interest rates.
To the extent that the adjusted interest rate on the mortgage
security reflects current market rates, the market value of an ARMS
will tend to be less sensitive to interest rate changes than a fixed
rate debt security of the same stated maturity. Hence, ARMS which
use indices that lag changes in market rates should experience
greater price volatility than ARMS that closely mirror the market.
Certain residual interest tranches of CMOs may have adjustable
interest rates that deviate significantly from prevailing market
rates, even after the interest rate is reset, and are subject to
correspondingly increased price volatility. In the event that the
BOND FUND and SHORT TERM YIELD FUND purchase such residual interest
mortgage securities, it will factor in the increased interest and
price volatility of such securities when determining its dollar-
weighted average portfolio maturity.
CAPS AND FLOORS
The underlying mortgages which collateralize the ARMS, CMOs and
REMICs in which the BOND FUND and SHORT TERM YIELD FUND invest will
frequently have caps and floors which limit the maximum amount by
which the loan rate to the residential borrower may change up or
down: (1) per reset or adjustment interval; and (2) over the life of
the loan. Some residential mortgage loans restrict periodic
adjustments by limiting changes in the borrower's monthly principal
and interest payments rather than limiting interest rate changes.
These payment caps may result in negative amortization.
The value of mortgage securities in which the BOND FUND and SHORT
TERM YIELD FUND invest may be affected if market interest rates rise
or fall faster and farther than the allowable caps or floors on the
underlying residential mortgage loans. Additionally, even though the
interest rates on the underlying residential mortgages are
adjustable, amortization and prepayments may occur, thereby causing
the effective maturities of the mortgage securities in which the
Funds invest to be shorter than the maturities stated in the
underlying mortgages.
THE FOLLOWING POLICIES APPLY TO THE BOND FUND AND SHORT TERM YIELD FUND
ONLY.
CREDIT FACILITIES
Demand notes are borrowing arrangements between a corporation and an
institutional investor (such as the BOND FUND and SHORT TERM YIELD FUND)
payable upon demand by either party. The notice period for demand
typically ranges from one to seven days, and the party may demand full or
partial payment. Revolving credit facilities are borrowing arrangements
in which the lender agrees to make loans up to a maximum amount upon
demand by the borrower during a specified term. As the borrower repays
the loan, an amount equal to the repayment may be borrowed again during
the term of the facility. The BOND FUND and SHORT TERM YIELD FUND may
generally acquire a participation interest in a revolving credit facility
from a bank or other financial institution. The terms of the
participation may require the BOND FUND and SHORT TERM YIELD FUND to make
a pro rata share of all loans extended to the borrower and entitles the
BOND FUND and SHORT TERM YIELD FUND to a pro rata share of all payments
made by the borrower. Demand notes and revolving facilities usually
provide for floating or variable rates of interest.
CREDIT ENHANCEMENT
Certain of the BOND FUND'S and SHORT TERM YIELD FUND'S acceptable
investments may be credit enhanced by a guaranty, letter of credit or
insurance. The BOND FUND and SHORT TERM YIELD FUND typically evaluate the
credit quality and ratings of credit enhanced securities based upon the
financial condition and ratings of the party providing the credit
enhancement (the "Credit Enhancer"), rather than the issuer. Generally,
the BOND FUND and SHORT TERM YIELD FUND will not treat credit enhanced
securities as having been issued by the Credit Enhancer for
diversification purposes. However, under certain circumstances applicable
regulations may require the BOND FUND and SHORT TERM YIELD FUND to treat
the securities as having been issued by both the issuer and the Credit
Enhancer. The bankruptcy, receivership or default of the Credit Enhancer
will adversely affect the quality and marketability of the underlying
security.
DEMAND FEATURES
The BOND FUND and SHORT TERM YIELD FUND may acquire securities that are
subject to puts and standby commitments ("demand features") to purchase
the securities at their principal amount (usually with accrued interest)
within a fixed period following a demand by the BOND FUND and SHORT TERM
YIELD FUND. The demand feature may be issued by the issuer of the
underlying securities, a dealer in the securities or by another third
party, and may not be transferred separately from the underlying
security. The bankruptcy, receivership or default by the issuer of the
demand feature, or a default on the underlying security or other event
that terminates the demand feature before its exercise, will adversely
affect the liquidity of the underlying security. Demand features that are
exercisable even after a payment default on the underlying security are
treated as a form of credit enhancement.
THE FOLLOWING POLICIES APPLY TO THE EQUITY FUND ONLY.
The EQUITY FUND's investments include, but are not limited to: common
stocks of domestic and foreign issuers, preferred stocks, warrants,
investments in American Depositary Receipts, stock index futures,
corporate bonds, notes, convertible securities, zero coupon convertible
securities, money market instruments and money market mutual funds.
CONVERTIBLE SECURITIES
The EQUITY FUND may invest in convertible securities.
The EQUITY FUND will exchange or convert the convertible securities held
in its portfolio into shares of the underlying common stock when, in the
opinion of the EQUITY FUND'S adviser, the investment characteristics of
the underlying common shares will assist the EQUITY FUND in achieving its
investment objective. Otherwise the EQUITY FUND may hold or trade
convertible securities. In selecting convertible securities for the
EQUITY FUND, the EQUITY FUND's adviser evaluates the investment
characteristics of the convertible security as a fixed income instrument,
and the investment potential of the underlying equity security for
capital appreciation. In evaluating these matters with respect to a
particular convertible security, the EQUITY FUND's adviser considers
numerous factors, including the economic and political outlook, the value
of the security relative to other investment alternatives, trends in the
determinants of the issuer's profits, and the issuer's management
capability and practices.
ZERO COUPON CONVERTIBLE SECURITIES
Zero coupon convertible securities are debt securities which are
issued at a discount to their face amount and do not entitle the
holder to any periodic payments of interest prior to maturity.
Rather, interest earned on zero coupon convertible securities
accretes at a stated yield until the security reaches its face
amount at maturity. Zero coupon convertible securities are
convertible into a specific number of shares of the issuer's common
stock. In addition, zero coupon convertible securities usually have
put features that provide the holder with the opportunity to put the
bonds back to the issuer at a stated price before maturity.
Generally, the prices of zero coupon convertible securities may be
more sensitive to market interest rate fluctuations than
conventional convertible securities.
Federal income tax law requires the holder of a zero coupon
convertible security to recognize income with respect to the
security prior to the receipt of cash payments. To maintain its
qualification as a portfolio of a regulated investment company and
avoid liability for federal income taxes, the EQUITY FUND will be
required to distribute income accrued with respect to zero coupon
convertible securities which it owns, and may have to sell portfolio
securities (perhaps at disadvantageous times) in order to generate
cash to satisfy these distribution requirements.
WARRANTS
The EQUITY FUND may purchase warrants, which are basically options to
purchase common stock at a specific price (usually at a premium above the
market value of the optioned common stock at issuance). Warrants may have
a life ranging from less than a year to twenty years, or may be
perpetual. However, most warrants have expiration dates after which they
are worthless. In addition, if the market price of the common stock does
not exceed the warrant's exercise price during the life of the warrant,
the warrant will expire as worthless. Warrants have no voting rights, pay
no dividends, and have no rights with respect to the assets of the
corporation issuing them. The percentage increase or decrease in the
market price of the warrant may tend to be greater than the percentage
increase or decrease in the market price of the optioned common stock.
STOCK INDEX FUTURES CONTRACTS
As a means of reducing fluctuations in the net asset value of Shares
of the EQUITY FUND, the EQUITY FUND may attempt to hedge all or a portion
of its portfolio by buying and selling stock index futures contracts. The
EQUITY FUND may also write covered call options on portfolio securities
to attempt to increase its current income. The EQUITY FUND will maintain
its positions in securities, option rights, and segregated cash subject
to calls until the options are exercised, closed, or have expired.
Stock index futures contracts are based on indices that reflect the
market value of common stock of the firms included in the indices. An
index futures contract is an agreement pursuant to which two parties
agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last
trading day of the contract and the price at which the index contract was
originally written.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the EQUITY FUND does not pay
or receive money upon the purchase or sale of a futures contract. Rather,
the EQUITY FUND is required to deposit an amount of "initial margin" in
cash or U.S. Treasury bills with its custodian (or the broker, if legally
permitted). The nature of initial margin in futures transactions is
different from that of margin in securities transactions in that initial
margin in futures transactions does not involve the borrowing of funds by
the EQUITY FUND to finance the transactions. Initial margin is in the
nature of a performance bond or good faith deposit on the contract which
is returned to the EQUITY FUND upon termination of the futures contract,
assuming all contractual obligations have been satisfied.
A futures contract held by the EQUITY FUND is valued daily at the
official settlement price of the exchange on which it is traded. Each day
the EQUITY FUND pays or receives cash, called "variation margin," equal
to the daily change in value of the futures contract. This process is
known as "marking to market." Variation margin does not represent a
borrowing or loan by the EQUITY FUND but is instead settlement between
the EQUITY FUND and the broker of the amount one would owe the other if
the futures contract expired. In computing its daily net asset value, the
Fund will mark to market its open futures positions.
INVESTMENT LIMITATIONS
THE FOLLOWING LIMITATIONS APPLY TO ALL FUNDS.
SELLING SHORT AND BUYING ON MARGIN
The Funds will not sell any securities short or purchase any
securities on margin, but may obtain such short-term credits as may
be necessary for clearance of purchases and sales of securities. The
deposit or payment by a Fund of initial or variation margin in
connection with financial futures contracts or related options
transactions is not considered the purchase of a security on
margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Funds will not issue senior securities except that a Fund may
borrow money directly or through reverse repurchase agreements as a
temporary measure for extraordinary or emergency purposes and then
only in amounts not in excess of one-third of the value of its total
assets; provided that, while borrowings exceed 5% of a Fund's total
assets, any such borrowings will be repaid before additional
investments are made. A Fund will not borrow money or engage in
reverse repurchase agreements for investment leverage purposes.
CONCENTRATION OF INVESTMENTS
Each Fund will not purchase securities which would cause 25% or
more of the value of its total assets at the time of purchase to be
invested in the securities of one or more issuers conducting their
principal activities in the same industry; provided that (a) there
is no limitation with respect to obligations issued or guaranteed by
the U.S. government, its agencies or instrumentalities; (b) wholly-
owned finance companies will be considered to be in the industries
of their parents if their activities are primarily related to
financing the activities of their parents; and (c) utilities will be
divided according to their services. The SHORT TERM YIELD FUND will
consider its investment in instruments issued by foreign banks and
instruments issued by domestic banks to be investments in separate
industries for purposes of concentration.
INVESTING IN COMMODITIES
The Funds will not purchase or sell commodities, commodity
contracts, or commodity futures contracts, except that the EQUITY
FUND may purchase and sell stock index futures contracts and write
covered call options.
INVESTING IN REAL ESTATE
The Funds will not purchase or sell real estate, including limited
partnership interests in real estate, although a Fund may invest in
securities secured by real estate or interests in real estate.
LENDING CASH OR SECURITIES
Each Fund will not lend any of its assets except portfolio
securities up to one-third the value of total assets. This shall not
prevent a Fund from purchasing or holding U.S. government
obligations, money market instruments, variable rate demand notes,
bonds, debentures, notes, certificates of indebtedness, or other
debt securities, entering into repurchase agreements, or engaging in
other transactions where permitted by a Fund's investment objective,
policies, and limitations, or the Declaration of Trust.
UNDERWRITING
The Funds will not underwrite any issue of securities, except as a
Fund may be deemed to be an underwriter under the Securities Act of
1933 in connection with the sale of securities in accordance with
its investment objective, policies, and limitations.
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the value of its total assets, a Fund will
not purchase the securities of any issuer (other than cash, cash
items, or securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities) if, as a result, more than 5% of
the value of its total assets at the time of purchase would be
invested in the securities of that issuer. Also, a Fund will not
purchase more than 10% of the outstanding voting securities of any
one issuer.
The above investment limitations cannot be changed without approval of
the holders of a majority of the particular Fund's shares. The following
limitations, however, may be changed by the Trustees without shareholder
approval. Shareholders will be notified before any material changes in
these limitations become effective.
RESTRICTED SECURITIES
The Funds will not invest more than 10% of the value of their total
assets in securities subject to restrictions on resale under the
Securities Act of 1933, except for certain restricted securities
which meet the criteria for liquidity as established by the
Trustees. To comply with certain state restrictions, the EQUITY FUND
will limit its investment in restricted securities to 5% of its
total assets. (If state restrictions change, this latter restriction
may be revised without notice to shareholders.)
INVESTING IN ILLIQUID SECURITIES
The Funds will not invest more than 15% of the value of their net
assets in illiquid securities, including repurchase agreements
providing for settlement more than seven days after notice, over-
the-counter options, certain restricted securities which have not
met the criteria for liquidity established by the Trustees and non-
negotiable time deposits with maturities over seven days.
PLEDGING ASSETS
The Funds will not mortgage, pledge, or hypothecate any assets
except to secure permitted borrowings. In those cases, a Fund may
pledge assets having a market value not exceeding the lesser of the
dollar amounts borrowed or 15% of the value of total assets at the
time of the pledge. For purposes of this limitation, the purchase
of securities on a when-issued basis is not deemed to be a pledge.
INVESTING IN MINERALS
The Funds will not purchase interests in oil, gas, other mineral
exploration or development programs, or leases, although a Fund may
purchase the publicly traded securities of companies engaging in
such activities.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Funds will limit their investment in other investment companies
to no more than 3% of the total outstanding voting stock of any
investment company, will not invest more than 5% of their total
assets in any one investment company, or invest more than 10% of
their total assets in investment companies in general. A Fund will
purchase securities of closed-end investment companies only in open-
market transactions involving only customary brokerage commissions.
However, these limitations are not applicable if the securities are
acquired in a merger, consolidation, or acquisition of assets. It
should be noted that investment companies incur certain expenses,
such as management fees, and, therefore, any investment by a Fund in
shares of another investment company would be subject to such
duplicate expenses. A Fund will invest in other investment companies
primarily for the purpose of investing its short-term cash on a
temporary basis. The adviser will waive its investment advisory fee
on assets invested in securities of open-end investment companies.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND
TRUSTEES OF BAYFUNDS
The Funds will not purchase or retain the securities of any issuer
if the officers and Trustees of BayFunds or the Funds' adviser
owning individually more than 1/2 of 1% of the issuer's securities
together own more than 5% of the issuer's securities.
INVESTING IN NEW ISSUERS
The Funds will not invest more than 5% of the value of their
total asset in securities of issuers which have records of less than
three years of continuous operations, including the operation of any
predecessor. With respect to asset-backed securities, the BOND FUND
and SHORT TERM YIELD FUND will treat the originator of the asset
pool as the company issuing the securities for purposes of
determining compliance with this limitation.
THE FOLLOWING LIMITATIONS APPLY TO THE EQUITY FUND ONLY.
INVESTING TO EXERCISE CONTROL
The EQUITY FUND will not purchase securities for the purpose of
exercising control over the issuer of securities.
INVESTING IN WARRANTS
The EQUITY FUND will not invest more than 5% of its net assets in
warrants. No more than 2% of the EQUITY FUND'S net assets, to be
included within the overall 5% limit on investments in warrants, may
be warrants which are not listed on the New York Stock Exchange or
the American Stock Exchange.
WRITING COVERED CALL OPTIONS
The EQUITY FUND will not write call options on securities unless the
securities are held in the EQUITY FUND's portfolio or unless the
EQUITY FUND is entitled to them in deliverable form without further
payment or after segregating cash in the amount of any further
payment.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not
result in a violation of such restriction.
The Funds have no present intent to borrow money or invest in securities
of other investment companies in excess of 5% of the value of their
respective net assets during the coming fiscal year.
For purposes of its policies and limitations, the Funds consider
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings associations having capital,
surplus, and undivided profits in excess of $100,000,000 at the time of
investment to be "cash items."
BAYFUNDS MANAGEMENT
TRUSTEES AND OFFICERS
Trustees and Officers are listed with their addresses, principal
occupations, and present positions, including any affiliation with
BayBanks Investment Management, Inc., BayBank , N.A., BayBanks, Inc.,
Federated Investors, Federated Securities Corp., and Federated
Administrative Services.
Officers and Trustees are listed with their addresses, principal
occupations, and present positions.
Kenneth G. Condon
11 Dudley Road
Sudbury, MA
Birthdate: August 14, 1947
Trustee
Treasurer (since June 1992) and Vice President for Financial Affairs
(1984 through present), Boston University; Member, BayBank Trust Advisory
Board; Member, Regional Strategic Planning Committee, BayBanks, Inc.;
Director, Seragen, Inc.; Director, WABU-TV; Trustee and Chairman of the
Finance/Audit Committee, Newbury College; formerly, Director and Member
of Audit Committee, BayBank Harvard Trust Co.; Director and Treasurer of
the Boston Chapter of the Financial Executives Institute.
Robert W. Eisenmenger
92 Woodland Street
Natick, MA
Birthdate: June 30, 1926
Trustee
Consultant; formerly, First Vice President of the Federal Reserve Bank of
Boston, and Executive Director for Priced Services for the Federal
Reserve System; Trustee, Massachusetts Congregational Fund; Trustee and
Consultant, Cape Cod Five Cents Savings Bank.
Sara L. Johnson
30 Eaton Court
Wellesley Hills, MA
Birthdate: November 16, 1951
Trustee
Chief Regional Economist (since 1995) and Principal (since 1992),
Director of Regional Forecasting, Managing Economist for Regional
Information Group's Eastern Regions (1988-1991) and Senior Economist,
U.S. Economic Service (1983-1988), DRI/McGraw Hill.
Ernest R. May
John F. Kennedy School of Government
Cambridge, MA
Birthdate: November 19, 1928
Trustee
Charles Warren Professor of History, Harvard University; Chair, Board of
Visitors, Joint Military Intelligence College; Chair, Board of Control,
John Anson Kittredge Educational Fund; Director, Charles Warren Center
for Studies in American History, Harvard University.
Alvin J. Silk
Graduate School of Business Administration
Harvard University
Soldiers Field Road
Boston, MA
Birthdate: December 31, 1935
Trustee
Co-Chairman, Marketing Area and Lincoln Filene Professor of Business
Administration, Graduate School of Business Administration, Harvard
University (1988- present); formerly, Erwin H. Schell Professor of
Management, Sloan School of Management, Massachusetts Institute of
Technology; formerly, Director, BayBank Systems, Inc.; Trustee, Marketing
Science Institute; Director, Reed and Barton, Inc.
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President and Treasurer
Trustee, Federated Investors; President and/or Trustee of certain
investment companies distributed by Federated Securities Corp.; staff
member, Federated Securities Corp. and Federated Administrative
Services.
C. Christine Thomson
Federated Investors Tower
Pittsburgh, PA
Birthdate: September 1, 1957
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and
Assistant Treasurer of certain investment companies distributed by
Federated Securities Corp.
Victor R. Siclari
Federated Investors Tower
Pittsburgh, PA
Birthdate: November 17, 1961
Secretary
Corporate Counsel, Federated Investors; formerly, Attorney, Morrison &
Foerster (law firm).
FUND OWNERSHIP
Officers and Trustees own less than 1% of each of the Fund's outstanding
shares.
As of February 5, 1996, the following shareholder owned 5% or
more of the INSTITUTIONAL SHARES of the Funds: Slatt & Co., Burlington,
Massachusetts, owned approximately: 5,454,378 shares (91%) of BOND FUND;
4,348,975 shares (100%) of SHORT TERM YIELD FUND; and 6,491,804 shares
(95%) of EQUITY FUND.
TRUSTEES' COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM
TRUST TRUST*#
Kenneth G. Condon $ 11,600
Trustee
Robert W. Eisenmenger $ 10,000
Trustee
Sarah L. Johnson $ 10,000
Trustee
Ernest R. May $ 10,000
Trustee
Alvin J. Silk $ 8,750
Trustee
*Information is furnished for the fiscal year ended December 31, 1995.
#The aggregate compensation is provided for the Trust which is comprised of 5
portfolios.
TRUSTEE LIABILITY
BayFunds' Declaration of Trust provides that the Trustees are not liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUNDS
The Funds' investment adviser is BayBanks Investment Management, Inc. (the
"Adviser"). The Adviser is a wholly-owned subsidiary of BayBanks, Inc., a bank
holding company organized under the laws of the Commonwealth of Massachusetts
with a number of bank subsidiaries. Collectively, these bank subsidiaries are
referred to in this Statement of Additional Information as "BayBanks."
The Adviser shall not be liable to BayFunds, the Funds or any shareholder of
the Funds for any losses that may be sustained in the purchase, holding, or
sale of any security, or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with BayFunds.
Because of the internal controls maintained by BayBanks to restrict the flow of
non-public information, Fund investments are typically made without any
knowledge of BayBanks or its affiliates' lending relationships with an issuer.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus.
For the fiscal years ended December 31, 1995, 1994 and for the period from
January 29, 1993 (date of initial public investment) to December 31, 1993, the
Adviser earned fees from BOND FUND in the amount of $360,071, $417,260, and
$392,858, respectively, of which $0, $0 and $95,417, respectively, was
voluntarily waived.
