BAYFUNDS(R)
INCOME PORTFOLIOS
& EQUITY PORTFOLIO
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
JUNE 30, 1996
BOND PORTFOLIO
SHORT TERM YIELD PORTFOLIO
EQUITY PORTFOLIO
INVESTMENT SHARES
INSTITUTIONAL SHARES
THE FIRST NATIONAL BANK OF BOSTON
- -----------------------------------------
Investment Adviser
- --------------------------
LOGO FEDERATED INVESTORS
--------------------------
Since 1955
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary or Federated Investors.
--------------------------
Z00324 G00507-05 (8/96) LOGO
--------------------------
PRESIDENT'S MESSAGE AND INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Dear Shareholder:
The first half of 1996 has been a very active one in the markets which affect
BayFunds Bond Portfolio, BayFunds Short Term Yield Portfolio and BayFunds Equity
Portfolio. Stock and bond markets have produced unprecedented volumes of
transactions and seen large price swings, both positive and negative. The
portfolio management team at BayBanks Investment Management, Inc. has strived to
keep ahead of market developments and act with both prudence and agility while
providing solid investment returns.
FIXED INCOME MARKET RECAP
At the beginning of the second quarter of 1996, the question on the minds of
bond market investors was whether the extremely negative market action in the
first quarter of 1996 was an overreaction to fears of economic growth and
attendant inflationary pressures, or whether the economy was indeed strong
enough to generate inflation fears and send interest rates higher. Investors
were left to reach their own conclusions, as economic reports consistently
hinted at an underlying level of economic strength supported primarily by strong
consumer spending.
While most inflation indicators failed to sound any alarms, continued strength
in payroll employment, housing markets, consumer confidence, purchasing manager
sentiment, and retail sales all led investors to demand higher rates of interest
from fixed income markets as the year progressed. A bond market rally in late
June 1996, triggered mostly by technical factors, offered investors relief from
the malaise and created positive total returns for the month and quarter in most
bond indices. The closely followed Lehman Brothers Government/Corporate (Total)
Index* returned 0.47% (income and price change combined) for the second quarter
of 1996, but for the first half of the year registered a loss of 1.88%.
Despite the poor tone to fixed income markets, there were no major mortgage or
derivative-related mishaps of the magnitude that led to the infamous losses in
1994's bear market (e.g. Orange County, Askin Capital Management). Indeed,
investors were much better positioned to weather a storm in 1996, despite a lack
of predictions that a bear market would unfold so suddenly. This healthy sign
decreases the propensity of investors to exaggerate the upward move in interest
rates and sets the stage for a more robust rally to occur at the first
indication of a slowdown in economic growth.
On another positive note, the U.S. budget deficit appears to be positioned to
mark its fourth annual decline this year. Estimates call for the deficit to come
in somewhere around $130 billion in the current fiscal year as a result of last
year's budget agreement and tax package. These changes, coupled with a Supreme
Court decision regarding the U.S. government's treatment of institutions
involved in the thrift industry restructuring, could lead to a somewhat lower
deficit in fiscal 1997.
* The Lehman Brothers Government/Corporate (Total) Index is an unmanaged index
comprised of approximately 5,000 bonds with an average maturity that
approximates ten years. Investments cannot be made in an index.
- --------------------------------------------------------------------------------
STOCK MARKET RECAP
So far the equity markets in 1996 have behaved as expected, following their
spectacular performance in 1995. Historically, the year following an
extraordinary year, such as 1995, produces returns which, while paling in
comparison to the preceding year, would in other circumstances be considered
good, solid performance. If this trend continues, one can expect solidly
positive returns in most of the major indices for 1996. The fact that this is an
election year further reinforces the likelihood of healthy stock market
performance. Recent volatility in the equity markets could bring this assumption
into question. However, the markets appear to have enough of a fundamental
underpinning to resist extended downward pressures.
Looking only at the Dow Jones Industrial Average ("DJIA"),** the second quarter
of 1996 seemed to lag the first. Indeed, the DJIA rose 9.81% in the first
quarter, but only 1.70% in the second. It is important to look beyond the 30 Dow
stocks, and to observe the broader and secondary indices as well. For example,
the Standard & Poor's 500 Composite Stock Index("S&P 500")*** rose only 5.37% in
the first quarter, well behind the DJIA, but jumped 4.45% in the second.
Similarly, the National Association of Securities Dealers Quotation system
("NASDAQ") composite had a relatively modest 4.86% increase in the first
quarter, but a very impressive 7.16% in the second quarter. The Russell 2000****
Index of small capitalization issues behaved comparably. The only widely quoted
index that did not have a better second quarter than first was the American
Stock Exchange ("AMEX"), with a 4.22% return in the first quarter, and a weak
0.76% second quarter. The AMEX, heavily laden with energy and gold mining
stocks, suffered when the gold rally lost steam. The energy companies'
performance in the second quarter did not help the AMEX.
Looking forward into the second half of 1996, there are as many opinions about
market trends as there are market analysts. However, two major schools of
thought are emerging. The first is for a very strong rally pushing the Dow above
6,000 sometime during the summer, followed by a large and long overdue
correction to well below 5,000 by year end. Some analysts, expecting higher
interest rates in response to inflation, have based a bear market outlook on
potential interest rate hikes by the Federal Reserve Board (the "Fed"). Other
observers are concerned by what they see as excessive valuations as measured by
price-to-earnings ratios. The bull market scenario has its supporters as well.
Some of the major brokerage firms announced that they are recommending increased
exposure to stocks. They also believe that the Fed will not raise rates during
the rest of the year. Some advisers actually expect the Fed to lower rates
before they raise them. Fed Chairman Alan Greenspan and Vice Chairman Alice
Rivlin received confirmation to their appointed positions during the second
quarter. Their confirmation hearings were noteworthy as they faced resistance
from a group of congressmen seeking to have the Fed use a higher
non-inflationary growth target than the current 2.5% target. While the Fed's
difficult job will be further complicated by presidential election year
politics, we believe that the Fed will not hesitate to raise rates prior to the
November election if economic growth stays at the above-target rate observed
during the first half of the year.
** The Dow Jones Industrial Average represents share prices of selected
blue-chip industrial corporations as well as public utility and
transportation companies.
*** Standard & Poor's 500 Composite Stock Index is an unmanaged index of common
stocks in industry, transportation, and financial and public utility
companies. Investments cannot be made in an index.
**** The Russell 2000 Index is an unmanaged index consisting of approximately
2,000 small capitalization common stocks. Investments cannot be made in an
index.
- --------------------------------------------------------------------------------
PERFORMANCE OF BAYFUNDS BOND PORTFOLIO AND BAYFUNDS SHORT TERM YIELD PORTFOLIO
BayFunds Bond Portfolio
BayFunds Bond Portfolio's total return for the six-month period ended June 30,
1996, was (1.36%) for Institutional Shares and (1.48%) for Investment Shares.+
This return was indicative of the first half's tumultuous bond market and fully
competitive with relevant bond indices, such as the Lehman Brothers
Government/Corporate (Total) Index (1.88%).* The Portfolio ended the first half
of 1996 with a 30-day SEC yield of 6.11% for Institutional Shares and 5.86% for
Investment Shares.+ It continues to offer a prudent means of participating in
the U.S. investment-grade corporate and government bond markets.
BayFunds Short Term Yield Portfolio
BayFunds Short Term Yield Portfolio's total return for the six-month period
ended June 30, 1996, was 1.19% for Institutional Shares and 1.06% for Investment
Shares.+ These returns were gratifying in the midst of a volatile fixed income
environment that was depressed by inflation and interest rate fears. The
Portfolio's steadfast commitment to high-quality, short-term investments allowed
it to avoid these downdrafts and produce its modestly positive return. The
Portfolio ended the first half of 1996 with a 30 day SEC yield of 5.63% for
Institutional Shares and 5.38% for Investment Shares.+ The conservative nature
of the Portfolio made it an excellent holding during the uncertain period thus
far this year and it continues to serve as a solid fixed income holding for
those investors who are either risk averse or need a short-term investment
alternative.
PERFORMANCE OF BAYFUNDS EQUITY PORTFOLIO
BayFunds Equity Portfolio produced an outstanding total return of 12.00% for
Institutional Shares and 11.87% for Investment Shares for the first half of
1996.+ This was a very strong performance for the Portfolio considering that the
S&P 500***, its widely followed benchmark, produced a 10.05% return for the same
period. Its staunch commitment to faster growing, innovative companies with
strong earnings potential allowed it to produce these double-digit returns.
These virtues are all the more significant in the midst of the current equity
markets that have become increasingly selective as the averages have plowed
ahead into record levels. However, it is the Portfolio's broad diversification
that should provide a judicious buffer going forward into the uncertain second
half of 1996. Long-term investors ought to continue to be well served by its
consistent investment approach to the U.S. stock markets.
+ Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate so that
an investors shares, when redeemed, may be worth more or less than their
original cost.
* The Lehman Brothers Government/Corporate (Total) Index is an unmanaged index
comprised of approximately 5,000 bonds with an average maturity that
approximates ten years. Investments cannot be made in any index.
*** The S&P 500 is an unmanaged index of common stock in industry,
transportation, and financial and public utility companies.
In closing, I will once again reiterate that investors should pay utmost
attention to their LONG-TERM investment objectives. Do not be swayed by
short-term events when considering your long-term goals. A sound investment plan
ought to be well thought out and tactfully diversified.
I invite you to contact your Investment Specialist or Account Officer if you
have any questions about the course of action that is most appropriate in
helping you reach your investment goals.
Sincerely,
Richard F. Pollard
President
BayBanks Investment Management, Inc.++
Investment Adviser to BayFunds Bond Portfolio,
BayFunds Short Term Yield Portfolio,
and BayFunds Equity Portfolio
August 15, 1996
++ As noted elsewhere herein, shareholders approved the replacement of this
adviser by The First National Bank of Boston.
RESULTS OF SPECIAL MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
A special meeting of the shareholders of BayFunds (the "Trust") was held on June
28, 1996. On May 10, 1996, the record date for shareholder voting at the
meeting, there were 1,288,293,750 total outstanding shares of the Trust
(5,889,619 for BayFunds Bond Portfolio, 5,958,130 for BayFunds Short Term Yield
Portfolio and 8,876,527 for BayFunds Equity Portfolio). The following item was
considered by shareholders of the respective funds and the results of their
voting were as follows:
<TABLE>
<CAPTION>
WITHHELD
AUTHORITY
AGENDA ITEM FOR AGAINST ABSTAIN TO VOTE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BayFunds Bond Portfolio
To approve or disapprove a new investment advisory contract between the Trust and First
National Bank of Boston, a subsidiary of The Bank of Boston Corporation ("BKBC"), as a
result of the merger between BayBanks, Inc. (the parent of the current adviser) and BKBC.
5,320,208 4,292 30,708 N/A
BayFunds Equity Portfolio
To approve or disapprove a new investment advisory contract between the Trust and First
National Bank of Boston, a subsidiary of The Bank of Boston Corporation ("BKBC"), as a
result of the merger between BayBanks, Inc. (the parent of the current adviser) and BKBC.
7,162,197 32,066 74,384 N/A
BayFunds Short Term Yield Portfolio
To approve or disapprove a new investment advisory contact between the Trust and First
National Bank of Boston, a subsidiary of The Bank of Boston Corporation ("BKBC"), as a
result of the merger between BayBanks, Inc. (the parent of the current adviser) and BKBC.
