BAYFUNDS
INCOME PORTFOLIOS
& EQUITY PORTFOLIO
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1995
Bond Portfolio
Short Term Yield Portfolio
Equity Portfolio
Investment Shares
Institutional Shares
BAYBANKS INVESTMENT MANAGEMENT, INC.
-------------------------
- -----------------------------------------
Investment Adviser
FEDERATED SECURITIES CORP.
-------------------------
- -----------------------------------------
Distributor
A subsidiary of Federated Investors
-------------------------
Z00324 G00507-05 (2/96) LOGO
PRESIDENT'S MESSAGE AND INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Dear Shareholder:
The investment markets of 1995 displayed remarkable strength and rewarded many
investors with historically high returns. Stocks were driven by a combination of
falling interest rates and the ongoing ability of corporate America to produce
earnings growth in the face of a slowing economy. Specific sectors, especially
technology, captivated investors with their innovative products and were driven
to unprecedented levels. Indeed, many stock market averages rose to record
levels with the Dow Jones Industrial Average (the "Dow") returning over 33% for
calendar year 1995 and hitting 69 record highs along the way. Trading volume was
intense as the average daily value of trading on the New York Stock Exchange
rose to $12.2 billion and the exchange's market capitalization approached $6
trillion for the first time ever.
Despite initial expectations that 1995 would see accelerated growth and
inflation, the economy began to falter and inflation eased markedly. This
allowed the Federal Reserve Board (the "Fed") to ease interest rates twice in
the second half of the year. The combination of these trends and an
unprecedented attempt by the U.S. Congress to exercise fiscal responsibility and
balance the federal budget fueled an extremely buoyant bond market. As an
example, the 30-year U.S. Treasury bond generated returns in excess of 30% with
its yield closing the year under 6%.
Looking ahead, it would be unwise to anticipate such strong market performance
in the year ahead. During the past, the various broad stock market averages have
generally provided an average annual return from 9% to 10% (7.4% for the Dow).
The Dow has put in its longest run ever without a correction. The economy is
expected to continue to slow, and ultimately the pace of corporate earnings
growth could diminish as well. However, this near-term economic outlook implies
a trend toward lower interest rates. In addition, many U.S. companies continue
to excel in their industries on a global level. The outlook for 1996 remains a
bit clouded as the markets struggle with these various positive and potentially
negative indicators. As always, however, bear in mind that the key to successful
long-term investing hinges on a diversified portfolio with constant exposure to
both stocks and bonds.
I will explain in greater detail how BayBanks Investment Management, Inc.,
investment adviser to the BayFunds Bond Portfolio, BayFunds Short Term Yield
Portfolio and BayFunds Equity Portfolio, managed these portfolios during 1995.
Finally, I will briefly describe our strategies for these portfolios going
forward.
PERFORMANCE OF BAYFUNDS BOND PORTFOLIO AND BAYFUNDS
SHORT TERM YIELD PORTFOLIO IN 1995
BAYFUNDS BOND PORTFOLIO
The intermediate-term sector of the bond market was decidedly bullish for most
of 1995. Most market participants anticipated an easing of interest rates and
were proven correct by two one-quarter percent reductions in the Federal funds
target rate during the second half of the year. The bond market tended to reward
investments that were relatively more sensitive to interest rate movements
throughout much
of the year. BayFunds Bond Portfolio recognized this trend and positioned itself
throughout the year to benefit by holding securities such as bonds with solid
call protection or longer maturity securities with "put" features. A typical put
feature allows an investor to redeem a security at its discretion at certain
intervals prior to the issue's actual maturity. The market's bias toward lower
interest rates caused the portfolio's sensitivity to interest rates (i.e.,
duration) to increase. Specific sectors, such as shorter maturity asset-backed
securities, also offered relatively greater values in the fixed income markets.
The overall strategy proved effective, as the portfolio provided an attractive
total return while maintaining its solid credit profile.
BAYFUNDS SHORT TERM YIELD PORTFOLIO
BayFunds Short Term Yield Portfolio, having weathered the interest rate shocks
of 1994, entered 1995 looking forward to a more hospitable year. Primary
concerns were to structure an investment portfolio focused on minimizing
principal fluctuations while offering a competitive yield. On both counts, I
believe we can report marked success. The portfolio's net asset value ("NAV")
began the year at $9.15 and ended at $9.28. During the year, the degree of
principal fluctuation was minimal, with the portfolio experiencing only one
negative month of NAV fluctuation and averaging one and a half cents ($0.015) of
positive NAV gain each month. According to Lipper Analytical Services, Inc.,*
the portfolio's 12-month yield increased nearly one full percentage point and
ended the reporting period at 5.87% and 5.64% for Institutional Shares and
Investment Shares, respectively.** The portfolio's 30-day SEC yields for the
period ended December 31, 1995 were 5.28% and 5.03% for Institutional Shares and
Investment Shares, respectively.*** In light of the downward pressure on
interest rates during the year, we are very satisfied that we achieved our goal
of maximizing the portfolio's income stream.
The portfolio management team of BayBanks Investment Management, Inc.
accomplished its goals by balancing the portfolio's strict mandate for the
highest quality investments with a cautious approach toward managing its average
maturity and finding relative value in the bond market. By reducing holdings
such as callable U.S. government agency securities, the portfolio added
increased total return potential by eliminating issues with only a limited
upside. Instead, these investments were swapped into higher yielding corporate
securities with solid credit profiles and AAA rated asset-backed securities. In
addition, the portfolio correctly anticipated a downward trend in interest rates
and consistently maintained an average maturity near the top of its allowable
three year maximum range. As such, the portfolio clearly benefited from the bond
market rally that transpired during much of the year.
We are satisfied with both of these portfolios' 1995 results and continued
strong commitment to prudent portfolio management.
* Lipper Analytical Services, Inc. ranks funds in various fund categories by
making comparative calculations using total return.
** This 12-month yield is calculated by dividing income dividends paid during
the previous 12-months by the latest net asset value adjusted for capital
gains distributions.
*** Performance quoted represents past performance. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
FUTURE STRATEGIES FOR THE BAYFUNDS BOND PORTFOLIO AND BAYFUNDS SHORT-TERM YIELD
PORTFOLIO IN 1996
Market sentiment suggests that the current bias is toward further interest rate
reductions. However, the degree to which the market is willing to wager on lower
interest rates is highly variable. A number of "wild cards," such as the ongoing
congressional budget negotiations, continue to cloud the near-term outlook. The
emerging weakness of the U.S. economy ought to keep the impetus away from
increasing interest rates, but a clear trend is not presently obvious.
BAYFUNDS BOND PORTFOLIO
The near-term outlook for interest rates does not appear to indicate that the
market will experience the robust principal gains of the past year. As such,
most of the bond market's total return will likely come from coupon payments in
the year ahead. BayFunds Bond Portfolio will seek those sectors of the fixed
income market that offer relatively more attractive coupons. Typically, these
opportunities are found in out-of-favor sectors. This will require that a great
deal of attention be devoted to credit due diligence to ensure that the
portfolio meets its ongoing commitment to high quality investments. Looking
forward, potential attractive investment opportunities may be found among
selective issuers in the property and casualty insurance, dollar-denominated
foreign issuer and mortgage-backed securities sectors. The portfolio management
team at BayBanks Investment Management, Inc. will carefully select its
investment course during the upcoming year and continue to provide you with a
high quality, conservative bond investment.
BAYFUNDS SHORT TERM YIELD PORTFOLIO
BayFunds Short Term Yield Portfolio will continue to pursue its dual mandate of
minimizing principal fluctuations while seeking a competitive yield. It will
pursue those investments that fit neatly within its strict credit quality (rated
A or better) and average maturity (3 years or less) qualifications. It will
continue to emphasize relatively higher yielding, high quality securities such
as blue chip corporate bonds, AAA rated asset-backed securities, and government
issued mortgage-backed securities. A healthy allotment of U.S. Treasury
securities should provide ample liquidity without any sacrifice of its strong
credit profile.
PERFORMANCE OF BAYFUNDS EQUITY PORTFOLIO IN 1995
BayFunds Equity Portfolio's growth style was certainly rewarded in 1995 as
evidenced by its strong total return performance.* It continued to seek faster
growing, innovative companies, especially small and middle capitalization
issuers, and the market recognized the value of many of its holdings. The
portfolio identified certain sectors as relatively attractive or unattractive
during the year. As such, its over-weighting of financial sector stocks and
under-weighting of energy stocks were clearly beneficial to shareholders. Within
specific sectors, the portfolio was successful in identifying exceptional
companies in the technology, consumer staples, basic industries and health care
sectors. Similar to 1994, its investment portfolio had nearly three and a half
times the five year earnings growth and 40%
* Performance quoted represents past performance. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
of the median market capitalization of the Standard & Poor's 500 Stock Index,*
its benchmark index. The portfolio remains fundamentally positioned as a growth
stock fund and continues to offer a well developed and executed approach to
participating in the evolution of quality U.S. companies.
FUTURE STRATEGY FOR BAYFUNDS EQUITY PORTFOLIO IN 1996
The stock markets rebounded strongly in 1995. It was difficult to find any
sustained bearish trend throughout the year as the economy grew at a modest,
non-inflationary pace and corporate earnings met or exceeded expectations. It is
possible, but not likely, that the economy could continue in this highly
desirable fashion. Early indicators seem to presage a discernable weakening in
the overall configuration of the economy and there have been some notable
earnings disappointments, especially in the technology sector. A bias toward
lower interest rates may offset these negatives somewhat, but the stock markets
could become very volatile at their present levels. Additional factors such as
political upheaval in Washington, D.C. and the selling pressures possibly
created by a potential capital gains tax cut are reason for concern as well.
Superior stock selection will be increasingly important as investors may
disproportionately reward or punish companies based upon their corporate
earnings outlook. The portfolio's continuing emphasis on growing companies with
above average earnings potential should keep it well positioned in the year
ahead. For example, we believe that within the financial and technology sectors
there remain attractive investment opportunities. At the same time, adherence to
our diversification mandate ensures that the portfolio will have representation
across all market sectors. This strategy provides a hedge for the portfolio's
shareholders in the event that any one sector loses favor with investors.
As always, I urge you to focus on your long-term investment goals and not be
distracted by short-term trends. A successful ongoing investment strategy should
incorporate these three fundamentals:
- A long-term perspective on the market.
- Risk management by diversifying investments.
- A structured investment plan.
I invite you to contact your Investment Specialist** or Account Officer if you
have any questions about the course of action that is most appropriate in
helping you reach your investment goals.
Sincerely,
/s/ Richard F. Pollard
Richard F. Pollard
President
BayBanks Investment Management, Inc.
Investment Adviser to BayFunds Bond Portfolio,
BayFunds Short Term Yield Portfolio and BayFunds Equity Portfolio
February 15, 1996
* The Standard & Poor's 500 Stock Index is a composite index of common stocks
in industry, transportation and financial and public utility companies and
can be used to compare the total returns of funds whose portfolios are
invested in common stocks. This index is unmanaged, and actual investments
cannot be made in an index.
** Securities transactions may be effected through Investment Specialists who
are registered representatives of BayBank Brokerage Services, Inc., member
NASD/SIPC.
BAYFUNDS BOND PORTFOLIO--INVESTMENT SHARES
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN BAYFUNDS BOND PORTFOLIO--
INVESTMENT SHARES
The graph below illustrates the hypothetical investment of $10,000 in
BayFunds Bond Portfolio-- Investment Shares (the "Fund") from January 29, 1993
(start of performance) to December 31, 1995 compared to the Lehman Brothers
Intermediate Government/Corporate Bond Index.+
GRAPHIC REPRESENTATION OMITTED. SEE APPENDIX A
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIOD ENDED DECEMBER 31, 1995
1 Year................................................ 16.08%
Start of Performance (January 29, 1993)............... 7.15%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. MUTUAL FUNDS ARE NOT
BANK DEPOSITS OR FDIC INSURED AND ARE NOT OBLIGATIONS OF, OR GUARANTEED BY,
BAYBANK, NOR ARE THEY FEDERALLY INSURED OR GUARANTEED. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
* The Fund's performance assumes the reinvestment of all dividends and
distributions. The Lehman Brothers Intermediate Government/Corporate Bond
Index has been adjusted to reflect reinvestment of dividends on securities in
the index.
+ The Lehman Brothers Intermediate Government/Corporate Bond Index is not
adjusted to reflect sales loads, expenses, or other fees that the Securities
and Exchange Commission requires to be reflected in the Fund's performance.
This index is unmanaged.
BAYFUNDS BOND PORTFOLIO--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN BAYFUNDS BOND PORTFOLIO--
INSTITUTIONAL SHARES
The graph below illustrates the hypothetical investment of $10,000 in
BayFunds Bond Portfolio-- Institutional Shares (the "Fund") from December 31,
1993 (start of performance) to December 31, 1995 compared to the Lehman Brothers
Intermediate Government/Corporate Bond Index.+
GRAPHIC REPRESENTATION OMITTED. SEE APPENDIX B
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIOD ENDED DECEMBER 31, 1995
1 Year............................................... 16.36%
Start of Performance (December 31, 1993)............ 6.71%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. MUTUAL FUNDS ARE NOT
BANK DEPOSITS OR FDIC INSURED AND ARE NOT OBLIGATIONS OF, OR GUARANTEED BY,
BAYBANK, NOR ARE THEY FEDERALLY INSURED OR GUARANTEED. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
* The Fund's performance assumes the reinvestment of all dividends and
distributions. The Lehman Brothers Intermediate Government/Corporate Bond
Index has been adjusted to reflect reinvestment of dividends on securities in
the index.
