1784
PRIME
MONEY
MARKET
FUND
[1784 FUNDS LOGO]
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1996
<PAGE>
TABLE OF CONTENTS
Letter to Shareholders 1
Investment Adviser's Report 2
Financial Statements 4
Report of Independent Accountants 13
THE 1784 FUNDS:
[BULLET] are not insured by the FDIC or any other governmental agency;
[BULLET] are not guaranteed by The First National Bank of Boston or any of
its affiliates;
[BULLET] are not deposits or obligations of The First National Bank of Boston
or any of its affiliates;
[BULLET] involve investment risks, including possible loss of the principal
amount invested.
BankBoston companies serve as investment adviser, custodian and shareholder
servicing agent for the 1784 Funds. The 1784 Funds are distributed by
SEI Financial Services Company, a party independent of The First National Bank
of Boston or any of its affiliates.
[1784 FUNDS LOGO]
SOUND CHOICES. STRAIGHT TALK.
INVESTMENT MANAGEMENT STRENGTH.
<PAGE>
1784 FUNDS DECEMBER 31, 1996
LETTER TO SHAREHOLDERS
[PHOTO DEPICTING ALLEN CROESSMANN, MANAGING DIRECTOR AND
ROBERT NESHER, PRESIDENT]
WE ARE PLEASED TO WELCOME YOU TO THE 1784 FUNDS -- AND TO PROVIDE YOU WITH
THIS ANNUAL REPORT ON THE 1784 PRIME MONEY MARKET FUND. THIS FUND JOINED THE
1784 FUNDS FAMILY ON DECEMBER 9, 1996, FOLLOWING THE COMBINATION OF BAYBANKS,
INC. AND BANK OF BOSTON CORPORATION.
THE 1784 FUNDS ARE A FAMILY OF 15 NO-LOAD MUTUAL FUNDS, INCLUDING MONEY MARKET,
BOND, TAX-EXEMPT AND STOCK FUNDS. TODAY THE 1784 FUNDS STAND AT $5.4 BILLION IN
ASSETS, REPRESENTING THE INVESTMENTS OF MORE THAN 40,000 ACCOUNTS. YOU CAN LEARN
MORE ABOUT ANY OF THE FUNDS BY CALLING 1-800-252-1784 TO REQUEST A PROSPECTUS,
OR BY DISCUSSING THEM WITH AN INVESTMENT COUNSELOR.
THE BEGINNING OF A NEW YEAR IS AN EXCELLENT TIME TO REVIEW YOUR INVESTMENT
APPROACH WITH AN INVESTMENT COUNSELOR, LEARN MORE ABOUT THE INVESTMENT CHOICES
AVAILABLE TO YOU, OR DEVELOP A PERSONALIZED INVESTMENT PLAN. IT IS MORE
IMPORTANT THAN EVER TO BE CURRENT WITH YOUR INVESTMENT OBJECTIVES AND
COMFORTABLE WITH YOUR INVESTMENT STRATEGY.
IF YOU DO NOT HAVE AN INVESTMENT COUNSELOR AND WOULD LIKE AN APPOINTMENT WITH
ONE, OR IF YOU HAVE ANY QUESTIONS ABOUT YOUR ACCOUNT, PLEASE CALL
1-800-252-1784. OUR HOURS HAVE BEEN EXPANDED TO MONDAY THROUGH FRIDAY FROM 8
A.M. TO 8 P.M., AND SATURDAY AND SUNDAY FROM 9 A.M. TO 4 P.M.
THANK YOU FOR CHOOSING THE 1784 PRIME MONEY MARKET FUND. ALL OF US AT THE 1784
FUNDS LOOK FORWARD TO HELPING YOU MEET YOUR FINANCIAL GOALS.
SINCERELY,
/S/ SIGNATURE
Robert Nesher
President
1784 Funds
/S/ SIGNATURE
Allen Croessmann
Managing Director, Investment Services
The First National Bank of Boston
1
<PAGE>
DECEMBER 31, 1996
INVESTMENT ADVISER'S REPORT
Slow to moderate economic growth and continued low inflation combined to
hold long-term interest rates down, and led to the reduction and subsequent
stability of short-term interest rates during 1996.