For the fiscal years ended December 31, 1995, 1994 and for the period from
January 29, 1993 (date of initial public investment) to December 31, 1993, the
Adviser earned fees from SHORT TERM YIELD FUND in the amount of
$ 361,786, $681,886, and $643,201, respectively, of which $0, $0, and
$111,229, respectively, was voluntarily waived.
For the fiscal years ended December 31, 1995, 1994 and for the period
from January 29, 1993 (date of initial public investment) to December 31, 1993,
the Adviser earned fees from EQUITY FUND in the amount of $783,869, $816,295,
and $560,943, respectively, of which $0, $0, and $133,201, respectively, was
voluntarily waived.
STATE EXPENSE LIMITATION
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If a Fund's normal operating expenses
(including the investment advisory fee, but not including brokerage
commissions, interest, taxes, and extraordinary expenses) exceed 2-1/2%
per year of the first $30 million of average net assets, 2% per year of
the next $70 million of average net assets, and 1-1/2% per year of the
remaining average net assets, the Adviser will reimburse the Fund for its
expenses over the limitation.
If a Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the amount
of the excess, subject to an annual adjustment. If the expense limitation
is exceeded, the amount to be reimbursed by the Adviser will be limited,
in any single fiscal year, by the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order at a
favorable price. In working with dealers, the Adviser will generally use those
who are recognized dealers in specific portfolio instruments, except when a
better price and execution of the order can be obtained elsewhere. The Adviser
makes decisions on portfolio transactions and select brokers and dealers
subject to review by the Trustees. The Adviser may select brokers and
dealers who offer brokerage and research services. These services may be
furnished directly to the Funds or to the Adviser and may include:
advice as to the advisability of investing in securities; security
analysis and reports; economic studies; industry studies; receipt of quotations
for portfolio evaluations; and similar services.
Research services provided by brokers and dealers may be used by the Adviser
or its affiliates in advising the Funds and other accounts. To the extent that
receipt of these services may supplant services for which the Advisers or their
affiliates might otherwise have paid, it would tend to reduce their
expenses. The Adviser and its affiliates exercise reasonable business judgment
in selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage
and research services provided.
Although investment decisions for the Funds are made independently from
those of other accounts managed by the Adviser, investments of the type the
Funds may make may also be made by those other accounts. When the Funds and
one or more other accounts managed by the Adviser are prepared to invest in, or
desire to dispose of, the same security, available investments or opportunities
for sales will be allocated in a manner believed by the Adviser to be equitable
to each. In some cases, this procedure may adversely affect the price paid or
received by the Funds or the size of the position obtained or disposed of by
the Funds. In other cases, however, it is believed that coordination and the
ability to participate in volume transactions will be to the benefit of the
Funds.
On December 31, 1995, BOND FUND owned approximately $999,000 of the
securities of Salomon, Inc., and the SHORT TERM YIELD FUND owned approximately
$1,502,000 of the securities of Dean Witter Discover & Co., Inc. and $1,598,000
of the securities of Smith Barney, Inc.; all of whom are regular brokers of the
Funds that derive more than 15% of gross revenues from securities-related
activities.
For the fiscal years ended December 31, 1995, 1994 and for the period from
January 29, 1993 (date of initial public investment) to December 31, 1993, the
EQUITY FUND paid $57,386, $113,416, and $79,878, respectively, in brokerage
commissions on brokerage transactions.
SHAREHOLDER SERVICING ARRANGEMENTS
Under a Shareholder Services Plan, the Funds may pay a fee to BayBank
Systems, Inc., as shareholder servicing agent, for INVESTMENT SHARES for
services provided which are necessary for the maintenance of shareholder
accounts. These activities and services may include, but are not limited to:
providing office space, equipment, telephone facilities, and various clerical,
supervisory, computer, and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing purchase
and redemption transactions and automatic investments of client account cash
balance; answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses. For the fiscal year
ended December 31, 1995, BOND FUND, SHORT TERM YIELD FUND, and EQUITY FUND paid
BayBanks Systems, Inc. $15,149, $64,567, and $72,988, respectively, in
shareholder services fees with respect to INVESTMENT SHARES under the
Shareholder Services Plan.
OTHER SERVICES
FUND ADMINISTRATION
Federated Administrative Services ("FAS"), a subsidiary of Federated
Investors, provides administrative personnel and services to the Funds for the
fees set forth in the prospectus.
For the fiscal year ended December 31, 1995, 1994, and for the period from
January 29, 1993 (date of initial public investment) to December 31, 1993, BOND
FUND incurred costs for administrative fees of $60,548, $73,256, and $74,221,
respectively, of which $0, $0, and $41,156, respectively, was voluntarily
waived. For the fiscal year ended December 31, 1995, 1994, and for the period
from January 29, 1993 (date of initial public investment) to December 31, 1993,
FAS reimbursed BOND FUND $0, $0, and $13,169, respectively.
For the fiscal year ended December 31, 1995, 1994, and for the period from
January 29, 1993 (date of initial public investment) to December 31, 1993,
SHORT TERM YIELD FUND incurred costs for administrative fees of $73,121,
$143,915, and $145,120, respectively, of which $0, $0, and $75,217,
respectively, was voluntarily waived. For the fiscal year ended December 31,
1995, 1994, and for the period from January 29, 1993 (date of initial public
investment) to December 31, 1993, FAS reimbursed SHORT TERM YIELD FUND $0, $0,
and $20,605, respectively.
For the fiscal year ended December 31, 1995, 1994, and for the period from
January 29, 1993 (date of initial public investment) to December 31, 1993,
EQUITY FUND incurred costs for administrative fees of $112,952, $122,769, and
$90,387, respectively, of which $0, $0, and $46,661, respectively, was
voluntarily waived. For the fiscal year ended December 31, 1995, 1994,
and for the period from January 29, 1993 (date of initial public investment) to
December 31, 1993, FAS reimbursed EQUITY FUND $0, $0, and $13,014,
respectively.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND PORTFOLIO ACCOUNTING SERVICES
DST Systems, Inc., Kansas City, Missouri, is transfer agent for the Shares of
the Funds and dividend disbursing agent for the Funds. The Funds' Transfer
Agent maintains a Share account for each shareholder of record. Share
certificates are not issued.
FAS provides portfolio accounting services for the Funds. Prior to January 16,
1996, Federated Services Company, an affiliate of FAS and subsidiary of
Federated Investors, provided the portfolio accounting services.
CUSTODIAN
The Fifth Third Bank, Cincinnati, Ohio, is custodian for the securities and
cash of the Funds.
INDEPENDENT AUDITORS
The independent auditors for the Funds are Ernst & Young LLP, Pittsburgh,
Pennsylvania.
LEGAL COUNSEL
Legal counsel is provided by Ropes & Gray, Washington, D.C., Counsel to
BayFunds, and Sullivan & Worcester, Washington, D.C., Counsel to the
Independent Trustees.
PURCHASING SHARES
The procedures for purchasing Shares are explained in the prospectus.
EXCHANGING SECURITIES FOR SHARES OF THE FUNDS
Each Fund may accept securities in exchange for Shares. A Fund will allow such
exchanges only upon the prior approval of the Fund and a determination by the
Fund and its Adviser that the securities to be exchanged are acceptable.
Any securities exchanged must meet the investment objective and policies of the
Fund, must have a readily ascertainable market value and must be liquid. The
market value of any securities exchanged in an initial investment, plus any
cash, must be at least $100,000.
Securities accepted by the Fund will be valued in the same manner as the Fund
values its assets. The basis of the exchange will depend upon the net asset
value of Shares on the day the securities are valued. One Share of the Fund
will be issued for each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription or other
rights attached to the securities become the property of the Fund, along with
the securities.
DETERMINING NET ASSET VALUE
The net asset value generally changes each day. The days on which the net asset
value is calculated by a Fund are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market value of a Fund's portfolio securities are determined as follows:
o for equity securities, according to the last sale price on a national
securities exchange, if available;
o in the absence of recorded sales of equity securities, according to the
mean between the last closing bid and asked prices, and for bonds and other
fixed income securities as determined by an independent pricing service;
o for unlisted equity securities, the latest mean prices;
o for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service or, for short-term
obligations with remaining maturities of 60 days or less at the time of
purchase, at amortized cost; or
o for all other securities, at fair value as determined in good faith by the
Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
EXCHANGE PRIVILEGES
REQUIREMENTS FOR EXCHANGE
Upon receipt of proper instructions and required supporting documents,
Shares submitted for exchange are redeemed and the proceeds invested in shares
of the other Participating Fund.
Please review the prospectus for further information on the exchange
privileges.
MAKING AN EXCHANGE
Instructions for exchanges may be given in writing. Written instructions may
require a signature guarantee.
REDEEMING SHARES
Shares of the Funds are redeemed at the next computed net asset value after the
Funds receive the redemption request from the Funds' transfer agent in proper
form. Redemption procedures are explained in the prospectus.
REDEMPTION IN KIND
Although the Funds intend to redeem Shares in cash, they reserve the right
under certain circumstances to pay the redemption price in whole or in part by
a distribution of securities from the respective Fund's portfolio.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, which obligates the Funds to redeem Shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of a Fund's net
asset value during any 90-day period.
Redemption in kind is not as liquid as cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur transaction costs.
ADDITIONAL INFORMATION YOU SHOULD KNOW
MONTHLY STATEMENTS
Shareholders of the Funds who have eligible BayBanks deposit accounts will
receive combined monthly statements containing all information relating to
their deposit accounts and BayFunds transactions.
COMPANION ACCOUNT AVAILABILITY
Certain BayBanks deposit account customers may elect to open a companion
BayFunds account to facilitate BayFunds transactions.
MASSACHUSETTS LAW
Under certain circumstances, shareholders may be held personally liable under
Massachusetts law for acts or obligations of BayFunds. To protect shareholders,
BayFunds has filed legal documents with Massachusetts that expressly disclaim
the liability of shareholders for such acts or obligations of BayFunds. These
documents require notice of this disclaimer to be given in each agreement,
obligation, or instrument BayFunds or its Trustees enter into or sign.
In the unlikely event a shareholder is held personally liable for BayFunds'
obligations, BayFunds is required, by its Declaration of Trust, to use its
property to protect or compensate the shareholder. On request, BayFunds will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of BayFunds. Therefore, financial loss resulting from liability as a
shareholder will occur only if BayFunds cannot meet its obligations to
indemnify shareholders and pay judgments against them from its assets.
TAX STATUS
THE FUNDS' TAX STATUS
Each Fund intends to meet the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies in order not to be
liable for any federal income taxes on income or gains distributed to the
Funds' shareholders. To qualify for this treatment, each Fund must, among other
requirements:
o derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
o derive less than 30% of its gross income from the sale of securities held,
or deemed held, less than three months;
o diversify its holdings according to certain statutory requirements; and
o distribute to its shareholders at least 90% of its net income earned during
the year.
Each Fund will distribute substantially all of its net investment income and
net realized gains at least annually.
The EQUITY FUND'S transactions in futures contracts and options, and certain
other investments and hedging activities of the EQUITY FUND will be subject to
special tax rules, the effect of which may be to alter the timing and character
of certain income gains and losses realized by the EQUITY FUND. These rules
could, therefore, affect the amount, timing and character of distributions paid
to the EQUITY FUND'S shareholders.
TOTAL RETURN
For the fiscal year ended December 31, 1995, and the period from January 29,
1993 (date of initial public investment) to December 31, 1995, the average
annual total return for the INVESTMENT SHARES of the BOND FUND, was 16.08% and
7.15%, respectively. For the fiscal year ended December 31, 1995 and the period
from December 31, 1993 (date of initial public investment) to December 31,
1995, the average annual total return for the INSTITUTIONAL SHARES of the BOND
FUND was 16.36% and 6.71%, respectively.
For the fiscal year ended December 31, 1995, and the period from January 29,
1993 (date of initial public investment) to December 31, 1995, the average
annual total return for the INVESTMENT SHARES of the SHORT TERM YIELD FUND, was
7.37% and 2.60%, respectively. For the fiscal year ended December 31, 1995 and
the period from December 31, 1993 (date of initial public investment) to
December 31, 1995, the average annual total return for the INSTITUTIONAL SHARES
of the SHORT TERM YIELD FUND was 7.64% and 2.08%, respectively.
For the fiscal year ended December 31, 1995, and the period from January 29,
1993 (date of initial public investment) to December 31, 1995, the average
annual total return for the INVESTMENT SHARES of the EQUITY FUND, was 32.59%
and 13.40%, respectively. For the fiscal year ended December 31, 1995 and the
period from December 31, 1993 (date of initial public investment) to December
31, 1995, the average annual total return for the INSTITUTIONAL SHARES of the
EQUITY FUND was 32.24% and 12.87%, respectively.
Average annual total return for both classes of Shares of each Fund is the
average compounded rate of return for a given period that would equate a $1,000
initial investment to the ending redeemable value of that investment. The
ending redeemable value is computed by multiplying the number of shares owned
at the end of the period by the net asset value per share at the end of the
period. The number of shares owned at the end of the period is based on the
number of shares purchased at the beginning of the period with $1,000, adjusted
over the period by any additional shares, assuming the monthly (for the BOND
FUND and SHORT TERM YIELD FUND) or quarterly (for the EQUITY FUND) reinvestment
of all dividends and distributions.
YIELD
The yield for the thirty-day period ended December 31, 1995 for the BOND FUND,
SHORT TERM YIELD FUND, and EQUITY FUND was 5.12%, 5.03%, and 0.38%,
respectively, for INVESTMENT SHARES, and 5.37%, 5.28%, and 0.64%, respectively,
for INSTITUTIONAL SHARES.
The yield for both classes of Shares of each Fund is determined by dividing
the net investment income per share (as defined by the Securities and Exchange
Commission) earned by the Fund over a thirty-day period by the offering price
per share of the Fund on the last day of the period. This value is then
annualized using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each month
over a twelve-month period and is reinvested every six months. The yield does
not necessarily reflect income actually earned by each Fund because of certain
adjustments required by the Securities and Exchange Commission and, therefore,
may not correlate to the dividends or other distributions paid to
shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in a Fund,
performance will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
The performance of both classes of Shares of each Fund depends upon such
variables as:
o portfolio quality;
o average portfolio maturity (in the case of the BOND FUND and SHORT
TERM YIELD FUND);
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in a Fund's expenses or a class of shares' expenses; and
o various other factors.
A Fund's performance fluctuates on a daily basis largely because net earnings
and net asset value per share fluctuate daily. Both net earnings and net asset
value per share are factors in the computation of yield and total return.
From time to time, the Funds may advertise the performance of both classes
of Shares compared to similar funds or portfolios using certain indices,
reporting services and financial publications. The Funds may also advertise the
performance of Shares compared to certificates of deposit and savings
accounts.
Investors may use financial publications and/or indices to obtain a more
complete view of the Funds' performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and
methods used to value portfolio securities and compute offering price. The
financial publications and/or indices which the Funds use in advertising may
include the following:
The BOND FUND may compare its performance to:
oLEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX is an unmanaged
index comprised of all the bonds issued by the Lehman Brothers
Government/Corporate Bond Index with maturities between 1 and 9.99 years.
Total return is based on price appreciation/depreciation and income as a
percentage of the original investment. Indices are rebalanced monthly by
market capitalization.
oLEHMAN BROTHERS GOVERNMENT/CORPORATE (TOTAL) INDEX is comprised of
approximately 5,000 issues which include: non-convertible bonds publicly
issued by the U.S. government or its agencies; corporate bonds guaranteed by
the U.S. government and quasi-federal corporations; publicly issued, fixed
rate, non-convertible domestic bonds of companies in industry, public
utilities, and finance; and U.S. dollar denominated obligations of foreign
issuers. The average maturity of these bonds approximates ten years. Tracked
by Lehman Brothers, Inc., the index calculates total returns for one month,
three month, twelve month, and ten year periods and year-to-date.
oSALOMON BROTHERS AAA-AA CORPORATE INDEX calculates total returns of
approximately 775 issues which include long-term, high grade domestic
corporate taxable bonds, rated AAA-AA with maturities of twelve years or more
and companies in industry, public utilities, and finance.
The SHORT TERM YIELD FUND may compare its performance to:
oMERRILL LYNCH 1-3 YEAR TREASURY INDEX is an unmanaged index tracking short-
term U.S. government securities with maturities between 1 and 2.99 years. The
index is produced by Merrill Lynch, Pierce, Fenner & Smith, Inc.
The EQUITY FUND may compare its performance to:
oSTANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS (THE "STANDARD
& POOR'S INDEX"), a composite index of common stocks in industry,
transportation, and financial and public utility companies can be used to
compare to the total returns of funds whose portfolios are invested primarily
in common stocks. In addition, the Standard & Poor's Index assumes
reinvestments of all dividends paid by stocks listed on its index. Taxes due
on any of these distributions are not included, nor are brokerage or other
fees calculated, in Standard & Poor's figures.
oDOW JONES INDUSTRIAL AVERAGE ("DJIA") represents share prices of selected
blue-chip industrial corporations as well as public utility and
transportation companies. The DJIA indicates daily changes in the average
price of stocks in any of its categories. It also reports total sales for
each group of industries. Because it represents the top corporations of
America, the DJIA's index movements are leading economic indicators for the
stock market as a whole.
oRUSSELL 2000 SMALL STOCK INDEX is a broadly diversified index consisting of
approximately 2,000 small capitalization common stocks that can be used to
compare to the total returns of funds whose portfolios are invested primarily
in small capitalization common stocks.
The BOND FUND, SHORT TERM YIELD FUND, and EQUITY FUND may also compare their
performance to:
o LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories
by making comparative calculations using total return. It also produces
indices of larger mutual funds that are intended to track specific fund
categories. Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any. From time to time, the Funds will quote
their Lipper ranking in the applicable category or against a specific Lipper
index in advertising or sales literature.
oBANK RATE MONITOR NATIONAL INDEX, Miami Beach, Florida, is a financial
reporting service which publishes weekly average rates of 50 leading bank and
thrift institution money market deposit accounts. The rates published in the
index are an average of the personal account rates offered on the Wednesday
prior to the date of publication by ten of the largest banks and thrifts in
each of the five largest Standard Metropolitan Statistical Areas. Account
minimums range upward from $2,500 in each institution and compounding methods
vary. If more than one rate is offered, the lowest rate is used. Rates are
subject to change at any time specified by the institution.
Advertisements and other sales literature for both classes of shares of the
Funds may quote total returns which are calculated on standardized base
periods. These total returns also represent the historic change in the value
of an investment in either class of shares of the BOND FUND and SHORT TERM
YIELD FUNDs based on monthly (quarterly for the EQUITY FUND) reinvestment of
dividends over a specified period of time.
FINANCIAL STATEMENTS
The financial statements for the fiscal year ended December 31, 1995, are
incorporated herein by reference to the Annual Report of the Funds dated
December 31, 1995 (File No 811-6296). You may request a copy of the Annual
Report free of charge by writing the Funds or by calling 1-800-BAY-FUND.
APPENDIX
STANDARD AND POOR'S RATINGS GROUP ("S&P") CORPORATE BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's
Ratings Group. Capacity to pay interest and repay principal is extremely
strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
NR--NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Plus (+) or minus (-): S&P may apply a plus (+) or minus (-) sign to show
relative standing within the major rating categories.
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND RATINGS
AAA--Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA--Bonds which are rated AA are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated BAA are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
NR--Not rated by Moody's.
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Baa in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
FITCH INVESTORS SERVICE, INC. ("FITCH") LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
NR--NR indicates that Fitch does not rate the specific issue.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA category.
DUFF & PHELPS ("D&P") LONG-TERM DEBT RATINGS
AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for U.S. Treasury debt.
AA--High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A-- Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.
BBB-- Below-average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic cycles.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA category.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (-) sign
designation.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earning coverage of fixed financial charges
and high internal cash generation; and well-established access to a range of
financial markets and assured sources of alternative liquidity.
P-2--Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
FITCH INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
DUFF & PHELPS SHORT-TERM DEBT RATINGS
D-1+--Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below U.S. Treasury short-term obligations.
D-1-- Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
D-1- -- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
D-2-- Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
Cusip 072782881
Cusip 072782402
Cusip 072782808
Cusip 072782501
Cusip 072782873
Cusip 072782303
2092913-B (2/96)
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements (Incorporated by reference into the
Registrant's Annual Report dated December
31, 1995)
(b) Exhibits:
(1) Conformed Copy of Declaration of Trust (1.);
(i) Conformed Copy of Amendment No. 1 to the Declaration
of Trust (3.);
(ii) Conformed Copy of Amendment No. 2 to the Declaration
of Trust (5.);
(iii)Conformed Copy of Amendment No. 3 to the Declaration
of Trust;+
(iv) Conformed Copy of Amendment No. 4 to the Declaration
of Trust; (8.)