+ The Lehman Brothers Intermediate Government/Corporate Bond Index is not
adjusted to reflect sales loads, expenses, or other fees that the Securities
and Exchange Commission requires to be reflected in the Fund's performance.
This index is unmanaged.
BAYFUNDS SHORT TERM YIELD PORTFOLIO--
INVESTMENT SHARES
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN BAYFUNDS SHORT TERM YIELD PORTFOLIO--
INVESTMENT SHARES
The graph below illustrates the hypothetical investment of $10,000 in
BayFunds Short Term Yield Portfolio--Investment Shares (the "Fund") from January
29, 1993 (start of performance) to December 31, 1995 compared to the Merrill
Lynch 1-3 Year Treasury Index.+
GRAPHIC REPRESENTATION OMITTED. SEE APPENDIX C
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIOD ENDED DECEMBER 31, 1995
1 Year.............................................. 7.37%
Start of Performance (January 29, 1993)............. 2.60%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. MUTUAL FUNDS ARE NOT
BANK DEPOSITS OR FDIC INSURED AND ARE NOT OBLIGATIONS OF, OR GUARANTEED BY,
BAYBANK, NOR ARE THEY FEDERALLY INSURED OR GUARANTEED. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
* The Fund's performance assumes the reinvestment of all dividends and
distributions. The Merrill Lynch 1-3 Year Treasury Index has been adjusted to
reflect reinvestment of dividends on securities in the index.
+ The Merrill Lynch 1-3 Year Treasury Index is not adjusted to reflect sales
loads, expenses, or other fees that the Securities and Exchange Commission
requires to be reflected in the Fund's performance. This index is unmanaged.
BAYFUNDS SHORT TERM YIELD PORTFOLIO--
INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN BAYFUNDS SHORT TERM YIELD PORTFOLIO--
INSTITUTIONAL SHARES
The graph below illustrates the hypothetical investment of $10,000 in
BayFunds Short Term Yield Portfolio--Institutional Shares (the "Fund") from
December 31, 1993 (start of performance) to December 31, 1995 compared to the
Merrill Lynch 1-3 Year Treasury Index.+
GRAPHIC REPRESENTATION OMITTED. SEE APPENDIX D
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIOD ENDED DECEMBER 31, 1995
1 Year.............................................. 7.64%
Start of Performance (December 31, 1993).............2.08%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. MUTUAL FUNDS ARE NOT
BANK DEPOSITS OR FDIC INSURED AND ARE NOT OBLIGATIONS OF, OR GUARANTEED BY,
BAYBANK, NOR ARE THEY FEDERALLY INSURED OR GUARANTEED. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
* The Fund's performance assumes the reinvestment of all dividends and
distributions. The Merrill Lynch 1-3 Year Treasury Index has been adjusted to
reflect reinvestment of dividends on securities in the index.
+ The Merrill Lynch 1-3 Year Treasury Index is not adjusted to reflect sales
loads, expenses, or other fees that the Securities and Exchange Commission
requires to be reflected in the Fund's performance. This index is unmanaged.
BAYFUNDS EQUITY PORTFOLIO--INVESTMENT SHARES
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN BAYFUNDS EQUITY PORTFOLIO--
INVESTMENT SHARES
The graph below illustrates the hypothetical investment of $10,000 in
BayFunds Equity Portfolio-- Investment Shares (the "Fund") from January 29, 1993
(start of performance) to December 31, 1995 compared to the Standard and Poor's
500 Stock Index (S&P 500).+
GRAPHIC REPRESENTATION OMITTED. SEE APPENDIX E
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIOD ENDED DECEMBER 31, 1995
1 Year............................................... 32.24%
Start of Performance (January 29, 1993).............. 12.87%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. MUTUAL FUNDS ARE NOT
BANK DEPOSITS OR FDIC INSURED AND ARE NOT OBLIGATIONS OF, OR GUARANTEED BY,
BAYBANKS, NOR ARE THEY FEDERALLY INSURED OR GUARANTEED. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
* The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P 500 has been adjusted to reflect reinvestment of
dividends on securities in the index.
+ The S&P 500 is not adjusted to reflect sales loads, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. This index is unmanaged.
BAYFUNDS EQUITY PORTFOLIO--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN BAYFUNDS EQUITY PORTFOLIO--
INSTITUTIONAL SHARES
The graph below illustrates the hypothetical investment of $10,000 in
BayFunds Equity Portfolio-- Institutional Shares (the "Fund") from December 31,
1993 (start of performance) to December 31, 1995 compared to the Standard and
Poor's 500 Stock Index (S&P 500).+
GRAPHIC REPRESENTATION OMITTED. SEE APPENDIX F
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIOD ENDED DECEMBER 31, 1995
1 Year.................................................. 32.59%
Start of Performance (December 31, 1993)................ 13.40%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. MUTUAL FUNDS ARE NOT
BANK DEPOSITS OR FDIC INSURED AND ARE NOT OBLIGATIONS OF, OR GUARANTEED BY,
BAYBANK, NOR ARE THEY FEDERALLY INSURED OR GUARANTEED. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
* The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P 500 has been adjusted to reflect reinvestment of
dividends on securities in the index.
+ The S&P 500 is not adjusted to reflect sales loads, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. This index is unmanaged.
BAYFUNDS BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------------- -----------
<C> <C> <S> <C>
ASSET-BACKED SECURITIES--9.2%
- ---------------------------------------------------------------------------------------
AUTO LOANS--0.2%
----------------------------------------------------------------------
$ 84,757 Merrill Lynch & Co. Asset-Backed Corp., 1993-1, Class A2, 5.125%,
7/15/1998 $ 84,598
----------------------------------------------------------------------
21,322 Shawmut National Grantor Trust 1992-A, Class A, 5.55%, 11/15/1997 21,259
---------------------------------------------------------------------- -----------
Total 105,857
---------------------------------------------------------------------- -----------
BANK CREDIT CARDS--2.4%
----------------------------------------------------------------------
1,000,000 First Deposit Master Trust 1993-2, Class A, 5.75%, 6/15/2001 1,006,250
----------------------------------------------------------------------
500,000 Standard Credit Card Master Trust 1993-3, Class A, 5.50%, 2/7/2000 498,750
---------------------------------------------------------------------- -----------
Total 1,505,000
---------------------------------------------------------------------- -----------
FINANCE CREDIT CARDS--6.6%
----------------------------------------------------------------------
1,960,000 Circuit City Credit Card Master Trust 1994-2, Class A, 8.00%,
11/15/2003 2,106,392
----------------------------------------------------------------------
1,960,000 Sears Credit Account Master Trust 1995-4, Class A, 6.25%, 1/15/2003 2,000,747
---------------------------------------------------------------------- -----------
Total 4,107,139
---------------------------------------------------------------------- -----------
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST $5,618,249) 5,717,996
---------------------------------------------------------------------- -----------
CORPORATE BONDS--40.0%
- ---------------------------------------------------------------------------------------
AUTOMOTIVE--4.8%
----------------------------------------------------------------------
1,770,000 Chrysler Corp., 10.95%, 8/1/2017 1,986,082
----------------------------------------------------------------------
1,000,000 Chrysler Financial Corp. Sr. Note , 8.125%, 12/15/1996 1,021,980
---------------------------------------------------------------------- -----------
Total 3,008,062
---------------------------------------------------------------------- -----------
BANKING--8.3%
----------------------------------------------------------------------
1,990,000 First Union Corp., Sub. Note, 7.50%, 4/15/2035 2,203,627
----------------------------------------------------------------------
1,900,000 J.P. Morgan & Co., Inc., 7.25%, 10/1/2010 1,975,145
----------------------------------------------------------------------
1,000,000 Norwest Corp., 6.00%, 3/15/2000 1,004,810
---------------------------------------------------------------------- -----------
Total 5,183,582
---------------------------------------------------------------------- -----------
</TABLE>
BAYFUNDS BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------------- -----------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- ---------------------------------------------------------------------------------------
FINANCIAL SERVICES--2.7%
----------------------------------------------------------------------
$ 4,250,000 British Gas Finance Co., Zero Coupon Bond, 11/4/2021 $ 650,781
----------------------------------------------------------------------
1,000,000 Salomon, Inc., Medium Term Note, 5.26%, 2/10/1999 998,770
---------------------------------------------------------------------- -----------
Total 1,649,551
---------------------------------------------------------------------- -----------
FOREIGN BANK--0.4%
----------------------------------------------------------------------
200,000 RBSG Capital Corp., 10.125%, 3/1/2004 248,558
---------------------------------------------------------------------- -----------
INSURANCE--6.5%
----------------------------------------------------------------------
2,000,000 Allmerica Financial Corp., Sr. Note, 7.625%, 10/15/2025 2,112,960
----------------------------------------------------------------------
1,890,000 ITT Hartford Group, Inc., Note, 7.30%, 11/1/2015 1,962,935
---------------------------------------------------------------------- -----------
Total 4,075,895
---------------------------------------------------------------------- -----------
MACHINERY, EQUIPMENT & AUTO--4.3%
----------------------------------------------------------------------
1,900,000 Caterpillar, Inc., Deb., 9.75%, 6/1/2019 2,181,105
----------------------------------------------------------------------
500,000 Ingersoll-Rand Co., 6.875%, 2/1/2003 520,385
---------------------------------------------------------------------- -----------
Total 2,701,490
---------------------------------------------------------------------- -----------
MEDIA--3.3%
----------------------------------------------------------------------
2,000,000 News America Holdings, Inc., 7.70%, 10/30/2025 2,076,020
---------------------------------------------------------------------- -----------
RETAIL--4.0%
----------------------------------------------------------------------
1,890,000 Sears Roebuck Acceptance Corp., Note, 6.11%, 10/26/1998 1,909,751
----------------------------------------------------------------------
500,000 Sears, Roebuck & Co., Medium Term Note, 9.46%, 6/20/2000 568,470
---------------------------------------------------------------------- -----------
Total 2,478,221
---------------------------------------------------------------------- -----------
SOVEREIGN--2.4%
----------------------------------------------------------------------
1,500,000 Korea Development Bank, 6.50%, 11/15/2002 1,519,020
---------------------------------------------------------------------- -----------
TRANSPORTATION--3.3%
----------------------------------------------------------------------
1,000,000 Ryder Systems, Inc., 8.375%, 2/15/2017 1,052,890
----------------------------------------------------------------------
958,375 Southwest Airlines Co., 6.26%, 9/24/2012 971,304
---------------------------------------------------------------------- -----------
Total 2,024,194
---------------------------------------------------------------------- -----------
TOTAL CORPORATE BONDS (IDENTIFIED COST $24,341,843) 24,964,593
---------------------------------------------------------------------- -----------
</TABLE>
BAYFUNDS BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------------- -----------
<C> <C> <S> <C>
GOVERNMENT AGENCIES--8.4%
- ---------------------------------------------------------------------------------------
$ 2,000,000 Federal Home Loan Mortgage Corp., Note, 7.74%, 6/1/2004 $ 2,111,060
----------------------------------------------------------------------
1,000,000 Federal National Mortgage Association, Medium Term Note, 5.30%,
1/17/1997 998,600
----------------------------------------------------------------------
1,000,000 Federal National Mortgage Association, 9.05%, 5/10/2021 1,077,640
----------------------------------------------------------------------
1,000,000 Tennessee Valley Authority, Medium Term Note, 7.318%, 5/31/1999 1,042,810
---------------------------------------------------------------------- -----------
TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST $5,017,959) 5,230,110
---------------------------------------------------------------------- -----------
U.S. TREASURY--40.3%
- ---------------------------------------------------------------------------------------
1,340,000 United States Treasury Bond, 7.625%, 2/15/2025 1,638,565
----------------------------------------------------------------------
1,990,000 United States Treasury Note, 5.625%, 11/30/2000 2,008,029
----------------------------------------------------------------------
2,500,000 United States Treasury Note, 6.25%, 2/15/2003 2,608,200
----------------------------------------------------------------------
7,570,000 United States Treasury Note, 6.375%, 1/15/1999 7,805,351
----------------------------------------------------------------------
2,770,000 United States Treasury Note, 7.50%, 1/31/1997 2,835,344
----------------------------------------------------------------------
6,800,000 United States Treasury Note, 7.50%, 2/15/2005 7,707,392
----------------------------------------------------------------------
510,000 United States Treasury Note, 7.875%, 8/15/2001 569,604
---------------------------------------------------------------------- -----------
TOTAL U.S. TREASURY (IDENTIFIED COST $24,233,446) 25,172,485
---------------------------------------------------------------------- -----------
(A) REPURCHASE AGREEMENT--0.8%
- ---------------------------------------------------------------------------------------
520,000 Aubrey G. Lanston and Company, Inc., 5.85%, dated 12/29/95, due
1/2/1996 (AT AMORTIZED COST) 520,000
---------------------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST $59,731,497) (B) $61,605,184
---------------------------------------------------------------------- -----------
</TABLE>
(a) The repurchase agreement is fully collateralized by U.S. Treasury
obligations based on market prices at the date of the portfolio.
(b) The cost of investments for federal tax purposes amounts to $59,741,206. The
net unrealized appreciation on a federal tax basis amounts to $1,863,978,
which is comprised of $1,884,103 appreciation and $20,125 depreciation at
December 31, 1995.