4,532,703 3,961 63,755 N/A
</TABLE>
BAYFUNDS BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ------------------------------------------------------------------ -----------
<C> <C> <S> <C>
ASSET-BACKED SECURITIES--13.5%
- ------------------------------------------------------------------------------------
AUTO LOANS--3.6%
------------------------------------------------------------------
$ 31,308 Merrill Lynch & Co. Asset-Backed Corp, 1993-1, Class A2, 5.125%,
7/15/1998 $ 31,268
------------------------------------------------------------------
2,020,000 Premier Auto Trust 1996-1, Class A3, 6.00%, 10/6/1999 2,005,595
------------------------------------------------------------------
8,761 Shawmut National Grantor Trust 1992-A, Class A, 5.55%, 11/15/1997 8,730
------------------------------------------------------------------ -----------
Total 2,045,593
------------------------------------------------------------------ -----------
BANK CREDIT CARDS--2.6%
------------------------------------------------------------------
1,000,000 First Deposit Master Trust 1993-2, Class A, 5.75%, 6/15/2001 989,680
------------------------------------------------------------------
500,000 Standard Credit Card Master Trust 1993-3, Class A, 5.50%, 2/7/2000 488,280
------------------------------------------------------------------ -----------
Total 1,477,960
------------------------------------------------------------------ -----------
FINANCE CREDIT CARDS--7.3%
------------------------------------------------------------------
2,020,000 Circuit City Credit Card Master Trust 1994-2, Class A, 8.00%,
11/15/2003 2,106,797
------------------------------------------------------------------
2,020,000 Sears Credit Account Master Trust 1995-4, Class A, 6.25%,
1/15/2003 2,017,675
------------------------------------------------------------------ -----------
Total 4,124,472
------------------------------------------------------------------ -----------
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST, $7,689,481) 7,648,025
------------------------------------------------------------------ -----------
CORPORATE BONDS--42.2%
- ------------------------------------------------------------------------------------
AUTOMOTIVE--5.3%
------------------------------------------------------------------
1,840,000 Chrysler Corp., 10.95%, 8/1/2017 2,011,617
------------------------------------------------------------------
1,000,000 Chrysler Financial Corp. Sr. Note, 8.125%, 12/15/1996 1,010,950
------------------------------------------------------------------ -----------
Total 3,022,567
------------------------------------------------------------------ -----------
BANKING--4.0%
------------------------------------------------------------------
1,235,000 First Union Corp., Sub. Note, 7.50%, 4/15/2035 1,275,804
------------------------------------------------------------------
1,000,000 Norwest Corp., 6.00%, 3/15/2000 975,810
------------------------------------------------------------------ -----------
Total 2,251,614
------------------------------------------------------------------ -----------
</TABLE>
BAYFUNDS BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ------------------------------------------------------------------ -----------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- ------------------------------------------------------------------------------------
ENERGY--3.9%
------------------------------------------------------------------
$2,060,000 USX Corp., Deb., 9.125%, 1/15/2013 $ 2,235,430
------------------------------------------------------------------ -----------
FINANCIAL SERVICES--7.8%
------------------------------------------------------------------
1,610,000 Morgan Stanley Group, Inc., Note, 5.625%, 3/1/1999 1,570,943
------------------------------------------------------------------
1,120,000 PaineWebber Group, Inc., Note, 7.875%, 2/15/2003 1,147,978
------------------------------------------------------------------
1,610,000 Salomon, Inc., Sr. Note, 8.69%, 3/1/1999 1,671,808
------------------------------------------------------------------ -----------
Total 4,390,729
------------------------------------------------------------------ -----------
INSURANCE--4.2%
------------------------------------------------------------------
1,000,000 ITT Hartford Group, Inc., Note, 7.30%, 11/1/2015 951,690
------------------------------------------------------------------
1,340,000 Vesta Insurance Group, Inc., Deb., 8.75%, 7/15/2025 1,405,660
------------------------------------------------------------------ -----------
Total 2,357,350
------------------------------------------------------------------ -----------
INTERNATIONAL--3.4%
------------------------------------------------------------------
1,970,000 Industrial Finance Corporation of Thailand, Sr. Note, 6.875%,
(b) 4/1/2003 1,928,177
------------------------------------------------------------------ -----------
MACHINERY, EQUIPMENT & AUTO--4.8%
------------------------------------------------------------------
1,970,000 Caterpillar, Inc., Deb., 9.75%, 6/1/2019 2,189,773
------------------------------------------------------------------
500,000 Ingersoll-Rand Co., 6.875%, 2/1/2003 496,750
------------------------------------------------------------------ -----------
Total 2,686,523
------------------------------------------------------------------ -----------
RETAIL--4.5%
------------------------------------------------------------------
2,030,000 Sears Roebuck Acceptance Corp., Note, 6.11%, 10/26/1998 2,013,070
------------------------------------------------------------------
500,000 Sears, Roebuck & Co., Medium Term Note, 9.46%, 6/20/2000 544,390
------------------------------------------------------------------ -----------
Total 2,557,460
------------------------------------------------------------------ -----------
SOVEREIGN--2.5%
------------------------------------------------------------------
1,500,000 Korea Development Bank, 6.50%, 11/15/2002 1,441,560
------------------------------------------------------------------ -----------
TRANSPORTATION--1.8%
------------------------------------------------------------------
1,000,000 Ryder Systems, Inc., 8.375%, 2/15/2017 1,035,250
------------------------------------------------------------------ -----------
TOTAL CORPORATE BONDS (IDENTIFIED COST, $24,509,922) 23,906,660
------------------------------------------------------------------ -----------
</TABLE>
BAYFUNDS BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ------------------------------------------------------------------ -----------
<C> <C> <S> <C>
GOVERNMENT AGENCIES--6.1%
- ------------------------------------------------------------------------------------
$2,000,000 Federal Home Loan Mortgage Corp., Note, 7.74%, 6/1/2004 $ 2,020,400
------------------------------------------------------------------
1,510,000 Federal Home Loan Mortgage Corp., Series 1480, Class H, 6.50%,
7/15/2020 1,428,838
------------------------------------------------------------------ -----------
TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST, $3,424,119) 3,449,238
------------------------------------------------------------------ -----------
U.S. TREASURY--35.0%
- ------------------------------------------------------------------------------------
545,000 United States Treasury Bond, 6.875%, 8/15/2025 539,463
------------------------------------------------------------------
1,010,000 United States Treasury Bond, 7.50%, 11/15/2024 1,070,600
------------------------------------------------------------------
1,000,000 United States Treasury Note, 5.625%, 1/31/1998 993,910
------------------------------------------------------------------
1,990,000 United States Treasury Note, 5.625%, 11/30/2000 1,927,494
------------------------------------------------------------------
2,080,000 United States Treasury Note, 6.25%, 2/15/2003 2,043,267
------------------------------------------------------------------
4,850,000 United States Treasury Note, 6.375%, 1/15/1999 4,865,907
------------------------------------------------------------------
800,000 United States Treasury Note, 6.875%, 5/15/2006 808,872
------------------------------------------------------------------
2,770,000 United States Treasury Note, 7.50%, 1/31/1997 2,799,417
------------------------------------------------------------------
4,000,000 United States Treasury Note, 7.50%, 2/15/2005 4,208,120
------------------------------------------------------------------
510,000 United States Treasury Note, 7.875%, 8/15/2001 540,279
------------------------------------------------------------------ -----------
TOTAL U.S. TREASURY (IDENTIFIED COST, $20,209,209) 19,797,329
------------------------------------------------------------------ -----------
(A)REPURCHASE AGREEMENT--2.0%
- ------------------------------------------------------------------------------------
1,125,000 Fifth Third Bancorp, 5.45%, dated 6/28/1996, due 7/1/1996 (AT
AMORTIZED COST) 1,125,000
------------------------------------------------------------------ -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $56,957,731)(C) $55,926,252
------------------------------------------------------------------ -----------
</TABLE>
(a) The repurchase agreement is fully collateralized by U.S. agency obligations
based on market prices at the date of the portfolio.
(b) Denotes a restricted security which is subject to restrictions on resale
under federal securities laws. At June 30, 1996, these securities amounted
to $1,928,177 which represents 3.4% of net assets.
(c) The cost of investments for federal tax purposes amounts to $56,957,731. The
net unrealized depreciation of investments on a federal tax basis amounts to
$1,031,479 which is comprised of $100,082 appreciation and $1,131,561
depreciation at June 30, 1996.
Note: The categories of investments are shown as a percentage of net assets
($56,611,274) at June 30, 1996.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS SHORT TERM YIELD PORTFOLIO
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ------------------------------------------------------------------ -----------
<C> <S> <C> <C>
ASSET-BACKED SECURITIES--36.9%
- ------------------------------------------------------------------------------------
AUTO LOANS--26.3%
------------------------------------------------------------------
$1,780,962 Fifth Third Auto Grantor Trust 1996-A, Class A, 6.20%, 4/15/2000 $ 1,781,690
------------------------------------------------------------------
2,444,027 Ford Credit Gtd. Trust 1994-B, Class A, 7.30%, 10/15/1999 2,470,740
------------------------------------------------------------------
1,603,591 Ford Motor Credit Corp. 1994-A, Class A, 6.35%, 5/15/1999 1,606,590
------------------------------------------------------------------
5,000,000 Premier Auto Trust 1994-4, Class A4, 6.45%, 5/2/1998 5,032,400
------------------------------------------------------------------
1,791,071 World Omni Automobile Lease Securitization Trust, Class A, 6.45%,
9/25/2000 1,794,976
------------------------------------------------------------------ -----------
Total 12,686,396
------------------------------------------------------------------ -----------
CONSUMER LOANS--2.6%
------------------------------------------------------------------
1,293,901 Green Tree Recreational Equipment & Consumer Trust Series 1996-A,
Class A1, 5.55%, 7/15/2000 1,269,640
------------------------------------------------------------------ -----------
HOME EQUITY LOANS--4.0%
------------------------------------------------------------------
1,904,460 Corestates Home Equity Trust 1996-A, Class A1, 6.20%, 11/15/1998 1,900,289
------------------------------------------------------------------ -----------
MANUFACTURERS HOUSE LOANS--4.0%
------------------------------------------------------------------
2,000,000 Green Tree Series 1996-1, Class A2, 5.85%, 7/15/2002 1,939,818
------------------------------------------------------------------ -----------
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST, $17,784,653) 17,796,143
------------------------------------------------------------------ -----------
COLLATERALIZED MORTGAGE OBLIGATIONS--2.7%
- ------------------------------------------------------------------------------------
1,350,000 Prudential Home Mortgage Securities, Series 1993-31, Class A7,
6.00%, 8/25/2000 (IDENTIFIED COST, $1,353,375) 1,309,500
------------------------------------------------------------------ -----------
CORPORATE BONDS--28.9%
- ------------------------------------------------------------------------------------
CONSUMER--4.0%
------------------------------------------------------------------
2,000,000 First USA Bank, Unsecured Note, 5.75%, 1/15/1999 1,950,220
------------------------------------------------------------------ -----------
FINANCE--3.2%
------------------------------------------------------------------
1,500,000 Smith Barney Holdings, Inc., Unsecured Note, 7.875%, 10/1/1999 1,547,490
------------------------------------------------------------------ -----------
</TABLE>
BAYFUNDS SHORT TERM YIELD PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ------------------------------------------------------------------ -----------
<C> <S> <C> <C>
CORPORATE BONDS--CONTINUED
------------------------------------------------------------------
FINANCE-AUTOMOTIVE--11.8%
------------------------------------------------------------------
$1,000,000 Chrysler Financial Corp., 6.23%, 8/7/1997 $ 1,002,310
------------------------------------------------------------------
1,500,000 (a) General Motors Acceptance Corp., 5.609%, 7/24/1996 1,500,374
------------------------------------------------------------------
2,000,000 General Motors Acceptance Corp., Deb., 9.375%, 4/1/2000 2,155,120
------------------------------------------------------------------
1,000,000 General Motors Acceptance Corp., 6.50%, 7/25/1997 1,004,380
------------------------------------------------------------------ -----------
Total 5,662,184
------------------------------------------------------------------ -----------
FINANCE-COMMERCIAL--3.8%
------------------------------------------------------------------
1,250,000 Sunamerica, Inc., 6.58%, 1/15/2002 1,205,588
------------------------------------------------------------------
600,000 Sunamerica, Inc., 9.00%, 1/15/1999 626,052
------------------------------------------------------------------ -----------
Total 1,831,640
------------------------------------------------------------------ -----------
FINANCE--EQUIPMENT--0.9%
------------------------------------------------------------------
450,000 (a) Caterpillar Finance, 5.592%, 8/30/1996 450,447
------------------------------------------------------------------ -----------
FINANCIAL SERVICES--3.1%
------------------------------------------------------------------
1,500,000 (a) Dean Witter Discover, 5.665%, 7/17/1996 1,502,626
------------------------------------------------------------------ -----------
MACHINERY & EQUIPMENT--2.1%
------------------------------------------------------------------
1,000,000 Ingersoll-Rand Co., 6.45%, 8/28/1998 996,810
------------------------------------------------------------------ -----------
TOTAL CORPORATE BONDS (IDENTIFIED COST, $14,190,811) 13,941,417
------------------------------------------------------------------ -----------
CORPORATE NOTES--7.7%
- ------------------------------------------------------------------------------------
FINANCIAL SERVICES--7.7%
------------------------------------------------------------------
1,650,000 Lehman Brothers Holdings, Inc., Note, Series MTN, 6.25%, 6/29/1998 1,637,064
------------------------------------------------------------------
2,000,000 Salomon, Inc., Sr. Note, 8.69%, 3/1/1999 2,076,780
------------------------------------------------------------------ -----------
TOTAL CORPORATE NOTES (IDENTIFIED COST, $3,726,509) 3,713,844
------------------------------------------------------------------ -----------
GOVERNMENT AGENCIES--6.1%
- ------------------------------------------------------------------------------------
1,000,000 Federal Home Loan Bank, 6.20%, 9/29/1999 983,680
------------------------------------------------------------------
1,000,000 Federal Home Loan Mortgage Corp., 5.40%, 11/1/2000 954,530
------------------------------------------------------------------
1,000,000 Federal National Mortgage Association, 6.85%, 5/26/2000 999,840
------------------------------------------------------------------ -----------
TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST, $2,976,641) 2,938,050
------------------------------------------------------------------ -----------
</TABLE>
BAYFUNDS SHORT TERM YIELD PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ------------------------------------------------------------------ -----------
<C> <S> <C> <C>
MORTGAGE PASS THRU BALLOON--1.8%
- ------------------------------------------------------------------------------------
$ 846,666 Federal National Mortgage Association Pool, 8.50%, 7/1/1998
(IDENTIFIED COST, $874,712) $ 851,915
------------------------------------------------------------------ -----------
U.S. TREASURY--14.4%
- ------------------------------------------------------------------------------------
1,500,000 United States Treasury Note, 7.25%, 5/15/2004 1,554,135
------------------------------------------------------------------
5,250,000 United States Treasury Note, 8.50%, 7/15/1997 5,386,974
------------------------------------------------------------------ -----------
TOTAL U.S. TREASURY (IDENTIFIED COST, $7,062,891) 6,941,109
------------------------------------------------------------------ -----------
(B)REPURCHASE AGREEMENT--0.6%
- ------------------------------------------------------------------------------------
320,000 Fifth Third Bancorp, 5.45%, dated 6/28/1996, due 7/1/1996
(AT AMORTIZED COST) 320,000
------------------------------------------------------------------ -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $48,289,592)(C) $47,811,978
------------------------------------------------------------------ -----------
</TABLE>
(a) Denotes variable rate obligations for which the current rate and next reset
dates are shown.
(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
(c) The cost of investments for federal tax purposes amounts to $48,289,592. The
net unrealized depreciation of investments on a federal tax basis amounts to
$477,614 which is comprised of $107,705 appreciation and $585,319
depreciation at June 30, 1996.