Signs of accelerating economic growth sparked fears of inflation
and pushed market interest rates temporarily upward last spring. In effect, the
bond market demonstrated that, to some extent, it has become a self-correcting
force in the economy. Since then, the Federal Reserve has held short-term
interest rates at the same level and long-term interest rates have declined to
about where they were at the beginning of 1996.
Several factors explain the economy's current modest, 2.5% annual growth
rate. Perhaps the most obvious is the age of this economic expansion, which has
lasted for nearly six years. During the early part of the typical economic
recovery, pent-up demand for consumer goods, especially durable goods like
appliances and autos, fuels the growth in sales and profits that result in
expansion. Later, as demand is fulfilled, the pace of growth slows -- as it has
in this situation.
But other forces are at work, too. For one thing, higher interest rates
last spring curbed the mortgage refinancing trend that had cut monthly payments
and put additional spendable cash in consumer pockets. As a result, demand
declined further. Consumer debt (and bankruptcies) are rising. And the maturing
generation of baby boomers is increasingly focused on investing for college
costs and retirement, which means consumption is declining, further dampening
demand.
While these factors have tempered economic growth, they have also helped
to keep inflation at exceptionally low levels. This combination of positive,
sustainable growth coupled with modest inflation -- resulting in low interest
rates -- has provided very potent fuel for the stock market, but has tended to
depress returns for money market investors.
2
<PAGE>
1784 FUNDS
MONEY MARKET REVIEW
- -------------------
Restraint on the part of the Federal Reserve resulted in a very stable
short-term interest rate market for most of the year. The Board reduced the
Federal Funds rate from 5.50% to 5.25% during the first quarter, where it
remained for the rest of 1996. This stability, coupled with growing concern
about the soaring stock market, has resulted in a substantial flow of new money
in to short-term investments and small CDs. Given the continued slow pace of
economic growth, we expect the Fed to reduce interest rates further in the year
ahead.
[LINE GRAPH]
A line graph depicting the Federal Funds Rate for the period of January 1, 1996
through December 31, 1996.
1/1/96 5.50%
2/1/96
to 12/31/96 5.25%
In conclusion, we foresee a relatively favorable environment for stocks and
bonds in the coming months with continued modest returns for money market
investors.
/S/ SIGNATURE
Edward G. Riley, Jr.
Chief Investment Officer
The First National Bank of Boston
3
<PAGE>
DECEMBER 31, 1996
STATEMENT OF NET ASSETS
- ------------------------------------------------------
1784 PRIME MONEY MARKET FUND
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
COMMERCIAL PAPER -- 47.5%
Alpine Securitization
5.452%, 01/13/97 $5,000 $ 4,989
Asset Securitization
5.657%, 01/31/97 5,000 4,977
Ciesco
5.403%, 01/10/97 5,000 4,993
5.371%, 01/14/97 685 684
Falcon Asset Securities
5.472%, 02/18/97 5,000 4,964
Ford Motor Credit
5.907%, 01/02/97 4,000 3,999
Goldman Sachs Group
5.382%, 02/13/97 5,000 4,968
Greenwich Funding
5.400%, 01/24/97 1,278 1,274