(v) Conformed Copy of Amendment No. 5 to the Declaration
of Trust;+
(2) Copy of By-Laws of the Registrant (1.);
(3) Not applicable;
(4) Copy of Specimen Certificate for Shares of Beneficial
Interest of the Registrant (5.);
(5) (i) Conformed copy of Investment Advisory Contract
between with BayBanks Investment Management,
Inc.through and including Exhibit C; +
(ii) Conformed copy of Investment Advisory Contract
between the Registrant and BayBank Boston, N.A.(8.);
(iii)Conformed copy of Amendment No. 1 to Investment
Advisory Contract between BayBank Boston, N.A. and
BayFunds;+
(6) Copy of Distributor's Contract of the Registrant through
and including Exhibit C;+
(7) Not applicable;
(8) Conformed Copy of Custodian Agreement;+
+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed on April 5, 1991. (File No.
33-39717 and 811-6296)
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed on December 6, 1991. (File No. 33-
39717 and 811-6296)
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 on Form N1-A filed on October 2, 1992. (File No. 33-
39717 and 811-6296)
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N1-A filed on November 2, 1993. (File No. 33-
39717 and 811-6296)
(9) (i) Conformed Copy of Shareholder Services Plan; (7)
(ii) Conformed Copy of Shareholder Services Agreement
(7.);
(iii)Conformed Copy of Fund Accounting and Shareholder
Recordkeeping Agreement between Registrant and
Federated Services Company through and including
Schedule B; +
(iv)..........Conformed Copy of Administrative Services
Agreement between Registrant and Federated
Administrative Services (6.);
(v)Conformed Copy of Transfer Agency Agreement between
Registrant and Investors Financial Services Company
(7.);
(vi)Conformed Copy of assignment of Transfer Agency
Agreement;+
(10) Conformed Copy of Opinion and Consent of Counsel as to
legality of shares being registered;+
(11) Conformed Copy of Consent of Independent Auditors; +
(12) Not applicable;
(13) Conformed Copy of Initial Capital Understanding;+
(14) Not applicable;
(15) Not applicable;
(16) Schedule for Computation of Fund Performance Data (7.);
(17) Copy of Fianancial Data Schedules; +
(18) Conformed Copy of Multiple Class Plan;+
(19) Conformed Copy of Power of Attorney (6.);
+ All exhibits have been filed electronically.
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 on Form N1-A filed on February 23, 1993. (File No. 33-
39717 and 811-6296)
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N1-A filed on July 30, 1993. (File No. 33-39717
and 811-6296)
Item 25. Persons Controlled by or Under Common Control with Registrant
None
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class February 5, 1996
Shares of beneficial interest
(no par value)
BayFunds Money Market Portfolio -
Trust Shares 6
BayFunds Money Market Portfolio -
Investment Shares 4,603
BayFunds U.S. Treasury Money Market
Portfolio-Institutional Shares 4
BayFunds U.S. Treasury Money Market
Portfolio-Investment Shares 14,830
BayFunds Bond Portfolio
Institutional Shares 4
BayFunds Bond Portfolio
Investment Shares 698
BayFunds Equity Portfolio
Institutional Shares 4
BayFunds Equity Portfolio
Investment Shares 3,782
BayFunds Short Term Yield Portfolio
Institutional Shares 2
BayFunds Short Term Yield Portfolio
Investment Shares 2,256
Item 27. Indemnification: (2.)
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed on June 3, 1991. (File No. 33-39717 and
811-6296)
Item 28. Business and Other Connections of Investment Adviser:
The principal executive officers and directors of the Fund's
investment advisers are set forth below. All officers and
directors are employed by the advisers, BayBanks Inc., and/or an
affiliate. BayBanks Investment Management, Inc., adviser to
BayFunds Money Market Portfolio, BayFunds Bond Portfolio, BayFunds
Equity Portfolio, and BayFunds Short Term Yield Portfolio, is
headquartered at 155 Federal Street, Boston, Massachusetts 02110.
BayBank, N.A., adviser to BayFunds U.S. Treasury Money Market
Portfolio, is headquartered at 175 Federal Street, Boston,
Massachusetts 02110.
Officers of BayBanks Investment Management, Inc.
Officers
Other Substantial
Position with Business, Profession,
Name the Adviser Vocation or Employment
Richard F. Pollard President and Chief Vice Chairman,
Executive Officer BayBanks, Inc., and BayBank
Boston, N.A.;
Chairman, President and CEO,
BayBanks Brokerage Services,
Inc; Chairman, President &
CEO, BayBank FSB.
Richard W. Gula Executive Vice President
Directors of BayBanks Investment Management, Inc.
Name Principal Occupation
Richard F. Pollard Vice Chairman, BayBanks, Inc.
Ilene Beal Executive Vice President, BayBanks, Inc.
William M. Crozier, Jr. Chairman of the Board, President, and Chief
Executive Officer, BayBanks, Inc.
Officers of BayBank, N.A.
Other Substantial
Position with Business, Profession,
Name BayBank, N.A. Vocation or Employment
William M. Crozier, Jr.Chairman of the Board Chairman of the
and CEO Board, President,
and Chief Executive
Officer, BayBanks, Inc.
Richard F. Pollard Vice Chairman Chairman of the Board,
of the Board
President and Chief BayBanks Finance &
Executive Officer, Leasing Co., Inc.;
Vice Chairman of
BayBanks, Inc.
Michael W. Vasily Cashier Executive Vice
President and Treasurer,
BayBanks, Inc.;
William W. Abendroth General Counsel Director of Legal
Affairs, BayBanks, Inc.
Trumbull C. Curtiss Senior Executive Vice
President
Jacques P. Fiechter Senior Executive Vice Senior
President Commercial Real Estate
Officer, BayBank
Grady B. Hedgespeth Regional President
Theresa A. Pasley Executive Vice President
Joseph V. Roller II Executive Vice President Managing Director,
BayBank Systems,
Inc.
Tingey H. Sewall Executive Vice President
Hedwig M. Veith Executive Vice President Executive Vice President,
BayBank Systems, Inc.,
Director of Human
Resources, BayBanks, Inc.
Directors of BayBank, N.A.
Name Principal Occupation
John A. Cervieri Jr. Chairman and President, Property Capital Associates,
Inc.
William M. Crozier, Jr. Chairman of the Board and President, BayBanks, Inc.
Robert L. Gable Chairman, President and Chief Executive Officer,
Unitrode Corporation
Samuel J. Gerson Chairman of the Board and Chief Executive Officer,
Filene's Basement
Norman E. MacNeil Chairman of the Board, Ark-Les Corporation
Arlene A. McNamee Executive Director, Catholic Social Services, Diocese
of Fall River
Thomas R. Piper Lawrence E. Fouraker Professor of Business
Administration, Harvard University Graduate School of
Business Administration
Richard F. Pollard Vice Chairman of the Board, BayBanks, Inc.
Glenn P. Strehle Vice President for Finance and Treasurer,
Massachusetts Institute of Technology
Joseph H. Torras Chairman of the Board, Preco Corporation
Giles E. Mosher, Jr. President, BayBank, N.A.
Item 29. Principal Underwriters:
(a) Federated Securities Corp., the Distributor for shares of the
Registrant, also acts as principal underwriter for the following
open-end investment companies: American Leaders Fund, Inc.;
Annuity Management Series; Arrow Funds; Automated Government
Money Trust; BayFunds; The Biltmore Funds; The Biltmore
Municipal Funds; Blanchard Funds; Blanchard Precious Metals Fund,
Inc.; Cash Trust Series, Inc.; Cash Trust Series II; DG Investor
Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated ARMs Fund; Federated Equity Funds; Federated GNMA
Trust; Federated Government Trust; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust;
Federated Index Trust; Federated Institutional Trust; Federated
Master Trust; Federated Municipal Trust; Federated Short-Term
Municipal Trust; Federated Short-Term U.S. Government Trust;
Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated
U.S. Government Securities Fund: 3-5 Years; Federated
U.S. Government Securities Fund: 5-10 Years;First Priority Funds;
Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S.
Government Fund, Inc.; Fortress Municipal Income Fund, Inc.;
Fortress Utility Fund, Inc.; Fund for U.S. Government Securities,
Inc.; Government Income Securities, Inc.; High Yield Cash Trust;
Independence One Mutual Funds; Insurance Management Series;
Intermediate Municipal Trust; International Series Inc.;
Investment Series Funds, Inc.; Investment Series Trust; Liberty
Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.;
Liberty Municipal Securities Fund, Inc.; Liberty U.S. Government
Money Market Trust; Liberty Utility Fund, Inc.; Liquid Cash
Trust; Managed Series Trust; Marshall Funds, Inc.; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market
Trust; The Monitor Funds; Municipal Securities Income Trust;
Newpoint Funds; 111 Corcoran Funds; Peachtree Funds; The Planters
Funds; RIMCO Monument Funds; SouthTrust Vulcan Funds; Star Funds;
The Starburst Funds; The Starburst Funds II; Stock and Bond Fund,
Inc.; Targeted Duration Trust; Tax-Free Instruments Trust; Tower
Mutual Funds; Trust for Financial Institutions; Trust for
Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; The Virtus
Funds; Vision Group of Funds, Inc.; and World Investment Series,
Inc.
Federated Securities Corp. also acts as principal underwriter for
the following closed-end investment company: Liberty Term Trust,
Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief --
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary, and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice --
Federated Investors Tower President, Federated,
Pittsburgh, PA 15222-3779 Securities Corp.
John W. McGonigle Director, Federated --
Federated Investors Tower Securities Corp
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust, Federated
Pittsburgh, PA 15222-3779 Securities Corp.
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securites Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael D. Fitzgerald Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joeseph Kenedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Steven A. La Versa Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert D. Oehlschlager Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John C. Shelar, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jamie M. Teschner Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Timothy Radcliff Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Asstistant Secretary, --
Federated Investors Tower Assistant Treasurer,
Pittsburgh, PA 15222-3779 Federated Securities Corp.
Joseph M. Huber Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David M. Taylor Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(c) Not applicable.
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and Rules 31a-3 promulgated
thereunder are maintained at one of the following locations:
Registrant Federated Investors Tower
Pittsburgh, PA 15222-3779
DST Systems, Inc. 210 West 10th Street
Transfer Agent, Dividend Kansas City, Missouri 64105
Disbursing Agent
Portfolio Record Keeper Federated Investors Tower
Federated Administrative Services Pittsburgh, PA 15222-3779
BayBank Systems, Inc. One BayBank Technology Place
Shareholder Servicing Agent Waltham, MA 02154
Federated Administrative Services Federated Investors Tower
Administrator Pittsburgh, PA 15222-3779
BayBanks Investment 155 Federal Street
Management Inc. Boston, MA 02110
Investment Adviser to
BayFunds Money Market Portfolio,
BayFunds Bond Portfolio,
BayFunds Equity Portfolio, and
BayFunds Short Term Yield Portfolio
BayBank, N.A. 175 Federal Street
Investment Adviser to Boston, MA 02110
BayFunds U.S. Treasury
Money Market Portfolio
The Fifth Third Bank 38 Fountain Square Plaza
Custodian Cincinnati, OH 45202
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholder meetings by
shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, BAYFUNDS, certifies that it
meets all of the requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized, in the City
of Pittsburgh and Commonwealth of Pennsylvania, on this 23rd day of Februrary,
1996..
BAYFUNDS
BY: /s/C. Todd Gibson
C. Todd Gibson, Assistant Secretary
Attorney in Fact for Glen R. Johnson
February 23, 1996
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE DATE
By:/s/C. Todd Gibson
C. Todd Gibson Attorney In Fact February 23, 1996
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
Glen R. Johnson* President and Treasurer
(Chief Executive Officer
and Principal Financial and
Accounting Officer)
Kenneth B. Condon* Trustee
Robert W. Eisenmenger* Trustee
Sara L. Johnson* Trustee
Ernest R. May* Trustee
Alvin J. Silk* Trustee
Exhibit 11 under Form N-1A
Exhibit 23 under Item 601/Reg SK
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" and "Independent Auditors" in Post-Effective Amendment Number 11
to the Registration Statement (Form N-1A No. 33-39717) and the related
Prospectuses and to the incorporation therein of our reports dated February 9,
1996 with respect to the financial statements included in the Annual Report of
BayFunds (BayFunds Bond Portfolio, BayFunds Equity Portfolio, BayFunds Money
Market Portfolio, BayFunds U.S. Treasury Money Market Portfolio and BayFunds
Short Term Yield Portfolio).
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
Exhibit 1(iii) under Form N-1A
Exhibit 3(a) under Item 601/Reg. S-K
BAYFUNDS
Amendment No. 3
DECLARATION OF TRUST
Dated April 1, 1991
THIS Declaration of Trust is amended as follows:
Delete the first paragraph of Section 5 in Article III and substitute in
its place the following:
"Section 5. Establishment and Designation of Series or Class.
Without limiting the authority of the Trustees set forth in
Article XII, Section 8, inter alia, to establish and designate any
additional Series or Class or to modify the rights and preferences
of any existing Series or Class, the Series and Classes shall be
and are established and designated as:
BayFunds Bond Portfolio
BayFunds Equity Portfolio
BayFunds Money Market Portfolio -
Investment Shares
Trust Shares
BayFunds Short Term Yield Portfolio
BayFunds U.S. Treasury Money Market Portfolio -
Investment Shares
Institutional Shares
The undersigned Assistant Secretary of BayFunds hereby certifies that the
above stated Amendment is a true and correct Amendment to the Declaration of
Trust, as adopted by the Trustees of the Trust as of the 19th day of November,
1992.
WITNESS the due execution hereof this 20th day of November, 1992.
/s/ Peter J. Germain
Peter J. Germain
Exhibit 1(v) under Form N-1A
Exhibit 3(a) under Item 601/Reg. S-K
December 15, 1993
Ms. Sheila Burke
The Commonwealth of Massachusetts
Office of the Secretary of State
Room 1712 - Trust Division
One Ashburton Place
Boston, Massachusetts 02108
Re: BAYFUNDS
Dear Ms. Burke:
I, S. Elliott Cohan, Assistant Secretary of BayFunds, am writing to inform you
that on November 18, 1993, the Board of Trustees voted to change the Resident
Agent of said Trust, from 176 Federal Street, Boston, Massachusetts 02110 to
Donnelly, Conroy & Gelhaar, One Post Office Square, Boston, Massachusetts
02109-2105. Please return a date stamped copy of the change.
Very truly yours,
S. Elliott Cohan
Assistant Secretary
Exhibit 5(i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
BAYFUNDS
INVESTMENT ADVISORY CONTRACT
This Contract is made this 1ST DAY OF SEPTEMBER, 1992, between BAYBANKS
INVESTMENT MANAGEMENT, INC., an investment adviser registered under the
Investment Advisers Act of 1940, having its principal place of business in
Cambridge, Massachusetts (the "Adviser"), and BAYFUNDS, a Massachusetts
business trust having its principal place of business in Pittsburgh,
Pennsylvania (the "Trust").
WHEREAS, the Trust is an "open-end company" as that term is defined in
the Investment Company Act of 1940 (the "Act") and is registered as such
with the Securities and Exchange Commission; and
WHEREAS, the Adviser is engaged in the business of rendering investment
advisory and management services.
NOW, THEREFORE, the parties hereto, intending to be legally bound, agree
as follows:
1. The Trust hereby appoints Adviser as Investment Adviser for each of
the portfolios ("Funds") of the Trust on whose behalf the Trust executes an
exhibit to this Contract, and Adviser, by its execution of each such exhibit,
accepts the appointments. Subject to the direction of the Trustees of the
Trust, Adviser shall provide investment research and supervision of the
investments of each of the Funds and conduct a continuous program of
investment evaluation and of appropriate sale or other disposition and
reinvestment of each Fund's assets. The Adviser shall determine the
securities to be purchased or sold by the Fund and will place orders pursuant
to its determinations with or through such brokers or dealers in conformity
with such policies with respect to brokerage as the Trust shall establish from
time to time and convey to the Adviser.
2. Adviser, in its supervision of the investments of each of the Funds
will be guided by each Fund's fundamental investment policies and the
provisions and restrictions contained in the Declaration of Trust and By-Laws
of the Trust and as set forth in the Trust's Registration Statement (as
hereinafter defined) and exhibits thereto as may be on file with the
Securities and Exchange Commission. The Trust shall deliver copies of all
such investment policies and of the Declaration of Trust and By-Laws of the
Trust, as amended from time to time, and the Registration Statements to the
Adviser, promptly upon such documents becoming available.
3. The Trust shall pay or cause to be paid, on behalf of each Fund, all
of the Funds' expenses and the Funds' allocable share of Trust expenses,
including without limitation, the expenses of organizing the Trust and
continuing its existence; fees and expenses of officers and Trustees of the
Trust; fees for investment advisory services and administrative personnel and
services; fees and expenses of preparing and filing its Registration
Statements under the Securities Act of 1933 and the Act and any amendments
thereto (collectively, the "Registration Statements"); expenses of registering
and qualifying the Trust, the Funds and shares of the Funds ("Shares") under
Federal and state laws and regulations; expenses of preparing, printing and
distributing prospectuses (and any amendments thereto) and sales literature;
interest expense, taxes, fees and commissions of every kind; expenses of issue
(including cost of Share certificates), purchase, repurchase and redemption of
Shares, including expenses attributable to a program of periodic issue;
charges and expenses of custodians, transfer agents, dividend disbursing
agents, shareholder servicing agents and registrars; printing and mailing
costs, auditing, accounting and legal expenses; reports to shareholders and
governmental officers and commissions; expenses of meetings of Trustees and
shareholders and proxy solicitations therefor; insurance expenses; association
membership dues; and such nonrecurring items as may arise, including all
losses and liabilities incurred in administering the Trust and the Funds. The
Trust will also pay each Fund's allocable share of such extraordinary expenses
as may arise, including expenses incurred in connection with litigation,
proceedings, and claims and the legal obligations of the Trust to indemnify
its officers, Trustees, employees, distributors, and agents with respect
thereto.
4. The Trust, on behalf of each of the Funds, shall pay to Adviser, for
all services rendered to such Fund by Adviser hereunder, the fees set forth in
the exhibits attached hereto.
5. The net asset value of each Fund's Shares as used herein will be
calculated to the nearest 1/10th of one cent.
6. The Adviser may from time to time and for such periods as it deems
appropriate reduce its compensation (and, if appropriate, assume expenses of
one or more of the Funds) to the extent that any Fund's expenses exceed such
lower expense limitation as the Adviser may, by notice to the Fund,
voluntarily declare to be effective.
7. This Contract shall begin for each Fund as of the date of execution
of the applicable exhibit and shall continue in effect with respect to each
Fund presently set forth on an exhibit (and any subsequent Funds added
pursuant to an exhibit during the initial term of this Contract) for two years
from the date of this Contract set forth above and thereafter for successive
periods of one year, subject to the provisions for termination and all of the
other terms and conditions hereof if: (a) such continuation shall be
specifically approved at least annually by the vote of a majority of the
Trustees of the Trust, including a majority of the Trustees who are not
parties to this Contract or interested persons of any such party (other than
as Trustees of the Trust), cast in person at a meeting called for that
purpose; and (b) Adviser shall not have notified a Fund in writing at least
sixty (60) days prior to the anniversary date of this Contract in any year
thereafter that it does not desire such continuation with respect to that
Fund. If a Fund is added after the first approval by the Trustees as
described above, this Contract will be effective as to that Fund upon
execution of the applicable exhibit and will continue in effect until the next
annual approval of this Contract by the Trustees and thereafter for successive
periods of one year, subject to approval as described above.
8. Notwithstanding any provision in this Contract, it may be terminated
at any time with respect to any Fund, without the payment of any penalty, by
the Trustees of the Trust or by a vote of a majority of the outstanding voting
securities of that Fund, as defined in Section 2(a)(42) of the Act on sixty
(60) days' written notice to Adviser.
9. This Contract may not be assigned by Adviser and shall automatically
terminate in the event of any assignment. For purposes of this Contract,
"assignment" shall have the meaning assigned to that term in Section 2(a)(4)
of the Act. Adviser may employ or contract with such other person, persons,
corporation or corporations at its own cost and expense as it shall determine
in order to assist it in carrying out this Contract.
10. In the absence of willful misfeasance, bad faith, gross negligence
or reckless disregard of obligations or duties under this Contract on the part
of Adviser, Adviser shall not be liable to the Trust or to any of the Funds or
to any shareholder for any act or omission in the course of or connected in
any way with rendering services or for any losses that may be sustained in the
purchase, holding or sale of any security.
11. This Contract may be amended at any time by agreement of the parties
provided that the amendment shall be approved by the vote of a majority of the
Trustees of the Trust, including a majority of Trustees who are not parties to
this Contract or interested persons of any such party to this Contract (other
than as Trustees of the Trust), cast in person at a meeting called for that
purpose, and, where required by Section 15(a)(2) of the Act, on behalf of a
Fund by a majority of the outstanding voting securities of such Fund as
defined in Section 2(a)(42) of the Act.
12. The Adviser acknowledges that all sales literature for investment
companies (such as the Trust) are subject to strict regulatory oversight. The
Trust agrees to cause its distributor to promptly review all such sales
literature to ensure compliance with relevant requirements, to promptly advise
Adviser of any deficiencies contained in such sales literature, to promptly
file complying sales literature with the relevant authorities, and to cause
such sales literature to be distributed to prospective investors in the Trust.