Note: The categories of investments are shown as a percentage of net assets
($62,431,775) at December 31,1995.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS SHORT TERM YIELD PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ -----------
<C> <C> <S> <C>
ASSET-BACKED SECURITIES--24.4%
- -----------------------------------------------------------------------------------
AUTO LOANS--21.1%
------------------------------------------------------------------
$ 3,197,033 Ford Credit Gtd. Trust 1994-B, Class A, 7.30%, 10/15/1999 $ 3,257,968
------------------------------------------------------------------
2,266,764 Ford Motor Credit Corp. 1994-A, Class A, 6.35%, 5/15/1999 2,281,633
------------------------------------------------------------------
5,000,000 Premier Auto Trust 1994-4, Class A4, 6.45%, 5/2/1998 5,045,200
------------------------------------------------------------------
2,348,972 World Omni Automobile Lease Securitization Trust, Class A, 6.45%,
9/25/2000 2,365,109
------------------------------------------------------------------ -----------
Total 12,949,910
------------------------------------------------------------------ -----------
MANUFACTURERS HOUSE LOANS--3.3%
------------------------------------------------------------------
2,000,000 Green Tree Financial Corp., Class A3, 6.20%, 12/15/2001 2,016,250
------------------------------------------------------------------ -----------
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST, $14,777,232) 14,966,160
------------------------------------------------------------------ -----------
CORPORATE BONDS--46.5%
- -----------------------------------------------------------------------------------
COMMERCIAL--3.2%
------------------------------------------------------------------
1,000,000 American General Finance Corp., 7.75%, 1/15/1997 1,020,720
------------------------------------------------------------------
975,000 Sunamerica, Inc., 5.70%, 11/9/1998 967,366
------------------------------------------------------------------ -----------
Total 1,988,086
------------------------------------------------------------------ -----------
DIVERSIFIED--3.4%
------------------------------------------------------------------
2,000,000 Philip Morris Cos., Inc., 7.375%, 2/15/1999 2,080,840
------------------------------------------------------------------ -----------
DOMESTIC BANKS--4.2%
------------------------------------------------------------------
1,500,000 Fleet Financial Group Inc., 7.125%, 5/1/2000 1,569,585
------------------------------------------------------------------
1,000,000 MBNA Corp., 6.10%, 12/15/2000 1,012,542
------------------------------------------------------------------ -----------
Total 2,582,127
------------------------------------------------------------------ -----------
FINANCE--2.6%
------------------------------------------------------------------
1,500,000 Smith Barney Holdings, Inc., Unsecured Note, 7.875%, 10/1/1999 1,597,680
------------------------------------------------------------------ -----------
</TABLE>
BAYFUNDS SHORT TERM YIELD PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ -----------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- -----------------------------------------------------------------------------------
FINANCE -- AUTOMOTIVE--8.7%
------------------------------------------------------------------
$ 587,000 Chrysler Financial Corp., 10.34%, 5/15/1996 $ 596,104
------------------------------------------------------------------
1,500,000 General Motors Acceptance Corp., 6.0625%, 1/24/1996 (a) 1,499,904
------------------------------------------------------------------
1,000,000 General Motors Acceptance Corp., 6.50%, 7/25/1997 1,011,870
------------------------------------------------------------------
2,000,000 General Motors Acceptance Corp., Deb., 9.375%, 4/1/2000 2,241,820
------------------------------------------------------------------ -----------
Total 5,349,698
------------------------------------------------------------------ -----------
FINANCE -- COMMERCIAL--8.7%
------------------------------------------------------------------
1,000,000 American Express Credit Corp., 6.125%, 11/15/2001 1,012,600
------------------------------------------------------------------
3,000,000 International Lease Finance Corp., 6.75%, 5/24/1999 3,075,330
------------------------------------------------------------------
1,250,000 Sunamerica, Inc., 6.58%, 1/15/2002 1,264,413
------------------------------------------------------------------ -----------
Total 5,352,343
------------------------------------------------------------------ -----------
FINANCE -- EQUIPMENT--0.7%
------------------------------------------------------------------
450,000 Caterpillar Finance, 5.975%, 2/29/1996 (a) 450,502
------------------------------------------------------------------ -----------
FINANCIAL SERVICES--2.5%
------------------------------------------------------------------
1,500,000 Dean Witter Discover, 6.12969%, 1/17/1996 (a) 1,501,605
------------------------------------------------------------------ -----------
FOOD & BEVERAGE--1.7%
------------------------------------------------------------------
1,000,000 Sara Lee Corp., 6.90%, 8/21/2003 1,057,589
------------------------------------------------------------------ -----------
MACHINERY & EQUIPMENT--1.7%
------------------------------------------------------------------
1,000,000 Ingersoll-Rand Co., 6.45%, 8/28/1998 1,017,460
------------------------------------------------------------------ -----------
MACHINERY, EQUIPMENT & AUTO--3.5%
------------------------------------------------------------------
2,000,000 Ford Motor Co., 7.50%, 11/15/1999 2,112,660
------------------------------------------------------------------ -----------
RETAIL--2.3%
------------------------------------------------------------------
1,400,000 Sears, Roebuck & Co., Note, 5.49%, 9/28/1998 1,392,706
------------------------------------------------------------------ -----------
UTILITIES-ELECTRIC--3.3%
------------------------------------------------------------------
2,000,000 National Rural Utilities Cooperative Finance Corp., 6.25%,
6/15/1999 2,031,626
------------------------------------------------------------------ -----------
TOTAL CORPORATE BONDS (IDENTIFIED COST, $28,140,989) 28,514,922
------------------------------------------------------------------ -----------
</TABLE>
BAYFUNDS SHORT TERM YIELD PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ -----------
<C> <C> <S> <C>
GOVERNMENT AGENCIES--6.5%
- -----------------------------------------------------------------------------------
$ 1,000,000 Federal Home Loan Bank, 6.20%, 9/29/1999 $ 1,008,400
------------------------------------------------------------------
1,000,000 Federal Home Loan Bank, 7.47%, 9/12/2005 1,003,440
------------------------------------------------------------------
2,000,000 Federal National Mortgage Association, 6.14%, 7/29/1997 2,002,500
------------------------------------------------------------------ -----------
TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST, $4,001,250) 4,014,340
------------------------------------------------------------------ -----------
MORTGAGE PASS THRU BALLOON--1.6%
- -----------------------------------------------------------------------------------
962,004 Federal National Mortgage Association Pool, 8.50%, 7/1/1998
(IDENTIFIED COST, $993,871) 989,951
------------------------------------------------------------------ -----------
U.S. TREASURY--12.0%
- -----------------------------------------------------------------------------------
7,000,000 United States Treasury Note, 8.50%, 7/15/1997
(IDENTIFIED COST, $7,330,312) 7,337,960
------------------------------------------------------------------ -----------
(B) REPURCHASE AGREEMENTS--7.9%
- -----------------------------------------------------------------------------------
860,000 Aubrey G. Lanston and Company, Inc., 5.85%, dated 12/29/1995, due
1/2/1996 (AT AMORTIZED COST) 860,000
------------------------------------------------------------------
4,000,000 HSBC Securities, Inc., 5.90%, dated 12/29/1995, due 1/2/1996
(AT AMORTIZED COST) 4,000,000
------------------------------------------------------------------ -----------
Total 4,860,000
------------------------------------------------------------------ -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $60,103,654) (C) $60,683,333
------------------------------------------------------------------ -----------
</TABLE>
(a) Floating rate note with current rate and next reset date shown.
(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) The cost of investment for federal tax purposes amounts to $60,103,654. The
net unrealized appreciation of investments on a federal tax basis amounts
to $579,679, which is comprised of $585,433 appreciation and $5,754
depreciation at December 31, 1995.
Note: The categories of investments are shown as a percentage of net assets
($61,297,427) at December 31, 1995.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
COMMON STOCKS--93.7%
- ----------------------------------------------------------------------------------
AEROSPACE & DEFENSE--1.0%
------------------------------------------------------------------
35,500 Loral Corp. $ 1,255,813
------------------------------------------------------------------ ------------
APPAREL & TEXTILES--3.4%
------------------------------------------------------------------
33,075 Liz Claiborne, Inc. 917,831
------------------------------------------------------------------
11,225 * Nautica Enterprise, Inc. 491,094
------------------------------------------------------------------
15,800 Nike, Inc., Class B 1,100,075
------------------------------------------------------------------
26,175 * Tommy Hilfiger Corp. 1,109,166
------------------------------------------------------------------
14,900 Wolverine World Wide, Inc. 469,350
------------------------------------------------------------------ ------------
Total 4,087,516
------------------------------------------------------------------ ------------
AUTO PARTS MANUFACTURERS--0.3%
------------------------------------------------------------------
7,800 Snap-On Tools Corp. 352,950
------------------------------------------------------------------ ------------
BANKS--3.9%
------------------------------------------------------------------
10,150 Bank of New York Co., Inc. 494,812
------------------------------------------------------------------
15,675 BankAmerica Corp. 1,014,956
------------------------------------------------------------------
6,075 Fifth Third Bancorp 444,994
------------------------------------------------------------------
9,050 NationsBank Corp. 630,106
------------------------------------------------------------------
11,300 Star Banc Corp. 672,350
------------------------------------------------------------------
6,225 SunTrust Banks, Inc. 426,413
------------------------------------------------------------------
23,350 Synovus Financial Corp. 665,475
------------------------------------------------------------------
1,450 Wells Fargo & Co. 313,200
------------------------------------------------------------------ ------------
Total 4,662,306
------------------------------------------------------------------ ------------
BEVERAGE--2.6%
------------------------------------------------------------------
25,800 Coca-Cola Co. 1,915,650
------------------------------------------------------------------
21,525 PepsiCo, Inc. 1,202,709
------------------------------------------------------------------ ------------
Total 3,118,359
------------------------------------------------------------------ ------------
</TABLE>
BAYFUNDS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- ----------------------------------------------------------------------------------
CHEMICALS--2.3%
------------------------------------------------------------------
27,925 Cabot Corp. $ 1,504,459
------------------------------------------------------------------
16,900 Hercules, Inc. 952,738
------------------------------------------------------------------
7,275 Union Carbide Corp. 272,813
------------------------------------------------------------------ ------------
Total 2,730,010
------------------------------------------------------------------ ------------
CHEMICAL-SPECIALTY--1.1%
------------------------------------------------------------------
12,350 Avery Dennison Corp. 619,044
------------------------------------------------------------------
13,450 Sigma-Aldrich Corp. 665,775
------------------------------------------------------------------ ------------
Total 1,284,819
------------------------------------------------------------------ ------------
COAL, GAS, & PIPE--0.7%
------------------------------------------------------------------
29,725 Panhandle Eastern Corp. 828,584
------------------------------------------------------------------ ------------
COMMUNICATION EQUIPMENT--0.8%
------------------------------------------------------------------
25,200 * Andrew Corp. 963,900
------------------------------------------------------------------ ------------
COMPUTER RELATED--3.8%
------------------------------------------------------------------
22,950 * 3Com Corp. 1,070,044
------------------------------------------------------------------
11,025 * Cisco Systems, Inc. 822,741
------------------------------------------------------------------
5,675 * Digital Equipment Corp. 363,909
------------------------------------------------------------------
9,400 International Business Machines Corp. 862,450
------------------------------------------------------------------
31,600 * Sun Microsystems, Inc. 1,441,750
------------------------------------------------------------------ ------------
Total 4,560,894
------------------------------------------------------------------ ------------
COMPUTER SERVICES--0.8%
------------------------------------------------------------------
8,850 Computer Associates International, Inc. 503,344
------------------------------------------------------------------
18,500 National Data Corp. 457,875
------------------------------------------------------------------ ------------
Total 961,219
------------------------------------------------------------------ ------------
</TABLE>
BAYFUNDS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- ----------------------------------------------------------------------------------
COMPUTER SOFTWARE--2.5%
------------------------------------------------------------------
5,675 * Adobe System, Inc. $ 351,850
------------------------------------------------------------------
15,250 * Cabletron Systems, Inc. 1,235,250
------------------------------------------------------------------
5,250 * Fiserv, Inc. 157,500
------------------------------------------------------------------
3,550 * Microsoft Corp. 311,512
------------------------------------------------------------------
22,725 * Oracle Corp. 962,972
------------------------------------------------------------------ ------------
Total 3,019,084
------------------------------------------------------------------ ------------
CONSTRUCTION--1.5%
------------------------------------------------------------------
31,469 Clayton Homes, Inc. 672,645
------------------------------------------------------------------
9,500 Crane Co. 350,313
------------------------------------------------------------------
10,700 Oakwood Homes Corp. 410,613
------------------------------------------------------------------
17,325 * Toll Brothers, Inc. 398,475
------------------------------------------------------------------ ------------
Total 1,832,046
------------------------------------------------------------------ ------------
CONTAINERS--1.0%
------------------------------------------------------------------
39,350 * Sealed Air Corp. 1,106,719
------------------------------------------------------------------ ------------
COSMETICS/TOILETRIES--1.2%
------------------------------------------------------------------
27,200 Gillette Co. 1,417,800
------------------------------------------------------------------ ------------
DIVERSIFIED--1.4%
------------------------------------------------------------------
13,200 Loews Corp. 1,034,550
------------------------------------------------------------------
14,400 * Primark Corp. 432,000
------------------------------------------------------------------
9,750 Teledyne, Inc. 249,844
------------------------------------------------------------------ ------------
Total 1,716,394
------------------------------------------------------------------ ------------
DRUGS--4.8%
------------------------------------------------------------------
27,700 * Amgen, Inc. 1,644,688
------------------------------------------------------------------
7,128 Cardinal Health, Inc. 390,258
------------------------------------------------------------------
10,500 Merck & Co., Inc. 690,375
------------------------------------------------------------------
11,150 Omnicare, Inc. 498,962
------------------------------------------------------------------
</TABLE>
BAYFUNDS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- ----------------------------------------------------------------------------------
DRUGS--CONTINUED
------------------------------------------------------------------
21,250 Pfizer, Inc. $ 1,338,750
------------------------------------------------------------------
21,675 Schering Plough Corp. 1,186,706
------------------------------------------------------------------ ------------
Total 5,749,739
------------------------------------------------------------------ ------------
ELECTRIC POWER--3.2%
------------------------------------------------------------------
21,800 American Electric Power Co., Inc. 882,900