5.472%, 01/29/97 5,000 4,979
Merrill Lynch
5.476%, 01/13/97 3,500 3,494
New York City, New York
5.650%, 01/08/97 5,000 5,000
----------
TOTAL COMMERCIAL PAPER
(Cost $44,321) 44,321
----------
CORPORATE BONDS -- 45.1%
American General Finance
5.650%, 03/14/97 415 415
7.150%, 05/15/97 500 502
Associates of North America
9.700%, 05/01/97 4,000 4,048
AT&T
6.125%, 04/25/97 897 897
Beneficial
8.650%, 06/10/97 2,000 2,022
Caterpillar Financial Services
7.180%, 03/10/97 800 802
7.280%, 06/05/97 2,000 2,010
Chrysler Financial
7.810%, 02/18/97 2,000 2,005
7.280%, 03/18/97 1,000 1,003
Community Health System (A)
5.784%, 01/02/97 1,150 1,150
Dean Witter Discover (A)
5.860%, 01/15/97 250 250
5.753%, 01/15/97 500 500
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
Discover Credit
7.760%, 05/13/97 $2,125 $ 2,139
Ford Motor Credit (A)
5.650%, 02/18/97 100 100
Ford Motor Credit
9.100%, 05/01/97 2,000 2,022
General Motors Acceptance
7.500%, 01/22/97 688 689
7.750%, 02/25/97 250 251
7.500%, 03/10/97 112 112
6.300%, 03/31/97 1,100 1,102
7.350%, 05/22/97 1,000 1,006
7.125%, 05/23/97 1,000 1,005
7.125%, 07/01/97 1,000 1,005
7.250%, 10/17/97 1,300 1,312
7.500%, 11/04/97 600 608
International Business Machines
4.660%, 01/21/97 750 750
Manufacturer's Hanover Trust (A)
5.563%, 01/31/97 5,000 5,000
Norwest
9.250%, 05/01/97 201 203
Sears Roebuck
7.300%, 06/12/97 200 201
7.250%, 08/05/97 3,000 3,026
Smith Barney
6.000%, 03/15/97 500 500
Societe Generale
5.600%, 07/22/97 5,000 5,000
USAA Capital 144a (B)
4.760%, 01/28/97 400 400
----------
TOTAL CORPORATE BONDS
(Cost $42,035) 42,035
----------
U.S. GOVERNMENT AGENCY
OBLIGATION -- 1.8%
Federal Home Loan Mortgage
4.525%, 01/27/97 1,170 1,169
7.630%, 01/27/97 500 501
----------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATION
(Cost $1,670) 1,670
----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
4
<PAGE>
1784 PRIME MONEY MARKET FUND
- --------------------------------------------------------------------------------
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
U.S. GOVERNMENT MORTGAGE-BACKED
BOND -- 5.4%
FHLMC Silver REMIC Trust I
Series 1996-1 (A)
5.700%, 01/02/97 $5,000 $ 5,000
----------
TOTAL U.S. GOVERNMENT MORTGAGE-BACKED
BOND
(Cost $5,000) 5,000
----------
REPURCHASE AGREEMENT -- 0.0%
Lehman Brothers
6.80%, dated 12/31/96, maturing
01/02/97, repurchase price
$5,108.89; (collateraized by
various U.S. Treasury Notes
ranging in par value $1,048,000 -
$99,285,000, 5.625% - 6.870%,
08/15/05 - 05/15/06; total
market value $5,208) 5 5
----------
TOTAL REPURCHASE AGREEMENT
(Cost $5) 5
----------
TOTAL INVESTMENTS -- 99.8%
(Cost $93,031) 93,031
----------
OTHER ASSETS AND LIABILITIES,
NET -- 0.2% 198
----------
NET ASSETS:
Capital shares (unlimited
authorization -- no par
value) based on 93,231,769
outstanding shares of
beneficial interest 93,234
Accumulated net realized loss on
investments (5)
----------
TOTAL NET ASSETS -- 100.0% $ 93,229
==========
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE $1.00
==========
(A) VARIABLE RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS
IS THE RATE IN EFFECT ON DECEMBER 31, 1996. THE MATURITY DATE REFLECTED IS
THE SHORTER OF THE NEXT RESET DATE OR THE MATURITY DATE AS OF DECEMBER 31,
1996.
(B) SECURITY IS A PRIVATE PLACEMENT SECURITY, SUBJECT TO RULE 144A REGISTRATION
RULES.