13. Adviser is hereby expressly put on notice of the limitation of
liability as set forth in Article XI of the Declaration of Trust and agrees
that the obligations pursuant to this Contract of a particular Fund and of the
Trust with respect to that particular Fund be limited solely to the assets of
that particular Fund, and Adviser shall not seek satisfaction of any such
obligation from the assets of any other Fund, the shareholders of any Fund,
the Trustees, officers, employees or agents of the Trust, or any of them.
14. This Contract shall be construed in accordance with and governed by
the laws of the Commonwealth of Pennsylvania, provided, however, that nothing
herein shall be construed in a manner inconsistent with the Act, the
Investment Advisers Act of 1940, or the rules and regulations promulgated
pursuant to such respective Acts.
15. This Contract will become binding on the parties hereto upon their
execution of the attached exhibits to this Contract.
16. The parties hereto acknowledge that BayBanks, Inc. has reserved the
right to grant the non-exclusive use of the name "BayFunds" or any derivative
thereof to any other investment company, investment company portfolio,
investment adviser, distributor or other business enterprise pursuant to the
terms of a Service Mark License Agreement, dated June 6, 1991.
INVESTMENT ADVISORY CONTRACT
EXHIBIT A
BAYFUNDS SHORT TERM YIELD PORTFOLIO
For all services rendered by Adviser hereunder, the Trust shall pay to
Adviser and Adviser agrees to accept as full compensation for all services
rendered hereunder, an annual investment advisory fee equal to .50 of 1% of
the average daily net assets of the Fund.
The fee shall be accrued daily at the rate of 1/365th of .50 of 1%
applied to the daily net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
The right of the Adviser as set forth in Paragraph 6 of this Contract to
assume expenses of one or more of the Funds shall also apply as to any classes
of shares of the above-named Fund.
Witness the due execution hereof this 1ST DAY OF SEPTEMBER, 1992.
Attest: BAYBANKS INVESTMENT MANAGEMENT, INC.
/s/Judith K. Benson By:/s/John J. Arena
Clerk President
Attest: BAYFUNDS
/s/J. W. McGonigle By:/s/E. C. Gonzales
Secretary President
INVESTMENT ADVISORY CONTRACT
EXHIBIT B
BAYFUNDS EQUITY PORTFOLIO
For all services rendered by Adviser hereunder, the Trust shall pay to
Adviser and Adviser agrees to accept as full compensation for all services
rendered hereunder, an annual investment advisory fee equal to .70 of 1% of
the average daily net assets of the Fund.
The fee shall be accrued daily at the rate of 1/365th of .70 of 1%
applied to the daily net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
The right of the Adviser as set forth in Paragraph 6 of this Contract to
assume expenses of one or more of the Funds shall also apply as to any classes
of shares of the above-named Fund.
Witness the due execution hereof this 1ST DAY OF SEPTEMBER, 1992.
Attest: BAYBANKS INVESTMENT MANAGEMENT, INC.
/s/Judith K. Benson By:John J. Arena
Clerk President
Attest: BAYFUNDS
/s/J. W. McGonigle By:/s/E. C. Gonzales
Secretary President
INVESTMENT ADVISORY CONTRACT
EXHIBIT C
BAYFUNDS BOND PORTFOLIO
For all services rendered by Adviser hereunder, the Trust shall pay to
Adviser and Adviser agrees to accept as full compensation for all services
rendered hereunder, an annual investment advisory fee equal to .60 of 1% of
the average daily net assets of the Fund.
The fee shall be accrued daily at the rate of 1/365th of .60 of 1%
applied to the daily net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
The right of the Adviser as set forth in Paragraph 6 of this Contract to
assume expenses of one or more of the Funds shall also apply as to any classes
of shares of the above-named Fund.
Witness the due execution hereof this 1ST DAY OF SEPTEMBER, 1992.
Attest: BAYBANKS INVESTMENT MANAGEMENT, INC.
/s/Judith K. Benson By:/s/John J. Arena
Clerk President
Attest: BAYFUNDS
/s/J. W. McGonigle By:/s/E. C. Gonzales
Exhibit 5(iii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
AMENDMENT No. 1
to the
Investment Advisory Contract
dated September 1, 1992
between BayBank Boston, N.A. and BayFunds
WHEREAS, BayBank Boston, N.A. has been reorganized and merged into
BayBank, N.A., effective October 31, 1995, as reflected in
discussions recorded in the Minutes of the Board of Trustees'
Meeting of BayFunds held November 9, 1995.
WHEREAS, this event does not constitute an "assignment" under the
Investment Company Act of 1940, as amended, of the Investment
Advisory Contract ("Contract") dated September 1, 1992 between
BayBank Boston, N.A. and BayFunds, and that no other changes to
the Contract relating to this event are warranted.
THEREFORE, the Contract is hereby amended, effective March 1, 1996, as
follows.
The entity named "BayBank Boston, N.A." in the Contract is
hereby replaced with the entity named "BayBank, N.A."
In all other respects, the terms and fees under the Contract remain
unchanged.
Witness the due execution hereof this 1st day of March, 1996.
Attest: BayBank, N.A.
/s/ William W. Abendroth By: /s/ Richard F. Pollard
Assistant Secretary Vice Chairman
Attest: BayFunds
/s/ Victor R. Siclari By: /s/ Glen R. Johnson
Exhibit 6 under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
BAYFUNDS
DISTRIBUTOR'S CONTRACT
AGREEMENT made this 6th day of June, 1991, by and between BAYFUNDS (the
"Trust"), a Massachusetts business trust, and FEDERATED SECURITIES CORP.
("FSC"), a Pennsylvania Corporation.
In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:
1. The Trust hereby appoints FSC as its agent to sell and distribute
shares of the Trust which may be offered in one or more series (the "Funds")
consisting of one or more classes (the "Classes") of shares (the "Shares") as
described and set forth on one or more exhibits to this Agreement at the
current offering price thereof as described and set forth in the current
Prospectuses of the Trust. FSC hereby accepts such appointment and agrees to
provide such other services for the Trust, if any, and accept such
compensation from the Trust, if any, as set forth in the applicable exhibit to
this Agreement.
2. The sale of any Shares may be suspended without prior notice
whenever in the judgment of the Trust it is in its best interest to do so.
3. Neither FSC nor any other person is authorized by the Trust to give
any information or to make any representation relative to any Shares other
than those contained in the Registration Statement, Prospectuses, or
Statements of Additional Information ("SAIs") filed with the Securities and
Exchange Commission, as the same may be amended from time to time, or in any
supplemental information to said Prospectuses or SAIs approved by the Trust.
FSC agrees that any other information or representations other than those
specified above which it or any dealer or other person who purchases Shares
through FSC may make in connection with the offer or sale of Shares, shall be
made entirely without liability on the part of the Trust. No person or
dealer, other than FSC, is authorized to act as agent for the Trust for any
purpose. FSC agrees that in offering or selling Shares as agent of the Trust,
it will, in all respects, duly conform to all applicable state and federal
laws and the rules and regulations of the National Association of Securities
Dealers, Inc., including its Rules of Fair Practice. FSC will submit to the
Trust copies of all sales literature before using the same and will not use
such sales literature if disapproved by the Trust.
4. This Agreement is effective with respect to each Class as of the
date of execution of the applicable exhibit and shall continue in effect with
respect to each Class presently set forth on an exhibit and any subsequent
Classes added pursuant to an exhibit during the initial term of this Agreement
for one year from the date set forth above, and thereafter for successive
periods of one year if such continuance is approved at least annually by the
Trustees of the Trust including a majority of the members of the Board of
Trustees of the Trust who are not interested persons of the Trust and have no
direct or indirect financial interest in the operation of any Distribution
Plan relating to the Trust or in any related documents to such Plan
("Disinterested Trustees") cast in person at a meeting called for that
purpose. If a Class is added after the first annual approval by the Trustees
as described above, this Agreement will be effective as to that Class upon
execution of the applicable exhibit and will continue in effect until the next
annual approval of this Agreement by the Trustees and thereafter for
successive periods of one year, subject to approval as described above.
5. This Agreement may be terminated with regard to a particular Fund or
Class at any time, without the payment of any penalty, by the vote of a
majority of the Disinterested Trustees or by a majority of the outstanding
voting securities of the particular Fund or Class on not more than sixty (60)
days' written notice to any other party to this Agreement. This Agreement may
be terminated with regard to a particular Fund or Class by FSC on sixty (60)
days' written notice to the Trust.
6. This Agreement may not be assigned by FSC and shall automatically
terminate in the event of an assignment by FSC as defined in the Investment
Company Act of 1940, provided, however, that FSC may employ such other person,
persons, corporation or corporations as it shall determine in order to assist
it in carrying out its duties under this Agreement.
7. FSC shall not be liable to the Trust for anything done or omitted by
it, except acts or omissions involving willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties imposed by this Agreement.
8. This Agreement may be amended at any time by mutual agreement in
writing of all the parties hereto, provided that such amendment is approved by
the Trustees of the Trust including a majority of the Disinterested Trustees
of the Trust cast in person at a meeting called for that purpose.
9. This Agreement shall be construed in accordance with and governed by
the laws of the Commonwealth of Pennsylvania.
10. (a) Subject to the conditions set forth below, the Trust agrees to
indemnify and hold harmless FSC and each person, if any, who controls FSC
within the meaning of Section 15 of the Securities Act of 1933 and Section 20
of the Securities Act of 1934, as amended, against any and all loss,
liability, claim, damage and expense whatsoever (including but not limited to
any and all expenses whatsoever reasonably incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement,
any Prospectuses or SAI's (as from time to time amended and supplemented) or
the omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not misleading,
unless such statement or omission was made in reliance upon and in conformity
with written information furnished to the Trust about FSC by or on behalf of
FSC expressly for use in the Registration Statement, any Prospectuses and SAIs
or any amendment or supplement thereof.
If any action is brought against FSC or any controlling person thereof
with respect to which indemnity may be sought against the Trust pursuant to
the foregoing paragraph, FSC shall promptly notify the Trust in writing of the
institution of such action and the Trust shall assume the defense of such
action, including the employment of counsel selected by the Trust and payment
of expenses. FSC or any such controlling person thereof shall have the right
to employ separate counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of FSC or such controlling person unless the
employment of such counsel shall have been authorized in writing by the Trust
in connection with the defense of such action or the Trust shall not have
employed counsel to have charge of the defense of such action, in any of which
events such fees and expenses shall be borne by the Trust. Anything in this
paragraph to the contrary notwithstanding, the Trust shall not be liable for
any settlement of any such claim of action effected without its written
consent. The Trust agrees promptly to notify FSC of the commencement of any
litigation or proceedings against the Trust or any of its officers or Trustees
or controlling persons in connection with the issue and sale of Shares or in
connection with the Registration Statement, Prospectuses, or SAI's.
(b) FSC agrees to indemnify and hold harmless the Trust, each of its
Trustees, each of its officers who have signed the Registration Statement and
each other person, if any, who controls the Trust within the meaning of
Section 15 of the Securities Act of 1933, but only with respect to statements
or omissions, if any, made in the Registration Statement or any Prospectus,
SAI, or any amendment or supplement thereof in reliance upon, and in
conformity with, information furnished to the Trust about FSC by or on behalf
of FSC expressly for use in the Registration Statement or any Prospectus, SAI,
or any amendment or supplement thereof. In case any action shall be brought
against the Trust or any other person so indemnified based on the Registration
Statement or any Prospectus, SAI, or any amendment or supplement thereof, and
with respect to which indemnity may be sought against FSC, FSC shall have the
rights and duties given to the Trust, and the Trust and each other person so
indemnified shall have the rights and duties given to FSC by the provisions of
subsection (a) above.
(c) Nothing herein contained shall be deemed to protect any person
against liability to the Trust or its shareholders to which such person would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of the duties of such person or by reason of the
reckless disregard by such person of the obligations and duties of such person
under this Agreement.
(d) Insofar as indemnification for liabilities may be permitted pursuant
to Section 17 of the Investment Company Act of 1940 for Trustees, officers,
FSC and controlling persons of the Trust by the Trust pursuant to this
Agreement, the Trust is aware of the position of the Securities and Exchange
Commission as set forth in the Investment Company Act Release No. IC-11330.
Therefore, the Trust undertakes that in addition to complying with the
applicable provisions of this Agreement, in the absence of a final decision on
the merits by a court or other body before which the proceeding was brought,
that an indemnification payment will not be made unless in the absence of such
a decision, a reasonable determination based upon factual review has been made
(i) by a majority vote of a quorum of non-party Disinterested Trustees, or
(ii) by independent legal counsel in a written opinion that the indemnitee was
not liable for an act of willful misfeasance, bad faith, gross negligence or
reckless disregard of duties. The Trust further undertakes that advancement
of expenses incurred in the defense of a proceeding (upon undertaking for
repayment unless it is ultimately determined that indemnification is
appropriate) against an officer, Trustee, FSC or controlling person of the
Trust will not be made absent the fulfillment of at least one of the following
conditions: (i) the indemnitee provides security for his undertaking; (ii) the
Trust is insured against losses arising by reason of any lawful advances; or
(iii) a majority of a quorum of non-party Disinterested Trustees or
independent legal counsel in a written opinion makes a factual determination
that there is reason to believe the indemnitee will be entitled to
indemnification.
11. FSC is hereby expressly put on notice of the limitation of liability
as set forth in Article XI of the Declaration of Trust and agrees that the
obligations assumed by the Trust pursuant to this agreement shall be limited
in any case to the Trust and its assets and FSC shall not seek satisfaction of
any such obligation from the shareholders of the Trust, the Trustees,
officers, employees or agents of the Trust, or any of them.
12. If at any time the Shares of any Fund are offered in two or more
Classes, FSC agrees to adopt compliance standards as to when a class of shares
may be sold to particular investors.
13. This Agreement will become binding on the parties hereto upon the
execution of the attached exhibits to the Agreement.
DISTRIBUTOR'S CONTRACT
EXHIBIT A
BAYFUNDS
BayFunds Money Market Portfolio
Trust Shares
In consideration of the mutual covenants set forth in the Distributor's
Contract dated June 6, 1991 between BayFunds and Federated Securities Corp.,
BayFunds executes and delivers this Exhibit on behalf of the Fund, and with
respect to the separate Class of Shares thereof, first set forth in this
Exhibit.
Witness the due execution hereof this 6th day of June, 1991.
ATTEST: BAYFUNDS
/s/ John W. McGonigle By: /s/ Edward C. Gonzales
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ S. Elliott Cohan By: /s/ Richard B. Fisher
Secretary President
(SEAL)
DISTRIBUTOR'S CONTRACT
EXHIBIT B
BayFunds Bond Portfolio
BayFunds Equity Portfolio
BayFunds Money Market Portfolio - Investment Shares
BayFunds Short Term Yield Portfolio
BayFunds U.S. Treasury Money Market Portfolio - Institutional Shares
BayFunds U.S. Treasury Money Market Portfolio - Investment Shares
In consideration of the mutual covenants set forth in the Distributor's
Contract dated June 6, 1991 between BayFunds and Federated Securities Corp.,
BayFunds executes and delivers this Exhibit on behalf of the Funds, and with
respect to the separate Classes of Shares thereof, first set forth in this
Exhibit.
Witness the due execution hereof this 1ST DAY OF DECEMBER, 1992.
ATTEST: BAYFUNDS
/s/ S. Elliott Cohan By:/a/ Edward C. Gonzales
Assistant Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ S. Elliott Cohan By:/s/ Richard B. Fisher
Assistant Secretary President
(SEAL)
DISTRIBUTOR'S CONTRACT
EXHIBIT C
BayFunds Bond Portfolio - Investment Shares
BayFunds Bond Portfolio - Institutional Shares
BayFunds Equity Portfolio - Investment Shares
BayFunds Equity Portfolio - Institutional Shares
BayFunds Money Market Portfolio - Trust Shares
BayFunds Money Market Portfolio - Investment Shares
BayFunds Short Term Yield Portfolio - Investment Shares
BayFunds Short Term Yield Portfolio - Institutional Shares
BayFunds U.S. Treasury Money Market Portfolio - Investment Shares
BayFunds U.S. Treasury Money Market Portfolio - Institutional Shares
In consideration of the mutual covenants set forth in the Distributor's
Contract dated June 6, 1991 between BayFunds and Federated Securities Corp.,
BayFunds executes and delivers this Exhibit on behalf of the Funds, and with
respect to the separate Classes of Shares thereof, first set forth in this
Exhibit.
Witness the due execution hereof this 1ST DAY OF SEPTEMBER, 1993.
ATTEST: BAYFUNDS
/s/Peter J. Germain By:/s/Glen R. Johnson
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/S. Elliott Cohan By:/s/E. C. Gonzales
Secretary Executive Vice President
Exhibit 8 under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
CUSTODY AGREEMENT
THIS AGREEMENT, is made effective as of June 6 , 1991, by and between
BAYFUNDS (the "Trust"), a business trust organized under the laws of the
Commonwealth of Massachusetts, acting with respect to BayFunds Money Market
Portfolio and such other portfolios as may be added from time to time and
administered by the Trust (the "Funds"), and THE FIFTH THIRD BANK, a banking
company organized under the laws of the State of Ohio (the "Custodian").
WITNESSETH:
WHEREAS, the Trust desires that the Funds' Securities and cash be held and
administered by the Custodian pursuant to this Agreement; and
WHEREAS, the Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Custodian represents that it is a bank having the
qualifications prescribed in Section 26(a)(i) of the 1940 Act;
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Trust and the Custodian hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases, unless the
context otherwise requires, shall have the following meanings:
1.1 "Authorized Person" means any Officer or other person duly authorized
by resolution of the Board of Trustees to give Oral Instructions and Written
Instructions on behalf of the Funds and named in Exhibit A hereto or in such
resolutions of the Board of Trustees, certified by an Officer, as may be
received by the Custodian from time to time.
1.2 "Board of Trustees" shall mean the Trustees from time to time serving
under the Trust's Agreement and Declaration of Trust, dated April 1, 1991, as
from time to time amended.
1.3 "Book-Entry System" shall mean a federal book-entry system as provided
in Subpart O of Treasury Circular No. 300, CFR 306, in Subpart B of 31 CFR Part
350, or in such book-entry regulations of federal agencies as are substantially
in the form of such Subpart O.
1.4 "Business Day" shall mean any day recognized as a settlement day by The
New York Stock Exchange, Inc. and any other day for which the Trust computes
the net asset value of a Fund.
1.5 "NASD" shall mean The National Association of Securities Dealers, Inc.
1.6 "Officer" shall mean the Chairman, President, any Vice President, the
Secretary, any Assistant Secretary, the Treasurer, or any Assistant Treasurer
of the Trust.
1.7 "Oral Instructions" shall mean instructions orally transmitted to and
accepted by the Custodian because such instructions are: (i) reasonably
believed by the Custodian to have been given by an Authorized Person, (ii)
recorded and kept among the records of the Custodian made in the ordinary
course of business and (iii) orally confirmed by the Custodian. The Trust
shall cause all Oral Instructions to be confirmed by Written Instructions. If
such Written Instructions confirming Oral Instructions are not received by the
Custodian prior to a transaction, it shall in no way affect the validity of the
transaction or the authorization thereof by the Trust. If Oral Instructions
vary from the Written Instructions which purport to confirm them, the Custodian
shall notify the Trust of such variance but such Oral Instructions will govern
unless the Custodian has not yet acted.
1.8 "Fund Custody Account" shall mean any of the accounts in the name of
the Trust, which are provided for in Section 3.2 below.
1.9 "Proper Instructions" shall mean Oral Instructions or Written
Instructions. Proper Instructions may be continuing Written Instructions when
deemed appropriate by both parties.
1.10"Securities Depository" shall mean The Depository Trust Company and
(provided that Custodian shall have received a copy of a resolution of the
Board of Trustees, certified by an Officer, specifically approving the use of
such clearing agency as a depository for the Funds) any other clearing agency
registered with the Securities and Exchange Commission under Section 17A of the
Securities Exchange Act of 1934, which acts as a system for the central
handling of Securities where all Securities of any particular class or series
of an issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of the
Securities.
1.11"Securities" shall include, without limitation, common and preferred
stocks, bonds, call options, put options, debentures, notes, bank certificates
of deposit, bankers' acceptances, mortgage-backed securities, other money
market instruments or other obligations, and any certificates, receipts,
warrants or other instruments or documents representing rights to receive,
purchase or subscribe for the same, or evidencing or representing any other
rights or interests therein, or any similar property or assets that the
Custodian has the facilities to clear and to service.
1.12"Shares" shall mean, with respect to a Fund, the units of beneficial
interest issued by the Trust on account of such Fund.
1.13"Written Instructions" shall mean (i) written communications actually
received by the Custodian and signed by one or more persons as the Board of
Trustees shall have from time to time authorized, or (ii) communications by
telex or any other such system from a person or persons reasonably believed by
the Custodian to be Authorized, or (iii) communications transmitted
electronically through the Institutional Delivery System (IDS), or any other
similar electronic instruction system acceptable to Custodian and approved by
resolutions of the Board of Trustees, a copy of which, certified by an Officer,
shall have been delivered to the Custodian.