Note: The categories of investments are shown as a percentage of net assets
($48,223,143) at June 30, 1996.
The following acronym is used throughout this portfolio:
GTD -- Guaranty
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- ------------
<C> <S> <C> <C>
COMMON STOCKS--95.4%
- -------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--0.8%
-------------------------------------------------------------------
15,700 EG & G, Inc. $ 335,588
-------------------------------------------------------------------
13,800 McDonnell-Douglas Corp. 669,300
------------------------------------------------------------------- ------------
Total 1,004,888
------------------------------------------------------------------- ------------
AIRLINES--0.3%
-------------------------------------------------------------------
13,425 Alaska Air Group, Inc. 367,509
------------------------------------------------------------------- ------------
APPAREL & TEXTILES--4.5%
-------------------------------------------------------------------
7,700 * Jones Apparel Group, Inc. 378,262
-------------------------------------------------------------------
33,075 Liz Claiborne, Inc. 1,145,221
-------------------------------------------------------------------
22,450 * Nautica Enterprise, Inc. 645,438
-------------------------------------------------------------------
15,800 Nike, Inc., Class B 1,623,450
-------------------------------------------------------------------
26,175 * Tommy Hilfiger Corp. 1,403,634
-------------------------------------------------------------------
14,900 Wolverine World Wide, Inc. 484,250
------------------------------------------------------------------- ------------
Total 5,680,255
------------------------------------------------------------------- ------------
AUTO & TRUCK MANUFACTURING--0.4%
-------------------------------------------------------------------
11,400 Harley Davidson, Inc. 468,825
------------------------------------------------------------------- ------------
AUTO PARTS MANUFACTURING--0.3%
-------------------------------------------------------------------
7,800 Snap-On Tools Corp. 369,525
------------------------------------------------------------------- ------------
BANKS--3.7%
-------------------------------------------------------------------
14,125 BankAmerica Corp. 1,069,969
-------------------------------------------------------------------
9,112 Fifth Third Bancorp 492,048
-------------------------------------------------------------------
8,150 NationsBank Corp. 673,394
-------------------------------------------------------------------
11,300 Star Banc Corp. 761,338
-------------------------------------------------------------------
35,025 Synovus Financial Corp. 757,416
-------------------------------------------------------------------
1,450 Wells Fargo & Co. 346,369
-------------------------------------------------------------------
8,250 Zions Bancorp 600,188
------------------------------------------------------------------- ------------
Total 4,700,722
------------------------------------------------------------------- ------------
</TABLE>
BAYFUNDS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- ------------
<C> <S> <C> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------
BEVERAGES--2.5%
-------------------------------------------------------------------
35,575 Coca-Cola Co. $ 1,738,728
-------------------------------------------------------------------
40,900 PepsiCo, Inc. 1,446,838
------------------------------------------------------------------- ------------
Total 3,185,566
------------------------------------------------------------------- ------------
BIO/SPECIALTY PHARMACEUTICAL--0.9%
-------------------------------------------------------------------
20,800 * Amgen, Inc. 1,123,200
------------------------------------------------------------------- ------------
CHEMICALS--3.1%
-------------------------------------------------------------------
16,750 Cabot Corp. 410,375
-------------------------------------------------------------------
11,500 Hercules, Inc. 635,375
-------------------------------------------------------------------
26,500 Monsanto Co. 854,625
-------------------------------------------------------------------
8,100 Olin Corp. 724,278
-------------------------------------------------------------------
28,800 Praxair, Inc. 1,216,800
-------------------------------------------------------------------
3,675 Union Carbide 146,081
------------------------------------------------------------------- ------------
Total 3,987,534
------------------------------------------------------------------- ------------
CHEMICALS-SPECIALTY--1.7%
-------------------------------------------------------------------
12,350 Avery Dennison Corp. 677,706
-------------------------------------------------------------------
21,950 Morton International, Inc. 817,638
-------------------------------------------------------------------
13,450 Sigma-Aldrich Corp. 719,575
------------------------------------------------------------------- ------------
Total 2,214,919
------------------------------------------------------------------- ------------
COAL, GAS, & PIPE--1.5%
-------------------------------------------------------------------
14,675 Coastal Corp. 612,680
-------------------------------------------------------------------
21,725 * Nabors Industries, Inc. 353,030
-------------------------------------------------------------------
29,725 Panenergy Corp. 977,209
------------------------------------------------------------------- ------------
Total 1,942,919
------------------------------------------------------------------- ------------
COMMUNICATION EQUIPMENT--1.4%
-------------------------------------------------------------------
34,025 * Andrew Corp. 1,828,844
------------------------------------------------------------------- ------------
</TABLE>
BAYFUNDS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- ------------
<C> <S> <C> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------
COMPUTER RELATED--3.8%
-------------------------------------------------------------------
21,800 * 3Com Corp. $ 997,350
-------------------------------------------------------------------
20,950 * Cisco Systems, Inc. 1,186,294
-------------------------------------------------------------------
7,525 International Business Machines Corp. 744,975
-------------------------------------------------------------------
31,600 * Sun Microsystems, Inc. 1,860,450
------------------------------------------------------------------- ------------
Total 4,789,069
------------------------------------------------------------------- ------------
COMPUTER SERVICES--1.3%
-------------------------------------------------------------------
8,850 Computer Associates International, Inc. 630,563
-------------------------------------------------------------------
4,325 * Computer Sciences Corp. 323,294
-------------------------------------------------------------------
18,500 National Data Corp. 633,625
------------------------------------------------------------------- ------------
Total 1,587,482
------------------------------------------------------------------- ------------
COMPUTER SOFTWARE--3.9%
-------------------------------------------------------------------
14,500 * Cabletron Systems, Inc. 995,062
-------------------------------------------------------------------
11,850 * Cadence Design Systems, Inc. 399,938
-------------------------------------------------------------------
3,550 * Microsoft Corp. 426,444
-------------------------------------------------------------------
32,387 Oracle Corp. 1,277,262
-------------------------------------------------------------------
22,250 * Parametric Technology Corp. 965,094
-------------------------------------------------------------------
10,900 * Sterling Software, Inc. 839,300
------------------------------------------------------------------- ------------
Total 4,903,100
------------------------------------------------------------------- ------------
CONSTRUCTION--1.1%
-------------------------------------------------------------------
6,375 Crane Co. 261,375
-------------------------------------------------------------------
53,200 Oakwood Homes Corp. 1,097,250
------------------------------------------------------------------- ------------
Total 1,358,625
------------------------------------------------------------------- ------------
CONTAINERS--0.7%
-------------------------------------------------------------------
28,050 * Sealed Air Corp. 943,180
------------------------------------------------------------------- ------------
COSMETICS/TOILETRIES--1.2%
-------------------------------------------------------------------
23,275 Gillette Co. 1,451,778
------------------------------------------------------------------- ------------
</TABLE>
BAYFUNDS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- ------------
<C> <S> <C> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------
DIVERSIFIED--0.6%
-------------------------------------------------------------------
3,300 Loews Corp. $ 260,288
-------------------------------------------------------------------
14,400 * Primark Corp. 469,800
------------------------------------------------------------------- ------------
Total 730,088
------------------------------------------------------------------- ------------
DRUGS--2.6%
-------------------------------------------------------------------
10,500 Merck & Co., Inc. 678,563
-------------------------------------------------------------------
21,250 Pfizer, Inc. 1,516,719
-------------------------------------------------------------------
18,425 Schering Plough Corp. 1,156,169
------------------------------------------------------------------- ------------
Total 3,351,451
------------------------------------------------------------------- ------------
ELECTRIC POWER--1.6%
-------------------------------------------------------------------
14,550 American Electric Power Co., Inc. 620,194
-------------------------------------------------------------------
7,900 FPL Group, Inc. 363,400
-------------------------------------------------------------------
16,025 General Public Utilities 564,880
-------------------------------------------------------------------
21,050 Ohio Edison Co. 460,469
------------------------------------------------------------------- ------------
Total 2,008,943
------------------------------------------------------------------- ------------
ELECTRICAL EQUIPMENT-1.2%
-------------------------------------------------------------------
14,200 MTS Systems Corp. 298,200
-------------------------------------------------------------------
17,300 Raychem Corp. 1,243,438
------------------------------------------------------------------- ------------
Total 1,541,638
------------------------------------------------------------------- ------------
ELECTRONICS--1.3%
-------------------------------------------------------------------
11,800 * Applied Materials, Inc. 359,900
-------------------------------------------------------------------
15,400 * Teradyne, Inc. 265,650
-------------------------------------------------------------------
11,925 Varian Association, Inc. 617,119
-------------------------------------------------------------------
2,958 * Vishay Intertechnology, Inc. 69,883
-------------------------------------------------------------------
8,700 Wyle Electronics 288,188
------------------------------------------------------------------- ------------
Total 1,600,740
------------------------------------------------------------------- ------------
ENVIRONMENTAL--2.8%
-------------------------------------------------------------------
15,650 * Ionics, Inc. 735,550
-------------------------------------------------------------------
30,262 * Thermo Electron Corp. 1,259,656
-------------------------------------------------------------------
</TABLE>
BAYFUNDS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- ------------
<C> <S> <C> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------
ENVIRONMENTAL--CONTINUED
-------------------------------------------------------------------
24,625 * Thermo Instrument Systems, Inc. $ 794,156
-------------------------------------------------------------------
12,200 * U.S. Filter Corp. 423,950
-------------------------------------------------------------------
11,800 * United Waste Systems, Inc. 380,550
------------------------------------------------------------------- ------------
Total 3,593,862
------------------------------------------------------------------- ------------
EXPLORATION/DRILLING--2.0%
-------------------------------------------------------------------
33,000 * Global Marine, Inc. 457,875
-------------------------------------------------------------------
12,500 * Smith International, Inc. 376,563
-------------------------------------------------------------------
7,500 Sonat Offshore Drilling Co. 378,750
-------------------------------------------------------------------
28,750 Tidewater, Inc. 1,261,406
------------------------------------------------------------------- ------------
Total 2,474,594
------------------------------------------------------------------- ------------
FINANCIAL SERVICES--8.2%
-------------------------------------------------------------------
20,150 Advanta Corp., Class A 1,027,650
-------------------------------------------------------------------
60,450 Equifax, Inc. 1,586,813
-------------------------------------------------------------------
10,775 Finova Group, Inc. 525,280
-------------------------------------------------------------------
7,275 First USA, Inc. 400,125
-------------------------------------------------------------------
45,650 Green Tree Financial Corp. 1,426,563
-------------------------------------------------------------------
13,450 Household International, Inc. 1,022,200
-------------------------------------------------------------------
15,875 MBNA Corp. 452,438
-------------------------------------------------------------------
22,167 Money Stores, Inc. 490,445
-------------------------------------------------------------------
17,400 Quick & Reilly Group, Inc. 565,500
-------------------------------------------------------------------
9,000 Student Loan Marketing Association 666,000
-------------------------------------------------------------------
26,437 Sunamerica, Inc. 1,493,690
-------------------------------------------------------------------
8,200 T. Rowe Price Associates 252,150
-------------------------------------------------------------------
10,875 Travelers Group, Inc. 496,171
------------------------------------------------------------------- ------------
Total 10,405,025
------------------------------------------------------------------- ------------
FOOD PRODUCERS--0.3%
-------------------------------------------------------------------
13,050 Dekalb Genetics Corp., Class B 339,300
------------------------------------------------------------------- ------------
</TABLE>
BAYFUNDS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- ------------
<C> <S> <C> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------
FOOD RETAILERS--2.6%
-------------------------------------------------------------------
22,625 Great Atlantic & Pacific Tea Co., Inc. $ 743,797
-------------------------------------------------------------------
54,900 * Safeway, Inc. 1,811,700
-------------------------------------------------------------------
20,325 Vons Companies, Inc. 759,647
------------------------------------------------------------------- ------------
Total 3,315,144
------------------------------------------------------------------- ------------
FOREST PRODUCTS & PAPER--0.6%
-------------------------------------------------------------------
5,029 Kimberly-Clark Corp. 388,490
-------------------------------------------------------------------
6,450 Willamette Industries, Inc. 383,775
------------------------------------------------------------------- ------------
Total 772,265
------------------------------------------------------------------- ------------
FURNITURE/APPLIANCES--1.9%
-------------------------------------------------------------------