------------------------------------------------------------------
11,850 FPL Group, Inc. 549,544
------------------------------------------------------------------
23,925 General Public Utilities 813,450
------------------------------------------------------------------
45,800 Houston Industries, Inc. 1,110,650
------------------------------------------------------------------
21,050 Ohio Edison Co. 494,675
------------------------------------------------------------------ ------------
Total 3,851,219
------------------------------------------------------------------ ------------
ELECTRICAL EQUIPMENT--0.4%
------------------------------------------------------------------
26,250 Baldor Electric Co. 528,281
------------------------------------------------------------------ ------------
ELECTRONICS--2.4%
------------------------------------------------------------------
11,800 * Applied Materials, Inc. 464,625
------------------------------------------------------------------
8,275 Avnet, Inc. 370,306
------------------------------------------------------------------
1,969 Park Electrochemical Corp. 64,977
------------------------------------------------------------------
9,900 Tektronix, Inc. 486,337
------------------------------------------------------------------
15,400 * Teradyne, Inc. 385,000
------------------------------------------------------------------
11,925 Varian Associates, Inc. 569,419
------------------------------------------------------------------
16,750 * Vishay Intertechnology, Inc. 527,625
------------------------------------------------------------------ ------------
Total 2,868,289
------------------------------------------------------------------ ------------
ENVIRONMENTAL--1.8%
------------------------------------------------------------------
15,650 * Ionics, Inc. 680,775
------------------------------------------------------------------
20,175 * Thermo Electron Corp. 1,049,100
------------------------------------------------------------------
13,200 * Thermo Instrument Systems, Inc. 445,500
------------------------------------------------------------------ ------------
Total 2,175,375
------------------------------------------------------------------ ------------
</TABLE>
BAYFUNDS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- ----------------------------------------------------------------------------------
EXPLORATION/DRILLING--0.8%
------------------------------------------------------------------
28,750 Tidewater, Inc. $ 905,625
------------------------------------------------------------------ ------------
FINANCIAL SERVICES--7.5%
------------------------------------------------------------------
20,150 Advanta Corp., Class A 770,737
------------------------------------------------------------------
74,600 Equifax, Inc. 1,594,575
------------------------------------------------------------------
10,775 Finova Group, Inc. 519,894
------------------------------------------------------------------
7,275 First USA, Inc. 322,828
------------------------------------------------------------------
62,650 Green Tree Financial Corp. 1,652,394
------------------------------------------------------------------
17,600 Household International, Inc. 1,040,600
------------------------------------------------------------------
21,100 MBNA Corp. 778,062
------------------------------------------------------------------
28,968 Money Stores, Inc. 452,617
------------------------------------------------------------------
17,400 Quick & Reilly Group, Inc. 356,700
------------------------------------------------------------------
26,437 Sunamerica, Inc. 1,255,757
------------------------------------------------------------------
4,100 T. Rowe Price Associates 201,925
------------------------------------------------------------------ ------------
Total 8,946,089
------------------------------------------------------------------ ------------
FOOD PRODUCERS--1.0%
------------------------------------------------------------------
6,875 ConAgra, Inc. 283,594
------------------------------------------------------------------
16,675 IBP, Inc. 842,088
------------------------------------------------------------------ ------------
Total 1,125,682
------------------------------------------------------------------ ------------
FOOD RETAILER--1.4%
------------------------------------------------------------------
32,100 * Safeway, Inc. 1,653,150
------------------------------------------------------------------ ------------
FOREST PRODUCTS & PAPER--3.1%
------------------------------------------------------------------
9,950 Champion International Corp. 417,900
------------------------------------------------------------------
14,950 International Paper Co. 566,231
------------------------------------------------------------------
17,979 Kimberly-Clark Corp. 1,487,762
------------------------------------------------------------------
5,825 Mead Corp. 304,356
------------------------------------------------------------------
16,125 Willamette Industries, Inc. 907,031
------------------------------------------------------------------ ------------
Total 3,683,280
------------------------------------------------------------------ ------------
</TABLE>
BAYFUNDS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- ----------------------------------------------------------------------------------
FURNITURE/APPLIANCES--1.3%
------------------------------------------------------------------
34,525 Black & Decker Corp. $ 1,217,006
------------------------------------------------------------------
7,325 Premark International, Inc. 370,828
------------------------------------------------------------------ ------------
Total 1,587,834
------------------------------------------------------------------ ------------
INSURANCE COMPANIES--4.1%
------------------------------------------------------------------
30,400 Aflac, Inc. 1,318,600
------------------------------------------------------------------
16,875 American Bankers Insurance Group, Inc. 658,125
------------------------------------------------------------------
15,675 American International Group, Inc. 1,449,938
------------------------------------------------------------------
26,925 MGIC Investment Corp. 1,460,681
------------------------------------------------------------------ ------------
Total 4,887,344
------------------------------------------------------------------ ------------
MACHINERY & EQUIPMENT--3.0%
------------------------------------------------------------------
8,150 Danaher Corp. 258,763
------------------------------------------------------------------
24,450 Dover Corp. 901,594
------------------------------------------------------------------
11,575 Duriron, Inc. 270,566
------------------------------------------------------------------
7,500 Kennametal, Inc. 238,125
------------------------------------------------------------------
37,775 Pall Corp. 1,015,203
------------------------------------------------------------------
10,300 Parker-Hannifin Corp. 352,775
------------------------------------------------------------------
15,175 Timken Co. 580,444
------------------------------------------------------------------ ------------
Total 3,617,470
------------------------------------------------------------------ ------------
MEDIA--0.2%
------------------------------------------------------------------
2,300 Capital Cities/ABC, Inc. 283,763
------------------------------------------------------------------ ------------
MEDICAL SUPPLIES/SERVICES--4.0%
------------------------------------------------------------------
6,925 Becton, Dickinson & Co. 519,375
------------------------------------------------------------------
6,875 * Cordis Corp. 690,937
------------------------------------------------------------------
9,500 * HealthCare COMPARE Corp. 413,250
------------------------------------------------------------------
22,800 Invacare Corp. 575,700
------------------------------------------------------------------
</TABLE>
BAYFUNDS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- ----------------------------------------------------------------------------------
MEDICAL SUPPLIES/SERVICES--CONTINUED
------------------------------------------------------------------
9,550 Johnson & Johnson $ 817,719
------------------------------------------------------------------
29,100 Medtronic, Inc. 1,625,962
------------------------------------------------------------------
2,675 Stryker Corp. 140,437
------------------------------------------------------------------ ------------
Total 4,783,380
------------------------------------------------------------------ ------------
METALS & MINING--0.4%
------------------------------------------------------------------
9,500 Aluminum Co. of America 502,313
------------------------------------------------------------------ ------------
NATURAL GAS--0.8%
------------------------------------------------------------------
22,950 Williams Companies, Inc. (The) 1,006,931
------------------------------------------------------------------ ------------
OIL-DOMESTIC--1.6%
------------------------------------------------------------------
12,000 Amoco Corp. 862,500
------------------------------------------------------------------
31,050 Sun Co., Inc. 849,994
------------------------------------------------------------------
10,475 USX-Marathon Group 204,263
------------------------------------------------------------------ ------------
Total 1,916,757
------------------------------------------------------------------ ------------
OIL-INTERNATIONAL--3.4%
------------------------------------------------------------------
10,603 British Petroleum, PLC, ADR 1,082,831
------------------------------------------------------------------
8,600 Exxon Corp. 689,075
------------------------------------------------------------------
14,500 Mobil Corp. 1,624,000
------------------------------------------------------------------
4,800 Royal Dutch Petroleum Co., ADR 677,400
------------------------------------------------------------------ ------------
Total 4,073,306
------------------------------------------------------------------ ------------
OIL SERVICES--1.4%
------------------------------------------------------------------
32,275 Halliburton Co. 1,633,922
------------------------------------------------------------------ ------------
PHOTO & OPTICAL--0.2%
------------------------------------------------------------------
6,650 * Coherent, Inc. 269,325
------------------------------------------------------------------ ------------
PRINTING/PUBLISHING--1.0%
------------------------------------------------------------------
20,850 Meredith Corp. 873,094
------------------------------------------------------------------
4,625 Pulitzer Publishing Co. 220,844
------------------------------------------------------------------ ------------
Total 1,093,938
------------------------------------------------------------------ ------------
</TABLE>
BAYFUNDS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- ----------------------------------------------------------------------------------
PROFESSIONAL SERVICES--1.6%
------------------------------------------------------------------
9,950 Cintas Corp. $ 442,775
------------------------------------------------------------------
16,500 Olsten Corp. 651,750
------------------------------------------------------------------
20,425 * Robert Half International, Inc. 855,297
------------------------------------------------------------------ ------------
Total 1,949,822
------------------------------------------------------------------ ------------
RAILROADS--1.3%
------------------------------------------------------------------
11,000 Burlington Northern Santa Fe 858,000
------------------------------------------------------------------
5,200 CSX Corp. 237,250
------------------------------------------------------------------
7,075 * Wisconsin Central Transportation Corp. 465,181
------------------------------------------------------------------ ------------
Total 1,560,431
------------------------------------------------------------------ ------------
RECREATION--1.4%
------------------------------------------------------------------
3,550 * Broderbund Software, Inc. 215,663
------------------------------------------------------------------
9,275 Disney (Walt) Co. 547,225
------------------------------------------------------------------
19,325 Mattel, Inc. 594,244
------------------------------------------------------------------
6,200 Polygram, ADR 325,500
------------------------------------------------------------------ ------------
Total 1,682,632
------------------------------------------------------------------ ------------
RESTAURANTS--2.3%
------------------------------------------------------------------
27,450 Applebee's International, Inc. 624,488
------------------------------------------------------------------
35,900 McDonald's Corp. 1,619,987
------------------------------------------------------------------
7,850 * Outback Steakhouse, Inc. 281,619
------------------------------------------------------------------
16,800 Wendy's International, Inc. 357,000
------------------------------------------------------------------ ------------
Total 2,883,094
------------------------------------------------------------------ ------------
RETAIL SPECIALTY--3.9%
------------------------------------------------------------------
9,675 * Bed Bath & Beyond, Inc. 375,511
------------------------------------------------------------------
19,200 * CUC International, Inc. 655,200
------------------------------------------------------------------
39,125 Casey's General Stores, Inc. 855,859
------------------------------------------------------------------
16,550 Circuit City Stores, Inc. 457,193
------------------------------------------------------------------
</TABLE>
BAYFUNDS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- ----------------------------------------------------------------------------------
RETAIL SPECIALTY--CONTINUED
------------------------------------------------------------------
25,800 Office Depot, Inc. $ 509,550
------------------------------------------------------------------
45,825 * Staples, Inc. 1,116,984
------------------------------------------------------------------
22,300 Walgreen Co. 666,212
------------------------------------------------------------------ ------------
Total 4,636,509
------------------------------------------------------------------ ------------
RETAIL-DISCOUNT--1.1%
------------------------------------------------------------------
22,900 * Consolidated Stores Corp. 498,075
------------------------------------------------------------------
19,218 Dollar General Corp. 398,773
------------------------------------------------------------------
11,625 Rite Aid Corp. 398,156
------------------------------------------------------------------ ------------
Total 1,295,004
------------------------------------------------------------------ ------------
SEMICONDUCTORS--1.3%
------------------------------------------------------------------
28,500 Linear Technology Corp. 1,118,625
------------------------------------------------------------------
7,400 Texas Instruments, Inc. 382,950
------------------------------------------------------------------ ------------
Total 1,501,575
------------------------------------------------------------------ ------------
TOBACCO--0.6%
------------------------------------------------------------------
8,325 Philip Morris Cos., Inc. 753,412
------------------------------------------------------------------ ------------
UTILITY-TELEPHONE--3.5%
------------------------------------------------------------------
42,075 Cincinnati Bell, Inc. 1,462,106
------------------------------------------------------------------
6,200 GTE Corp. 272,800
------------------------------------------------------------------
19,400 MCI Communications Corp. 506,825
------------------------------------------------------------------
22,400 Sprint Corp. 893,200
------------------------------------------------------------------
14,950 Telecom of New Zealand, ADR 1,037,156
------------------------------------------------------------------ ------------
Total 4,172,087
------------------------------------------------------------------ ------------
</TABLE>
BAYFUNDS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- ---------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- ----------------------------------------------------------------------------------
WHOLESALERS--0.6%
------------------------------------------------------------------
27,750 Richfood Holdings, Inc. $ 742,313
------------------------------------------------------------------ ------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $85,520,056) 112,218,304
------------------------------------------------------------------ ------------
(A) REPURCHASE AGREEMENT--2.0%
- ----------------------------------------------------------------------------------
$2,440,000 Aubrey G. Lanston and Company, Inc., 5.85%, dated 12/29/1995,
due 1/2/1996 (AT AMORTIZED COST) 2,440,000
------------------------------------------------------------------ ------------
TOTAL INVESTMENTS (IDENTIFIED COST $87,960,056) (B) $114,658,304
------------------------------------------------------------------ ------------
</TABLE>
* Non-income producing.
(a) The repurchase agreement is fully collateralized by U.S. Treasury
obligations based on market prices at the date of the portfolio.
(b) The cost of investments for federal tax purposes amount to $87,966,249. The
net unrealized appreciation of investment on a federal tax basis amounts to
$26,692,055, which is comprised of $28,529,864 appreciation and $1,837,809
depreciation on December 31, 1995.