ARTICLE II
APPOINTMENT OF CUSTODIAN
2.1 Appointment. The Trust hereby constitutes and appoints the Custodian
as custodian of all Securities and cash owned by or in the possession of the
Trust at any time during the period of this Agreement, provided that such
Securities or cash belong to one of the Funds.
2.2 Acceptance. The Custodian hereby accepts appointment as such custodian
and agrees to perform the duties thereof as hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
3.1 Segregation. All Securities and non-cash property held by the
Custodian for the account of a Fund, except Securities maintained in a
Securities Depository or Book-Entry System, shall be physically segregated from
other Securities and non-cash property in the possession of the Custodian
(including the Securities and non-cash property of another Fund) and shall be
identified as subject to this Agreement.
3.2 Fund Custody Accounts. As to each Fund, the Custodian shall open and
maintain in its trust department a custody account in the name of the Trust
coupled with the name of such Fund, subject only to draft or order of the
Custodian, in which the Custodian shall enter and carry all Securities, cash
and other assets of such Fund which are delivered to it.
3.3 Appointment of Agents. In its discretion, the Custodian may appoint,
and at any time remove, any domestic bank or trust company, which has been
approved by the Board of Trustees and is qualified to act as a custodian under
the 1940 Act, as sub-custodian to hold Securities and cash of the Funds and to
carry out such other provisions of this Agreement as it may determine, and may
also open and maintain one or more banking accounts with such a bank or trust
company (any such accounts to be in the name of the Custodian on behalf of its
customers and subject only to its draft or order pursuant to the terms of this
Agreement), provided, however, that the appointment of any such agent shall not
relieve the Custodian of any of its obligations or liabilities under this
Agreement.
3.4 Delivery of Assets to Custodian. The Trust shall deliver, or cause to
be delivered, to the Custodian all of the Funds' Securities, cash and other
assets, including (a) all payment of income, payments of principal and capital
distributions received by the Funds with respect to such Securities, cash or
other assets owned by the Funds at any time during the period of this
Agreement, and (b) all cash received by the Funds for the issuance, at any time
during such period, of Shares. Except as otherwise set forth herein the
Custodian shall not be responsible for such Securities, cash or other assets
until actually received by it.
3.5 Securities Depositories and Book-Entry Systems. The Custodian may
deposit and/or maintain Securities of the Funds in a Securities Depository or
in a Book-Entry System, subject to the following provisions:
(a) Prior to a deposit of Securities of the Funds in any Securities
Depository or Book-Entry System, the Trust shall deliver to the
Custodian a resolution of the Board of Trustees, certified by an
Officer, authorizing and instructing the Custodian on an on-
going basis to deposit in such Securities Depository or Book-
Entry System all Securities eligible for deposit therein and to
make use of such Securities Depository or Book-Entry System to
the extent possible and practical in connection with its
performance hereunder, including, without limitation, in
connection with settlements of purchases and sales of
Securities, loans of Securities, and deliveries and returns of
collateral consisting of Securities. So long as such Securities
Depository or Book-Entry System shall continue to be employed
for the deposit of Securities of the Funds, the Trust shall
annually re-adopt such resolution and deliver a copy thereof,
certified by an Officer, to the Custodian.
(b) Securities of the Funds kept in a Book-Entry System or
Securities Depository shall be kept in an account ("Depository
Account") of the Custodian in such Book-Entry System or
Securities Depository which includes only assets held by the
Custodian as a fiduciary, custodian or otherwise for customers.
(c) The records of the Custodian with respect to Securities of a
Fund maintained in a Book-Entry System or Securities Depository
shall, by book-entry, identify such Securities as belonging to
such Fund.
(d) If Securities purchases by a Fund are to be held in a Book-Entry
System or Securities Depository, the Custodian shall pay for
such Securities upon (i) receipt of advice from the Book-Entry
System or Securities Depository that such Securities have been
transferred to the Depository Account, and (ii) the making of
any entry on the records of the Custodian to reflect such
payment and transfer for the account of such Fund. If
Securities sold by a Fund are held in a Book-Entry System or
Securities Depository, the Custodian shall transfer such
Securities upon (i) receipt of advice from the Book-Entry System
or Securities depository that payment for such Securities has
been transferred to the Depository Account, and (ii) the making
of an entry on the records of the custodian to reflect such
transfer and payment for the account of such Fund.
(e) Upon request, the Custodian shall provide the Trust with copies
of any report (obtained by the Custodian from a Book-Entry
System or Securities Depository in which Securities of the Funds
are kept) on the internal accounting controls and procedures for
safeguarding Securities deposited in such Book-Entry System or
Securities Depository.
(f) Anything to the contrary in this Agreement notwithstanding, the
Custodian shall be liable to the Trust for any loss or damage to
a Fund resulting (i) from the use of a Book-Entry System or
Securities Depository by reason of any negligence or willful
misconduct on the part of Custodian or any sub-custodian
appointed pursuant to Section 3.3 above or any of its or their
employees, or (ii) from failure of Custodian or any such sub-
custodian to enforce effectively such rights as it may have
against a Book-Entry System or Securities Depository. At its
election, the Trust shall be subrogated to the rights of the
Custodian with respect to any claim against a Book-Entry System
or Securities Depository or any other person for any loss or
damage to the Funds arising from the use of such Book-Entry
System or Securities Depository, if and to the extent that the
Funds have not been made whole for any such loss or damage.
(g) The Custodian shall collect on a timely basis all income and
other payments with respect to registered securities held
hereunder to which each Fund shall be entitled either by law or
pursuant to custom in the securities business, and shall collect
on a timely basis all income and other payments with respect to
bearer securities if, on the date of payment by the issuer, such
securities are held by the Custodian or its agent thereof and
shall credit such income, as collected, to each Fund's custodian
account. Without limiting the generality of the foregoing, the
Custodian shall detach and present for payment all coupons and
other income items requiring presentation as and when they
become due and shall collect interest when due on securities
held hereunder. The collection of income due the Funds on
Securities loaned pursuant to the provisions of Section 3.7(j)
shall be the responsibility of the Trust. The Custodian will
have no duty or responsibility in connection therewith, other
than to provide the Trust with such information or data as may
be necessary to assist the Trust in arranging for the timely
delivery to the Custodian of the income to which each Fund is
properly entitled.
The Custodian shall promptly notify the Trust whenever income
due on Securities is not collected in due course and will
provide the Trust with monthly reports of the status of past due
income.
3.6 Disbursement of Moneys from Fund Custody Accounts. Upon receipt of
Proper Instructions, the Custodian shall disburse moneys from a Fund Custody
Account but only in the following cases:
(a) For the purchase of Securities for the Fund but only (i) in the
case of Securities (other than options on Securities, futures
contracts and options on futures contracts), against the
delivery to the Custodian (or any sub-custodian appointed
pursuant to Section 3.3 above) of such Securities to be
registered as provided in Section 3.12 below in proper form for
transfer, or if the purchase of such Securities is effected
through a Book-Entry System or Securities Depository, in
accordance with the conditions set forth in Section 3.5 above;
(ii) in the case of options on Securities, against delivery to
the Custodian (or such sub-custodian) of such receipts as are
required by the customs prevailing among dealers in such
options; (iii) in the case of futures contracts and options on
futures contracts, against delivery to the Custodian (or such
sub-custodian) of evidence of title thereto in favor of the Fund
or any nominee referred to in Section 3.12 below; and (iv) in
the case of repurchase or reverse repurchase agreements entered
into between the Trust and any other party, against delivery of
the purchased Securities either in certificate form or through
an entry crediting the Custodian's account at a Book-Entry
System or Securities Depository with such Securities;
(b) In connection with the conversion, exchange or surrender, as set
forth in Section 3.7(f) below, of Securities owned by the Fund;
(c) For the payment of any dividends or capital gain distributions
declared by the Fund;
(d) In payment of the redemption price of Shares as provided in
Section 5.1 below;
(e) For the payment of any expense or liability incurred by the
Fund, including but not limited to the following payments for
the account of the Fund: interest; taxes; administration,
investment management, investment advisory, accounting,
auditing, transfer agent, custodian, trustee and legal fees; and
other operating expenses of the Fund; in all cases, whether or
not such expenses are to be in whole or in part capitalized or
treated as deferred expenses;
(f) For transfer in accordance with the provisions of any agreement
among the Trust, the Custodian and a broker-dealer registered
under the Securities Exchange Act of 1934 (the "1934 Act") and a
member of the NASD, relating to compliance with rules of The
Options Clearing Corporation and of any registered national
securities exchange (or of any similar organization or
organizations) regarding escrow or other arrangements in
connection with transactions by the Fund;
(g) For transfer in accordance with the provisions of any agreement
among the Trust, the Custodian, and a futures commission
merchant registered under the Commodity Exchange Act, relating
to compliance with the rules of the Commodity Futures Trading
Commission and/or any contract market (or any similar
organization or organizations) regarding account deposits in
connection with transactions by the Fund;
(h) For the funding of any uncertificated time deposit or other
interest-bearing account with any banking institution (including
the Custodian), which deposit or account has a term of one year
or less; and
(i) For any other proper purposes, but only upon receipt, in
addition to Proper Instructions, of a copy of a resolution of
the Board of Trustees, certified by an Officer, specifying the
amount and purpose of such payment, declaring such purpose to be
a proper corporate purpose, and naming the person or persons to
whom such payment is to be made.
3.7 Delivery of Securities from Fund Custody Accounts. Upon receipt of
Proper Instructions, the Custodian shall release and deliver Securities from a
Fund Custody Account but only in the following cases:
(a) Upon the sale of Securities for the account of the Fund but only
against receipt of payment therefor;
(b) In the case of a sale effected through a Book-Entry System or
Securities Depository, in accordance with the provisions of
Section 3.5 above;
(c) To an Offeror's depository agent in connection with tender or
other similar offers for Securities of the Fund; provided that,
in any such case, the cash or other consideration is to be
delivered to the Custodian;
(d) To the issuer thereof or its agent when such securities are
called, redeemed, retired, or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
(e) To the issuer thereof or its agent (i) for transfer into the
name of the Fund, the Custodian or any sub-custodian appointed
pursuant to Section 3.3 above, or of any nominee or nominees of
any of the foregoing, or (ii) for exchange for a different
number of certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in any
such case, the new Securities are to be delivered to the
Custodian;
(f) To the broker selling Securities, for examination in accordance
with the "street delivery" custom;
(g) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, readjustment of the securities,
reorganization or readjustment of the issuer of such Securities,
or pursuant to provisions for conversion contained in such
Securities or pursuant to any deposit agreement, including
surrender or receipt of underlying Securities in connection with
the issuance or cancellation of depository receipts; provided
that, in any such case, the new Securities and cash, if any, are
to be delivered to the Custodian;
(h) Upon receipt of payment therefor pursuant to any repurchase or
reverse repurchase agreement entered into by the Trust;
(i) In the case of warrants, rights or similar Securities, upon the
exercise thereof, provided that, in any such case, the new
Securities and cash, if any, are to be delivered to the
Custodian;
(j) For delivery in connection with any loans of Securities of the
Fund, but only against receipt of such collateral as the Trust
shall have specified to the Custodian in Proper Instructions;
(k) For delivery as security in connection with any borrowings by
the Fund requiring a pledge of assets by the Trust, but only
against receipt by the Custodian of the amounts borrowed;
(l) Pursuant to any authorized plan of liquidation, reorganization,
merger, consolidation or recapitalization of the Trust or a
Fund;
(m) For delivery in accordance with the provisions of any agreement
among the Trust, the Custodian and a broker-dealer registered
under the 1934 Act and a member of the NASD, relating to
compliance with the rules of The Options Clearing Corporation
and of any registered national securities exchange (or of any
similar organization or organizations) regarding escrow or other
arrangements in connection with transactions by the Fund;
(n) For delivery in accordance with the provisions of any agreement
among the Trust, the Custodian, and a futures commission
merchant registered under the Commodity Exchange Act, relating
to compliance with the rules of the Commodity Futures Trading
commission and/or any contract market (or any similar
organization or organizations) regarding account deposits in
connection with transactions by the Fund; or
(o) Upon receipt of instructions from the transfer agent for a Fund,
for delivery to such transfer agent or to the holders of Shares
in connection with distributions in kind, in satisfaction of
requests by holders of Shares for repurchase or redemption;
(p) For any other proper corporate purposes, but only upon receipt,
in addition to Proper Instructions, of a copy of a resolution of
the Board of Trustees, certified by an Officer, specifying the
Securities to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons to
whom delivery of such Securities shall be made.
3.8 Bank Accounts. The Custodian may open and maintain a separate bank
account or accounts in the name of each Fund, subject only to draft or order by
the Custodian acting pursuant to the terms of this Agreement, and shall hold in
such account or accounts, subject to the provisions hereof, all cash received
by it from or for the account of each Fund, other than cash maintained in a
joint repurchase account with other affiliated funds or by a particular Fund in
a bank account established and used in accordance with Rule 17f-3 under the
1940 Act. Funds held by the Custodian for a Fund may be deposited by it to its
credit as Custodian in the Banking Department of the Custodian or in such other
banks or trust companies as it may in its discretion deem necessary or
desirable; provided, however, that every such bank or trust company shall be
qualified to act as a custodian under the 1940 Act and that each such bank or
trust company and the funds to be deposited with each such bank or trust
company shall be approved by the vote of a majority of the Board of Trustees of
the Trust. Such funds shall be deposited by the Custodian in its capacity as
Custodian for the Fund and shall be withdrawable by the Custodian only in that
capacity. If requested by the Trust, the Custodian shall furnish the Trust,
not later than twenty (20) days after the last business day of each month, an
internal reconciliation of the closing balance as of that day in all accounts
described in this section to the balance shown on the daily cash report for
that day rendered to the Trust.
3.9 Payments for Shares. The Custodian shall make such arrangements with
the transfer agent of each Fund, as will enable the Custodian to receive the
cash consideration due to each Fund and will deposit into each Fund's account
such payments as are received from the transfer agent. The Custodian will
provide timely notification to the Trust and the transfer agent of any receipt
by it of payments for Shares of the respective Fund.
3.10Availability of Federal Funds. Upon mutual agreement between the Trust
and the Custodian, the Custodian shall make federal funds available to the
Funds as of specified times agreed upon from time to time by the Trust and the
Custodian in the amount of checks, clearing house funds, and other non-federal
funds received in payment for Shares of the Funds which are deposited into the
Funds' accounts.
3.11Actions Not Requiring Proper Instructions. Unless otherwise instructed
by the Trust, the Custodian shall with respect to all Securities held for a
Fund;
(a) Endorse for collection, in the name of the Fund, checks, drafts
and other negotiable instruments;
(b) Surrender interim receipts or Securities in temporary form for
Securities in definitive form;
(c) Execute, as custodian, any necessary declarations or
certificates of ownership under the federal income tax laws or
the laws or regulations of any other taxing authority now or
hereafter in effect, and prepare and submit reports to the
Internal Revenue Service ("IRS") and to the Trust at such time,
in such manner and containing such information as is prescribed
by the IRS;
(d) Hold for the Fund, either directly or, with respect to
Securities held therein, through a Book-Entry System or
Securities Depository, all rights and similar securities issued
with respect to Securities of the Fund; and
(e) In general, and except as otherwise directed in Proper
Instructions, attend to all non-discretionary details in
connection with sale, exchange, substitution, purchase, transfer
and other dealings with Securities and assets of the Fund.
3.12Registration and Transfer of Securities. All Securities held for a
Fund that are issued or issuable only in bearer form shall be held by the
Custodian in that form, provided that any such Securities shall be held in a
Book-Entry System if eligible therefor. All other Securities held for a Fund
may be registered in the name of such Fund, the Custodian, or any sub-custodian
appointed pursuant to Section 3.3 above, or in the name of any nominee of any
of them, or in the name of a Book-Entry System, Securities Depository or any
nominee of either thereof. The Trust shall furnish to the Custodian
appropriate instruments to enable the Custodian to hold or deliver in proper
form for transfer, or to register in the name of any of the nominees
hereinabove referred to or in the name of a Book-Entry System or Securities
Depository, any Securities registered in the name of a Fund.
3.13Records. (a) The Custodian shall maintain, by Fund, complete and
accurate records with respect to Securities, cash or other property held for
the Funds, including (i) journals or other records of original entry containing
an itemized daily record in detail of all receipts and deliveries of Securities
and all receipts and disbursements of cash; (ii) ledgers (or other records)
reflecting (A) Securities in transfer, (B) Securities in physical possession,
(C) monies and Securities borrowed and monies and Securities loaned (together
with a record of the collateral therefor and substitutions of such collateral),
(D) dividends and interest received, and (E) dividends receivable and interest
accrued; and (iii) cancelled checks and bank records related thereto. The
Custodian shall keep such other books and records of the Funds as the Trust
shall reasonably request.
(b) All such books and records maintained by the Custodian shall (i) be
maintained in a form acceptable to the Trust and in compliance with rules and
regulations of the Securities and Exchange Commission, (ii) be the property of
the Trust and at all times during the regular business hours of the Custodian
be made available upon request for inspection by duly authorized officers,
employees or agents of the Trust and employees or agents of the Securities and
Exchange Commission, and (iii) if required to be maintained by Rule 31a-1 under
the 1940 Act, be preserved for the periods prescribed in Rule 31a-2 under the
1940 Act.
3.14Fund Reports by Custodian. The Custodian shall furnish the Trust with
a daily activity statement by Fund and a summary of all transfers to or from
each Fund Custody Account on the day following such transfers. At least
monthly and from time to time, the Custodian shall furnish the Trust with a
detailed statement, by Fund, of the Securities and moneys held for the Funds
under this Agreement.
3.15Other Reports by Custodian. The Custodian shall provide the Trust, at
such times as the Trust may reasonably require, with reports by independent
public accountants for each Fund on the accounting system, internal accounting
control and procedures for safeguarding securities, future contracts and
options on future contracts including securities deposited and/or maintained in
a Securities System, relating to the services provided by the Custodian for the
Fund under this Contract; such reports shall be of sufficient scope and in
sufficient detail as may reasonably be required by the Trust to provide
reasonable assurance that any material inadequacies would be disclosed by such
examination, and, if there are no such inadequacies, the reports shall so
state.
3.16Proxies and Other Materials. The Custodian shall cause all proxies
relating to Securities which are not registered in the name of a Fund, to be
promptly executed by the registered holder of such Securities, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Trust such proxies, all proxy soliciting materials and
all notices to such Securities.
3.17Information on Corporate Actions. The Custodian shall transmit
promptly to the Trust all written information (including, without limitation,
pendency of calls and maturities of securities and expirations of rights in
connection therewith and notices of exercise of call and to options written by
the Fund and the maturity of futures contracts purchased or sold by the Fund)
received by the Custodian from issuers of the Securities being held for the
Funds. With respect to tender or exchange offers, the Custodian shall transmit
promptly to the Trust all written information received by the Custodian from
the issuers of the Securities whose tender or exchange offer. If the Trust
desires to take action with respect to any tender offer, exchange offer, or any
other similar transaction, the Trust shall notify the Custodian at least three
business days prior to the date on which the Custodian is to take such action.
However, the Custodian shall nevertheless exercise its best efforts to take
such action in the event that notification is received three business days or
less prior to the date on which action is required.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
4.1 Purchase of Securities. Promptly upon each purchase of Securities for
a Fund, Proper Instructions shall be delivered to the Custodian, specifying (a)
the Fund for which the purchase was made, (b) the name of the issuer or writer
of such Securities, and the title or other description thereof, (c) the number
of shares, principal amount (and accrued interest, if any) or other units
purchased, (d) the date of purchase and settlement, (e) the purchase price per
unit, (f) the total amount payable upon such purchase, and (g) the name of the
person to whom such amount is payable. The Custodian shall upon receipt of
such Securities purchased by a Fund pay out of the moneys held for the account
of such Fund the total amount specified in such Proper Instructions to the
person named therein. The Custodian shall not be under any obligation to pay
out moneys to cover the cost of a purchase of Securities for a Fund, if in the
relevant Fund Custody Account there is insufficient cash available to the Fund
for which such purchase was made.
4.2 Liability for Payment in Advance of Receipt of Securities Purchased.
In any and every case where payment for the purchase of Securities for a Fund
is made by the Custodian in advance of receipt of the Securities purchased but
in the absence of specific Written or Oral Instructions to so pay in advance,
the Custodian shall be liable to the Fund for such Securities to the same
extent as if the Securities had been received by the Custodian.
4.3 Sale of Securities. Promptly upon each sale of Securities by a Fund,
Proper Instructions shall be delivered to the Custodian, specifying (a) the
Fund for which the sale was made, (b) the name of the issuer or writer of such
Securities, and the title or other description thereof, (c) the number of
shares, principal amount (and accrued interest, if any), or other units sold,
(d) the date of sale and settlement (e) the sale price per unit, (f) the total
amount payable upon such sale, and (g) the person to whom such Securities are
to be delivered. Upon receipt of the total amount payable to the Fund as
specified in such Proper Instructions, the Custodian shall deliver such
Securities to the person specified in such Proper Instructions. Subject to the
foregoing, the Custodian may accept payment in such form as shall be
satisfactory to it, and may deliver Securities and arrange for payment in
accordance with the customs prevailing among dealers in Securities.