34,525 Black & Decker Corp. 1,333,528
-------------------------------------------------------------------
36,900 Miller Herman, Inc. 1,130,063
------------------------------------------------------------------- ------------
Total 2,463,591
------------------------------------------------------------------- ------------
HEALTH SERVICES--0.7%
-------------------------------------------------------------------
10,900 * HEALTHSOUTH Rehabilitation 392,400
-------------------------------------------------------------------
9,500 * HealthCare COMPARE Corp. 463,125
------------------------------------------------------------------- ------------
Total 855,525
------------------------------------------------------------------- ------------
INSURANCE COMPANIES--1.8%
-------------------------------------------------------------------
10,175 American International Group, Inc. 1,003,509
-------------------------------------------------------------------
21,825 MGIC Investment Corp. 1,224,928
------------------------------------------------------------------- ------------
Total 2,228,437
------------------------------------------------------------------- ------------
MACHINERY & EQUIPMENT--2.4%
-------------------------------------------------------------------
8,150 Danaher Corp. 354,525
-------------------------------------------------------------------
11,400 Deere & Co. 456,000
-------------------------------------------------------------------
22,000 Dover Corp. 1,014,750
-------------------------------------------------------------------
5,400 JLG Industries, Inc. 400,950
-------------------------------------------------------------------
30,225 Pall Corp. 729,178
------------------------------------------------------------------- ------------
Total 2,955,403
------------------------------------------------------------------- ------------
</TABLE>
BAYFUNDS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- ------------
<C> <S> <C> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------
MEDICAL PRODUCTS/SUPPLY--3.3%
-------------------------------------------------------------------
10,475 * Advanced Technology Labs, Inc. $ 382,338
-------------------------------------------------------------------
6,925 Becton, Dickinson & Co. 555,730
-------------------------------------------------------------------
7,128 Cardinal Health, Inc. 514,107
-------------------------------------------------------------------
22,800 Invacare Corp. 535,800
-------------------------------------------------------------------
19,100 Johnson & Johnson 945,450
-------------------------------------------------------------------
8,725 Medtronic, Inc. 488,600
-------------------------------------------------------------------
22,300 Omnicare, Inc. 590,950
-------------------------------------------------------------------
5,350 Stryker Corp. 121,713
------------------------------------------------------------------- ------------
Total 4,134,688
------------------------------------------------------------------- ------------
NATURAL GAS--1.4%
-------------------------------------------------------------------
58,200 Noram Energy Corp. 632,925
-------------------------------------------------------------------
22,950 Williams Cos., Inc. (The) 1,136,025
------------------------------------------------------------------- ------------
Total 1,768,950
------------------------------------------------------------------- ------------
OFFICE EQUIPMENT--0.6%
-------------------------------------------------------------------
15,150 Diebold, Inc. 730,988
------------------------------------------------------------------- ------------
OIL-DOMESTIC--1.0%
-------------------------------------------------------------------
6,800 Amoco Corp. 492,150
-------------------------------------------------------------------
7,600 Louisiana Land & Exploration Co. 437,950
-------------------------------------------------------------------
7,300 Tosco Corp. 366,825
------------------------------------------------------------------- ------------
Total 1,296,925
------------------------------------------------------------------- ------------
OIL-INTERNATIONAL--1.9%
-------------------------------------------------------------------
6,353 British Petroleum Co. PLC, ADR 678,977
-------------------------------------------------------------------
3,450 Exxon Corp. 299,719
-------------------------------------------------------------------
9,675 Mobil Corp. 1,084,809
-------------------------------------------------------------------
2,400 Royal Dutch Petroleum Co., ADR 369,000
------------------------------------------------------------------- ------------
Total 2,432,505
------------------------------------------------------------------- ------------
</TABLE>
BAYFUNDS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- ------------
<C> <S> <C> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------
OIL SERVICES--1.9%
-------------------------------------------------------------------
18,050 Baker Hughes, Inc. $ 593,394
-------------------------------------------------------------------
32,275 Halliburton Co. 1,791,263
------------------------------------------------------------------- ------------
Total 2,384,657
------------------------------------------------------------------- ------------
PHOTO & OPTICAL--0.5%
-------------------------------------------------------------------
13,300 * Coherent, Inc. 691,600
------------------------------------------------------------------- ------------
PRINTING & PUBLISHING--1.4%
-------------------------------------------------------------------
25,950 Meredith Corp. 1,083,413
-------------------------------------------------------------------
15,075 Omnicom Group, Inc. 700,988
------------------------------------------------------------------- ------------
Total 1,784,401
------------------------------------------------------------------- ------------
PROFESSIONAL SERVICES--3.2%
-------------------------------------------------------------------
12,750 * CDI Corp. 430,313
-------------------------------------------------------------------
9,950 Cintas Corp. 532,325
-------------------------------------------------------------------
24,750 Olsten Corp. 727,030
-------------------------------------------------------------------
40,850 * Robert Half International, Inc. 1,138,694
-------------------------------------------------------------------
11,900 Service Corp. International 684,250
-------------------------------------------------------------------
16,675 * U.S. Long Distance Corp. 591,963
------------------------------------------------------------------- ------------
Total 4,104,575
------------------------------------------------------------------- ------------
RAILROADS--0.7%
-------------------------------------------------------------------
11,000 Burlington Northern Santa Fe 889,625
------------------------------------------------------------------- ------------
RECREATION--1.6%
-------------------------------------------------------------------
24,125 Callaway Golf Co. 802,156
-------------------------------------------------------------------
37,050 * Champion Enterprises, Inc. 773,419
-------------------------------------------------------------------
16,156 Mattel, Inc. 462,466
------------------------------------------------------------------- ------------
Total 2,038,041
------------------------------------------------------------------- ------------
RESTAURANTS/LODGING--1.5%
-------------------------------------------------------------------
7,825 Applebee's International, Inc. 251,378
-------------------------------------------------------------------
22,950 McDonald's Corp. 1,072,913
-------------------------------------------------------------------
</TABLE>
BAYFUNDS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- ------------
<C> <S> <C> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------
RESTAURANTS/LODGING--CONTINUED
-------------------------------------------------------------------
7,850 * Outback Steakhouse, Inc. $ 270,701
-------------------------------------------------------------------
14,500 Sbarro, Inc. 364,313
------------------------------------------------------------------- ------------
Total 1,959,305
------------------------------------------------------------------- ------------
RETAIL-DISCOUNT--1.5%
-------------------------------------------------------------------
22,900 * Consolidated Stores Corp. 841,575
-------------------------------------------------------------------
18,022 Dollar General Corp. 527,144
-------------------------------------------------------------------
17,400 TJX Cos., Inc. 587,250
------------------------------------------------------------------- ------------
Total 1,955,969
------------------------------------------------------------------- ------------
RETAIL-SPECIALTY--4.3%
-------------------------------------------------------------------
36,350 * Bed Bath & Beyond, Inc. 972,363
-------------------------------------------------------------------
19,200 * CUC International, Inc. 681,600
-------------------------------------------------------------------
21,925 Casey's General Stores, Inc. 435,759
-------------------------------------------------------------------
11,850 * CompUSA, Inc. 404,380
-------------------------------------------------------------------
25,400 Gap (The), Inc. 815,975
-------------------------------------------------------------------
68,737 * Staples, Inc. 1,340,372
-------------------------------------------------------------------
22,300 Walgreen Co. 747,050
------------------------------------------------------------------- ------------
Total 5,397,499
------------------------------------------------------------------- ------------
SEMICONDUCTORS--0.5%
-------------------------------------------------------------------
14,425 Linear Technology Corp. 432,750
-------------------------------------------------------------------
3,700 Texas Instruments, Inc. 184,538
------------------------------------------------------------------- ------------
Total 617,288
------------------------------------------------------------------- ------------
TOBACCO--1.0%
-------------------------------------------------------------------
6,225 Philip Morris Cos., Inc. 647,400
-------------------------------------------------------------------
16,650 UST, Inc. 570,263
------------------------------------------------------------------- ------------
Total 1,217,663
------------------------------------------------------------------- ------------
TRUCKING & SHIPPING--0.3%
-------------------------------------------------------------------
14,200 Airborne Freight Corp. 369,200
------------------------------------------------------------------- ------------
</TABLE>
BAYFUNDS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- ------------
<C> <S> <C> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------
UTILITIES-TELEPHONE--4.4%
-------------------------------------------------------------------
9,150 Alltel Corp. $ 281,363
-------------------------------------------------------------------
42,075 Cincinnati Bell, Inc. 2,193,159
-------------------------------------------------------------------
6,200 GTE Corp. 277,450
-------------------------------------------------------------------
19,400 MCI Communications Corp. 497,125
-------------------------------------------------------------------
5,850 NYNEX Corp. 277,875
-------------------------------------------------------------------
22,400 Sprint Corp. 940,800
-------------------------------------------------------------------
3,750 Telecom Corp. of New Zealand, ADR 250,313
-------------------------------------------------------------------
15,800 * WorldCom, Inc. 874,925
------------------------------------------------------------------- ------------
Total 5,593,010
------------------------------------------------------------------- ------------
WHOLESALERS--0.7%
-------------------------------------------------------------------
27,750 Richfood Holdings, Inc. 901,875
------------------------------------------------------------------- ------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $87,644,127) 120,812,710
------------------------------------------------------------------- ------------
(A)REPURCHASE AGREEMENT--4.9%
- -------------------------------------------------------------------------------------
$6,210,000 Fifth Third Bancorp, 5.45%, dated 6/28/1996, due 7/1/1996
(AT AMORTIZED COST) 6,210,000
------------------------------------------------------------------- ------------
TOTAL INVESTMENTS (IDENTIFIED COST, $93,854,127)(B) $127,022,710
------------------------------------------------------------------- ------------
</TABLE>
* Non-income producing security.
(a) The repurchase agreement is fully collateralized by agency obligations based
on market prices at the date of the portfolio.
(b) The cost of investments for federal tax purposes amounts to $93,854,127. The
net unrealized appreciation of investments on a federal tax basis amounts to
$33,168,583 which is comprised of $34,512,210 appreciation and $1,343,627
depreciation at June 30, 1996.
Note: The categories of investments are shown as a percentage of net assets
($126,704,391) at June 30, 1996.
The following acronyms are used throughout this portfolio:
ADR -- American Depositary Receipt
PLC -- Public Limited Company
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS INCOME AND EQUITY PORTFOLIOS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BAYFUNDS
BAYFUNDS SHORT TERM BAYFUNDS
BOND YIELD EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ------------
<S> <C> <C> <C>
ASSETS:
- --------------------------------------------------------------
Investments in securities $55,926,252 $ 47,811,978 $127,022,710
- --------------------------------------------------------------
Cash 2,644 -- 3,431
- --------------------------------------------------------------
Income receivable 1,043,627 674,072 87,614
- --------------------------------------------------------------
Receivable for investments sold -- -- 1,805,993
- --------------------------------------------------------------
Deferred expenses 18,587 28,930 21,589
- -------------------------------------------------------------- ----------- ------------ ------------
Total assets 56,991,110 48,514,980 128,941,337
- -------------------------------------------------------------- ----------- ------------ ------------
LIABILITIES:
- --------------------------------------------------------------
Payable for investments purchased -- -- 2,011,071
- --------------------------------------------------------------
Income distribution payable 332,806 240,806 107,041
- --------------------------------------------------------------
Payable to Bank -- 5,900 --
- --------------------------------------------------------------
Accrued expenses 47,030 45,131 118,835
- -------------------------------------------------------------- ----------- ------------ ------------
Total liabilities 379,836 291,837 2,236,947
- -------------------------------------------------------------- ----------- ------------ ------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------
Paid in capital 58,425,487 60,621,265 85,851,172
- --------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (1,031,479) (477,614) 33,168,583
- --------------------------------------------------------------
Accumulated net realized gain (loss) on investments (782,734) (11,920,508) 7,645,049
- --------------------------------------------------------------
Undistributed net investment income -- -- 39,586
- -------------------------------------------------------------- ----------- ------------ ------------
Total Net Assets $56,611,274 $ 48,223,143 $126,704,390
- -------------------------------------------------------------- ----------- ------------ ------------
NET ASSETS:
- --------------------------------------------------------------
Investment Shares $ 5,950,589 $ 17,239,583 $ 35,684,404
- -------------------------------------------------------------- ----------- ------------ ------------
Institutional Shares $50,660,685 $ 30,983,560 $ 91,019,986