Note: The categories of investments are shown as a percentage of net assets
($119,759,589) at December 31, 1995.
The following acronyms are used throughout this portfolio:
ADR--American Depositary Receipt
PLC--Public Limited Company
(See Notes which are integral part of the Financial Statements)
BAYFUNDS INCOME AND EQUITY PORTFOLIOS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BAYFUNDS
BAYFUNDS SHORT BAYFUNDS
BOND TERM YIELD EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ------------
<S> <C> <C> <C>
ASSETS:
- --------------------------------------------------------------
Investments in securities, at value $61,605,184 $ 60,683,333 $114,658,304
- --------------------------------------------------------------
Cash 1,531 3,565 16,188
- --------------------------------------------------------------
Income receivable 1,123,131 842,541 81,271
- --------------------------------------------------------------
Receivable for shares sold 7,023 27,175 5,093,906
- --------------------------------------------------------------
Deferred expenses 24,457 38,066 28,408
- -------------------------------------------------------------- ----------- ------------ ------------
Total assets 62,761,326 61,594,680 119,878,077
- -------------------------------------------------------------- ----------- ------------ ------------
LIABILITIES:
- --------------------------------------------------------------
Payable for shares redeemed -- 20,812 25,099
- --------------------------------------------------------------
Income distribution payable 250,926 223,528 221
- --------------------------------------------------------------
Accrued expenses 78,625 52,913 93,168
- -------------------------------------------------------------- ----------- ------------ ------------
Total liabilities 329,551 297,253 118,488
- -------------------------------------------------------------- ----------- ------------ ------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------
Paid in capital 61,462,510 72,645,690 93,069,157
- --------------------------------------------------------------
Net unrealized appreciation of investments 1,873,687 579,679 26,698,248
- --------------------------------------------------------------
Accumulated net realized loss on investments (904,422) (11,927,942) (6,193)
- --------------------------------------------------------------
Distributions in excess of net investment income -- -- (1,623)
- -------------------------------------------------------------- ----------- ------------ ------------
Total Net Assets $62,431,775 $ 61,297,427 $119,759,589
- -------------------------------------------------------------- ----------- ------------ ------------
NET ASSETS:
- --------------------------------------------------------------
Investment Shares $ 6,757,247 $ 21,101,036 $ 31,543,158
- -------------------------------------------------------------- ----------- ------------ ------------
Institutional Shares $55,674,528 $ 40,196,391 $ 88,216,431
- -------------------------------------------------------------- ----------- ------------ ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER
SHARE:
- --------------------------------------------------------------
Investment Shares $ 10.31 $ 9.28 $ 13.04
- -------------------------------------------------------------- ----------- ------------ ------------
Institutional Shares $ 10.31 $ 9.28 $ 13.04
- -------------------------------------------------------------- ----------- ------------ ------------
SHARES OUTSTANDING:
- --------------------------------------------------------------
Investment Shares 655,233 2,272,842 2,418,821
- --------------------------------------------------------------
Institutional Shares 5,398,628 4,329,641 6,765,994
- -------------------------------------------------------------- ----------- ------------ ------------
Total Shares Outstanding 6,053,861 6,602,483 9,184,815
- -------------------------------------------------------------- ----------- ------------ ------------
Investments, at identified cost $59,731,497 $ 60,103,654 $ 87,960,056
- -------------------------------------------------------------- ----------- ------------ ------------
Investments, at tax cost $59,741,206 $ 60,103,654 $ 87,966,249
- -------------------------------------------------------------- ----------- ------------ ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS INCOME AND EQUITY PORTFOLIOS
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BAYFUNDS
BAYFUNDS SHORT TERM BAYFUNDS
BOND YIELD EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------
Dividends $ -- $ -- $ 1,698,315
- -----------------------------------------------
Interest 4,259,238 4,964,995 386,048
- ----------------------------------------------- ------------ ------------ ------------
Total income 4,259,238 4,964,995 2,084,363
- ----------------------------------------------- ------------ ------------ ------------
EXPENSES:
- -----------------------------------------------
Investment advisory fee 360,071 361,786 783,869
- -----------------------------------------------
Administrative personnel and services fee 60,548 73,121 112,952
- -----------------------------------------------
Custodian fees 11,697 17,707 36,647
- -----------------------------------------------
Transfer and dividend disbursing agent fees and
expenses 17,958 20,014 35,598
- -----------------------------------------------
Directors'/Trustees' fees 3,001 3,288 6,631
- -----------------------------------------------
Auditing fees 14,509 12,078 15,677
- -----------------------------------------------
Legal fees 4,659 6,576 12,602
- -----------------------------------------------
Portfolio accounting fees 72,619 61,302 76,418
- -----------------------------------------------
Shareholder services fee--Investment Shares 15,149 64,567 72,988
- -----------------------------------------------
Share registration costs 30,019 26,196 27,559
- -----------------------------------------------
Printing and postage 34,863 27,911 48,317
- -----------------------------------------------
Insurance premiums 4,724 5,767 6,855
- -----------------------------------------------
Miscellaneous 10,207 9,672 11,912
- ----------------------------------------------- ------------ ------------ ------------
Total expenses 640,024 689,985 1,248,025
- ----------------------------------------------- ------------ ------------ ------------
Net investment income 3,619,214 4,275,010 836,338
- ----------------------------------------------- ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
- -----------------------------------------------
Net realized gain (loss) on investments 1,359,217 (322,828) 9,667,197
- -----------------------------------------------
Change in unrealized appreciation of
investments 4,140,849 1,336,612 20,791,774
- ----------------------------------------------- ------------ ------------ ------------
Net realized and unrealized gain on
investments 5,500,066 1,013,784 30,458,971
- ----------------------------------------------- ------------ ------------ ------------
Change in net assets resulting from
operations $ 9,119,280 $ 5,288,794 $ 31,295,309
- ----------------------------------------------- ------------ ------------ ------------
</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
----------------------------- ------------------------------ ------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------------
1995 1994 1995 1994 1995 1994
------------ ------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
- ------------------------
OPERATIONS--
- ------------------------
Net investment income $ 3,619,214 $ 3,668,202 $ 4,275,010 $ 6,222,146 $ 836,338 $ 1,149,003
- ------------------------
Net realized gain (loss)
on investments 1,359,217 (2,263,688) (322,828) (11,529,693) 9,667,197 (538,539)
- ------------------------
Net change in unrealized
appreciation
(depreciation) of
investments 4,140,849 (2,924,221) 1,336,612 513,580 20,791,774 (4,173,943)
- ------------------------ ---------- ---------- ---------- ----------- ---------- -----------
Change in net assets
resulting from
operations 9,119,280 (1,519,707) 5,288,794 (4,793,967) 31,295,309 (3,563,479)
- ------------------------ ---------- ---------- ---------- ----------- ---------- -----------
DISTRIBUTIONS TO
SHAREHOLDERS--
- ------------------------
Distributions from net
investment income:
- ------------------------
Investment Shares (349,614) (341,107) (1,483,966) (2,556,438) (160,829) (245,091)
- ------------------------
Institutional Shares (3,269,600) (3,327,095) (2,791,044) (3,665,708) (693,240) (901,108)
- ------------------------
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 (3,619,214) (3,668,202) (4,275,010) (6,222,146) (7,900,565) (1,146,199)
- ------------------------ ---------- ---------- ---------- ----------- ---------- -----------
SHARE TRANSACTIONS--
- ------------------------
Proceeds from sale of
shares 12,002,656 83,396,750 7,580,116 126,448,882 19,900,016 118,436,160
- ------------------------
Net asset value of
shares issued to
shareholders in payment
of distributions
declared 529,626 323,304 1,336,193 2,224,772 2,279,634 251,323
- ------------------------
Cost of shares redeemed (17,355,888) (94,856,372) (40,137,124) (199,453,887) (33,029,751) (118,449,884)
- ------------------------ ---------- ---------- ---------- ----------- ---------- -----------
Change in net assets
resulting from share
transactions (4,823,606) (11,136,318) (31,220,815) (70,780,233) (10,850,101) 237,599
- ------------------------ ---------- ---------- ---------- ----------- ---------- -----------
Change in net
assets 676,460 (16,324,227) (30,207,031) (81,796,346) 12,544,643 (4,472,079)
- ------------------------
NET ASSETS:
- ------------------------
Beginning of period 61,755,315 78,079,542 91,504,458 173,300,804 107,214,946 111,687,025
- ------------------------ ---------- ---------- ---------- ----------- ---------- -----------
End of period $ 62,431,775 $ 61,755,315 $ 61,297,427 $ 91,504,458 $119,759,589 $ 107,214,946
- ------------------------ ---------- ---------- ---------- ----------- ---------- -----------
Undistributed net
investment income
included in net assets
at end of period $ -- $ -- $ -- $ -- $ (1,623) $ 17,731
- ------------------------ ---------- ---------- ---------- ----------- ---------- -----------
Net gain (loss) as
computed for federal
tax purposes $ 1,366,738 $ (2,261,500) $ (322,828) $ (11,534,248) $ 9,591,617 $ (456,765)
- ------------------------ ---------- ---------- ---------- ----------- ---------- -----------
</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 DISTRIBUTIONS
VALUE, NET AND UNREALIZED TOTAL FROM FROM NET IN EXCESS OF NET FROM NET
YEAR ENDED BEGINNING INVESTMENT GAIN/(LOSS) ON INVESTMENT INVESTMENT INVESTMENT REALIZED GAIN
DECEMBER 31, OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INCOME ON INVESTMENTS
- ----------------------- --------- ---------- -------------- ---------- ------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT SHARES
BAYFUNDS BOND PORTFOLIO
1993(a) $ 10.00 0.55 0.24 0.79 (0.55) -- (0.10)
1994 $ 10.14 0.49 (0.73) (0.24) (0.49) -- --
1995 $ 9.41 0.57 0.90 1.47 (0.57) -- --
BAYFUNDS SHORT TERM YIELD PORTFOLIO
1993(a) $ 10.00 0.48 (0.09) 0.39 (0.48) -- --
1994 $ 9.91 0.43 (0.76) (0.33) (0.43) -- --
1995 $ 9.15 0.53 0.13 0.66 (0.53) -- --
BAYFUNDS EQUITY PORTFOLIO
1993(a) $ 10.00 0.14 0.98 1.12 (0.14) -- --
1994 $ 10.98 0.09 (0.44) (0.35) (0.09) -- --
1995 $ 10.54 0.07 3.32 3.39 (0.07) 0.00(b) (0.82)
INSTITUTIONAL SHARES
BAYFUNDS BOND PORTFOLIO
1994 $ 10.14 0.52 (0.73) (0.21) (0.52) -- --
1995 $ 9.41 0.60 0.90 1.50 (0.60) -- --
BAYFUNDS SHORT TERM YIELD PORTFOLIO
1994 $ 9.91 0.45 (0.76) (0.31) (0.45) -- --
1995 $ 9.15 0.55 0.13 0.68 (0.55) -- --
BAYFUNDS EQUITY PORTFOLIO
1994 $ 10.98 0.11 (0.44) (0.33) (0.11) -- --
1995 $ 10.54 0.10 3.32 3.42 (0.10) 0.00(b) (0.82)
</TABLE>
- --------------------------------------------------------------------------------
(a) Reflects operations for the period from January 29, 1993 (date of initial
public investment) to December 31, 1993.
(b) Distribution in excess of net investment income was a result of certain book
and tax timing differences. This distribution does not represent a return of
capital for federal income tax purposes, and did not round to a penny.
(c) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(d) Computed on an annualized basis.
(e) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET ASSET EXPENSE
VALUE, NET WAIVER/ NET ASSETS, PORTFOLIO
TOTAL END OF TOTAL INVESTMENT REIMBURSE- END OF PERIOD TURNOVER
DISTRIBUTIONS PERIOD RETURN (C) EXPENSES INCOME MENT (E) (000 OMITTED) RATE
- ------------- --------- ---------- -------- ---------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(0.65) $ 10.14 7.97% 0.70%(d) 5.84%(d) 0.23%(d) $ 78,080 74%
(0.49) $ 9.41 (2.37%) 1.19% 5.09% -- $ 5,136 134%
(0.57) $ 10.31 16.08% 1.29% 5.80% -- $ 6,757 161%
(0.48) $ 9.91 3.96% 0.60%(d) 5.19%(d) 0.16%(d) $ 173,301 98%
(0.43) $ 9.15 (3.43%) 1.04% 4.42% -- $ 34,993 148%
(0.53) $ 9.28 7.37% 1.11% 5.75% -- $ 21,101 167%
(0.14) $ 10.98 11.28% 0.75%(d) 1.56%(d) 0.24%(d) $ 111,687 81%
(0.09) $ 10.54 (3.23%) 1.26% 0.81% -- $ 28,903 108%
(0.89) $ 13.04 32.24% 1.30% 0.56% -- $ 31,543 76%
(0.52) $ 9.41 (2.14%) 0.99% 5.29% -- $ 56,619 134%
(0.60) $ 10.31 16.36% 1.04% 6.06% -- $ 55,675 161%
(0.45) $ 9.15 (3.19%) 0.80% 4.66% -- $ 56,511 148%
(0.55) $ 9.28 7.64% 0.86% 6.00% -- $ 40,196 167%
(0.11) $ 10.54 (2.98%) 1.02% 1.05% -- $ 78,312 108%
(0.92) $ 13.04 32.59% 1.05% 0.81% -- $ 88,216 76%
</TABLE>
- --------------------------------------------------------------------------------
BAYFUNDS INCOME AND EQUITY PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
(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>
INVESTMENT OBJECTIVE
The Bond Fund seeks to provide high current income and capital appreciation
while the Short Term Yield Fund seeks a high level of current income consistent
with preservation of capital. The Equity Fund seeks to provide long term capital
appreciation.