4.4 Delivery of Securities Sold. Notwithstanding Section 4.3 above or any
other provision of this Agreement, the Custodian, when instructed to deliver
Securities against payment, shall be entitled, if in accordance with generally
accepted market practice, to deliver such Securities prior to actual receipt of
final payment therefor in accordance with "a street delivery custom"; provided
that in any such case, the Custodian shall have no responsibility or liability
for any loss arising from the delivery of such securities prior to receiving
payment for such securities except as may arise from the Custodian's own
failure to act in accordance with the standard of reasonable care or any higher
standard of care imposed upon the Custodian by any applicable law or resolution
if such above-stated standard of reasonable care were not part of this
contract.
4.5 Payment for Securities Sold, etc. In its sole discretion and from time
to time, the Custodian may credit the relevant Fund Custody Account, prior to
actual receipt of final payment thereof, with (i) proceeds from the sale of
Securities which it has been instructed to deliver against payment, (ii)
proceeds from the redemption of Securities or other assets of the Fund, and
(iii) income from cash, Securities or other assets of the Fund. Any such
credit shall be conditional upon actual receipt by Custodian of final payment
and may be reversed if final payment is not actually received in full. The
Custodian may, in its sole discretion and from time to time, permit a Fund to
use funds so credited to its Fund Custody Account in anticipation of actual
receipt of final payment. Any such funds shall be repayable immediately upon
demand made by the Custodian at any time prior to the actual receipt of all
final payments in anticipation of which funds were credited to the Fund Custody
Account.
4.6 Advances by Custodian for Settlement. The Custodian may, in its sole
discretion and from time to time, advance funds to the Trust to facilitate the
settlement of a Fund's transactions in its Fund Custody Account. Any such
advance shall be repayable immediately upon demand made by Custodian.
ARTICLE V
REDEMPTION OF FUND SHARES
5.1 Transfer of Funds. From such funds as may be available for the purpose
in the relevant Fund Custody Account, and upon receipt of Proper Instructions
specifying that the funds are required to redeem Shares of a Fund, the
Custodian shall wire each amount specified in such Proper Instructions to or
through such bank as the Trust may designate with respect to such amount in
such Proper Instructions.
5.2 No Duty Regarding Paying Banks. The Custodian shall not be under any
obligation to effect payment or distribution by any bank designated in Proper
Instructions given pursuant to Section 5.1 above of any amount paid by the
Custodian to such bank in accordance with such Proper Instructions.
ARTICLE VI
SEGREGATED ACCOUNTS
Upon receipt of Proper Instructions, the Custodian shall establish and
maintain a segregated account or accounts for and on behalf of a Fund, into
which account or accounts may be transferred cash and/or Securities, including
Securities maintained in a Depository Account,
(a) in accordance with the provisions of any agreement among the
Trust, the Custodian and a broker-dealer registered under the
1934 Act and a member of the NASD (or any futures commission
merchant registered under the Commodity Exchange Act), relating
to compliance with the rules of The Options Clearing Corporation
and of any registered national securities exchange (or the
Commodity Futures Trading commission or any registered contract
market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Fund,
(b) for purposes of segregating cash or Securities in connection
with securities options purchased or written by the Fund or in
connection with financial futures contracts (or options thereon)
purchased or sold by the Fund,
(c) which constitute collateral for loans of Securities made by the
Fund,
(d) for purposes of compliance by the Fund with requirements under
the 1940 Act for the maintenance of segregated accounts by
registered investment companies in connection with reverse
repurchase agreements, and when-issued, delayed delivery and
firm commitment transactions, and other similar transactions,
and
(e) for other proper corporate purposes, but only upon receipt of,
in addition of Proper Instructions, a certified copy of a
resolution of the Board of Trustees, certified by an Officer,
setting forth the purpose of purposes of such segregated account
and declaring such purposes to be proper corporate purposes.
Each segregated account established under this Article VI shall be
established and maintained for a single Fund only. All Proper Instructions
relating to a segregated account shall specify the Fund involved.
ARTICLE VII
CONCERNING THE CUSTODIAN
7.1 Standard of Care. The Custodian shall be held to a standard of
reasonable care in carrying out the provisions of this Agreement; provided,
however, that the Custodian shall be held to any higher standard of care which
would be imposed upon the Custodian by an applicable law or regulation if such
above-stated standard of reasonable care was not part of this Agreement. The
Custodian shall be entitled to rely on and may act upon advice of counsel (who
may be counsel for the Trust) on all matters, and shall be without liability
for any action reasonably taken or omitted pursuant to such advice, provided
that such action is not in violation of applicable federal or state laws or
regulations, and is in good faith and without negligence. Subject to the
limitations set forth in Article XI hereof, the Custodian shall be kept
indemnified by the Trust and be without liability for any action taken or thing
done by it in carrying out the terms and provisions of this Agreement in
accordance with the above standards.
7.2 Actual Collection Required. The Custodian shall not be liable for, or
considered to be the custodian of, any cash belonging to a Fund or any money
represented by a check, draft or other instrument for the payment of money,
until the Custodian or its agents actually receive such cash or collect on such
instrument.
7.3 No Responsibility for Title, etc. So long as and to the extent that it
is in the exercise of reasonable care, the Custodian shall not be responsible
for the title, validity or genuineness of any property or evidence of title
thereto received or delivered by it pursuant to this Agreement.
7.4 Limitation on Duty to Collect. Except as set forth in Section 3.5(g),
Custodian shall not be required to enforce collection, by legal means or
otherwise, of any money or property due and payable with respect to Securities
held for a Fund if such Securities are in default or payment is not made after
due demand or presentation.
7.5 Reliance Upon Documents and Instructions. The Custodian shall be
entitled to rely upon any certificate, notice or other instrument in writing
received by it and reasonably believed by it to be genuine. The Custodian
shall be entitled to rely upon any Oral Instructions and/or any Written
Instructions actually received by it pursuant to this Agreement.
7.6 Express Duties Only. The Custodian shall have no duties or obligations
whatsoever except such duties and obligations as are specifically set forth in
this Agreement, and no covenant or obligation shall be implied in this
Agreement against the Custodian.
7.7 Co-operation. The Custodian shall cooperate with and supply necessary
information, by Fund, to the entity or entities appointed by the Trust to keep
the books of account of the Funds and/or compute the value of the assets of the
Funds. The Custodian shall take all such reasonable actions as the Trust may
from time to time request to enable the Trust to obtain, from year to year,
favorable opinions from the Trust's independent accountants with respect to the
Custodian's activities hereunder in connection with (a) the preparation of the
Trust's report on Form N-1A and Form N-SAR and any other reports required by
the Securities and Exchange Commission, and (b) the fulfillment by the Trust of
any other requirements of the Securities and Exchange Commission.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification. The Trust shall indemnify and hold harmless the
Custodian and any sub-custodian appointed pursuant to Section 3.3 above, and
any nominee of the Custodian or of such sub-custodian from and against any
loss, damage, cost, expense (including attorneys' fees and disbursements),
liability (including, without limitation, liability arising under the
Securities Act of 1933, the 1934 Act, the 1940 Act, and any state or foreign
securities and/or banking laws) or claim arising directly or indirectly
(a) from the fact that Securities are registered in the name of any such
nominee, or (b) from any action or inaction by the Custodian or such sub-
custodian (i) at the request or direction of or in reliance on the advice of
the Trust, or (ii) upon Proper Instructions, or (c) generally, from the
performance of its obligations under this Agreement or any sub-custody
agreement with a sub-custodian appointed pursuant to Section 3.3 above or, in
the case of any such sub-custodian, from the performance of its obligations
under such sub-custody agreement, provided that neither the Custodian nor any
such sub-custodian shall be indemnified and held harmless from and against any
such loss, damage, cost, expense, liability or claim arising from the
Custodian's or such sub-custodian's failure to act in accordance with the
standard of reasonable care or any higher standard which may be applicable
pursuant to Section 7.1.
8.2 Indemnity to be Provided. If the Trust requests the Custodian to take
any action with respect to Securities, which may, in the opinion of the
custodian, result in the Custodian or its nominee becoming liable for the
payment of money or incurring liability of some other form, the Custodian shall
not be required to take such action until the Trust shall have provided
indemnity therefor to the Custodian in an amount and form satisfactory to the
Custodian.
8.3 Security. If the Custodian advances cash or Securities to a Fund for
any purpose, either at the Trust's request or as otherwise contemplated in this
Agreement, or in the event that the Custodian or its nominee incurs, in
connection with its performance under this Agreement, any loss, damage, cost
expense (including attorneys' fees and disbursements), liability or claim
(except such as may arise from its or its nominee's gross negligence, bad faith
and willful misconduct), then, in any such event, any property at any time held
for the account of such Fund shall be security therefor, and should such Fund
fail promptly to repay or indemnify the Custodian, the Custodian shall be
entitled to utilize available cash of such Fund and to dispose of other assets
of such Fund to the extent necessary to obtain reimbursement or
indemnification.
ARTICLE IX
EFFECTIVE PERIOD; TERMINATION
9.1 Effective Period. This Agreement shall become effective as of its
execution and shall continue in full force and effect until terminated as
hereinafter provided.
9.2 Termination. Either party hereto may terminate this Agreement by
giving to the other party a notice in writing specifying the date of such
termination, which shall be not less than ninety (90) days after the date of
the giving of such notice. If a successor custodian shall have been appointed
by the Board of Trustees, the Custodian shall, upon receipt of a notice of
acceptance by the successor custodian, on such specified date of termination
(a) deliver directly to the successor custodian all Securities (other than
Securities held in a Book-Entry System or Securities Depository) and cash then
owned by the Funds and held by the Custodian as custodian, and (b) transfer any
Securities held in a Book-Entry System or Securities Depository to an account
of or for the benefit of the Funds at the successor custodian, provided that
the Trust shall have paid to the Custodian all fees, expenses and other amounts
to the payment or reimbursement of which it shall then be entitled. Upon such
delivery and transfer, the Custodian shall be relieved of all obligations under
this Agreement. The Trust may at any time immediately terminate this Agreement
in the event of the appointment of a conservator or receiver for the Custodian
by regulatory authorities in the State of Ohio or upon the happening of a like
event at the direction of an appropriate regulatory agency or court of
competent jurisdiction.
9.3 Failure to Appoint Successor Custodian. If a successor custodian is
not designated by the Trust on or before the date of termination specified
pursuant to Section 9.2 above, then the Custodian shall have the right to
deliver to a bank or trust company of its own selection, which is (a) a "Bank"
as defined in the 1940 Act, (b) has aggregate capital, surplus and undivided
profits as shown on its then most recent published report of not less than $100
million, and (c) is doing business in New York, New York, all Securities, cash
and other property held by Custodian under this Agreement and to transfer to
an account of or for the Funds at such bank or trust company all Securities of
the Funds held in a Book-Entry System or Securities Depository. Upon such
delivery and transfer, such bank or trust company shall be the successor
custodian under this Agreement and the Custodian shall be relieved of all
obligations under this Agreement. If, after reasonable inquiry, Custodian
cannot find a successor custodian as contemplated in this Section 9.3, then
Custodian shall have the right to deliver to the Trust all Securities and cash
then owned by the Funds and to transfer any Securities held in a Book-Entry
System or Securities Depository to an account of or for the Trust. Thereafter,
the Trust shall be deemed to be its own custodian with respect to the Funds and
the Custodian shall be relieved of all obligations under this Agreement.
ARTICLE X
COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to compensation as agreed upon from time to
time by the Trust and the Custodian. The fees and other charges in effect on
the date hereof and applicable to the Funds are set forth in Exhibit B attached
hereto.
ARTICLE XI
LIMITATION OF LIABILITY
It is expressly agreed that the obligations of the Trust hereunder shall not
be binding upon any of the Trustees, shareholders, nominees, officers, agents
or employees of the Trust personally, but shall bind only the trust property of
the Trust as provided in the Trust's Agreement and Declaration of Trust, dated
April 1, 1991, as from time to time amended. The execution and delivery of
this Agreement have been authorized by the Trustees, and this Agreement has
been signed and delivered by an authorized officer of the Trust, acting as
such, and neither such authorization by the Trustees nor such execution and
delivery by such officer shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but shall
bind only the trust property of the Trust as provided in the above-mentioned
Agreement and Declaration of Trust.
ARTICLE XII
NOTICES
Unless otherwise specified herein, all demands, notices, instructions, and
other communications to be given hereunder shall be in writing and shall be
sent or delivered to The receipt at the address set forth after its name herein
below:
To the Trust:
BayFunds
Federated Investors Tower
Pittsburgh, PA 15222-3779
Attention: Secretary
To the Custodian:
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Attn: Custody Manager - Trust Operations
Telephone: (513) 579-5300
Facsimile: (513) 579-4312
or at such other address as either party shall have provided to the other by
notice given in accordance with this Article XII. Writing shall include
transmission by or through teletype, facsimile, central processing unit
connection, on-line terminal and magnetic tape.
ARTICLE XIII
MISCELLANEOUS
13.1Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
13.2References to Custodian. The Trust shall not circulate any printed
matter which contains any reference to Custodian without the prior written
approval of Custodian, excepting printed matter contained in the prospectus or
statement of additional information for a Fund and such other printed matter as
merely identifies Custodian as custodian for a Fund. The Trust shall submit
printed matter requiring approval to Custodian in draft form, allowing
sufficient time for review by Custodian and its counsel prior to any deadline
for printing.
13.3No Waiver. No failure by either party hereto to exercise, and no delay
by such party in exercising, any right hereunder shall operate as a waiver
thereof. The exercise by either party hereto of any right hereunder shall not
preclude the exercise of any other right, and the remedies provided herein are
cumulative and not exclusive of any remedies provided at law or in equity.
13.4Amendments. This Agreement cannot be changed orally and no amendment
to this Agreement shall be effective unless evidenced by an instrument in
writing executed by the parties hereto.
13.5Counterparts. This Agreement may be executed in one or more
counterparts, and by the parties hereto on separate counterparts, each of which
shall be deemed an original but all of which together shall constitute but one
and the same instrument.
13.6Severability. If any provision of this Agreement shall be invalid,
illegal or unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remaining provisions shall not be affected
or impaired thereby.
13.7Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that this Agreement shall not be assignable by
either party hereto without the written consent of the other party hereto.
13.8Headings. The headings of sections in this Agreement are for
convenience of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed and delivered in its name and on its behalf by its representatives
thereunto duly authorized, all as of the day and year first above written.
ATTEST: BAYFUNDS
/s/ S. E. Cohan By:/s/ Richard B. Fisher
Authorized Officer
ATTEST: THE FIFTH THIRD BANK
/s/ Amanda C. Grimes By:/s/ Scott N. Degerberg
Vice President
EXHIBIT A
AUTHORIZED PERSONS
Set forth below are the names and specimen signatures of the persons
authorized by the Trust to Administer each Fund Custody Account.
Name Signature
=========================== ==================================
=========================== ==================================
EXHIBIT B
FIFTH THIRD BANK
MUTUAL FUND SERVICES
CUSTODY FEE SCHEDULE
BASE FEE (PER FUND)
$0 - $200,000,000 0.5 Basis Points
Over $200,000,000 0.25 Basis Points
TRANSACTION FEES
D.T.C. Eligible Transactions $7.00
Fed Eligible Transactions $9.00
Other Book Entry Transactions $10.00
Physical Transactions $22.00
Repurchase Agreements $14.00
(includes purchases & maturity)
Third Party Repurchase Agreements $15.00
(includes purchase & maturity)
Amortized Securities $45.00
Principal & Interest Payments $ 5.00
(relates to amortized securities only)
Options $35.00
Wire Transfers & Check Disbursements $ 6.00
Exhibit 9(iii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
FUND ACCOUNTING
AND
SHAREHOLDER RECORDKEEPING AGREEMENT
AGREEMENT made as of the 1st day of July, 1992, by and between
BAYFUNDS, a Massachusetts business trust, having its principal office and place
of business at Federated Investors Tower, Pittsburgh, PA 15222-3779 (the
"Trust"), on behalf of the portfolios (individually referred to herein as a
"Fund" and collectively as "Funds") of the Trust, and FEDERATED SERVICES
COMPANY, a Delaware business trust having its principal office and place of
business at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779 (the
"Company").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
with authorized and issued shares of beneficial interest ("Shares"); and
WHEREAS, the Trust wishes to retain the Company to provide certain
pricing, accounting and recordkeeping services for each of the Funds, including
any classes of shares issued by any Fund ("Classes"), and the Company is
willing to furnish such services; and
WHEREAS, the Trust desires to appoint the Company as its transfer agent,
dividend disbursing agent, and agent in connection with certain other
activities, and the Company desires to accept such appointment; and
WHEREAS, from time to time the Trust may desire and may instruct the
Company to subcontract for the performance of its duties and responsibilities
hereunder with another agent (the "Agent");
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, the parties hereto agree as follows:
SECTION ONE: FUND ACCOUNTING.
Article 1. Appointment.
The Trust hereby appoints the Company to provide certain pricing and
accounting services to the Funds for the period and on the terms set forth in
this Agreement. The Company accepts such appointment and agrees to furnish the
services herein set forth in return for the compensation as provided in Article
3 of this Section.
Article 2. The Company and Duties.
Subject to the supervision and control of the Trust's Board of Trustees
("Board"), the Company will assist the Trust with regard to portfolio
accounting for the Trust and the Funds, and/or the Classes, and in connection
therewith undertakes to do the following specific services;
A. Valuing the assets of the Funds and determining the net asset value
per share of the outstanding Shares of the Funds and the Classes, at the time
and in the manner from time to time determined by the Board of the Trust and as
set forth in the prospectus and Statement of Additional Information
("Prospectus");
B. Calculating the net income of the Funds, if any;
C. Calculating capital gains or losses for the Funds from sale or
disposition of assets, if any;
D. Maintaining the general ledger and other accounts, books and financial
records of the Trust, including for each Fund and Class, as required under
Section 31(a) of the 1940 Act and the Rules thereunder in connection with the
services provided by the Company;
E. Preserving for the periods prescribed by Rule 31a-2 under the 1940 Act
the records to be maintained by Rule 31a-1 under said Act in connection with
the services provided by the Company. The Company further agrees that all such
records which it maintains for the Trust are the property of the Trust and
further agrees to surrender promptly to the Trust such records upon the Trust's
request.
F. At the request of the Trust, drafting various reports or other
financial documents required by federal, state and other applicable laws and
regulations; and
G. Such other similar services as may be reasonably requested by the
Trust.
Article 3. Compensation and Allocation of Expenses.
A. The Funds will compensate the Company for its services rendered
pursuant to Section One of this Agreement in accordance with the fees set forth
on Fee Schedule A, annexed hereto and incorporated herein. Such fees do not
include out-of-pocket disbursements of the Company for which the Company shall
be entitled to bill separately. Out-of-pocket disbursements shall include, but
shall not be limited to, the items specified in Schedule B, annexed hereto and
incorporated herein, which Schedule may be modified by the Company upon not
less than thirty days' prior written notice to the Trust.
B. The Company shall not be required to pay any of the following expenses
incurred by the Trust, the Funds, or the Classes: custodial expenses;
membership dues in the Investment Company Institute or any similar
organization; transfer agency expenses; investment advisory expenses; costs of
printing and mailing stock certificates, Prospectuses, reports and notices;
administrative expenses; interest on borrowed money; brokerage commissions;
taxes and fees payable to Federal, state and other governmental agencies; fees
of Trustees of the Trust; outside auditing expenses; outside legal expenses; or
other expenses not specified in this Article 3 which may be properly payable by
the Trust.
C. The Company will invoice the Funds as soon as practicable after the
end of each calendar month, and said invoices will be detailed in accordance
with Schedule A and Schedule B. The Trust will promptly pay to the Company the
amount of such invoice.
D. Any compensation agreed to hereunder may be adjusted from time to time
by attaching to Schedule A a revised Schedule A dated and signed by a duly
authorized officer of the Trust and a duly authorized officer of the Company.
E. The fee for the period from the effective date of application of this
Agreement with respect to a Fund or a Class to the end of the initial month
shall be prorated according to the proportion that such period bears to the
full month period. Upon any termination of this Agreement before the end of
any month, the fee for such period shall be prorated according to the
proportion which such period bears to the full month period. For purposes of
determining fees payable to the Company, the value of the Fund's net assets
shall be computed at the time and in the manner specified in the Fund's
Prospectus.
F. The Company in its sole discretion may from time to time employ or
associate with itself such person or persons as the Company may believe to be
particularly suited to assist it in performing services under this Agreement.
Such person or persons may be officers and employees who are employed by both
the Company and the Trust. The compensation of such person or persons shall be
paid by the Company and no obligation shall be incurred on behalf of the Trust,
the Funds, or the Classes in such respect.
SECTION TWO: SHAREHOLDER RECORDKEEPING.
Article 4. Terms of Appointment.