- -------------------------------------------------------------- ----------- ------------ ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER
SHARE:
- --------------------------------------------------------------
Investment Shares $ 9.87 $ 9.12 $ 14.57
- -------------------------------------------------------------- ----------- ------------ ------------
Institutional Shares $ 9.87 $ 9.12 $ 14.57
- -------------------------------------------------------------- ----------- ------------ ------------
SHARES OUTSTANDING:
- --------------------------------------------------------------
Investment Shares 602,929 1,890,820 2,448,565
- -------------------------------------------------------------- ----------- ------------ ------------
Institutional Shares 5,133,045 3,398,316 6,246,588
- -------------------------------------------------------------- ----------- ------------ ------------
Total Shares Outstanding 5,735,974 5,289,136 8,695,153
- -------------------------------------------------------------- ----------- ------------ ------------
Investments, at identified and tax costs $56,957,731 $ 48,289,592 $ 93,854,127
- -------------------------------------------------------------- ----------- ------------ ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS INCOME AND EQUITY PORTFOLIOS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BAYFUNDS
BAYFUNDS SHORT TERM BAYFUNDS
BOND YIELD EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------
Dividends $ -- $ -- $ 791,136
- ------------------------------------------------------------
Interest 2,143,970 1,877,704 194,724
- ------------------------------------------------------------ ----------- ----------- -----------
Total income 2,143,970 1,877,704 985,860
- ------------------------------------------------------------ ----------- ----------- -----------
EXPENSES:
- ------------------------------------------------------------
Investment advisory fee 184,228 140,344 446,573
- ------------------------------------------------------------
Administrative personnel and services fee 30,056 27,491 62,422
- ------------------------------------------------------------
Custodian fees 2,773 3,627 18,998
- ------------------------------------------------------------
Transfer and dividend disbursing agent fees
and expenses 5,167 12,250 18,692
- ------------------------------------------------------------
Directors'/Trustees' fees 770 645 2,718
- ------------------------------------------------------------
Auditing fees 3,574 3,399 6,571
- ------------------------------------------------------------
Legal fees 1,306 1,092 5,666
- ------------------------------------------------------------
Portfolio accounting fees 21,237 27,533 35,354
- ------------------------------------------------------------
Shareholder services fee--Investment Shares 8,137 23,948 42,334
- ------------------------------------------------------------
Share registration costs 8,041 17,174 15,502
- ------------------------------------------------------------
Printing and postage 5,827 5,764 13,242
- ------------------------------------------------------------
Insurance premiums 1,156 1,540 3,356
- ------------------------------------------------------------
Miscellaneous 1,918 4,658 5,129
- ------------------------------------------------------------ ----------- ----------- -----------
Total expenses 274,190 269,465 676,557
- ------------------------------------------------------------ ----------- ----------- -----------
Net investment income 1,869,780 1,608,239 309,303
- ------------------------------------------------------------ ----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ------------------------------------------------------------
Net realized gain (loss) on investments 121,688 7,434 7,651,242
- ------------------------------------------------------------
Change in unrealized appreciation (depreciation) of
investments (2,905,166) (1,057,293) 6,470,335
- ------------------------------------------------------------ ----------- ----------- -----------
Net realized and unrealized gain (loss) on investments (2,783,478) (1,049,859) 14,121,577
- ------------------------------------------------------------ ----------- ----------- -----------
Change in net assets resulting from operations $ (913,698) $ 558,380 $14,430,880
- ------------------------------------------------------------ ----------- ----------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS INCOME AND EQUITY PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BAYFUNDS SHORT TERM YIELD
BAYFUNDS BOND PORTFOLIO PORTFOLIO BAYFUNDS EQUITY PORTFOLIO
----------------------------- ------------------------------ ------------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED JUNE YEAR ENDED ENDED JUNE YEAR ENDED ENDED JUNE YEAR ENDED
30, 1996 DECEMBER 31, 30, 1996 DECEMBER 31, 30, 1996 DECEMBER 31,
(UNAUDITED) 1995 (UNAUDITED) 1995 (UNAUDITED) 1995
------------ ------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
- ------------------------
OPERATIONS--
- ------------------------
Net investment income $ 1,869,780 $ 3,619,214 $ 1,608,239 $ 4,275,010 $ 309,303 $ 836,338
- ------------------------
Net realized gain (loss)
on investments 121,688 1,359,217 7,434 (322,828) 7,651,242 9,667,197
- ------------------------
Net change in unrealized
appreciation
(depreciation) of
investments (2,905,166) 4,140,849 (1,057,293) 1,336,612 6,470,335 20,791,774
- ------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Change in net assets
resulting from
operations (913,698) 9,119,280 558,380 5,288,794 14,430,880 31,295,309
- ------------------------ ------------ ------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS TO
SHAREHOLDERS--
- ------------------------
Distributions from net
investment income:
- ------------------------
Investment Shares (190,602) (349,614) (533,522) (1,483,966) (43,596) (160,829)
- ------------------------
Institutional Shares (1,679,178) (3,269,600) (1,074,717) (2,791,044) (224,498) (693,240)
- ------------------------
Distributions in excess
of net investment
income:
- ------------------------
Investment Shares -- -- -- -- -- (306)
- ------------------------
Institutional Shares -- -- -- -- -- (1,317)
- ------------------------
Distributions from net
realized gains:
- ------------------------
Investment Shares -- -- -- -- -- (1,857,027)
- ------------------------
Institutional Shares -- -- -- -- -- (5,187,846)
- ------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Change in net assets
resulting from
distributions to
shareholders (1,869,780) (3,619,214) (1,608,239) (4,275,010) (268,094) (7,900,565)
- ------------------------ ------------ ------------ ------------ ------------ ------------ ------------
SHARE TRANSACTIONS--
- ------------------------
Proceeds from sale of
shares 8,603,110 12,002,656 2,262,059 7,580,116 14,833,629 19,900,016
- ------------------------
Net asset value of
shares issued to
shareholders in payment
of distributions
declared 246,519 529,626 416,383 1,336,193 30,453 2,279,634
- ------------------------
Cost of shares redeemed (11,886,652) (17,355,888) (14,702,867) (40,137,124) (22,082,067) (33,029,751)
- ------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Change in net assets
resulting from share
transactions (3,037,023) (4,823,606) (12,024,425) (31,220,815) (7,217,985) (10,850,101)
- ------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Change in net
assets (5,820,501) 676,460 (13,074,284) (30,207,031) 6,944,801 12,544,643
- ------------------------
NET ASSETS:
- ------------------------
Beginning of period 62,431,775 61,755,315 61,297,427 91,504,458 119,759,589 107,214,946
- ------------------------ ------------ ------------ ------------ ------------ ------------ ------------
End of period $ 56,611,274 $ 62,431,775 $ 48,223,143 $ 61,297,427 $126,704,390 $119,759,589
- ------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Undistributed net
investment income
included in net assets
at end of period $ -- $ -- $ -- $ -- $ 39,586 $ (1,623)
- ------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Net gain (loss) as
computed for federal
tax purposes $ 121,688 $ 1,366,738 $ 7,434 $ (322,828) $ 7,651,242 $ 9,591,617
- ------------------------ ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS INCOME AND EQUITY PORTFOLIOS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
NET ASSET NET REALIZED DISTRIBUTIONS DISTRIBUTIONS
VALUE, NET AND UNREALIZED TOTAL FROM FROM NET IN EXCESS OF NET
YEAR ENDED BEGINNING INVESTMENT GAIN/(LOSS) ON INVESTMENT INVESTMENT INVESTMENT
DECEMBER 31, OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INCOME
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT SHARES
BAYFUNDS BOND PORTFOLIO
1993(a) $ 10.00 0.55 0.24 0.79 (0.55) --
1994 $ 10.14 0.49 (0.73) (0.24) (0.49) --
1995 $ 9.41 0.57 0.90 1.47 (0.57) --
1996(f) $ 10.31 0.29 (0.44) (0.15) (0.29) --
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) --
1996(f) $ 9.28 0.26 (0.16) 0.10 (0.26) --
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)
1996(f) $ 13.04 0.02 1.53 1.55 (0.02) --
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) --
1996(f) $ 10.31 0.30 (0.44) (0.14) (0.30) --
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) --
1996(f) $ 9.28 0.27 (0.16) 0.11 (0.27) --
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)
1996(f) $ 13.04 0.04 1.52 1.56 (0.03) --
</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 charge 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.
(f) Six months ended June 30, 1996 (unaudited).
(See Notes which are an integral part of the Financial Statements)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DISTRIBUTIONS
FROM NET NET ASSET
REALIZED GAIN VALUE, NET EXPENSE NET ASSETS,
ON INVESTMENT TOTAL END OF TOTAL INVESTMENT WAIVER/ END OF PERIOD
TRANSACTIONS DISTRIBUTIONS PERIOD RETURN (C) EXPENSES INCOME REIMBURSEMENT (E) (000 OMITTED)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(0.10) (0.65) $ 10.14 7.97% 0.70%(d) 5.84%(d) 0.23%(d) $ 78,080
-- (0.49) $ 9.41 (2.37%) 1.19% 5.09% -- $ 5,136
-- (0.57) $ 10.31 16.08% 1.29% 5.80% -- $ 6,757
-- (0.29) $ 9.87 (1.48%) 1.12%(d) 5.86%(d) -- $ 5,951
-- (0.48) $ 9.91 3.96% 0.60%(d) 5.19%(d) 0.16%(d) $ 173,301
-- (0.43) $ 9.15 (3.43%) 1.04% 4.42% -- $ 34,993
-- (0.53) $ 9.28 7.37% 1.11% 5.75% -- $ 21,101
-- (0.26) $ 9.12 1.06% 1.12%(d) 5.57%(d) -- $ 17,240
-- (0.14) $ 10.98 11.28% 0.75%(d) 1.56%(d) 0.24%(d) $ 111,687
-- (0.09) $ 10.54 (3.23%) 1.26% 0.81% -- $ 28,903
(0.82) (0.89) $ 13.04 32.24% 1.30% 0.56% -- $ 31,543
-- (0.02) $ 14.57 11.87% 1.24%(d) 0.30%(d) -- $ 35,684
-- (0.52) $ 9.41 (2.14%) 0.99% 5.29% -- $ 56,619
-- (0.60) $ 10.31 16.36% 1.04% 6.06% -- $ 55,675
-- (0.30) $ 9.87 (1.36%) 0.87%(d) 6.12%(d) -- $ 50,661
-- (0.45) $ 9.15 (3.19%) 0.80% 4.66% -- $ 56,511
-- (0.55) $ 9.28 7.64% 0.86% 6.00% -- $ 40,196
-- (0.27) $ 9.12 1.19% 0.87%(d) 5.81%(d) -- $ 30,984
-- (0.11) $ 10.54 (2.98%) 1.02% 1.05% -- $ 78,312
(0.82) (0.92) $ 13.04 32.59% 1.05% 0.81% -- $ 88,216
-- (0.03) $ 14.57 12.00% 0.99%(d) 0.55%(d) -- $ 91,020
<CAPTION>
DISTRIBUTIONS
FROM NET
REALIZED GAIN PORTFOLIO
ON INVESTMENT TURNOVER
TRANSACTIONS RATE
- -------------------------
<S> <C>
(0.10) 74%
-- 134%
-- 161%
-- 93%
-- 98%
-- 148%
-- 167%
-- 48%
-- 81%
-- 108%
(0.82) 76%
-- 27%
-- 134%
-- 161%
-- 93%
-- 148%
-- 167%
-- 48%
-- 108%
(0.82) 76%
-- 27%
</TABLE>
- -------------------------
BAYFUNDS INCOME AND EQUITY PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
BayFunds (the "Trust") is registered under the Investment Company Act of 1940,
as amended (the "Act"), as an open-end, management investment company. The Trust
consists of five diversified portfolios. The following Funds comprise the Trust:
<TABLE>
<S> <C>
FUND NAME CLASSES OF SHARES
- ---------------------------------------------------------- ---------------------------------
BayFunds U.S. Treasury Money Market Portfolio Investment and Institutional
BayFunds Money Market Portfolio Investment and Trust
BayFunds Bond Portfolio Investment and Institutional
BayFunds Short Term Yield Portfolio Investment and Institutional
BayFunds Equity Portfolio Investment and Institutional
</TABLE>
The financial statements of the following portfolios (individually referred to
as the "Fund," or collectively as the "Funds") are presented herein:
<TABLE>
<S> <C>
FUND NAME
- ----------------------------------------------------------
BayFunds Bond Portfolio ("Bond Fund")
BayFunds Short Term Yield Portfolio ("Short Term Yield Fund")
BayFunds Equity Portfolio ("Equity Fund")
</TABLE>
The financial statements of the other funds are presented separately. The assets
of each Fund are segregated and a shareholder's interest is limited to the Fund
in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--U.S. Government securities are generally valued at
the bid prices as furnished by an independent pricing service. Listed
corporate bonds (and other fixed-income and asset backed securities),
unlisted securities (and other fixed-income and asset-backed securities
and/or private placements) and short-term securities are generally valued
at the prices provided by an independent pricing service. Listed equity
securities are valued at the last sale price reported on national
securities exchanges, if available. Short-term securities with remaining
maturities of sixty days or less at the time of purchase may be valued at
amortized cost, which approximates fair market value. The Funds' restricted
securities are valued at the price provided by dealers in the secondary
market or, if no market prices are available, at the fair value as
determined by the Funds' pricing committee.
BAYFUNDS INCOME AND EQUITY PORTFOLIOS
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--It is the policy of the Funds to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Funds to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
The Funds will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Funds' adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the
"Trustees"). Risks may arise from the potential inability of counterparties
to honor the terms of the repurchase agreement. Accordingly, the Funds
could receive less than the repurchase price on the sale of collateral
securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code"). Dividend
income and distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES--It is the Funds' policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of their income. Accordingly, no
provisions for federal tax are necessary.
At December 31, 1995, Bond Fund and Short Term Yield Fund, for Federal tax
purposes, had capital loss carryforwards of $894,762 and $11,927,942,
respectively, which will reduce the Funds' taxable income arising from
future net realized gain on investments, if any, to the extent permitted by
the Code, and thus will reduce the amount of the distributions to
shareholders which would otherwise be necessary to relieve the Funds of any
liability for federal tax. Pursuant to the Code, such capital loss
carryforwards will expire in 2002 ($894,762) for Bond Fund, and 2001
($70,866), 2002 ($11,534,248) and 2003 ($322,828) for Short Term Yield
Fund.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Funds may engage in
when-issued or delayed delivery transactions. The Funds record when-issued
securities on the trade date and maintain security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES--Restricted securities are securities that may only
be resold upon registration under federal securities laws or in
transactions exempt from such registration. In some cases, the issuer of
restricted securities has agreed to register such securities for resale, at
the issuer's expense either upon demand by the Funds or in connection with
another registered offering of the securities. Many restricted securities
may be resold in the secondary market in transactions exempt from
registration. Such restricted securities may be determined to be liquid
under criteria
BAYFUNDS INCOME AND EQUITY PORTFOLIOS
- --------------------------------------------------------------------------------
established by the Board of Trustees. The Funds will not incur any
registration costs upon such resales.