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
BAYFUNDS INCOME AND EQUITY PORTFOLIOS
- --------------------------------------------------------------------------------
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.
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, the 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.
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
BAYFUNDS INCOME AND EQUITY PORTFOLIOS
- --------------------------------------------------------------------------------
and are being amortized using the straight-line method not to exceed a
period of five years from the 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.
BAYFUNDS INCOME AND EQUITY PORTFOLIOS
- --------------------------------------------------------------------------------
Transactions in shares were as follows:
<TABLE>
<CAPTION>
BOND FUND SHORT TERM YIELD FUND EQUITY FUND
---------------------------- -------------------------- --------------------------
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------------------------------------
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
---------------------------- -------------------------- --------------------------
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BOND FUND SHORT TERM YIELD FUND EQUITY FUND
--------------------------- ---------------------------- --------------------------
YEAR ENDED DECEMBER 31, 1994
-----------------------------------------------------------------------------------------
INVESTMENT SHARES SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ----------------------- ----------- ------------ ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 230,919 $ 2,260,644 1,918,640 $ 18,619,735 1,287,398 $ 13,811,479
- -----------------------
Shares issued to
shareholders in
payment of
distributions declared 28,437 275,587 233,107 2,224,668 22,876 240,568
- -----------------------
Shares redeemed (7,414,329) (74,732,279) (15,805,052) (154,332,616) (8,743,159) (94,789,797)
- ----------------------- ----------- ------------ ----------- ------------- ---------- ------------
Net change resulting
from Investment
share transactions (7,154,973) $(72,196,048) (13,653,305) $(133,488,213) (7,432,885) $(80,737,750)
- ----------------------- ----------- ------------ ----------- ------------- ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
BOND FUND SHORT TERM YIELD FUND EQUITY FUND
--------------------------- ---------------------------- --------------------------
YEAR ENDED DECEMBER 31, 1994
-----------------------------------------------------------------------------------------
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ----------------------- ----------- ------------ ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 8,080,115 $ 81,136,106 10,916,607 $ 107,829,147 9,663,093 $104,624,681
- -----------------------
Shares issued to
shareholders in payment
of
distributions declared 5,035 47,717 11 104 1,027 10,755
- -----------------------
Shares redeemed (2,069,077) (20,124,093) (4,739,491) (45,121,271) (2,231,618) (23,660,087)
- ----------------------- ----------- ------------ ----------- ------------- ---------- ------------
Net change resulting
from Institutional
share transactions 6,016,073 $ 61,059,730 6,177,127 $ 62,707,980 7,432,502 $ 80,975,349
- ----------------------- ----------- ------------ ----------- ------------- ---------- ------------
Total net change
resulting from Fund
share transactions (1,138,900) $(11,136,318) (7,476,178) $ (70,780,233) (383) $ 237,599
- ----------------------- ----------- ------------ ----------- ------------- ---------- ------------
</TABLE>
(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
BAYFUNDS INCOME AND EQUITY PORTFOLIOS
- --------------------------------------------------------------------------------
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 1% 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 ("FServ") 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 year ended December 31, 1995, the Funds paid FAS as follows:
<TABLE>
<CAPTION>
INITIAL ORGANIZATIONAL
FUND ORGANIZATIONAL EXPENSES EXPENSES REIMBURSED
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Bond Fund $52,861 $4,390
Short Term Yield Fund $50,458 $4,756
Equity Fund $48,533 $4,755
</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
period ended December 31, 1995, were as follows:
<TABLE>
<CAPTION>
FUND PURCHASES SALES
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Bond Fund $ 93,611,486 $ 98,320,707
Short Term Yield Fund $104,123,828 $119,717,400
Equity Fund $ 79,892,584 $ 99,830,226
</TABLE>
38
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
BAYFUNDS:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of BayFunds Short Term Yield Portfolio, BayFunds
Bond Portfolio, and BayFunds Equity Portfolio (portfolios of BayFunds) as of
December 31, 1995, and the related statements of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended and the financial highlights for the periods presented
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
BayFunds Short Term Yield Portfolio, BayFunds Bond Portfolio, and BayFunds
Equity Portfolio at December 31, 1995, and the results of their operations for
the year then ended and the changes in their net assets for each of the two
years in the period then ended and the financial highlights for the periods
presented therein, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
February 9, 1996
<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 bank deposits or FDIC insured and are not obligations of,
or guaranteed by, BayBank, nor are they federally insured or guaranteed. Your
investment return and principal value will fluctuate so when shares are
redeemed, they may be worth more or less than original cost.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Portfolios' combined prospectus which contains
facts concerning their objectives and policies, management fees, expenses and
other information.
BAYFUNDS
MONEY
MARKET
PORTFOLIOS
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1995
U.S. Treasury Money Market Portfolio
Investment Shares/Institutional Shares
Money Market Portfolio
Investment Shares/Trust Shares
BAYBANK, N.A.
- ----------------------------------------------
Investment Adviser to BayFunds U.S. Treasury
Money Market Portfolio
BAYBANKS INVESTMENT MANAGEMENT, INC.
- ----------------------------------------------
Investment Adviser to BayFunds
Money Market Portfolio
FEDERATED SECURITIES CORP.
- -----------------------------------------
-------------------------
Distributor
A subsidiary of Federated Investors
Z00322 3070655 (2/96) LOGO
-------------------------
PRESIDENT'S MESSAGE AND INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Dear Shareholder:
The pronounced increase in interest rates that was seen throughout 1994
moderated and interest rates began to fall in late 1995. Despite initial
expectations that 1995 would see accelerated growth and inflation, the economy
instead began to falter and inflation eased markedly. After a final rate
increase in February 1995, the Federal Reserve Board (the "Fed") held rates
steady until the second half of the year and then lowered rates a combined one
half of a percentage point in two separate actions. Stock and bond investments
benefited greatly and as a result produced exceptionally strong total returns
for the year. Money market mutual funds were largely able to maintain steady
yields during the year with slightly higher or flat performance versus year-end
1994. The stability of these vehicles in a decreasing interest rate environment
attracted many investors, and cumulative taxable money market fund assets ended
the year at $648 billion after hitting a record $651 billion in mid-December
1995.
Looking ahead, the widely held opinion of many investment managers is that
additional interest rate cuts are in the offing and it will require judicious
portfolio management to provide the competitive yields you have experienced from
your money market mutual fund investments during the last two years.
I will explain in greater detail how money markets performed in 1995, and more
importantly, how BayBank, N.A., investment adviser to BayFunds U.S. Treasury
Money Market Portfolio, and BayBanks Investment Management, Inc., investment
adviser to BayFunds Money Market Portfolio, managed these portfolios in this
environment. Finally, I will briefly describe our strategies for these
portfolios going forward.
MONEY MARKET RECAP
1995 began with inflationary concerns over the rapid growth in the U.S. economy.
The Fed had aggressively raised short-term rates in 1994, with further hikes
anticipated in 1995. An additional increase did in fact occur in February 1995;
however, by early summer the economy had slowed sufficiently for the Fed to
reverse course and begin cutting short-term rates. An additional reduction in
December 1995 brought overnight interest rates to the same level as year end
1994. While the overnight rates had returned to 1994 norms, yields across the
rest of the interest rate spectrum were significantly different. For instance,
the one year U.S. Treasury bill yielded 5.18% at December 31, 1995, versus 7.22%
a year earlier. This difference was a result of the market's anticipation that
further interest rate cuts are inevitable in 1996.
As yields dropped throughout the year, money market mutual funds maximized
performance by lengthening their average maturities to capture the relatively
more attractive longer term rates. Money market mutual funds were somewhat
limited in their ability to take advantage of this opportunity, however, as
their dollar-weighted average maturity cannot exceed 90 days.
PERFORMANCE OF BAYFUNDS U.S. TREASURY MONEY MARKET
PORTFOLIO AND BAYFUNDS MONEY MARKET PORTFOLIO IN 1995+
BayFunds U.S. Treasury Money Market Portfolio prospered throughout the year due
to a continuation of asset growth and nimble positioning to take advantage of
changes in interest rates. Amid declining interest rates, the portfolio
maintained a steady yield and its 7-day net yield ended the year slightly ahead
of its mark at year-end 1994. The 7-day net yields for the Investment Shares and
Institutional Shares of BayFunds U.S. Treasury Money Market Portfolio for the
period ended December 31, 1995, were 5.16% and 5.41%, respectively.* In
addition, the portfolio remained extremely popular with investors. It began the
year with assets at just under $835 million and finished the fiscal year ended
December 31, 1995 with over $1 billion. The continuing success of BayBank's
Precision Sweep(TM) institutional cash management product was a significant
contributor to this growth.
BayFunds Money Market Portfolio sought to maximize its yield throughout the year
by gradually lengthening its average maturity in anticipation of interest rate
cuts. Further performance advantages were achieved through the use of solid
corporate securities with excellent credit fundamentals, such as commercial
paper and short-term corporate notes. As a result, the portfolio effectively
resisted the downward trend in interest rates and added almost one-half of a
percentage point to its 7-day net yield by year-end. The 7-day net yields for
the Investment Shares and Trust Shares of BayFunds Money Market Portfolio for
the period ended December 31, 1995, were 4.98% and 5.23%, respectively.*
FUTURE STRATEGIES FOR BAYFUNDS U.S. TREASURY MONEY MARKET
PORTFOLIO AND BAYFUNDS MONEY MARKET PORTFOLIO IN 1996
Further declines in short-term rates, especially overnight rates, are
anticipated in 1996. The relatively low level of yields causes the portfolio
management team at BayBank, N.A. and BayBanks Investment Management, Inc. to
assume a neutral posture toward average maturity. However, the team remains
vigilant to any signs of pronounced acceleration of economic strength or
inflationary pressures that could result in a significant increase in short-term
interest rates. This prudent approach should allow the Portfolios ample
flexibility to respond decisively to evolving developments in the presently
uncertain interest rate environment.
+ 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. Investments
in the funds are neither insured nor guaranteed by the U.S. government.
* Performance quoted represents past performance and is not indicative of future
results. Yield will vary.
Last year, the stock and bond market's strong performance demonstrated that
stable investments such as money market mutual funds are only one part of a
well-diversified investment strategy. If your investment objective has a
longer-term horizon, remember that over time the returns from stock and bond
funds may far outstrip the performance of money market funds. 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, respectively.
February 15, 1996
* Securities transactions may be affected through Investment Specialists who are
registered representatives of BayBanks Brokerage Services, Inc., member
NASD/SIPC.
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ -------------------------------------------------------------------- --------------
<C> <C> <S> <C>
U.S. TREASURY--32.9%
- --------------------------------------------------------------------------------------
U.S TREASURY BILLS--1.9%
--------------------------------------------------------------------
$ 20,000,000 4/11/1996-6/27/1996 $ 19,639,687
-------------------------------------------------------------------- --------------
U.S. TREASURY NOTES--24.5%
--------------------------------------------------------------------
260,500,000 4.00%-9.375%, 1/31/1996-9/30/1996 260,806,384
-------------------------------------------------------------------- --------------
U.S. TREASURY STRIPS--6.5%
--------------------------------------------------------------------
70,000,000 2/15/1996-5/15/1996 68,979,930
-------------------------------------------------------------------- --------------
TOTAL U.S. TREASURY 349,426,001
-------------------------------------------------------------------- --------------
(A) REPURCHASE AGREEMENTS--67.1%
- --------------------------------------------------------------------------------------
49,180,000 Aubrey G. Lanston & Co., Inc., 5.85%, dated 12/29/1995, due 1/2/1996 49,180,000
--------------------------------------------------------------------
40,000,000 CS First Boston Inc., 5.75%, dated 12/28/1995, due 1/4/1996 40,000,000
--------------------------------------------------------------------
50,000,000 Dean Witter Reynolds, Inc., 5.80%, dated 12/29/1995, due 1/2/1996 50,000,000
--------------------------------------------------------------------
50,000,000 Greenwich Capital Markets, Inc., 5.90%, dated 12/29/1995, due
1/2/1996 50,000,000
--------------------------------------------------------------------
150,000,000 HSBC Securities, Inc., 5.90%, dated 12/29/1995, due 1/2/1996 150,000,000
--------------------------------------------------------------------
100,000,000 PaineWebber Group, Inc., 5.93%, dated 12/29/1995, due 1/2/1996 100,000,000
--------------------------------------------------------------------
74,330,000 Salomon Brothers, Inc., 5.91%, dated 12/29/1995, due 1/2/1996 74,330,000
--------------------------------------------------------------------
150,000,000 Smith Barney, Inc., 5.92%, dated 12/28/1995, due 1/2/1996 150,000,000
--------------------------------------------------------------------
50,000,000 State Street Bank and Trust Co., 5.80%, dated 12/29/1995, due
1/2/1996 50,000,000
-------------------------------------------------------------------- --------------
TOTAL REPURCHASE AGREEMENTS 713,510,000
-------------------------------------------------------------------- --------------
TOTAL INVESTMENTS, AT AMORTIZED COST (B) $1,062,936,001
-------------------------------------------------------------------- --------------
</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.
The following acronym is used throughout this portfolio:
STRIPS-Separate Trading of Registered Interest and Principal of Securities.