Subject to the terms and conditions set forth in this Agreement, the Trust
hereby employs and appoints the Company to act as, and the Company agrees to
act as, transfer agent for each Fund's Shares, dividend disbursing agent, and
agent in connection with any accumulation, open-account or similar plans
provided to the shareholders of any Fund ("Shareholders"), including without
limitation any periodic investment plan or periodic withdrawal program.
Proper Instructions as used throughout Section Two of this Agreement means
a writing signed or initialed by one or more person or persons as the Board
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved. Oral instructions will
be considered Proper Instructions if the Company reasonably believes them to
have been given by a person previously authorized in Proper Instructions to
give such instructions with respect to the transaction involved. The Trust and
the Company shall cause all oral instructions to be confirmed in writing.
Proper Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Trust and the
Company are satisfied that such procedures afford adequate safeguards for a
Fund's assets. Proper Instructions may only be amended in writing.
Article 5. Duties of the Company.
The Company agrees that it will perform the following services in
accordance with Proper Instructions as may be provided from time to time by the
Trust as to any Fund:
A. Purchases
(1) The Company shall receive orders and payment for the purchase of
shares and promptly deliver payment and appropriate documentation
therefore to the safekeeping custodian of the relevant Fund, (the
"Custodian"). The Company shall notify the Trust and the Custodian
on a daily basis of the total amount of orders and payments so
delivered.
(2) Pursuant to purchase orders and in accordance with the Fund's
current Prospectus, the Company shall compute and issue the
appropriate number of shares and hold such shares in the
appropriate Shareholder accounts.
(3) If a Shareholder or its agent requests a certificate, the
Company, as Transfer Agent, shall countersign and mail by first
class mail, a certificate to the Shareholder at his address as set
forth on the transfer books of the Fund, subject to any Proper
Instructions regarding the delivery of certificates.
(4) In the event that any check or other order for the purchase of
Shares of the Fund is returned unpaid for any reason, the Company
shall debit the Share account of the Shareholder by the number of
Shares that had been credited to his account upon receipt of the
check or other order, promptly mail a debit advice to the
Shareholder, and notify the Trust of its action. In the event that
the amount paid for such Shares exceeds proceeds of the redemption
of such Shares plus the amount of any dividends paid with respect
to such Shares, the Company will receive reimbursement of such
excess from the Fund or its distributor.
B. Distribution
(1) Upon notification by the Trust of the declaration of any
distribution to shareholders, the Company shall act as Dividend
Disbursing Agent for the Fund in accordance with the provisions of
its governing document and the then current Prospectus of the Fund
and as such shall prepare and mail or credit income, capital gain,
or any other payments to Shareholders. As the Dividend Disbursing
Agent, the Company shall, on or before the payment date of any such
distribution, notify the Custodian of the estimated amount required
to pay any portion of said distribution which is payable in cash
and request the Custodian to make available sufficient funds for
the cash amount to be paid out. The Company shall reconcile the
amounts so requested and the amounts actually received with the
Custodian on a daily basis. If a Shareholder is entitled to
receive additional Shares by virtue of any such distribution or
dividend, appropriate credits shall be made to the Shareholder's
account and certificates delivered where requested; and
(2) The Company shall maintain records of account for each Fund and
advise the Trust and its Shareholders as to the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests and redemption
directions and, if such redemption requests comply with the
procedures as may be described in the Fund Prospectus or set forth
in Proper Instructions, deliver the appropriate instructions
therefore to the Custodian. The Company shall notify the Trust on
a daily basis of the total amount of redemption requests processed
and monies paid to the Company by the Custodian for redemptions.
(2) At the appropriate time as and when it receives monies paid to it
by the Custodian with respect to any redemption, the Company shall
pay over or cause to be paid over in the appropriate manner such
monies as instructed by the redeeming Shareholders, pursuant to
procedures described in the then current Prospectus of the Fund.
(3) If any such certificate or request for redemption does not comply
with the procedures for redemption approved by the Trust, the
Company shall promptly notify the Shareholder of such fact,
together with the reason therefor, and shall effect such redemption
at the price applicable to the date and time of receipt of
documents complying with said procedures.
(4) The Company shall effect transfers of Shares by the registered
owners thereof.
(5) The Company shall identify and process abandoned accounts and
uncashed checks for state escheat requirements on an annual basis
and report such actions to the Trust.
D. Recordkeeping
(1) The Company shall record the issuance of shares of the Fund and
maintain pursuant to applicable rules of the Securities and
Exchange Commission ("SEC") a record of the total number of shares
of the Fund which are authorized, based upon data provided to it by
the Trust, and issued and outstanding. The Company shall also
provide the Trust on a regular basis or upon reasonable request
with the total number of Shares which are authorized and issued and
outstanding, but shall have no obligation when recording the
issuance of Shares, except as otherwise set forth herein, to
monitor the issuance of such shares or to take cognizance of any
laws relating to the issue or sale of such Shares, which functions
shall be the sole responsibility of the Trust.
(2) The Company shall establish and maintain records pursuant to
applicable rules of the SEC relating to the services to be
performed hereunder in the form and manner as agreed to by the
Trust to include a record for each Shareholder's account of the
following:
(a) Name, address and tax identifying number (and whether such
number has been certified);
(b) Number of Shares held;
(c) Historical information regarding the account, including
dividends paid and date and price for all transactions;
(d) Any stop or restraining order placed against the account;
(e) Information with respect to withholdings in the case of a
foreign account or an account for which withholding is required
by the Internal Revenue Code;
(f) Any dividend reinvestment order, plan application, dividend
address and correspondence relating to the current maintenance
of the account;
(g) Certificate numbers and denominations for any Shareholder
holding certificates;
(h) Any information required in order for the Company to perform
the calculations contemplated or required by this Agreement.
(3) The Company shall preserve any such records required to be
maintained pursuant to the rules of the SEC for the periods
prescribed in said rules as specifically noted below. Such record
retention shall be at the expense of the Fund, and such records may
be inspected by the Trust at reasonable times. The Company may, at
its option at any time, and shall forthwith upon the Trust's
demand, turn over to the Trust and cease to retain in the Company's
files, records and documents created and maintained by the Company
pursuant to this Agreement, which are no longer needed by the
Company in performance of its services or for its protection. If
not so turned over to the Trust, such records and documents will be
retained by the Company for six years from the year of creation,
during the first two of which such documents will be in readily
accessible form. At the end of the six year period, such records
and documents will either be turned over to the Trust or destroyed
in accordance with Proper Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Trust periodically the following
information:
(a) A copy of the transaction register;
(b) Dividend and reinvestment blotters;
(c) The total number of Shares issued and outstanding in each
state for "blue sky" purposes as determined according to Proper
Instructions delivered from time to time by the Trust to the
Company;
(d) Shareholder lists and statistical information;
(e) Payments to third parties relating to distribution
agreements, allocations of sales loads, redemption fees, or
other transaction- or sales-related payments;
(f) Such other information as may be agreed upon from time to
time.
(2) The Company shall prepare in the appropriate form, file with the
Internal Revenue Service and appropriate state agencies, and, if
required, mail to Shareholders, such notices for reporting
dividends and distributions paid as are required to be so filed and
mailed and shall withhold such sums as are required to be withheld
under applicable federal and state income tax laws, rules and
regulations.
(3) In addition to and not in lieu of the services set forth above,
the Company shall:
(a) Perform all of the customary services of a transfer agent,
dividend disbursing agent and, as relevant, agent in connection
with accumulation, open-account or similar plans (including
without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to: maintaining
all Shareholder accounts, mailing Shareholder reports and
Prospectuses to current Shareholders, withholding taxes on
accounts subject to back-up or other withholding (including
non-resident alien accounts), preparing and filing reports on
U.S. Treasury Department Form 1099 and other appropriate forms
required with respect to dividends and distributions by federal
authorities for all Shareholders, preparing and mailing
confirmation forms and statements of account to Shareholders
for all purchases and redemptions of Shares and other
confirmable transactions in Shareholder accounts, preparing and
mailing activity statements for Shareholders, and providing
Shareholder account information; and
(b) provide a system which will enable the Trust to monitor the
total number of Shares of each Fund sold in each state ("blue
sky reporting"). The Trust shall by Proper Instructions
(i) identify to the Company those transactions and assets to be
treated as exempt from the blue sky reporting for each state
and (ii) verify the classification of transactions for each
state on the system prior to activation and thereafter monitor
the daily activity for each state. The responsibility of the
Company for each Fund's state blue sky registration status is
limited solely to the recording of the initial classification
of transactions or accounts with regard to blue sky compliance
and the reporting of such transactions and accounts to the
Trust as provided above.
F. Other Duties
(1) The Company shall answer correspondence from Shareholders
relating to their Share accounts and such other correspondence as
may from time to time be addressed to the Company;
(2) The Company shall prepare Shareholder meeting lists, mail proxy
cards and other material supplied to it by the Trust in connection
with Shareholder Meetings of each Fund; receive, examine and
tabulate returned proxies; and certify the vote of the
Shareholders;
(3) The Company shall establish and maintain facilities and
procedures for safekeeping of stock certificates, check forms and
facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such certificates,
forms and devices.
Article 6. Duties of the Trust.
A. Compliance
The Trust assumes full responsibility for the preparation, contents
and distribution of each Prospectus of the Fund and for complying with
all applicable requirements of the Securities Act of 1933, as amended,
the 1940 Act and any laws, rules and regulations of government
authorities having jurisdiction.
B. Share Certificates
The Trust shall supply the Company with a sufficient supply of blank
Share certificates and from time to time shall renew such supply upon
request of the Company. Such blank Share certificates shall be
properly signed, manually or by facsimile, if authorized by the Trust
and shall bear the seal of the Trust or facsimile thereof; and
notwithstanding the death, resignation or removal of any officer of the
Trust authorized to sign certificates, the Company may continue to
countersign certificates which bear the manual or facsimile signature
of such officer until otherwise directed by the Trust.
C. Distributions
The Trust shall promptly inform the Company of the declaration of any
dividend or distribution on account of any Fund's shares.
Article 7. Fees and Expenses.
A. Annual Fee
For performance by the Company pursuant to Section Two of this
Agreement, the Trust agrees to pay the Company an annual maintenance
fee for each Shareholder account as set out in the fee schedule,
Schedule C, attached hereto. Such fees may be changed from time to
time subject to mutual written agreement between the Trust and the
Company. Pursuant to information in the Trust Prospectus or other
information or instructions from the Trust, the Company may sub-divide
any Fund into Classes or other sub-components for recordkeeping
purposes. The Company will charge the Fund the fees set forth on
Schedule C for each such Class or sub-component the same as if each
were a Fund.
B. Reimbursements
In addition to the fee paid under Article 7A above, the Trust agrees
to reimburse the Company for out-of-pocket expenses or advances
incurred by the Company for the items set out in Schedule D attached
hereto. In addition, any other expenses incurred by the Company at the
request or with the consent of the Trust, will be reimbursed by the
appropriate Fund.
C. Payment
The Company shall issue billing notices with respect to fees and
reimbursable expenses on a timely basis, generally within 15 days
following the end of the month in which the fees and expenses have been
incurred. The Trust agrees to pay all fees and reimbursable expenses
within 30 days following the receipt of the respective billing notices.
Article 8. Assignment of Shareholder Recordkeeping.
Except as provided below, neither this Agreement nor any rights or
obligations hereunder may be assigned by either party without the
written consent of the other party.
(1) This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
(2) The Company may without further consent on the part of the Trust
subcontract for the performance hereof with (A) Boston Financial
Data Services, Inc., a Massachusetts Trust ("BFDS"), which is duly
registered as a transfer agent pursuant to Section 17A(c)(1) of the
Securities Exchange Act of 1934, as amended, or any succeeding
statute ("Section 17A(c)(1)"), or (B) a BFDS subsidiary duly
registered as a transfer agent pursuant to Section 17A(c)(1), or
(C) a BFDS affiliate; provided, however, that the Company shall be
as fully responsible to the Trust for the acts and omissions of any
subcontractor as it is for its own acts and omissions.
(3) The Company shall upon instruction from the Trust subcontract for
the performance hereof with an Agent, other than BFDS as described
in (2) above, which is duly registered as a transfer agent pursuant
to Section 17A(c)(1) or any succeeding statutes; provided, however,
that the Company shall in no way be responsible to the Trust for
the acts and omissions of the Agent.
SECTION THREE: GENERAL PROVISIONS.
Article 9. Documents.
A. In connection with the appointment of the Company under this
Agreement, the Trust shall file with the Company the following documents:
(1) A copy of the Declaration of Trust and By-Laws of the Trust and
all amendments thereto;
(2) A copy of the resolution of the Board of the Trust authorizing
this Agreement;
(3) Specimens of all forms of outstanding Share certificates of the
Funds in the forms approved by the Board of the Trust with a
certificate of the Secretary of the Trust as to such approval;
(4) All account application forms and other documents relating to
Shareholders accounts; and
(5) A copy of the current Prospectus for each fund.
B. The Trust will also furnish from time to time the following documents:
(1) Each resolution of the Board of the Trust authorizing the
original issuance of each Fund's Shares;
(2) Each Registration Statement filed with the SEC and amendments
thereof and orders relating thereto in effect with respect to the
sale of Shares of any Fund;
(3) A certified copy of each amendment to the governing document and
the By-Laws of the Trust;
(4) Certified copies of each vote of the Board authorizing officers
to give Proper Instructions to the Fund Accountant and Shareholder
Recordkeeper;
(5) Specimens of all new Share certificates representing Shares of
any Fund, accompanied by Board resolutions approving such forms;
(6) Such other certificates, documents or opinions which the Company
may, in its discretion, deem necessary or appropriate in the proper
performance of its duties; and
(7) Revisions to the Prospectus of any Fund.
Article 10. Representations and Warranties.
A. Representations and Warranties of the Company
The Company represents and warrants to the Trust that:
(1) It is a business trust duly organized and existing and in good
standing under the laws of the State of Delaware.
(2) It is duly qualified to carry on its business in the State of
Delaware.
(3) It is empowered under applicable laws and by its charter and by-
laws to enter into and perform this Agreement.
(4) All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement.
(5) It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
(6) It is in compliance with federal securities law requirements and
in good standing as a transfer agent.
B. Representations and Warranties of the Trust
The Trust represents and warrants to the Company that:
(1) It is a business trust duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.
(2) It is empowered under applicable laws and by its Declaration of
Trust and By-Laws to enter into and perform this Agreement.
(3) All corporate proceedings required by said Declaration of Trust
and By-Laws have been taken to authorize it to enter into and
perform this Agreement.
(4) The Trust is an open-end investment company registered under the
1940 Act.
(5) A registration statement under the Securities Act of 1933 will be
effective, and appropriate state securities law filings have been
made and will continue to be made, with respect to all Shares of
each Fund being offered for sale.
Article 11. Standard of Care/Indemnification.
A. Standard of Care
The Company shall be held to a standard of reasonable care in carrying
out the provisions of this Agreement; provided, however that the
Company shall be held to any higher standard of care which would be
imposed upon the Company by any applicable law or regulation even
though such stated standard of care was not part of this Agreement.
B. Indemnification by Trust
The Company shall not be responsible for and the Trust shall indemnify
and hold the Company harmless against any and all losses, damages,
costs, charges, counsel fees, payments, expenses and liabilities
arising out of or attributable to:
(1) The Trust's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Trust's lack of good faith,
negligence or willful misconduct or which arise out of the breach
of any representation or warranty of the Trust hereunder.
(2) The reliance on or use by the Company or its agents or
subcontractors of information, records and documents in proper form
which
(a) are received by the Company or its agents or subcontractors
and furnished to it by or on behalf of the Trust, its
shareholders or investors regarding the purchase, redemption or
transfer of shares and shareholder account information, or
(b) have been prepared and/or maintained by the Trust or its
affiliates or any other person or firm on behalf of the Trust.
(3) The reliance on, or the carrying out by the Company or its agents
or subcontractors of Proper Instructions of the Trust.
(4) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws
or regulations of any state that such Shares be registered in such
state or in violation of any stop order or other determination or
ruling by any federal agency or any state with respect to the offer
or sale of such Shares in such state.
Provided, however, that the Company shall not be protected by this
Article 11.B. from liability for any act or omission resulting from the
Company's lack of good faith, negligence, willful misconduct, or
failure to meet the standard of care set forth in Article 11.A., above.
C. Indemnification by the Company
The Company shall indemnify and hold each Fund harmless from and
against any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liabilities arising out of or attributable to
any action or failure or omission to act by the Company as a result of
the Company's lack of good faith, negligence, willful misconduct, or
failure to meet the standard of care set forth in Article 11.A above.
D. Reliance
At any time the Company may apply to any officer of the Trust for
instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by the
Company under this Agreement, and the Company and its agents or
subcontractors shall not be liable and shall be indemnified by the
appropriate Fund for any action reasonably taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel
provided such action is not in violation of applicable Federal or state
laws or regulations. The Company, its agents and subcontractors shall
be protected and indemnified in recognizing stock certificates which
are reasonably believed to bear the proper manual or facsimile
signatures of the officers of the Trust, and the proper
countersignature of any former transfer agent or registrar, or of a co-
transfer agent or co-registrar.
E. Notification
In order that the indemnification provisions contained in this
Article 11 shall apply, upon the assertion of a claim for which either
party may be required to indemnify the other, the party seeking
indemnification shall promptly notify the other party of such
assertion, and shall keep the other party advised with respect to all
developments concerning such claim. The party who may be required to
indemnify shall have the option to participate with the party seeking
indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to
indemnify it except with the other party's prior written consent.
Article 12. Termination of Agreement.
This Agreement may be terminated by either party upon one hundred twenty
(120) days written notice to the other. Should the Trust exercise its rights
to terminate, all out-of-pocket expenses associated with the movement of
records and materials will be borne by the appropriate Fund. Additionally, the
Company reserves the right to charge for any other reasonable expenses
associated with such termination.
Article 13. Amendment.
This Agreement may be amended or modified by a written agreement executed
by both parties.
Article 14. Interpretive and Additional Provisions.
In connection with the operation of this Agreement, the Company and the
Trust may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Agreement as may in their joint opinion be
consistent with the general tenor of this Agreement. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable Federal or state regulations or any provision
of the Declaration of Trust. No interpretive or additional provisions made as
provided in the preceding sentence shall be deemed to be an amendment of this
Agreement.
Article 15. Governing Law. Massachusetts Law to Apply
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the Commonwealth of Massachusetts.
Article 16. Notices.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Trust at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the Company at
Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to such
other address as the Trust or the Company may hereafter specify, shall be
deemed to have been properly delivered or given hereunder to the respective
address.
Article 17. Counterparts.
This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original.
Article 18. Limitations of Liability of Trustees and Shareholders of
the Trust.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Trust and signed by an authorized officer of the Trust, acting
as such, and neither such authorization by such Trustees nor such execution and
delivery by such officer shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, and the
obligations of this Agreement are not binding upon any of the Trustees or
shareholders of the Trust, but bind only the appropriate trust property of a
Fund or Class as provided in the Declaration of Trust.
Article 19. Limitations of Liability of Trustees and Shareholders of
the Company.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Company and signed by an authorized officer of the Company,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, and
the obligations of this Agreement are not binding upon any of the Trustees or
shareholders of the Company, but bind only the trust property of the Trust as
provided in the Declaration of Trust.
Article 20. Assignment.
This Agreement and the rights and duties hereunder shall not be assignable
with respect to a Fund by either of the parties hereto except by the specific
written consent of the other party.
Article 21. Merger of Agreement.
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof whether
oral or written.
Article 22. Successor Agent.
If a successor agent for the Trust shall be appointed by the Trust, the
Company shall upon termination of this Agreement deliver to such successor
agent at the office of the Company all properties of the Trust held by it
hereunder. If no such successor agent shall be appointed, the Company shall at
its office upon receipt of Proper Instructions deliver such properties in
accordance with such instructions.
In the event that no written order designating a successor agent or Proper
Instructions shall have been delivered to the Company on or before the date
when such termination shall become effective, then the Company shall have the
right to deliver to a bank or trust company, which is a "bank" as defined in
the Investment Company Act of 1940, as amended, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $2,000,000, all properties held by the
Company under this Agreement. Thereafter, such bank or trust company shall be
the successor of the Company under this Agreement.
Article 23. Force Majeure.
The Company shall have no liability for cessation of services hereunder or
any damages resulting therefrom to the Trust as a result of work stoppage,
power or other mechanical failure, natural disaster, governmental action,
communication disruption or other impossibility of performance.
Article 24. Assignment; Successors.
This Agreement shall not be assigned by either party without the prior
written consent of the other party, except that either party may assign to a
successor all of or a substantial portion of its business, or to a party
controlling, controlled by, or under common control with such party.
Article 25. Severability.