FHLMC -- FEDERAL HOME LOAN MORTGAGE CORPORATION
REMIC -- REAL ESTATE MORTGAGE INVESTMENT CONDUIT
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
5
<PAGE>
FOR THE YEAR ENDED DECEMBER 31, 1996
STATEMENT OF OPERATIONS (000)
1784 PRIME
MONEY MARKET FUND
=================
INTEREST INCOME: $11,531
-------
EXPENSES:
INVESTMENT ADVISORY FEES 837
ADMINISTRATOR FEES 205
REGISTRATION FEES 27
TRANSFER AGENT FEES & EXPENSES 61
PROFESSIONAL FEES 17
FUND ACCOUNTING FEES 66
PRINTING 8
CUSTODIAN FEES 22
SHAREHOLDER SERVICES FEES 107
TRUSTEE FEES 8
OTHER EXPENSES 27
-------
TOTAL EXPENSES 1,385
-------
NET INVESTMENT INCOME 10,146
-------
NET REALIZED GAIN ON INVESTMENTS 4
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $10,150
=======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
6
<PAGE>
1784 PRIME MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS (000)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1784 PRIME
MONEY MARKET FUND
=======================
01/01/96 01/01/95
TO TO
12/31/96 12/31/95
---------- ---------
<S> <C> <C>
INVESTMENT ACTIVITIES:
NET INVESTMENT INCOME $ 10,146 $ 11,579
NET REALIZED GAIN ON INVESTMENTS 4 --
---------- --------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 10,150 11,579
---------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
NET INVESTMENT INCOME (10,146) (11,579)
REALIZED CAPITAL GAINS -- --
---------- --------
TOTAL DISTRIBUTIONS (10,146) (11,579)
---------- --------
SHARE TRANSACTIONS:
CAPITAL CONTRIBUTION FROM ADVISER 124 --
PROCEEDS FROM SHARES ISSUED* 326,422 336,562
REINVESTMENT OF CASH DISTRIBUTIONS* 2,371 2,973
COST OF SHARES REDEEMED* (445,825) (323,673)
---------- --------
INCREASE (DECREASE) IN NET ASSETS FROM SHARE TRANSACTIONS (116,908) 15,862
---------- --------
TOTAL INCREASE (DECREASE) IN NET ASSETS (116,904) 15,862
========== ========
NET ASSETS:
BEGINNING OF PERIOD 210,133 194,271
---------- --------
NET ASSETS:
END OF PERIOD $ 93,229 $210,133
========== ========
<FN>
*ALL SHARE TRANSACTIONS ARE AT $1.00 PER SHARE.
</FN>
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
7
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
1784 PRIME MONEY MARKET FUND
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET NET NET RATIO
ASSET DISTRIBUTIONS ASSET ASSETS RATIO OF NET
VALUE NET FROM NET VALUE END OF EXPENSES INCOME
BEGINNING INVESTMENT INVESTMENT END TOTAL OF PERIOD TO AVERAGE TO AVERAGE
OF PERIOD INCOME INCOME OF PERIOD RETURN (000) NET ASSETS NET ASSETS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1784 PRIME
MONEY MARKET FUND
FOR THE YEAR ENDED
DECEMBER 31, 1996 $1.00 0.05 (0.05) $1.00 5.02% $93,229 0.66% 4.85%
FOR THE YEAR ENDED
DECEMBER 31, 1995 $1.00 0.05 (0.05) $1.00 5.49% $156,532 0.62% 5.40%
FOR THE YEAR ENDED
DECEMBER 31, 1994 $1.00 0.04 (0.04) $1.00 3.75% $136,923 0.65% 3.64%
FOR THE YEAR ENDED
DECEMBER 31, 1993 $1.00 0.03 (0.03) $1.00 2.72% $168,909 0.59% 2.68%
FOR THE PERIOD ENDED
DECEMBER 31, 1992 (2) $1.00 0.02 (0.02) $1.00 2.13% $242,935 0.59% 3.13%
FOR THE PERIOD ENDED
APRIL 30, 1992 (1) $1.00 0.03 (0.03) $1.00 3.55% $280,931 0.48% 4.61%
- --------------------------------------------------------------------------------------------------------------
RATIO RATIO OF
OF EXPENSES NET INCOME
TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS
(EXCLUDING (EXCLUDING
WAIVERS) WAIVERS)
- -----------------------------------------------
<S> <C> <C>
1784 PRIME
MONEY MARKET FUND
FOR THE YEAR ENDED
DECEMBER 31, 1996 0.66% 4.85%
FOR THE YEAR ENDED
DECEMBER 31, 1995 0.62% 5.40%
FOR THE YEAR ENDED
DECEMBER 31, 1994 0.69% 3.60%
FOR THE YEAR ENDED
DECEMBER 31, 1993 0.70% 2.57%
FOR THE PERIOD ENDED
DECEMBER 31, 1992 (2) 0.64% 3.08%
FOR THE PERIOD ENDED
APRIL 30, 1992 (1) 0.63% 4.46%
- -----------------------------------------------
<FN>
(1) 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 TO
$0.01 PER SHARE ($1,101) WAS DISTRIBUTED TO FEDERATED ADMINISTRATIVE
SERVICES. ALL RATIOS FOR THE PERIOD HAVE BEEN ANNUALIZED.