Note: The categories of investments are shown as a percentage of net assets
($1,063,577,990) at December 31, 1995.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ----------------------------------------------------------------- ------------
<C> <C> <S> <C>
(A) BANKERS ACCEPTANCE--0.5%
- ----------------------------------------------------------------------------------
$ 1,000,000 Barclays Bank PLC, 5.73%, 1/16/1996 $ 997,613
----------------------------------------------------------------- ------------
CERTIFICATES OF DEPOSIT--4.8%
- ----------------------------------------------------------------------------------
CERTIFICATE OF DEPOSIT-EURO--2.4%
-----------------------------------------------------------------
5,000,000 Deutsche Bank, 5.81%, 1/26/1996 5,000,103
----------------------------------------------------------------- ------------
CERTIFICATE OF DEPOSIT-YANKEE--2.4%
-----------------------------------------------------------------
5,000,000 Bank of Nova Scotia, 7.36%, 1/17/1996 5,001,982
----------------------------------------------------------------- ------------
TOTAL CERTIFICATES OF DEPOSIT 10,002,085
----------------------------------------------------------------- ------------
(A) COMMERCIAL PAPER--30.8%
- ----------------------------------------------------------------------------------
FINANCE-COMMERCIAL--2.6%
-----------------------------------------------------------------
1,000,000 CIT Group Holdings, Inc., 5.90%, 1/17/1996 997,378
-----------------------------------------------------------------
4,500,000 General Electric Capital Corp., 5.73%, 1/31/1996 4,478,513
----------------------------------------------------------------- ------------
Total 5,475,891
----------------------------------------------------------------- ------------
FINANCIAL SERVICES--2.1%
-----------------------------------------------------------------
4,500,000 Bear Stearns Cos., Inc., 5.74%-5.85%, 1/12/1996-1/18/1996 4,489,187
----------------------------------------------------------------- ------------
FOREIGN BANK--3.1%
-----------------------------------------------------------------
5,000,000 ABN AMRO Bank, 5.695%, 1/30/1996 4,977,062
-----------------------------------------------------------------
1,600,000 Deutsche Bank Financial, Inc., 5.95%, 1/5/1996 1,598,942
----------------------------------------------------------------- ------------
Total 6,576,004
----------------------------------------------------------------- ------------
FUNDING CORPORATION--19.9%
-----------------------------------------------------------------
9,810,000 Alpine Securitization Corp., 5.75%-5.77%, 1/12/1996-1/19/1996 9,784,576
-----------------------------------------------------------------
5,750,000 Asset Securitization Cooperative Corp., 5.75%-5.80%, 1/10/1996-
1/12/1996 5,741,432
-----------------------------------------------------------------
5,000,000 Corporate Receivables Corp., 5.72%, 1/23/1996 4,982,522
-----------------------------------------------------------------
8,000,000 Falcon Asset Securitization Corp., 5.80%, 1/18/1996 7,978,089
-----------------------------------------------------------------
</TABLE>
BAYFUNDS MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ----------------------------------------------------------------- ------------
<C> <C> <S> <C>
(A) COMMERCIAL PAPER--CONTINUED
- ----------------------------------------------------------------------------------
FUNDING CORPORATION--CONTINUED
-----------------------------------------------------------------
$10,250,000 Greenwich Funding Corp., 5.63%-5.80%, 1/8/1996-2/29/1996 $ 10,208,458
-----------------------------------------------------------------
3,100,000 PREFCO Preferred Receivables Funding Co., 5.85%, 1/18/1996 3,091,436
----------------------------------------------------------------- ------------
Total 41,786,513
----------------------------------------------------------------- ------------
TELECOMMUNICATIONS--1.9%
-----------------------------------------------------------------
4,000,000 AT&T Corp., 5.70%, 1/25/1996 3,984,800
----------------------------------------------------------------- ------------
UTILITIES-ELECTRIC--1.2%
-----------------------------------------------------------------
2,425,000 GTE Southwest, Inc., 5.80%, 1/16/1996 2,419,140
----------------------------------------------------------------- ------------
TOTAL COMMERCIAL PAPER 64,731,535
----------------------------------------------------------------- ------------
CORPORATE BONDS--12.8%
- ----------------------------------------------------------------------------------
FINANCE-AUTOMOTIVE--3.3%
-----------------------------------------------------------------
500,000 Chrysler Financial Corp., 9.50%, 4/12/1996 504,153
-----------------------------------------------------------------
550,000 Ford Motor Credit Co., 8.25%, 5/15/1996 554,590
-----------------------------------------------------------------
5,790,000 General Motors Acceptance Corp., 8.625%-9.125%,
3/13/1996-7/17/1996 5,869,457
----------------------------------------------------------------- ------------
Total 6,928,200
----------------------------------------------------------------- ------------
FINANCE-COMMERCIAL--0.4%
-----------------------------------------------------------------
400,000 Associates Corp. of North America, 8.75%, 2/1/1996 400,850
-----------------------------------------------------------------
500,000 CIT Group Holdings, Inc., 4.75%, 3/15/1996 498,648
----------------------------------------------------------------- ------------
Total 899,498
----------------------------------------------------------------- ------------
FINANCIAL SERVICES--7.4%
-----------------------------------------------------------------
8,800,000 Dean Witter, Discover & Co., 5.00%, 4/1/1996 8,780,645
-----------------------------------------------------------------
3,640,000 Merrill Lynch & Co., Inc., 4.75%, 6/24/1996 3,622,018
-----------------------------------------------------------------
3,250,000 Smith Barney Holdings, Inc., 5.375%, 6/1/1996 3,241,315
----------------------------------------------------------------- ------------
Total 15,643,978
----------------------------------------------------------------- ------------
TELECOMMUNICATIONS--1.2%
-----------------------------------------------------------------
2,500,000 AT&T Corp., 4.50%-6.125%, 2/15/1996-6/7/1996 2,497,208
----------------------------------------------------------------- ------------
</TABLE>
BAYFUNDS MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ----------------------------------------------------------------- ------------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- ----------------------------------------------------------------------------------
UTILITIES-TELEPHONE--0.5%
-----------------------------------------------------------------
$ 1,000,000 U.S. West Communications Inc., 7.625%, 5/15/1996 $ 1,005,203
----------------------------------------------------------------- ------------
TOTAL CORPORATE BONDS 26,974,087
----------------------------------------------------------------- ------------
CORPORATE NOTES--22.4%
- ----------------------------------------------------------------------------------
DOMESTIC BANKS--2.4%
-----------------------------------------------------------------
5,000,000 First Chicago Corp., 6.217%, 2/23/1996 (c) 5,002,822
----------------------------------------------------------------- ------------
FINANCE-AUTOMOTIVE--6.9%
-----------------------------------------------------------------
6,600,000 Chrysler Financial Corp., 6.25%, 2/15/1996 (c) 6,611,761
-----------------------------------------------------------------
4,000,000 Ford Motor Credit Co., 9.90%-9.625%, 2/27/1996-5/1/1996 4,042,544
-----------------------------------------------------------------
1,500,000 General Motors Acceptance Corp., 7.80%-8.35%, 9/5/1996-11/7/1996 1,521,773
-----------------------------------------------------------------
2,250,000 General Motors Acceptance Corp., 6.013%-6.25%,
2/22/1996-2/29/1996 (c) 2,253,597
----------------------------------------------------------------- ------------
Total 14,429,675
----------------------------------------------------------------- ------------
FINANCE-COMMERCIAL--1.8%
-----------------------------------------------------------------
400,000 Associates Corp. of North America, 4.68%, 4/26/1996 398,284
-----------------------------------------------------------------
3,490,000 General Electric Capital Corp., 5.97%-9.375%, 6/8/1996-8/21/1996 3,495,947
----------------------------------------------------------------- ------------
Total 3,894,231
----------------------------------------------------------------- ------------
FINANCE-CONSUMER--3.3%
-----------------------------------------------------------------
7,000,000 Beneficial Corp., 5.78%, 1/2/1996 (c) 7,006,061
----------------------------------------------------------------- ------------
FINANCIAL SERVICES--6.2%
-----------------------------------------------------------------
2,000,000 Abbey National Treasury Services, PLC, 7.05%, 3/1/1996 2,002,790
-----------------------------------------------------------------
5,000,000 Bear Stearns Cos., Inc., 6.027%, 1/4/1996 (c) 5,000,000
-----------------------------------------------------------------
5,000,000 Merrill Lynch & Co., Inc., 6.05%, 8/19/1996 5,000,000
-----------------------------------------------------------------
1,000,000 Merrill Lynch & Co., Inc., 5.67%, 1/2/1996 (c) 1,000,000
----------------------------------------------------------------- ------------
Total 13,002,790
----------------------------------------------------------------- ------------
FUNDING CORPORATION--1.2%
-----------------------------------------------------------------
2,500,000 IBM Credit Corp., 4.84%-7.40%, 1/19/1996-9/3/1996 2,486,688
----------------------------------------------------------------- ------------
</TABLE>
BAYFUNDS MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ----------------------------------------------------------------- ------------
<C> <C> <S> <C>
CORPORATE NOTES--CONTINUED
- ----------------------------------------------------------------------------------
RETAIL--0.5%
-----------------------------------------------------------------
$ 955,000 Sears, Roebuck & Co., 8.15%-8.55%, 8/1/1996-10/9/1996 $ 971,147
----------------------------------------------------------------- ------------
UTILITIES-TELEPHONE--0.1%
-----------------------------------------------------------------
250,000 AT&T Capital Corp., 4.52%, 8/30/1996 247,663
----------------------------------------------------------------- ------------
TOTAL CORPORATE NOTES 47,041,077
----------------------------------------------------------------- ------------
GOVERNMENT AGENCIES--12.9%
- ----------------------------------------------------------------------------------
5,000,000 Federal Home Loan Bank, 5.20%, 1/3/1996 (c) 5,000,689
-----------------------------------------------------------------
5,405,000 Federal Home Loan Bank, 5.725%-6.125%, 7/25/1996-8/5/1996 5,405,292
-----------------------------------------------------------------
5,000,000 Federal Home Loan Bank, 6.10%, 1/2/1996 (a) 4,999,153
-----------------------------------------------------------------
1,000,000 Federal Home Loan Mortgage Corp., 4.35%, 4/29/1996 995,072
-----------------------------------------------------------------
10,750,000 Student Loan Marketing Association, 5.20%-5.26%, 1/3/1996 (c) 10,749,818
----------------------------------------------------------------- ------------
TOTAL GOVERNMENT AGENCIES 27,150,024
----------------------------------------------------------------- ------------
(B) REPURCHASE AGREEMENT--15.3%
- ----------------------------------------------------------------------------------
32,235,000 Salomon Brothers, Inc., 5.92%, dated 12/29/1995, due 1/2/1996 32,235,000
----------------------------------------------------------------- ------------
TOTAL INVESTMENTS, AT AMORTIZED COST (D) $209,131,421
----------------------------------------------------------------- ------------
</TABLE>
(a) Each issue shows the rate of discount at the time of purchase for discount
issues.
(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) Denotes variable rate obligations for which the current rate and next reset
dates are shown.
(d) Also represents cost for federal tax purposes.