In the event any provision of this Agreement is held illegal, void or
unenforceable, the balance shall remain in effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
ATTEST: BAYFUNDS
/s/S. Elliott Cohan By:/s/Richard B. Fisher
Assistant Secretary Vice President
ATTEST: FEDERATED SERVICES COMPANY
/s/Joseph M. Huber By:/s/Ronald L. Cavanagh
Assistant Secretary Vice President
SCHEDULE A
FUND ACCOUNTING AGREEMENT
Compensation for Fund Accounting
Annual Fees per Fund
$30,000
plus 2.0 basis points on average net assets of the Fund from $100 million
but less than $250 million.
plus 1.5 basis points on average net assets of the Fund from $250 million
but less than $500 million.
plus 1.0 basis points on average net assets of the Fund from and over $500
million.
plus $1,000.00 per month for each Class beyond the first Class.
The monthly fee will be $ 1,000.00 per Class with no asset charge
for those months where Federated is the only shareholder in that Class,
due to its seeding of the fund.
SUPERCEDED BY NEW SCHEDULE A
Schedule A
Federated Services Company
Portfolio Accounting
Fee Schedule
I. ANNUAL FEES II. COMPETITIVE ANALYSIS
ASSET BASED FEE ASSET BASED FEE
First $100 Million 3.0 Basis Points Provides incentive by lowering
$100 Million - $300 Million 2.0 Basis Points fees for larger
funds in a
$300 Million - $500 Million 1.0 Basis Points business where
assets should
Over $500 Million .5 Basis Points continue to grow as funds
mature.
Competitive notes:
- Asset charges range from
2 to 6 Basis Points
- Lowest asset charges for
funds greater than $300
million.
MINIMUM FEE MINIMUM FEES
Minimum fee per year $39,000 State Street Bank $42,000
Competitor A $46,000*
Competitor B $40,000**
Competitor C $52,000
Competitor D $45,000
Additional class of shares per year $12,000 * At current asset levels.
(Plus pricing charges and other out-of-pocket expenses) ** Increases to
$60,000 at $100
million.
SCHEDULE B
Out-of-Pocket Expenses
Fund Accounting
I. Out-of-pocket expense include, but are not limited to, the following:
- Postage (including overnight courier service)
- Statement Stock
- Envelopes
- Telephones
- Telecommunication Charges (including FAX)
- Travel
- Duplicating
- Forms
- Supplies
- Microfiche
- Computer Access Charges
- Client Specific System Enhancements
- Access to the Shareholder Recordkeeping System
- Security Pricing Services
- Variable Rate Change Notification Services
- Paydown Factor Notification Services
SCHEDULE C
FUND ACCOUNTING AND SHAREHOLDER RECORDKEEPING AGREEMENT
between
FEDERATED SERVICES COMPANY
and
BAYFUNDS
Fee Schedule
DAILY DIVIDEND ACCRUAL FUND DECLARED DIVIDEND
FUND
Annual Fee Per Shareholder Fee Per
Shareholder
Account Account
BASE TRANSFER AGENCY SERVICES
- - System Access, Funds $14.50 per Account plus $7.50 per Account
plus
Control & Reconcilement, Out-of-Pocket Expenses Out-of-Pocket
Expenses
Statement Processing
ADDITIONAL SERVICE -
ACCOUNT ACTIVITY PROCESSING
- - Account Establishment, Forms $3.50 per Account plus $3.50 per Account
plus
Processing, Trade Processing, Out-of-Pocket Expenses Out-of-Pocket
Expenses
Maintenance
ADDITIONAL SERVICE -
SHAREHOLDER SERVICING
- - Customer Service Telephones, $4.50 per Account plus $4.50 per Account
plus
Correspondence Out-of-Pocket Expenses Out-of-Pocket
Expenses
The ACCOUNT FEE is an annualized amount, prorated on a monthly basis for
billing purposes.
MINIMUM TRANSFER AGENT FEE - $750/month per Fund, Class or other sub-division,
no introductory waiver period.
CLOSED ACCOUNT FEE - $.10 a month per closed account.
SCHEDULE D
FUND ACCOUNTING AND SHAREHOLDER RECORDKEEPING AGREEMENT
between
FEDERATED SERVICES COMPANY
and
BAYFUNDS
Out-of-Pocket Expenses Schedule
- Postage (including overnight courier service)
- Statement Stock
- Envelopes
- Telephones
- Telecommunication Charges (including FAX)
- Travel
- Duplicating
- Forms
- Supplies
- Microfiche
- Computer Access Charges
- Client Specific System Enhancements
Exhibit 10 under Form N-1A
Exhibit 5 under Item 601/Reg. S-K
HOUSTON, HOUSTON & DONNELLY
ATTORNEYS AT LAW
2510 CENTRE CITY TOWER
WILLIAM McC. HOUSTONPITTSBURGH, PA. 15222
FRED CHALMERS HOUSTON, JR.
----------
THOMAS J. DONNELLY
JOHN F. MECK (412) 471-5828 FRED CHALMERS HOUSTON
FAX (412) 471-0736 (1914 - 1971)
MARIO SANTILLI, JR.
THEODORE M. HAMMER
April 4, 1991
The Trustees of
BayFunds
Federated Investors Tower
Pittsburgh, PA 15222-3779
Gentlemen:
BayFunds ("Trust") proposes to offer and sell shares of beneficial
interest representing interests a portfolio of securities known as BayFund
Money Market Portfolio-Trust Shares ("Shares") in the manner and on the
terms set forth in its Registration Statement filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended.
As counsel we have participated in the organization of the Trust, its
registration under the Investment Company Act of 1940 and the preparation
and filing of its Registration Statement under the Securities Act of 1933.
We have examined and are familiar with the provisions of the written
Declaration of Trust dated April 1, 1991, ("Declaration of Trust"), the
Bylaws of the Trust and such other documents and records deemed relevant.
We have also reviewed questions of law and consulted with counsel thereon
as deemed necessary or appropriate by us for the purposes of this opinion.
Based on the foregoing, it is our opinion that:
1. The Trust is duly organized and validly existing pursuant to the
Declaration of Trust.
2. The Shares which are currently being registered by the
Registration Statement referred to above may be legally and validly issued
from time to time in accordance with the Declaration of Trust upon receipt
of consideration sufficient to comply with the provisions of Article III,
Section 3 of the Declaration of Trust and subject to compliance with the
Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and applicable state laws regulating the sale of securities. Such
Shares, when so issued, will be fully paid and non-assessable.
We consent to your filing this opinion as an exhibit to the amended
Registration Statement referred to above and to any application or
registration statement filed under the securities laws of any of the States
of the United States. We further consent to the reference to our firm
under the caption "Legal Counsel" in the prospectus fciled as a part of
such amended Registration Statement, applications and registration
statements.
Very truly yours,
HOUSTON, HOUSTON & DONNELLY
By: /s/Thomas J. Donnelly
Exhibit 13 under Form N-1A
Exhibit 99 under Item 601/Reg. S-K
FEDERATED ADMINISTRATIVE SERVICES
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
May 16, 1991
BayFunds
Federated Investors Tower
Pittsburgh, PA 15222-3779
Gentlemen:
Federated Administrative Services agrees to purchase 100,000 shares of
BayFunds Money Market Portfolio (a portfolio of BayFunds) at the cost of
$1.00 each. These shares are purchased for investment purposes and
Federated Administrative Services has no present intention of redeeming
these shares.
Very truly yours,
/s/ Byron F. Bowman
Byron F. Bowman
Vice President
Exhibit 18 under Form N-1A
Exhibit 99 under Item 601/Reg. S-K
BAYFUNDS
MULTIPLE CLASS PLAN
This Multiple Class Plan ("Plan") is adopted by BAYFUNDS (the "Trust"), a
Massachusetts business trust with respect to the classes of shares ("Classes")
of the portfolios of the Trust (the "Funds") set forth in exhibits hereto.
1. PURPOSE
This Plan is adopted pursuant to Rule 18f-3 under the Investment Company
Act of 1940, as amended (the "Rule"), so as to allow the Trust to issue
more than one class of shares of any or all of the Funds ("Covered
Classes") in reliance on the Rule and to make payments as contemplated
herein.
2. SEPARATE ARRANGEMENTS/CLASS DIFFERENCES
a. Designation of Classes. The Funds set forth on Exhibit A offer two
classes of shares which are titled Investment Shares and Institutional
Shares or Trust Shares, as applicable.
b. Sales Loads and Expenses. The Shares are offered without a sales load.
The only expenses allocated to Investment Shares as a class are the
expenses incurred under the Shareholder Services Plan.
c. Distribution of Shares. Investment Shares are sold primarily to
individuals who purchase the Funds through BayBanks and its affiliates.
Procedures for purchasing and redeeming Investment Shares (including
Automatic Investment and Withdrawal Programs, minimum balance
requirements, and dividend and distribution payment options) are
summarized below and more fully described in the prospectuses.
Institutional Shares of BayFunds Short Term Yield Portfolio, BayFunds
Bond Portfolio and BayFunds Equity Portfolio and are offered primarily
to trusts, fiduciaries and other institutions. Trust Shares of BayFunds
Money Market Portfolio ("BFMMP") are sold to trust, fiduciaries and
institutions. Institutional Shares of BayFunds U.S. Treasury Money
BayFunds
Multiple Class Plan
Page 2
Market Portfolio ("BFTMMP") are sold to BayBank Boston, N.A., its
affiliated and correspondent banks and other institutions investing for
their own account and on behalf of customers maintaining accounts at
such banks and institutions. Procedures for purchasing and redeeming
Institutional Shares and Trust Shares (including minimum balance
requirements and dividend and distribution payment options) are
summarized below and more fully described in the prospectuses.
i. Minimum Investment Amounts. The minimum initial and subsequent
investment is $2,500 and $100, respectively, for Investment Shares, or
$500 and $50 if you participate in the Automatic Investment Program or
invest through an IRA. The minimum initial and subsequent investment
is $500,000 and $100,000, respectively, for Institutional Shares of
BFTMMP, and $10,000 and $100, respectively, for the other Institutional
Shares and Trust Shares. Certain other minimums and waivers also may
apply.
ii. Account Balances. The minimum account balance due to share
redemptions is $1,000 for Investment Shares, $100,000 for Institutional
Shares of BFTMMP, and $10,000 for the other Institutional Shares and
Trust Shares. Certain other minimums may also apply.
iii. Dividend and Distribution Payment Options. All dividends and
distributions are automatically invested in the same class of shares of
the Fund unless otherwise requested by shareholders. Dividend amounts
of Investment Shares will differ by the amount of shareholder services
fees borne by that class of shares.
d. Voting Rights. Shareholders are entitled to one vote for each share
held on the record date for any action requiring a vote by the
shareholders and a proportionate fractional vote for each fractional
BayFunds
Multiple Class Plan
Page 3
share held. Shareholders of the Trust will vote in the aggregate and not
by Fund or class except (i) as otherwise expressly required by law or
when the Trustees determine that the matter to be voted upon affects
only the interests of the shareholders of a particular Fund or class,
and (ii) only holders of Investment Shares will be entitled to vote on
matters submitted to shareholder vote with respect to the Shareholder
Services Plan applicable to such class.
3. EXPENSE ALLOCATIONS
The expenses incurred pursuant to the Shareholder Services Plan will be
borne solely by the Investment Shares class of the applicable Fund, and
constitute the only expenses allocated to one class and not the other.
4. EXCHANGE FEATURES
Shareholders may exchange Investment Shares in any Fund for Investment
Shares in any other Fund offering Investment Shares at the respective
net asset value next determined after receipt of the request in good
order without any sales charge. Shareholders may exchange Trust Shares
of BFMMP or Institutional Shares in any Fund for Trust Shares of BFMMP
or Institutional Shares in any other Fund at the respective net asset
value next determined after receipt of the request in good order without
any sales charge.
5. EFFECTIVENESS
This Plan shall become effective with respect to each Class, (i) to the
extent required by the Rule, after approval by a majority vote of: (a)
the Trust's Board of Trustees ; (b) the members of the Board of the
Trust who are not interested persons of the Trust and have no direct or
indirect financial interest in the operation of the Trust's Plan ,
BayFunds
Multiple Class Plan
Page 4
and/or (ii) upon execution of an exhibit adopting this Plan with respect
to such Class.
EXHIBIT A
to the
BAYFUNDS
Multiple Class Plan
This Multiple Class Plan is adopted by BayFunds with respect to the
following classes of shares of portfolios:
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
(Investment Shares and Institutional Shares)
BAYFUNDS MONEY MARKET PORTFOLIO
(Investment Shares and Trust Shares)
BAYFUNDS SHORT TERM YIELD PORTFOLIO
(Investment Shares and Institutional Shares)
BAYFUNDS BOND PORTFOLIO
(Investment Shares and Institutional Shares)
BAYFUNDS EQUITY PORTFOLIO
(Investment Shares and Institutional Shares)
Witness the due execution hereof this 11th day of May, 1995.
BAYFUNDS
By:/s/ Glen R. Johnson
Name: Glen R. Johnson
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<DISTRIBUTIONS-OF-INCOME> 349,614
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<NUMBER-OF-SHARES-SOLD> 424,745
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<GROSS-EXPENSE> 640,024
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<PER-SHARE-NAV-BEGIN> 9.410
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<PERIOD-END> Dec-31-1995
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<PAID-IN-CAPITAL-COMMON> 61,462,510
<SHARES-COMMON-STOCK> 5,398,628
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<NUMBER-OF-SHARES-SOLD> 792,092
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</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 042
<NAME> BayFunds
BayFunds Equity Fund
Investment shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-END> Dec-31-1995
<INVESTMENTS-AT-COST> 87,960,056
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<TOTAL-LIABILITIES> 118,488
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<OVERDISTRIBUTION-NII> (1,623)
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<ACCUMULATED-NII-PRIOR> 17,731
<ACCUMULATED-GAINS-PRIOR> (2,628,517)
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</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 041
<NAME> BayFunds
BayFunds Equity Fund
Institutional Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-END> Dec-31-1995
<INVESTMENTS-AT-COST> 87,960,056
<INVESTMENTS-AT-VALUE> 114,658,304
<RECEIVABLES> 5,175,177
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<PAID-IN-CAPITAL-COMMON> 93,069,157
<SHARES-COMMON-STOCK> 6,765,994
<SHARES-COMMON-PRIOR> 7,432,502
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1,623)
<ACCUMULATED-NET-GAINS> (6,193)
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<ACCUM-APPREC-OR-DEPREC> 26,698,248
<NET-ASSETS> 88,216,431
<DIVIDEND-INCOME> 1,698,315
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<OTHER-INCOME> 0
<EXPENSES-NET> 1,248,025
<NET-INVESTMENT-INCOME> 836,338
<REALIZED-GAINS-CURRENT> 9,667,197
<APPREC-INCREASE-CURRENT> 20,791,774
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 693,240
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<NUMBER-OF-SHARES-SOLD> 1,225,769
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<SHARES-REINVESTED> 21,539
<NET-CHANGE-IN-ASSETS> 12,544,643
<ACCUMULATED-NII-PRIOR> 17,731
<ACCUMULATED-GAINS-PRIOR> (2,628,517)
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<GROSS-ADVISORY-FEES> 783,869
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,248,025
<AVERAGE-NET-ASSETS> 112,254,805
<PER-SHARE-NAV-BEGIN> 10.540
<PER-SHARE-NII> 0.100
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<RETURNS-OF-CAPITAL> 0.820
<PER-SHARE-NAV-END> 13.040
<EXPENSE-RATIO> 1.05
<AVG-DEBT-OUTSTANDING> 0
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</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> BayFunds
BayFunds Money Market Portfolio
Investment Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-END> Dec-31-1995
<INVESTMENTS-AT-COST> 209,131,421
<INVESTMENTS-AT-VALUE> 209,131,421
<RECEIVABLES> 1,767,068
<ASSETS-OTHER> 8,503
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 210,906,992
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 774,049
<TOTAL-LIABILITIES> 774,049
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 210,132,943
<SHARES-COMMON-STOCK> 53,580,698
<SHARES-COMMON-PRIOR> 57,347,601
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
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<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 53,580,698
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13,063,409
<OTHER-INCOME> 0
<EXPENSES-NET> 1,484,830
<NET-INVESTMENT-INCOME> 11,578,579
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<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 62,861,138
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<SHARES-REINVESTED> 2,655,504
<NET-CHANGE-IN-ASSETS> 15,862,188
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 869,240
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,484,830
<AVERAGE-NET-ASSETS> 217,335,211
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
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<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> BayFunds
BayFunds Money Market Portfolio
Trust Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-END> Dec-31-1995
<INVESTMENTS-AT-COST> 209,131,421
<INVESTMENTS-AT-VALUE> 209,131,421
<RECEIVABLES> 1,767,068
<ASSETS-OTHER> 8,503
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 210,906,992
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 774,049
<TOTAL-LIABILITIES> 774,049
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 210,132,943
<SHARES-COMMON-STOCK> 156,552,245
<SHARES-COMMON-PRIOR> 136,923,154
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 156,552,245
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13,063,409
<OTHER-INCOME> 0
<EXPENSES-NET> 1,484,830
<NET-INVESTMENT-INCOME> 11,578,579
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 11,578,579
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,778,880
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 273,700,989
<NUMBER-OF-SHARES-REDEEMED> 254,389,634
<SHARES-REINVESTED> 317,736
<NET-CHANGE-IN-ASSETS> 15,862,188
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
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<GROSS-ADVISORY-FEES> 869,240
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,484,830
<AVERAGE-NET-ASSETS> 217,335,211
<PER-SHARE-NAV-BEGIN> 1.000
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<PER-SHARE-DIVIDEND> 0.050
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 051
<NAME> BayFunds
BayFunds Short Term Yield Portfolio
Institutional Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-END> Dec-31-1995
<INVESTMENTS-AT-COST> 60,103,654
<INVESTMENTS-AT-VALUE> 60,683,333
<RECEIVABLES> 869,716
<ASSETS-OTHER> 41,631
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 61,594,680
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 297,253
<TOTAL-LIABILITIES> 297,253
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 72,645,690
<SHARES-COMMON-STOCK> 4,329,641
<SHARES-COMMON-PRIOR> 6,177,127
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (11,927,942)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 579,679
<NET-ASSETS> 40,196,391
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,964,995
<OTHER-INCOME> 0
<EXPENSES-NET> 689,985
<NET-INVESTMENT-INCOME> 4,275,010
<REALIZED-GAINS-CURRENT> (322,828)
<APPREC-INCREASE-CURRENT> 1,336,612
<NET-CHANGE-FROM-OPS> 5,288,794
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,791,044
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 599,879
<NUMBER-OF-SHARES-REDEEMED> 2,447,365
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (30,207,031)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (11,605,114)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 361,786
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 689,985
<AVERAGE-NET-ASSETS> 72,409,476
<PER-SHARE-NAV-BEGIN> 9.150
<PER-SHARE-NII> 0.550
<PER-SHARE-GAIN-APPREC> 0.130
<PER-SHARE-DIVIDEND> 0.550
<PER-SHARE-DISTRIBUTIONS> 0.000
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<PER-SHARE-NAV-END> 9.280
<EXPENSE-RATIO> 0.86
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 052
<NAME> BayFunds
BayFunds Short Term Yield Portfolio
Investment Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-END> Dec-31-1995
<INVESTMENTS-AT-COST> 60,103,654
<INVESTMENTS-AT-VALUE> 60,683,333
<RECEIVABLES> 869,716
<ASSETS-OTHER> 41,631
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 61,594,680
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 297,253
<TOTAL-LIABILITIES> 297,253
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 72,645,690
<SHARES-COMMON-STOCK> 2,272,842
<SHARES-COMMON-PRIOR> 3,825,005
<ACCUMULATED-NII-CURRENT> 0
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<ACCUMULATED-NET-GAINS> (11,927,942)
<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 21,101,036
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,964,995
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<EXPENSES-NET> 689,985
<NET-INVESTMENT-INCOME> 4,275,010
<REALIZED-GAINS-CURRENT> (322,828)
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<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 224,378
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<NET-CHANGE-IN-ASSETS> (30,207,031)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (11,605,114)
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<GROSS-ADVISORY-FEES> 361,786
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 689,985
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<PER-SHARE-NAV-BEGIN> 9.150
<PER-SHARE-NII> 0.530
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<EXPENSE-RATIO> 1.11
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> BayFunds
BayFunds U.S. Treasury Money Market Portfolio
Investment Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-END> Dec-31-1995
<INVESTMENTS-AT-COST> 1,062,936,001
<INVESTMENTS-AT-VALUE> 1,062,936,001
<RECEIVABLES> 4,495,946
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,063,577,990
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<ACCUMULATED-NII-CURRENT> 0
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<ACCUMULATED-NET-GAINS> 0
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<NET-ASSETS> 248,129,401
<DIVIDEND-INCOME> 0
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<EXPENSES-NET> 4,250,442
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<NUMBER-OF-SHARES-SOLD> 1,887,034,426
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<ACCUMULATED-NII-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,250,442
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<PER-SHARE-NAV-BEGIN> 1.000
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</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> BayFunds
BayFunds U.S. Treasury Money Market Portfolio
Institutional Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-END> Dec-31-1995
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<INVESTMENTS-AT-VALUE> 1,062,936,001
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<PAID-IN-CAPITAL-COMMON> 1,063,577,990
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<NET-ASSETS> 815,448,589
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<ACCUMULATED-NII-PRIOR> 0
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</TABLE>