Additional information on restricted securities held by Bond Fund at June
30, 1996, is as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
------------------------------------------------------------ -------------- -----------
<S> <C> <C>
Industrial Finance Corporation of Thailand, Sr. Note April 3, 1996 $1,960,800
</TABLE>
DEFERRED EXPENSES--The costs incurred by the Funds with respect to
registration of their shares in their first fiscal year, excluding the
initial expense of registering their shares, have been deferred and are
being amortized using the straight-line method not to exceed a period of
five years from each Funds' commencement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses, and revenues, reported in the financial statements. Actual
results could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
-----------------------------------------------------------------------------
BOND FUND SHORT TERM YIELD FUND EQUITY FUND
----------------------- ----------------------- -----------------------
INVESTMENT SHARES SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- --------------------------------- -------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 138,093 $ 1,399,396 58,397 $ 538,785 423,227 $ 5,983,150
- ---------------------------------
Shares issued to shareholders in
payment of distributions declared 14,775 147,800 45,312 416,383 1,708 23,999
- ---------------------------------
Shares redeemed (205,172) (2,051,254) (485,731) (4,462,192) (395,191) (5,560,496)
- --------------------------------- -------- ----------- -------- ----------- -------- -----------
Net change resulting from
Investment share transactions (52,304) $ (504,058) (382,022) $(3,507,024) 29,744 $ 446,653
- --------------------------------- -------- ----------- -------- ----------- -------- -----------
</TABLE>
BAYFUNDS INCOME AND EQUITY PORTFOLIOS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BOND FUND SHORT TERM YIELD FUND EQUITY FUND
----------------------- -------------------------- --------------------------
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ---------------------------- -------- ----------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 719,333 $ 7,203,713 187,230 $ 1,723,274 629,782 $ 8,850,479
- ----------------------------
Shares issued to
shareholders in payment of
distributions declared 9,843 98,719 -- -- 459 6,454
- ----------------------------
Shares redeemed (994,759) (9,835,398) (1,118,555) (10,240,675) (1,149,647) (16,521,571)
- ---------------------------- -------- ----------- ---------- ------------ ---------- ------------
Net change resulting from
Institutional share
transactions (265,583) $(2,532,966) (931,325) $ (8,517,401) (519,406) $ (7,664,638)
- ---------------------------- -------- ----------- ---------- ------------ ---------- ------------
Total net change
resulting from Fund
share transactions (317,887) $(3,037,024) (1,313,347) $(12,024,425) (489,662) $ (7,217,985)
- ---------------------------- -------- ----------- ---------- ------------ ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------------------------
BOND FUND SHORT TERM YIELD FUND EQUITY FUND
----------------------- -------------------------- ------------------------
INVESTMENT SHARES SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ----------------------------- -------- ----------- ---------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 424,745 $ 4,192,296 224,378 $ 2,064,633 389,598 $ 4,773,169
- -----------------------------
Shares issued to shareholders
in payment of distributions
declared 32,368 321,099 145,217 1,336,193 155,008 2,001,660
- -----------------------------
Shares redeemed (347,571) (3,441,275) (1,921,758) (17,654,169) (868,878) (10,178,654)
- ----------------------------- -------- ----------- ---------- ------------ -------- ------------
Net change resulting from
Investment share
transactions 109,542 $ 1,072,120 (1,552,163) $(14,253,343) (324,272) $ (3,403,825)
- ----------------------------- -------- ----------- ---------- ------------ -------- ------------
</TABLE>
<TABLE>
<CAPTION>
BOND FUND SHORT TERM YIELD FUND EQUITY FUND
-------------------------- -------------------------- --------------------------
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ----------------------------- ---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 792,092 $ 7,810,360 599,879 $ 5,515,483 1,225,769 $ 15,126,847
- -----------------------------
Shares issued to shareholders
in payment of distributions
declared 20,998 208,527 -- -- 21,539 277,974
- -----------------------------
Shares redeemed (1,430,535) (13,914,613) (2,447,365) (22,482,955) (1,913,816) (22,851,097)
- ----------------------------- ---------- ------------ ---------- ------------ ---------- ------------
Net change resulting from
Institutional share
transactions (617,445) $ (5,895,726) (1,847,486) $(16,967,472) (666,508) $ (7,446,276)
- ----------------------------- ---------- ------------ ---------- ------------ ---------- ------------
Total net change
resulting from Fund share
transactions (507,903) $ (4,823,606) (3,399,649) $(31,220,815) (990,780) $(10,850,101)
- ----------------------------- ---------- ------------ ---------- ------------ ---------- ------------
</TABLE>
BAYFUNDS INCOME AND EQUITY PORTFOLIOS
- --------------------------------------------------------------------------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--BayBanks Investment Management, Inc., the Funds'
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee based on a percentage of each Fund's average daily net
assets (see below). The Adviser may voluntarily choose to waive all or a portion
of its fee. The Adviser can modify or terminate this voluntary waiver at any
time at its sole discretion.
<TABLE>
<CAPTION>
ANNUAL
FUND RATE
- ------------------------- -------
<S> <C>
Bond Fund 0.60%
Short Term Yield Fund 0.50%
Equity Fund 0.70%
</TABLE>
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Funds
with certain administrative personnel and services. This fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with BayBank Systems, Inc., the Funds will pay BayBank Systems, Inc. up to 0.25%
of the average net assets of each Fund's Investment Shares for the period. This
fee is to obtain certain services for shareholders and to maintain shareholder
accounts.
PORTFOLIO ACCOUNTING FEES--Federated Services Company maintains the Funds'
accounting records for which it receives a fee. The fee is based on the level of
each Fund's average daily net assets for the period, plus out-of-pocket
expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses were initially borne by FAS.
The Funds have agreed to reimburse FAS for the organizational expenses during
the five year period following December 31, 1993 (the date the Funds became
effective). For the six months ended June 30, 1996, the Funds paid FAS as
follows:
<TABLE>
<CAPTION>
INITIAL ORGANIZATIONAL
FUND ORGANIZATIONAL EXPENSES EXPENSES REIMBURSED
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Bond Fund $52,861 $3,085
Short Term Yield Fund $50,458 $2,848
Equity Fund $48,533 $3,084
</TABLE>
GENERAL--Certain of the Officers of the Trust are Officers and Directors or
Trustees of the above companies.
BAYFUNDS INCOME AND EQUITY PORTFOLIOS
- --------------------------------------------------------------------------------
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities for the six
months ended June 30, 1996, were as follows:
<TABLE>
<CAPTION>
FUND PURCHASES SALES
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Bond Fund $52,904,019 $56,448,775
Short Term Yield Fund $25,753,655 $33,035,905
Equity Fund $32,289,421 $38,278,488
</TABLE>
(6) SUBSEQUENT EVENT
Effective the close of business on July 29, 1996, The First National Bank of
Boston replaced BayBanks Investment Management, Inc. as the Funds' investment
adviser. The investment advisory fee structure will remain the same for the
Funds.
<TABLE>
<S> <C>
TRUSTEES OFFICERS
- ---------------------------------------------------------------------------------------
Kenneth G. Condon Glen R. Johnson
Robert W. Eisenmenger President and Treasurer
Sara L. Johnson C. Christine Thomson
Ernest R. May Vice President and Assistant Treasurer
Alvin J. Silk Victor R. Siclari
Secretary
C. Todd Gibson
Assistant Secretary
</TABLE>
Mutual funds are not deposits or obligations of BayBank, The First National Bank
of Boston, or any bank, are not endorsed or guaranteed by BayBank, The First
National Bank of Boston, or any bank, and are not obligations of, guaranteed by,
or insured by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency. Investment in these
shares involves risk, including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Portfolios' combined prospectus which contains
facts concerning their objectives and policies, management fees, expenses and
other information.
BAYFUNDS(R)
MONEY
MARKET
PORTFOLIOS
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
JUNE 30, 1996
U.S. TREASURY MONEY MARKET PORTFOLIO
INVESTMENT SHARES/INSTITUTIONAL SHARES
MONEY MARKET PORTFOLIO
INVESTMENT SHARES/TRUST SHARES
THE FIRST NATIONAL BANK OF BOSTON
- ----------------------------------------------
Investment Adviser
-------------------------
LOGO FEDERATED INVESTORS -------------------------
Since 1955
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary or Federated Investors.
Z00322 G00507-02 (8/96) LOGO -------------------------
-------------------------
PRESIDENT'S MESSAGE AND INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Dear Shareholder:
The U.S. money markets enjoyed a relatively peaceful first half of 1996 with
short-term interest rates fluctuating within a narrow range. In general, money
market funds produced fairly steady, moderate returns commensurate with their
short maturities and low risk investments. The BayFunds money market portfolios
continued to be excellent vehicles to track short-term interest rate movements
while providing immediate liquidity to meet short-term cash needs.
MONEY MARKET RECAP
As the year began, economic forecasts called for languid economic growth and
further monetary easing by the Board of Governors of the Federal Reserve System
(the "Fed"). This outlook caused maturities in the 3-12 month portion of the
yield curve to drift lower as the market "priced in" the expectations for lower
rates in the future. Overnight interest rates, which are predominantly
influenced by the Fed's targeted federal funds rate, hovered around 5.50% while
one year U.S. Treasury bills yielded 5.18%. This market condition is known as an
inverted yield curve. The difference, or "spread" between the overnight and one
year instruments reached its highest level (.46%) in early February as the yield
on the one year Treasury bill dropped to 4.79% following a .25% reduction by the
Fed in the federal funds rate. Yields began rising later in the month as
stronger than expected economic data diminished the outlook for further interest
rate cuts. The ongoing brinkmanship between the U.S. Congress and the Clinton
administration raised the possibility of a first ever default on U.S. Treasury
debt which only compounded the market's unease and bias toward higher interest
rates. The threat of a default finally subsided with the enactment of a "clean",
i.e., without any strings attached, debt ceiling bill. However, by early April
increasing signs of economic vigor continued to push yields higher as rumors of
possible monetary tightening later in the year became widespread.
Substantial home sale statistics, increased manufacturing activity and strength
in all aspects of employment data (employment growth, hourly earnings, hours
worked) are persuasive indicators that the economy ended the second quarter with
strong forward momentum entering the second half of 1996. This outlook will
impact the management of the BayFunds money market portfolios going forward as
they seek to capitalize on the possibility of higher short-term rates over the
next six months.
PERFORMANCE OF BAYFUNDS U.S. TREASURY MONEY MARKET
PORTFOLIO AND BAYFUNDS MONEY MARKET PORTFOLIO
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
BayFunds U.S. Treasury Money Market Portfolio achieved its goal of maximizing
shareholder returns during the first half of 1996 due to a continuation of
strong asset flows into the Portfolio and its adept positioning to take
advantage of rising market yields. The Portfolio began the year with net assets
just over $1 billion and finished the first half at approximately $1.25 billion.
In part, this gain is attributable to the continuing success of BayBank's
Precision SweepTM institutional and small business cash management product and a
strong, steady influx of new retail customers purchasing Investment Shares.
- --------------------------------------------------------------------------------
This positive environment continues to exist for the Portfolio and provides a
solid underpinning for growth in the future.
BAYFUNDS MONEY MARKET PORTFOLIO
BayFunds Money Market Portfolio benefited from an increased allocation of its
assets to floating rate notes during the first half of 1996. These instruments
closely track short-term interest rate movements and responded nicely to upward
trends in rates as they developed throughout the first six months. In addition,
the Portfolio continued to add value by emphasizing top quality corporate
instruments such as commercial paper and short-term corporate notes. As a whole,
the Portfolio proved itself competent to navigate the first half's uncertain
environment and is well positioned for the future.
BayFunds money market portfolios remain committed to the highest standards of
portfolio quality and conservative management. Since inception, both Portfolios
have maintained a net asset value of $1.00 per share and have pursued
well-defined risk minimization strategies.* The Portfolios purchase only top
quality investments and maintain average maturities that allow a margin of
relative safety during periods of volatile interest changes.
We are pleased with the results achieved by the BayFunds money market portfolios
thus far in 1996. Money market mutual funds play an important role in any
diversified investment portfolio and can serve as a convenient cash alternative
for many investors. However, it is important to stress that stock and bond
mutual funds can play a critical role in meeting your long-term investment
objectives. It is widely accepted that over time the returns from those asset
classes should substantially out-perform money market funds, but with a
potentially higher degree of risk.
I invite you to contact your Investment Specialist or Account Officer whenever
we can be of assistance in helping you reach your objectives.
Sincerely,
Richard F. Pollard
President
BayBank, N.A. and BayBanks Investment Management, Inc.**
Investment Advisers to BayFunds U.S. Treasury Money Market Portfolio and
BayFunds Money Market Portfolio
August 15, 1996
* Although money market mutual funds seek to maintain a stable net asset value
of $1.00 per share, there is no assurance that they will be able to do so. An
investment in a fund is neither insured nor guaranteed by the U.S. government.
** As noted elsewhere herein, shareholders approved the replacement of these
advisers by The First National Bank of Boston.
RESULTS OF SPECIAL MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
A special meeting of the shareholders of BayFunds (the "Trust") was held on June
28, 1996. On May 10, 1996, the record date for shareholder voting at the
meeting, there were 1,288,293,750 total outstanding shares of the Trust
(1,076,606,569 for BayFunds U.S. Treasury Money Market Portfolio and 190,692,905
for BayFunds Money Market Portfolio). The following item was considered by
shareholders of the respective funds and the results of their voting were as
follows:
<TABLE>
<CAPTION>
WITHHELD
AUTHORITY
AGENDA ITEM FOR AGAINST ABSTAIN TO VOTE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BayFunds U.S. Treasury Money Market Portfolio
To approve or disapprove a new investment advisory contract between the Trust and The First
National Bank of Boston, a subsidiary of Bank of Boston Corporation ("BKBC"), as a result of
the merger between BayBanks, Inc. (the parent of the current adviser) and BKBC.
812,174,460 1,959,876 10,746,776 N/A
BayFunds Money Market Portfolio
To approve or disapprove a new investment advisory contract between the Trust and The First
National Bank of Boston, a subsidiary of Bank of Boston Corporation ("BKBC"), as a result of
the merger between BayBanks, Inc. (the parent of the current adviser) and BKBC.