The following acronym is used throughout this portfolio:
PLC--Public Limited Company
Note: The categories of investments are shown as a percentage of net assets
($210,132,943) at December 31, 1995.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS MONEY MARKET PORTFOLIOS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BAYFUNDS
U.S.TREASURY BAYFUNDS
MONEY MONEY
MARKET MARKET
PORTFOLIO PORTFOLIO
-------------- ------------
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------
Investments in repurchase agreements $ 713,510,000 $ 32,235,000
- ------------------------------------------------------------------------
Investments in securities 349,426,001 176,896,421
- ------------------------------------------------------------------------ -------------- ------------
Total investments in securities, at amortized cost and value 1,062,936,001 209,131,421
- ------------------------------------------------------------------------
Cash 3,337 --
- ------------------------------------------------------------------------
Income receivable 4,494,193 1,766,276
- ------------------------------------------------------------------------
Receivable for shares sold 1,753 792
- ------------------------------------------------------------------------
Deferred expenses 85,337 8,503
- ------------------------------------------------------------------------ -------------- ------------
Total assets 1,067,520,621 210,906,992
- ------------------------------------------------------------------------ -------------- ------------
LIABILITIES:
- ------------------------------------------------------------------------
Payable for shares redeemed 6,580 5,376
- ------------------------------------------------------------------------
Income distribution payable 3,735,996 688,753
- ------------------------------------------------------------------------
Payable to Bank -- 6,995
- ------------------------------------------------------------------------
Accrued expenses 200,055 72,925
- ------------------------------------------------------------------------ -------------- ------------
Total liabilities 3,942,631 774,049
- ------------------------------------------------------------------------ -------------- ------------
Total Net Assets $1,063,577,990 $210,132,943
- ------------------------------------------------------------------------ -------------- ------------
NET ASSETS:
- ------------------------------------------------------------------------
Investment Shares $ 248,129,401 $ 53,580,698
- ------------------------------------------------------------------------ -------------- ------------
Institutional Shares $ 815,448,589 $ --
- ------------------------------------------------------------------------ -------------- ------------
Trust Shares $ -- $156,552,245
- ------------------------------------------------------------------------ -------------- ------------
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 248,129,401 53,580,698
- ------------------------------------------------------------------------
Institutional Shares 815,448,589 --
- ------------------------------------------------------------------------
Trust Shares -- 156,552,245
- ------------------------------------------------------------------------ -------------- ------------
Total Shares Outstanding 1,063,577,990 210,132,943
- ------------------------------------------------------------------------ -------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS MONEY MARKET PORTFOLIOS
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BAYFUNDS
U.S. TREASURY BAYFUNDS
MONEY MONEY
MARKET MARKET
PORTFOLIO PORTFOLIO
------------- -----------
<S> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------
Interest $58,352,814 $13,063,409
- ---------------------------------------------------------------- ------------- -----------
EXPENSES:
- ----------------------------------------------------------------
Investment advisory fee 1,978,781 869,240
- ----------------------------------------------------------------
Administrative personnel and services fee 997,552 219,346
- ----------------------------------------------------------------
Custodian fees 55,933 22,816
- ----------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 285,780 61,122
- ----------------------------------------------------------------
Directors'/Trustees' fees 38,432 8,421
- ----------------------------------------------------------------
Auditing fees 11,037 14,940
- ----------------------------------------------------------------
Legal fees 48,326 9,235
- ----------------------------------------------------------------
Portfolio accounting fees 138,515 63,566
- ----------------------------------------------------------------
Shareholder services fee--Investment Shares 497,414 136,565
- ----------------------------------------------------------------
Share registration costs 116,487 25,806
- ----------------------------------------------------------------
Printing and postage 26,252 36,118
- ----------------------------------------------------------------
Insurance premiums 19,788 4,888
- ----------------------------------------------------------------
Miscellaneous 36,145 12,767
- ---------------------------------------------------------------- ------------- -----------
Total expenses 4,250,442 1,484,830
- ---------------------------------------------------------------- ------------- -----------
Net investment income $54,102,372 $11,578,579
- ---------------------------------------------------------------- ------------- -----------
</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 BAYFUNDS MONEY MARKET PORTFOLIO
MARKET PORTFOLIO
-------------------------------- --------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1995 1994 1995 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
- ------------------------------
OPERATIONS--
- ------------------------------
Net investment income $ 54,102,372 $ 27,601,500 $ 11,578,579 $ 7,366,867
- ------------------------------ -------------- -------------- -------------- --------------
DISTRIBUTIONS TO
SHAREHOLDERS--
- ------------------------------
Distributions from net
investment income:
- ------------------------------
Investment Shares (10,508,778) (3,500,115) (2,799,699) (1,798,037)
- ------------------------------
Institutional Shares (43,593,594) (24,101,385) -- --
- ------------------------------
Trust Shares -- -- (8,778,880) (5,568,830)
- ------------------------------ -------------- -------------- -------------- --------------
Change in net assets
resulting from
distributions to
shareholders (54,102,372) (27,601,500) (11,578,579) (7,366,867)
- ------------------------------ -------------- -------------- -------------- --------------
SHARE TRANSACTIONS--
- ------------------------------
Proceeds from sale of shares 2,258,249,644 1,970,657,709 336,562,127 388,449,453
- ------------------------------
Net asset value of shares
issued to shareholders in
payment of distributions
declared 13,092,975 5,328,705 2,973,240 1,829,315
- ------------------------------
Cost of shares redeemed (2,043,585,935) (1,677,582,629) (323,673,179) (395,663,186)
- ------------------------------ -------------- -------------- -------------- --------------
Change in net assets
resulting from share
transactions 227,756,684 298,403,785 15,862,188 (5,384,418)
- ------------------------------ -------------- -------------- -------------- --------------
Change in net assets 227,756,684 298,403,785 15,862,188 (5,384,418)
- ------------------------------
NET ASSETS:
- ------------------------------
Beginning of period 835,821,306 537,417,521 194,270,755 199,655,173
- ------------------------------ -------------- -------------- -------------- --------------
End of period $1,063,577,990 $ 835,821,306 $ 210,132,943 $ 194,270,755
- ------------------------------ -------------- -------------- -------------- --------------
</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, TOTAL INVESTMENT REIMBURSE- END OF PERIOD
31, OF PERIOD INCOME INCOME END 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
BAYFUNDS MONEY MARKET PORTFOLIO
1993(b) $1.00 0.03 (0.03) $1.00 2.58% 0.62%(f) 2.60%(f) 0.11%(f) $ 30,746
1994 $1.00 0.04 (0.04) $1.00 3.60% 0.83% 3.46% 0.04% $ 57,348
1995 $1.00 0.05 (0.05) $1.00 5.23% 0.87% 5.13% -- $ 53,581
INSTITUTIONAL SHARES
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
1993(a) $1.00 0.03 (0.03) $1.00 2.62% 0.35%(f) 2.85%(f) 0.07%(f) $ 502,724
1994 $1.00 0.04 (0.04) $1.00 3.87% 0.39% 3.90% -- $ 693,712
1995 $1.00 0.06 (0.06) $1.00 5.66% 0.38% 5.51% -- $ 815,449
TRUST SHARES
BAYFUNDS MONEY MARKET PORTFOLIO
1992(c) $1.00 0.03 (0.03) $1.00 3.55% 0.48%(f) 4.61%(f) 0.15%(f) $ 280,931
1992(d) $1.00 0.02 (0.02) $1.00 2.13% 0.59%(f) 3.13%(f) 0.05%(f) $ 242,935
1993 $1.00 0.03 (0.03) $1.00 2.72% 0.59% 2.68% 0.11% $ 168,909
1994 $1.00 0.04 (0.04) $1.00 3.75% 0.65% 3.64% 0.04% $ 136,923
1995 $1.00 0.05 (0.05) $1.00 5.49% 0.62% 5.40% -- $ 156,552
</TABLE>
- --------------------------------------------------------------------------------
(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.
(See Notes which are an integral part of the Financial Statements)
BAYFUNDS MONEY MARKET PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION
BayFunds (the "Trust") is registered under the Investment Company Act of 1940,
as amended (the "Act"), as an open-end, management investment company. The Trust
consists of five diversified portfolios. The following funds comprise the Trust:
<TABLE>
<CAPTION>
FUND NAME CLASSES OF SHARES
- ---------------------------------------------------- ------------------------------
<S> <C>
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")
INVESTMENT OBJECTIVE
U.S. Treasury Fund and Money Market Fund both seek to provide current income
consistent with stability of principal and liquidity.
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
BAYFUNDS MONEY MARKET PORTFOLIOS
- --------------------------------------------------------------------------------
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 each Fund's 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 the 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. At December 31, 1995, capital paid-in aggregated $1,063,577,990
for U.S. Treasury Fund and $210,132,943 for Money Market Fund. Transactions in
Fund shares were as follows:
BAYFUNDS MONEY MARKET PORTFOLIOS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. TREASURY
MONEY MARKET FUND MONEY MARKET FUND
-------------------------------- ----------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1995 1994 1995 1994
-------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT SHARES
- ---------------------------------
Shares sold 1,887,034,426 282,383,296 62,861,138 106,751,503
- ---------------------------------
Shares issued to shareholders in
payment of distributions declared 3,079,197 3,330,375 2,655,504 1,741,887
- ---------------------------------
Shares redeemed (1,768,377,531) (178,298,536) (69,283,545) (81,891,510)
- --------------------------------- -------------- -------------- ------------ ------------
Net change resulting from
Investment share transactions 121,736,092 107,415,135 (3,766,903) 26,601,880
- --------------------------------- -------------- -------------- ------------ ------------
INSTITUTIONAL AND TRUST SHARES
- ---------------------------------
Shares sold 371,215,218 1,688,274,413 273,700,989 281,697,950
- ---------------------------------
Shares issued to shareholders in
payment of distributions declared 10,013,778 1,998,330 317,736 87,428
- ---------------------------------
Shares redeemed (275,208,404) (1,499,284,093) (254,389,634) (313,771,676)
- --------------------------------- -------------- -------------- ------------ ------------
Net change resulting from
Institutional and Trust share
transactions 106,020,592 190,988,650 19,629,091 (31,986,298)
- --------------------------------- -------------- -------------- ------------ ------------
Net change resulting from Fund
share transactions 227,756,684 298,403,785 15,862,188 (5,384,418)
- --------------------------------- -------------- -------------- ------------ ------------
</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 of the Funds' 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.
<TABLE>
<CAPTION>
ANNUAL
FUND RATE
- ----------------------------------- -------
<S> <C>
U.S. Treasury Fund 0.20%
Money Market Fund 0.40%
</TABLE>
BAYFUNDS MONEY MARKET PORTFOLIOS
- --------------------------------------------------------------------------------
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 1% 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 ("FServ") maintains the
Funds' accounting records for which it receives a fee. The fee is based on the
level of each of the 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 the Funds became effective. For the
period ended December 31, 1995, the Funds paid FAS as follows:
<TABLE>
<CAPTION>
INITIAL ORGANIZATIONAL
FUND ORGANIZATIONAL EXPENSES EXPENSES REIMBURSED
- ---------------------------------- --------------------------- ---------------------------
<S> <C> <C>
U.S. Treasury Fund $48,056 $21,143
Money Market Fund $60,969 $10,873
</TABLE>
GENERAL--Certain of the Officers of the Trust are Officers and Directors or
Trustees of the above companies.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
BAYFUNDS:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of BayFunds U.S. Treasury Money Market Portfolio
and BayFunds Money Market Portfolio (portfolios of BayFunds), as of December 31,
1995, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended and the financial highlights for the periods presented therein. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
BayFunds U.S. Treasury Money Market Portfolio and BayFunds Money Market
Portfolio at December 31, 1995, the results of their operations for the year
then ended, the changes in their net assets for each of the two years in the
period then ended, and the financial highlights for the periods presented
therein, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
February 9, 1996
<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 bank deposits or FDIC insured and are not obligations of,
or guaranteed by, BayBank, nor are they federally insured or guaranteed. Your
investment return and principal value will fluctuate so when shares are
redeemed, they may be worth more or less than original cost. Although money
market funds seek to maintain a stable net asset value of $1.00 per share, their
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.
BAYFUNDS
APPENDIX
A. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. BayFunds
Bond Portfolio-Investment Shares are represented by a bold solid line. The
Lehman Brothers Intermediate/Government Corporate Bond Index is represented by
a bold dotted line. The line graph is a visual representation of a comparison
of change in value of a $10,000 hypothetical investment in Investment Shares
of BayFunds Bond Portfolio, and the Lehman Brothers Intermediate/Government
Corporate Bond Index. The "x" axis reflects computation periods from January
29, 1993 (start of performance) to December 31, 1995. The "y" axis reflects
the cost of the investment. The right margin reflects the ending value of the
hypothetical investment in Investment Shares of BayFunds Bond Portfolio as
compared to the Lehman Brothers Intermediate/Government Corporate Bond Index.
The ending values were $12,236 and $12,069, respectively.
B. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. BayFunds
Bond Portfolio-Institutional Shares are represented by a bold solid line. The
Lehman Brothers Intermediate/Government Corporate Bond Index is represented by
a bold dotted line. The line graph is a visual representation of a comparison
of change in value of a $10,000 hypothetical investment in Institutional
Shares of BayFunds Bond Portfolio, and the Lehman Brothers
Intermediate/Government Corporate Bond Index. The "x" axis reflects
computation periods from December 31, 1993 (start of performance) to December
31, 1995. The "y" axis reflects the cost of the investment. The right margin
reflects the ending value of the hypothetical investment in Institutional
Shares of BayFunds Bond Portfolio as compared to the Lehman Brothers
Intermediate/Government Corporate Bond Index. The ending values were $11,387
and $11,310, respectively.
C. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. BayFunds
Short Term Yield Portfolio-Investment Shares are represented by a bold solid
line. The Merrill Lynch 1-3 Year Treasury Index is represented by a bold
dotted line. The line graph is a visual representation of a comparison of
change in value of a $10,000 hypothetical investment in BayFunds Short Term
Yield Portfolio-Investment Shares, and the Merrill Lynch 1-3 Year Treasury
Index. The "x" axis reflects computation periods from January 29, 1993 (start
of performance) to December 31, 1995. The "y" axis reflects the cost of the
investment. The right margin reflects the BayFunds Short Term Yield Portfolio-
Investment Shares as compared to the Merrill Lynch 1-3 Year Treasury Index.
The ending values were $10,779 and $11,646, respectively.
D. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. BayFunds
Short Term Yield Portfolio-Institutional Shares are represented by a bold
solid line. The Merrill Lynch 1-3 Year Treasury Index is represented by a
bold dotted line. The line graph is a visual representation of a comparison of
change in value of a $10,000 hypothetical investment in Institutional Shares
of BayFunds Short Term Yield Portfolio, and the Merrill Lynch 1-3 Year
Treasury Index. The "x" axis reflects computation periods from December 31,
1993 (start of performance) to December 31, 1995. The "y" axis reflects the
cost of the investment. The right margin reflects the ending value of the
hypothetical investment in Institutional Shares of BayFunds Short Term Yield
Portfolio as compared to the Merrill Lynch 1-3 Year Treasury Index. The
ending values were $10,421 and $11,163, respectively.
E. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. BayFunds
Equity Portfolio-Investment Shares are represented by a bold solid line. The
Standard & Poor's 500 Stock Index is represented by a bold dotted line. The
line graph is a visual representation of a comparison of change in value of a
$10,000 hypothetical investment in BayFunds Equity Portfolio-Investment
Shares, and the Standard & Poor's 500 Stock Index. The "x" axis reflects
computation periods from January 29, 1993 (start of performance) to December
31, 1995. The "y" axis reflects the cost of the investment. The right margin
reflects the BayFunds Equity Portfolio-Investment Shares as compared to the
Standard & Poor's 500 Stock Index. The ending values were $14,241 and $15,197,
respectively.
F. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. BayFunds
Equity Portfolio-Institutional Shares are represented by a bold solid line.
The Standard & Poor's 500 Stock Index is represented by a bold dotted line.
The line graph is a visual representation of a comparison of change in value
of a $10,000 hypothetical investment in Institutional Shares of BayFunds
Equity Portfolio, and the Standard & Poor's 500 Stock Index. The "x" axis
reflects computation periods from December 31, 1993 (start of performance) to
December 31, 1995. The "y" axis reflects the cost of the investment. The right
margin reflects the ending value of the hypothetical investment in
Institutional Shares of BayFunds Equity Portfolio as compared to the Standard
& Poor's 500 Stock Index. The ending values were $12,864 and $13,940,