(2) 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. ALL RATIOS
FOR THE PERIOD HAVE BEEN ANNUALIZED.
</FN>
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
8
<PAGE>
DECEMBER 31, 1996
1784 PRIME MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The 1784 Prime Money Market Fund is a portfolio of the 1784 Funds (the "Trust"),
an open-end investment company registered under the Investment Company Act of
1940, as amended. Until December 9, 1996, the 1784 Prime Money Market Fund was
known as the BayFunds Money Market Portfolio and was a portfolio of BayFunds, an
open-end investment company registered under the Investment Company Act of 1940,
as amended. See Note 6 for more information. The shares of the BayFunds Money
Market Portfolio were divided into two classes, known as Investment Shares and
Trust Shares. The 1784 Prime Money Market Fund has only a single class of
outstanding shares. The Trust is presently offering shares in 15 separate
portfolios (the "Funds"):
MONEY MARKET FUNDS:
1784 U.S. TREASURY MONEY MARKET FUND
1784 TAX-FREE MONEY MARKET FUND
1784 PRIME MONEY MARKET FUND
1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
BOND FUNDS:
1784 SHORT-TERM INCOME FUND
1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
1784 INCOME FUND
1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND
1784 CONNECTICUT TAX-EXEMPT INCOME FUND
1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND
1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
STOCK FUNDS:
1784 ASSET ALLOCATION FUND
1784 GROWTH AND INCOME FUND
1784 GROWTH FUND
1784 INTERNATIONAL EQUITY FUND
The Funds' prospectuses provide a description of each Fund's investment
objectives, policies and strategies.
The financial statements of the 1784 Prime Money Market Fund are included
herein. The assets of each Fund are segregated, and a shareholder's interest is
limited to the Fund in which shares are held. The financial statements have been
prepared in accordance with generally accepted accounting principles which
requires the use of estimates. Actual results could differ from those estimates.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
1784 Prime Money Market Fund (the "Fund").
SECURITY VALUATION --
Investment securities of the Fund are stated at amortized cost which
approximates market value. Under this valuation method, purchase discounts
and premiums are accreted and amortized ratably to maturity
and are included in interest income.
SECURITY TRANSACTIONS AND INVESTMENT INCOME --
Security transactions are accounted for on the trade date of the security
purchase or sale. Costs used in determining net realized capital
9
<PAGE>
DECEMBER 31, 1996
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
gains and losses on the sale of securities are those of the specific
securities sold, adjusted for the accretion and amortization of the purchase
discounts and premiums during the respective holding period. Interest income is
recorded on the accrual basis.
REPURCHASE AGREEMENTS --
Securities pledged as collateral for Repurchase Agreements are held by the
Fund's custodian bank until maturity of the Repurchase Agreements. Provisions of
the Repurchase Agreements and procedures adopted by the Adviser are intended to
ensure that the market value of the collateral, including accrued interest
thereon, is sufficient in the event of default by the counterparty. If the
counterparty defaults and the value of the collateral declines or if the
counterparty enters into insolvency proceedings, realization on the collateral
by the Fund may be delayed or limited.
EXPENSES --
Expenses that are directly related to the Fund are charged directly to the Fund.
Other operating expenses of the Trust are prorated to the Funds on the basis of
relative net assets.
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income are declared on a daily basis and are
payable on the first business day of the following month. Any net realized
capital gains on sales of securities for the Fund are distributed to its
shareholders at least annually.