149,617,710 737,381 1,389,380 N/A
</TABLE>
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ------------------------------------------------------------- --------------
<C> <C> <S> <C>
U.S. TREASURY--29.5%
- ---------------------------------------------------------------------------------
$375,500,000 United States Treasury Notes, 4.75%-8.00%,
7/31/1996-4/30/1997 $ 377,605,493
------------------------------------------------------------- --------------
(A)REPURCHASE AGREEMENTS--70.4%
- ---------------------------------------------------------------------------------
62,000,000 Aubrey G. Lanston and Co. Inc., 5.40%, dated 6/28/1996, due
7/1/1996 62,000,000
-------------------------------------------------------------
62,000,000 CS First Boston Inc., 5.26%-5.40%, dated 6/26/1996-6/28/1996,
due 7/1/1996-7/3/1996 62,000,000
-------------------------------------------------------------
60,000,000 Dean Witter Reynolds, Inc., 5.40%, dated 6/28/1996, due
7/1/1996 60,000,000
-------------------------------------------------------------
62,000,000 First Chicago Capital Markets, Inc., 5.42%, dated 6/28/1996,
due 7/1/1996 62,000,000
-------------------------------------------------------------
62,000,000 Greenwich Capital Markets, Inc., 5.45%, dated 6/28/1996, due
7/1/1996 62,000,000
-------------------------------------------------------------
100,000,000 HSBC Securities, Inc., 5.45%, dated 6/28/1996, due 7/1/1996 100,000,000
-------------------------------------------------------------
140,000,000 Merrill Lynch, Pierce, Fenner & Smith, Inc., 5.37%-5.50%,
dated 6/24/1996-6/28/1996, due 7/1/1996 140,000,000
-------------------------------------------------------------
115,000,000 PaineWebber Group, Inc., 5.45%, dated 6/28/1996, due 7/1/1996 115,000,000
-------------------------------------------------------------
69,865,000 Salomon Brothers, Inc., 5.45%, dated 6/28/1996, due 7/1/1996 69,865,000
-------------------------------------------------------------
150,000,000 Smith Barney, Inc., 5.38%, dated 6/19/1996, due 7/3/1996 150,000,000
-------------------------------------------------------------
20,000,000 State Street Bank and Trust Co., 5.35%, dated 6/28/1996, due
7/1/1996 20,000,000
------------------------------------------------------------- --------------
TOTAL REPURCHASE AGREEMENTS 902,865,000
------------------------------------------------------------- --------------
TOTAL INVESTMENTS, AT AMORTIZED COST (B) $1,280,470,493
------------------------------------------------------------- --------------
</TABLE>
(a) The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
(b) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($1,282,047,816) at June 30, 1996.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C> <C>
(A)BANK NOTES--2.3%
- -----------------------------------------------------------------------------------
$ 5,000,000 Bank of New York, New York, 5.55%, 3/19/1997 $ 4,996,353
---------------------------------------------------------------- ------------
(A)COMMERCIAL PAPER--28.9%
- -----------------------------------------------------------------------------------
FINANCE-AUTOMOTIVE--6.0%
----------------------------------------------------------------
10,000,000 American Honda Finance Corp., 5.32% 7/17/1996-7/25/1996 9,970,443
----------------------------------------------------------------
3,000,000 Ford Motor Credit Corp., 5.40%, 7/29/1996 2,987,400
---------------------------------------------------------------- ------------
Total 12,957,843
---------------------------------------------------------------- ------------
ENTERTAINMENT--0.2%
----------------------------------------------------------------
500,000 Disney (Walt) Co., 5.40%, 7/15/1996 498,950
---------------------------------------------------------------- ------------
FINANCIAL SERVICES--7.3%
----------------------------------------------------------------
3,000,000 Bear Stearns Cos., Inc., 5.28%, 8/14/1996 2,980,640
----------------------------------------------------------------
8,000,000 Dean Witter, Discover & Co., 5.28%, 7/2/1996-7/3/1996 7,998,387
----------------------------------------------------------------
4,598,000 Merrill Lynch & Co., Inc., 5.40%-5.55%, 7/1/1996-7/30/1996 4,587,138
---------------------------------------------------------------- ------------
Total 15,566,165
---------------------------------------------------------------- ------------
FUNDING CORPORATION--14.0%
----------------------------------------------------------------
8,567,000 Alpine Securitization Corp., 5.29%-5.40%, 7/2/1996-8/13/1996 8,532,229
----------------------------------------------------------------
10,000,000 Asset Securitization Cooperative Corp., 5.37%-5.39%,
8/14/1996-8/19/1996 9,932,783
----------------------------------------------------------------
1,680,000 Falcon Asset Securitization Corp., 5.37%, 7/10/1996-7/16/1996 1,677,190
----------------------------------------------------------------
10,000,000 Greenwich Funding Corp., 5.31%-5.40%, 7/15/1996-7/16/1996 9,978,613
---------------------------------------------------------------- ------------
Total 30,120,815
---------------------------------------------------------------- ------------
RETAIL--1.4%
----------------------------------------------------------------
3,000,000 Sears Credit Corp. A, 5.31%, 7/17/1996 2,992,920
---------------------------------------------------------------- ------------
TOTAL COMMERCIAL PAPER 62,136,693
---------------------------------------------------------------- ------------
</TABLE>
BAYFUNDS MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C> <C>
CORPORATE BONDS--9.3%
- -----------------------------------------------------------------------------------
FINANCE-AUTOMOTIVE--2.8%
----------------------------------------------------------------
$ 500,000 Chrysler Financial Corp., 8.20%, 12/30/1996 $ 506,032
----------------------------------------------------------------
3,415,000 Ford Motor Credit Corp., 8.25%-9.10%, 7/15/1996-5/1/1997 3,471,529
----------------------------------------------------------------
2,100,000 General Motors Acceptance Corp., 6.30%-8.625%,
7/15/1996-3/31/1997 2,106,173
---------------------------------------------------------------- ------------
Total 6,083,734
---------------------------------------------------------------- ------------
FINANCE-COMMERCIAL--3.8%
----------------------------------------------------------------
3,000,000 American General Finance Corp., 5.80%, 4/1/1997 2,997,172
----------------------------------------------------------------
4,000,000 Associates Corp. of North America, 9.70%, 5/1/1997 4,120,549
----------------------------------------------------------------
1,000,000 General Electric Capital Corp., 7.85%, 7/18/1996 1,000,886
----------------------------------------------------------------
100,000 General Electric Financial Services, Inc., 8.75%, 11/26/1996 101,348
---------------------------------------------------------------- ------------
Total 8,219,955
---------------------------------------------------------------- ------------
FINANCE-CONSUMER--0.4%
----------------------------------------------------------------
600,000 American Express Credit Corp., 7.875%, 12/1/1996 606,197
----------------------------------------------------------------
201,000 Norwest Corp., 9.25%, 5/1/1997 206,297
---------------------------------------------------------------- ------------
Total 812,494
---------------------------------------------------------------- ------------
FOOD & BEVERAGE--0.5%
----------------------------------------------------------------
1,000,000 PepsiCo, Inc., 7.875%, 8/15/1996 1,002,672
---------------------------------------------------------------- ------------
RETAIL--1.8%
----------------------------------------------------------------
3,830,000 Sears, Roebuck & Co., 7.30%-8.98%, 7/11/1996-6/12/1997 3,841,380
---------------------------------------------------------------- ------------
TOTAL CORPORATE BONDS 19,960,235
---------------------------------------------------------------- ------------
CORPORATE NOTES--26.4%
- -----------------------------------------------------------------------------------
DOMESTIC BANKS--2.3%
----------------------------------------------------------------
5,000,000 Toronto-Dominion Bank, 8.80%, 7/8/1996 5,003,090
---------------------------------------------------------------- ------------
FINANCE-AUTOMOTIVE--8.3%
----------------------------------------------------------------
6,700,000 (c) Chrysler Financial Corp., Note, 5.875%, 8/15/1996 6,705,114
----------------------------------------------------------------
3,000,000 Chrysler Financial Corp., 7.28%-7.81%, 2/18/1997-3/18/1997 3,033,182
----------------------------------------------------------------
100,000 (c) Ford Motor Credit Corp., 5.638%, 8/19/1996 100,094
----------------------------------------------------------------
</TABLE>
BAYFUNDS MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C> <C>
CORPORATE NOTES--CONTINUED
- -----------------------------------------------------------------------------------
FINANCE-AUTOMOTIVE--CONTINUED
----------------------------------------------------------------
$ 2,000,000 (c) General Motors Acceptance Corp., Notes, 5.875%, 8/30/1996 $ 2,000,892
----------------------------------------------------------------
6,040,000 General Motors Acceptance Corp., 7.75%-9.00%,
7/17/1996-2/25/1997 6,054,601
---------------------------------------------------------------- ------------
Total 17,893,883
---------------------------------------------------------------- ------------
FINANCE-COMMERCIAL--3.7%
----------------------------------------------------------------
250,000 AT&T Capital Corp., 4.52%, 8/30/1996 249,420
----------------------------------------------------------------
415,000 American General Finance Corp., 5.65%, 3/14/1997 414,447
----------------------------------------------------------------
1,500,000 General Electric Capital Corp., Medium Term Note, 5.465%,
(c) 7/3/1996 1,500,055
----------------------------------------------------------------
3,000,000 General Electric Capital Corp., 5.97%, 8/21/1996 2,999,887
----------------------------------------------------------------
2,750,000 IBM Credit Corp., 4.66%-4.84%, 9/3/1996-1/21/1997 2,743,062
---------------------------------------------------------------- ------------
Total 7,906,871
---------------------------------------------------------------- ------------
FINANCE-CONSUMER--4.2%
----------------------------------------------------------------
7,000,000 (c) Beneficial Corp., Note, 5.52%, 7/1/1996 7,002,525
----------------------------------------------------------------
2,000,000 Beneficial Corp., 8.65%, 6/10/1997 2,046,931
---------------------------------------------------------------- ------------
Total 9,049,456
---------------------------------------------------------------- ------------
FINANCE-EQUIPMENT--0.4%
----------------------------------------------------------------
800,000 Caterpillar Financial Service, 7.15%, 3/10/1997 806,532
---------------------------------------------------------------- ------------
FINANCIAL SERVICES--5.5%
----------------------------------------------------------------
5,000,000 (c) Bear Stearns Cos., Inc., Medium Term Note, 5.488%, 7/5/1996 5,000,000
----------------------------------------------------------------
750,000 (c) Dean Witter, Discover & Co., 5.64%-5.665%, 7/1/1996-7/17/1997 750,678
----------------------------------------------------------------
1,000,000 (c) Merrill Lynch & Co., Inc., 5.41%, 7/1/1996 1,000,000
----------------------------------------------------------------
5,000,000 Merrill Lynch & Co., Inc., 6.05%, 8/19/1996 5,000,000
---------------------------------------------------------------- ------------
Total 11,750,678
---------------------------------------------------------------- ------------
INSURANCE--0.2%
----------------------------------------------------------------
400,000 USAA Capital, 4.76%, 1/28/1997 398,719
---------------------------------------------------------------- ------------
</TABLE>
BAYFUNDS MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C> <C>
CORPORATE NOTES--CONTINUED
- -----------------------------------------------------------------------------------
RETAIL--1.4%
----------------------------------------------------------------
$ 2,125,000 Discover Credit Corp., 7.76%, 5/13/1997 $ 2,157,960
----------------------------------------------------------------
750,000 Sears, Roebuck & Co., 8.15%, 10/9/1996 754,713
---------------------------------------------------------------- ------------
Total 2,912,673
---------------------------------------------------------------- ------------
TELECOMMUNICATIONS --0.4%
----------------------------------------------------------------
897,000 AT&T Corp., 6.125%, 4/25/1997 897,618
---------------------------------------------------------------- ------------
TOTAL CORPORATE NOTES 56,619,520
---------------------------------------------------------------- ------------
GOVERNMENT AGENCIES--9.8%
- -----------------------------------------------------------------------------------
4,000,000 Federal Farm Credit Bank, 5.10%, 8/1/1996 3,998,684
----------------------------------------------------------------
1,455,000 Federal Home Loan Bank, 4.80%-6.125%, 7/8/1996-8/5/1996 1,455,149
----------------------------------------------------------------
10,500,000 Student Loan Marketing Association, 5.37%-5.45%,
(c) 7/1/1996-7/2/1996 10,499,629
----------------------------------------------------------------
5,065,000 Tennessee Valley Authority, 6.00%, 1/15/1997 5,088,785
---------------------------------------------------------------- ------------
TOTAL GOVERNMENT AGENCIES 21,042,247
---------------------------------------------------------------- ------------
(B)REPURCHASE AGREEMENTS--22.6%
- -----------------------------------------------------------------------------------
40,000,000 Dean Witter Reynolds, Inc., 5.625%, dated 6/28/1996, due
7/1/1996 40,000,000
----------------------------------------------------------------
8,510,000 Salomon Brothers, Inc., 5.46%, dated 6/28/1996, due 7/1/1996 8,510,000
---------------------------------------------------------------- ------------
TOTAL REPURCHASE AGREEMENTS 48,510,000
---------------------------------------------------------------- ------------
TOTAL INVESTMENTS, AT AMORTIZED COST (D) $213,265,048
---------------------------------------------------------------- ------------
</TABLE>
(a) Each issue shows the rate of discount at the time of purchase for discount
issues.
(b) The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
(c) Denotes variable rate obligations for which the current rate and next reset
dates are shown.