FEDERAL INCOME TAXES --
The Trust's policy is to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to its shareholders. Accordingly, no provision for Federal income
taxes is required in the financial statements. At December 31, 1996, the total
cost of securities for Federal income tax purposes was not materially different
from amounts reported for financial reporting purposes.
3. INVESTMENT ADVISORY, CUSTODIAL AND ACCOUNTING SERVICES
Investment advisory services are provided to the Trust by The First National
Bank of Boston (the "Adviser"). The Adviser is entitled to receive an annual fee
of 0.40% of the average daily net assets of the Fund. Such fee is computed daily
and paid monthly. Through July 29, 1996, the Fund's investment advisory services
were provided by BayBanks Investment Management, Inc. ("BBIM") at the same fee.
The Trust and The First National Bank of Boston (the "Custodian") are
parties to a custodial agreement applicable to the Fund as of December 9, 1996,
under which the Custodian holds cash, securities and other assets of the Trust
as required by the Investment Company Act of 1940, as amended. The Custodian is
entitled to receive an annual fee, to be paid monthly, of 0.01% for the first
$100 million in average daily net assets, 0.0075% for the next $100 million and
0.005% for the next $800 million in average daily net assets. In its capacity as
custodian to the Trust, the Custodian plays no role in determining the
investment policies of the Trust or which securities are to be purchased or sold
by the
10
<PAGE>
1784 PRIME MONEY MARKET FUND
- --------------------------------------------------------------------------------
Fund. Prior to December 9, 1996, custodial services were provided to the
Fund by The Fifth Third Bank.
Federated Administrative Services ("FAS") provided certain accounting
services for the Fund for the period of January 1, 1996 through December 8,
1996. For such services during this period, FAS received a fee of $66,000.
Effective December 9, 1996, SEI Fund Resources ("SEI") began providing
accounting services for the Fund as a part of the administration agreement (see
Note 4).
4. ADMINISTRATIVE AND DISTRIBUTION SERVICES
Pursuant to an administration agreement and applicable to the Fund as of
December 9, 1996, SEI acts as the Trust's Administrator. Under the terms of such
agreement, SEI is entitled to receive an annual fee of 0.085% of the Trust's
first $5 billion of average daily net assets and 0.045% of the Trust's average
daily net assets over $5 billion. Such fee is computed daily and paid monthly.
SEI may retain sub-administrators, including The First National Bank of
Boston, whose fees are payable by SEI.
Prior to December 9, 1996, administrative services were provided to
BayFunds by Federated Administrative Services, a subsidiary of Federated
Investors. These services were provided at an aggregate annual rate for BayFunds
of 0.15% of the first $250 million of average daily net assets, 0.125% of the
next $250 million of average daily net assets, 0.10% of the next $250 million of
average daily net assets, and 0.075% of average daily net assets in excess of
$750 million, but in any case not less than $50,000 per portfolio per year.
SEI Financial Services Company ("SFS"), a wholly-owned subsidiary of SEI,
acts as the Trust's Distributor as of December 9, 1996. SFS is paid no fees by
the Trust.
Prior to December 9, 1996, the principal distributor for shares of BayFunds
was Federated Securities Corp., a subsidiary of Federated Investors.
Pursuant to a Shareholder Services Agreement as of December 9, 1996,
BayBank Systems, Inc., an affiliate of the Adviser, provides shareholder
services to the Fund and receives compensation, computed daily and paid monthly,
at an annual rate of 0.10% of the average daily net assets held by the Fund.
Prior to December 9, 1996, BayBank Systems, Inc. provided similar services with
respect to the Investment Shares of the BayFunds Money Market Portfolio and
received compensation at an annual rate of 0.25% of the average daily net assets
held by the Fund and attributable to such shares.
Certain officers of the Trust are also officers of the Administrator. Such
officers are paid no fees by the Trust.
The Fund has paid legal fees to a law firm of which the Secretary of the
Trust is member.
5. LINE OF CREDIT
The Fund has a bank line of credit. Borrowings under the line of credit are
secured by investment securities of the Fund. No borrowings were outstanding at
December 31, 1996.