(d) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($214,687,985) at June 30, 1996.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS MONEY MARKET PORTFOLIOS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BAYFUNDS
U.S.TREASURY BAYFUNDS
MONEY MONEY
MARKET MARKET
PORTFOLIO PORTFOLIO
-------------- ------------
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------
Investments in repurchase agreements $ 902,865,000 $ 48,510,000
- ------------------------------------------------------------------------
Investments in securities 377,605,493 164,755,048
- ------------------------------------------------------------------------ -------------- ------------
Total Investments in securities, at value $1,280,470,493 $213,265,048
- ------------------------------------------------------------------------
Cash -- 286,355
- ------------------------------------------------------------------------
Income receivable 7,153,524 1,906,957
- ------------------------------------------------------------------------
Deferred expenses 64,857 --
- ------------------------------------------------------------------------ -------------- ------------
Total assets 1,287,688,874 215,458,360
- ------------------------------------------------------------------------ -------------- ------------
LIABILITIES:
- ------------------------------------------------------------------------
Income distribution payable 5,358,921 705,101
- ------------------------------------------------------------------------
Payable to Bank 768 --
- ------------------------------------------------------------------------
Accrued expenses 281,369 65,274
- ------------------------------------------------------------------------ -------------- ------------
Total liabilities 5,641,058 770,375
- ------------------------------------------------------------------------ -------------- ------------
Total Net Assets $1,282,047,816 $214,687,985
- ------------------------------------------------------------------------ -------------- ------------
NET ASSETS:
- ------------------------------------------------------------------------
Investment Shares $ 295,076,344 $ 44,793,844
- ------------------------------------------------------------------------ -------------- ------------
Institutional Shares $ 986,971,472 $ --
- ------------------------------------------------------------------------ -------------- ------------
Trust Shares $ -- $169,894,141
- ------------------------------------------------------------------------ -------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ------------------------------------------------------------------------
Investment Shares $1.00 $1.00
- ------------------------------------------------------------------------ -------------- ------------
Institutional Shares $1.00 --
- ------------------------------------------------------------------------ -------------- ------------
Trust Shares -- $1.00
- ------------------------------------------------------------------------ -------------- ------------
SHARES OUTSTANDING:
- ------------------------------------------------------------------------
Investment Shares 295,076,344 44,793,844
- ------------------------------------------------------------------------
Institutional Shares 986,971,472 --
- ------------------------------------------------------------------------
Trust Shares -- 169,894,141
- ------------------------------------------------------------------------ -------------- ------------
Total Shares Outstanding 1,282,047,816 214,687,985
- ------------------------------------------------------------------------ -------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS MONEY MARKET PORTFOLIOS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BAYFUNDS
U.S. TREASURY BAYFUNDS
MONEY MONEY
MARKET MARKET
PORTFOLIO PORTFOLIO
------------- -----------
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------
Interest $32,066,725 $ 5,954,994
- --------------------------------------------------------------- ------------- -----------
EXPENSES:
- ---------------------------------------------------------------
Investment advisory fee 1,191,741 429,288
- ---------------------------------------------------------------
Administrative personnel and services fee 582,970 105,056
- ---------------------------------------------------------------
Custodian fees 35,752 9,173
- ---------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 168,387 31,123
- ---------------------------------------------------------------
Directors'/Trustees' fees 19,420 4,293
- ---------------------------------------------------------------
Auditing fees 10,374 6,733
- ---------------------------------------------------------------
Legal fees 20,963 2,734
- ---------------------------------------------------------------
Portfolio accounting fees 79,007 33,756
- ---------------------------------------------------------------
Shareholder services fee--Investment Shares 347,471 57,978
- ---------------------------------------------------------------
Share registration costs 62,459 13,658
- ---------------------------------------------------------------
Printing and postage 13,461 5,669
- ---------------------------------------------------------------
Insurance premiums 7,502 2,926
- ---------------------------------------------------------------
Miscellaneous 18,601 4,100
- --------------------------------------------------------------- ------------- -----------
Total expenses 2,558,108 706,487
- --------------------------------------------------------------- ------------- -----------
Net investment income $29,508,617 $ 5,248,507
- --------------------------------------------------------------- ------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS MONEY MARKET PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BAYFUNDS
U.S. TREASURY MONEY MARKET BAYFUNDS
PORTFOLIO MONEY MARKET PORTFOLIO
---------------------------------- ------------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, YEAR ENDED JUNE 30, YEAR ENDED
1996 DECEMBER 31, 1996 DECEMBER 31,
(UNAUDITED) 1995 (UNAUDITED) 1995
--------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
- --------------------------------
OPERATIONS--
- --------------------------------
Net investment income $ 29,508,617 $ 54,102,372 $ 5,248,507 $ 11,578,579
- -------------------------------- --------------- --------------- ------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------
Distributions from net
investment income:
- --------------------------------
Investment Shares (6,618,911) (10,508,778) (1,087,707) (2,799,699)
- --------------------------------
Institutional Shares (22,889,706) (43,593,594) -- --
- --------------------------------
Trust Shares -- -- (4,160,800) (8,778,880)
- -------------------------------- --------------- --------------- ------------- ------------
Change in net assets resulting
from distributions to
shareholders (29,508,617) (54,102,372) (5,248,507) (11,578,579)
- -------------------------------- --------------- --------------- ------------- ------------
SHARE TRANSACTIONS--
- --------------------------------
Proceeds from sale of shares 1,334,387,978 2,258,249,644 177,219,510 336,562,127
- --------------------------------
Net asset value of shares issued
to shareholders in payment of
distributions declared 6,336,513 13,092,975 1,018,573 2,973,240
- --------------------------------
Cost of shares redeemed (1,122,254,665) (2,043,585,935) (173,683,041) (323,673,179)
- -------------------------------- --------------- --------------- ------------- ------------
Change in net assets resulting
from share transactions 218,469,826 227,756,684 4,555,042 15,862,188
- -------------------------------- --------------- --------------- ------------- ------------
Change in net assets 218,469,826 227,756,684 4,555,042 15,862,188
- --------------------------------
NET ASSETS:
- --------------------------------
Beginning of period 1,063,577,990 835,821,306 210,132,943 194,270,755
- -------------------------------- --------------- --------------- ------------- ------------
End of period $ 1,282,047,816 $ 1,063,577,990 $ 214,687,985 $210,132,943
- -------------------------------- --------------- --------------- ------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS MONEY MARKET PORTFOLIOS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
NET ASSET DISTRIBUTIONS EXPENSE
YEAR ENDED VALUE, NET FROM NET NET ASSET NET WAIVER/ NET ASSETS,
DECEMBER BEGINNING INVESTMENT INVESTMENT VALUE, END TOTAL INVESTMENT REIMBURSE- END OF PERIOD
31, OF PERIOD INCOME INCOME OF PERIOD RETURN (E) EXPENSES INCOME MENT (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
1996(h) $1.00 0.02 (0.02) $1.00 2.39% 0.62%(f) 4.76%(f) -- $ 295,076
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
1996(h) $1.00 0.02 (0.02) $1.00 2.35% 0.85%(f) 4.69%(f) -- $ 44,794
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
1996(h) $1.00 0.02 (0.02) $1.00 2.52% 0.37%(f) 5.01%(f) -- $ 986,971
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
1996(h) $1.00 0.02 (0.02) $1.00 2.48% 0.60%(f) 4.95%(f) -- $ 169,894
</TABLE>
- --------------------------------------------------------------------------------
(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.
(h) Six months ended June 30, 1996 (unaudited).
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS MONEY MARKET PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
BayFunds (the "Trust") is registered under the Investment Company Act of 1940,
as amended (the "Act"), as an open-end, management investment company. The Trust
consists of five diversified portfolios. The following Funds comprise the Trust:
<TABLE>
<S> <C>
FUND NAME CLASSES OF SHARES
- ---------------------------------------------------------- ---------------------------------
BayFunds U.S. Treasury Money Market Portfolio Investment and Institutional
BayFunds Money Market Portfolio Investment and Trust
BayFunds Bond Portfolio Investment and Institutional
BayFunds Short Term Yield Portfolio Investment and Institutional
BayFunds Equity Portfolio Investment and Institutional
</TABLE>
The financial statements of the following funds (individually referred to as the
"Fund," or collectively as the "Funds") are presented herein:
FUND NAME
- ----------------------------------------------------------
BayFunds U.S. Treasury Money Market Portfolio ("U.S. Treasury Fund")
BayFunds Money Market Portfolio ("Money Market Fund")
The financial statements of the other Funds are presented separately. The assets
of each Fund are segregated and a shareholder's interest is limited to the Fund
in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--The Funds' use the amortized cost method to value
their portfolio securities in accordance with Rule 2a-7 under the Act.
REPURCHASE AGREEMENTS--It is the policy of the Funds to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Funds to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
BAYFUNDS MONEY MARKET PORTFOLIOS
- --------------------------------------------------------------------------------
The Funds will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Funds' adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the
"Trustees"). Risks may arise from the potential inability of counterparties
to honor the terms of the repurchase agreement. Accordingly, the Funds
could receive less than the repurchase price on the sale of collateral
securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Funds' policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of their income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Funds may engage in
when-issued or delayed delivery transactions. The Funds record when-issued
securities on the trade date and maintain security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES--The costs incurred by the Funds with respect to
registration of their shares in their first fiscal year, excluding the
initial expense of registering their shares, have been deferred and are
being amortized using the straight-line method not to exceed a period of
five years from each Fund's commencement date.
OTHER--Investment transactions are accounted for on the trade date.
BAYFUNDS MONEY MARKET PORTFOLIOS
- --------------------------------------------------------------------------------
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At June 30, 1996, capital paid-in aggregated $1,282,047,816 for
U.S. Treasury Fund and $214,687,985 for Money Market Fund. Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
U.S. TREASURY FUND MONEY MARKET FUND
------------------------------ ----------------------------
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED JUNE DECEMBER 31, ENDED JUNE DECEMBER 31,
INVESTMENT SHARES 30, 1996 1995 30, 1996 1995
- ---------------------------------------------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
Shares sold 240,610,912 1,887,034,426 33,969,247 62,861,138
- ----------------------------------------------
Shares issued to shareholders in payment of
distributions declared 5,249,124 3,079,197 850,666 2,655,504
- ----------------------------------------------
Shares redeemed (198,913,093) (1,768,377,531) (43,606,767) (69,283,545)
- ---------------------------------------------- ------------ -------------- ------------ ------------
Net change resulting from Investment share
transactions 46,946,943 121,736,092 (8,786,854) (3,766,903)
- ---------------------------------------------- ------------ -------------- ------------ ------------
INSTITUTIONAL AND TRUST SHARES
Shares sold 1,093,777,066 371,215,218 143,250,263 273,700,989
- ----------------------------------------------
Shares issued to shareholders in payment of
distributions declared 1,087,389 10,013,778 167,907 317,736
- ----------------------------------------------
Shares redeemed (923,341,572) (275,208,404) (130,076,274) (254,389,634)
- ---------------------------------------------- ------------ -------------- ------------ ------------
Net change resulting from Institutional and
Trust share transactions 171,522,883 106,020,592 13,341,896 19,629,091
- ---------------------------------------------- ------------ -------------- ------------ ------------
Net change resulting from Fund share
transactions 218,469,826 227,756,684 4,555,042 15,862,188
- ---------------------------------------------- ------------ -------------- ------------ ------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--BayBank, N.A. and BayBanks Investment Management, Inc.,
the investment advisers for U.S. Treasury Fund and Money Market Fund,
respectively (the "Advisers"), receive for their services an annual investment
advisory fee based on a percentage of each Fund's average daily net assets (see
below). The Advisers may voluntarily choose to waive all or a portion of their
fee. The Advisers can modify or terminate this voluntary waiver at any time at
their sole discretion.
BAYFUNDS MONEY MARKET PORTFOLIOS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ANNUAL
FUND RATE
- --------------------------------------------
<S> <C>
U.S. Treasury Fund 0.20%
Money Market Fund 0.40%
</TABLE>
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Funds
with certain administrative personnel and services. This fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with BayBank Systems, Inc., the Funds will pay BayBank Systems, Inc. up to 0.25%
of average net assets of each Fund's Investment Shares for the period. This fee
is to obtain certain services for shareholders and to maintain shareholder
accounts.
PORTFOLIO ACCOUNTING FEES--Federated Services Company maintains the Funds'
accounting records for which it receives a fee. The fee is based on the level of
each Fund's average net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses were initially borne by FAS.
The Funds have agreed to reimburse FAS for the organizational expenses during
the five year period following the date each fund became effective. For the six
months ended June 30, 1996, the Funds paid FAS as follows:
<TABLE>
<CAPTION>
INITIAL ORGANIZATIONAL
FUND ORGANIZATIONAL EXPENSES EXPENSES REIMBURSED
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
U.S. Treasury Fund $48,056 $13,714
Money Market Fund $60,969 $ 4,537
</TABLE>
GENERAL--Certain of the Officers of the Trust are Officers and Directors or
Trustees of the above companies.
(5) SUBSEQUENT EVENT
Effective the close of business on July 29, 1996, The First National Bank of
Boston replaced BayBank, N.A. and BayBanks Investment Management, Inc. as the
Funds' investment adviser. The investment advisory fee structure will remain the
same for the Funds.
<TABLE>
<S> <C>
TRUSTEES OFFICERS
- ---------------------------------------------------------------------------------------
Kenneth G. Condon Glen R. Johnson
Robert W. Eisenmenger President and Treasurer
Sara L. Johnson C. Christine Thomson
Ernest R. May Vice President and Assistant Treasurer
Alvin J. Silk Victor R. Siclari
Secretary
C. Todd Gibson
Assistant Secretary
</TABLE>
Mutual funds are not deposits or obligations of BayBanks, The First National
Bank of Boston, or any bank, are not endorsed or guaranteed by BayBank, The
First National Bank of Boston, or any bank, and are not obligations of,
guaranteed by, or insured by the U.S. government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other government agency.
Investment in these shares involves risk, including possible loss of principal.
Although money market funds seek to maintain a stable net asset value of $1.00
per share, there is no assurance that they will be able to do so.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Portfolios' combined prospectus which contains
facts concerning their objectives and policies, management fees, expenses and
other information.