11
<PAGE>
DECEMBER 31, 1996
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
- --------------------------------------------------------------------------------
6. ACQUISITION OF BAYFUNDS
On July 31, 1996, the Board of Trustees of the Trust and on July 31, 1996
and August 15, 1996 the Board of Trustees of BayFunds met to consider and
approve an Agreement and Plan of Reorganization (the "Reorganization Agreement")
providing for the transfer of all assets and balance sheet liabilities of the
BayFunds Money Market Portfolio to the newly-organized 1784 Prime Money Market
Fund. At a special meeting of the shareholders held on November 6, 1996, the
shareholders of BayFunds voted to approve the Reorganization Agreement. Pursuant
to the Reorganization Agreement, on December 9, 1996 all of the assets and
balance sheet liabilities of the BayFunds Money Market Portfolio were
transferred to the Fund in exchange for its shares.
The following table summarizes certain relevant information regarding the
Fund prior to and immediately after the reorganizations on December 9, 1996.
7. CONTRIBUTION OF CAPITAL
On November 27, 1996, the Fund's Adviser contributed $124,260 to the Fund to
compensate the Fund for realized losses incurred in connection with various
security transactions.
<TABLE>
<CAPTION>
COMBINED
SHARES NET ASSETS
SHARES NET ASSETS ISSUED IN AFTER NAV
BAYFUND AT 12/6/96 AT 12/6/96 1784 FUND REORGANIZATION REORGANIZATION PER SHARE
====================================================================================================================
<S> <C> <C> <C> <C> <C>
MONEY MARKET
TRUST SHARES 94,945,689 94,945,452 PRIME MONEY MARKET 94,945,689 94,945,452 1.00
INVESTMENT SHARES 44,590,608 44,590,496 PRIME MONEY MARKET 44,590,608 44,590,496 1.00
</TABLE>
12
<PAGE>
1784 PRIME MONEY MARKET FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF 1784 PRIME MONEY MARKET FUND
WE HAVE AUDITED THE ACCOMPANYING STATEMENT OF NET ASSETS OF THE 1784 PRIME MONEY
MARKET FUND AS OF DECEMBER 31, 1996, AND THE RELATED STATEMENTS OF OPERATIONS,
STATEMENT OF CHANGES IN NET ASSETS AND THE FINANCIAL HIGHLIGHTS FOR THE YEAR
THEN ENDED. 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
AUDIT. THE CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 1995 AND
FINANCIAL HIGHLIGHTS FOR THE YEAR ENDED DECEMBER 31, 1995 AND EACH OF THE PRIOR
PERIODS PRESENTED WERE AUDITED BY OTHER AUDITORS, WHOSE REPORT DATED FEBRUARY 9,
1996 EXPRESSED AN UNQUALIFIED OPINION THEREON.
WE CONDUCTED OUR AUDIT 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 INVESTMENTS OWNED AS OF DECEMBER 31, 1996,
BY CORRESPONDENCE WITH THE CUSTODIANS AND BROKERS. AN AUDIT ALSO INCLUDES
ASSESSING THE ACCOUNTING PRINCIPLES USED AND SIGNIFICANT ESTIMATES MADE BY
MANAGEMENT, AS WELL AS EVALUATING THE OVERALL FINANCIAL STATEMENT PRESENTATION.
WE BELIEVE THAT OUR AUDIT PROVIDES 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 THE
1784 PRIME MONEY MARKET FUND AS OF DECEMBER 31,1996 AND THE RESULTS OF THEIR
OPERATIONS, CHANGES IN THEIR NET ASSETS AND THEIR FINANCIAL HIGHLIGHTS FOR THE
YEAR THEN ENDED, IN CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 20, 1997
13
<PAGE>
1784 PRIME
MONEY MARKET FUND
- --------------------------------------------------------------------------------
DECEMBER 31, 1996
BOARD OF TRUSTEES
David H. Carter
Tarrant Cutler
Kenneth A. Froot
Sara L. Johnson
Kathryn Flacke Muncil
Robert A. Nesher
Alvin J. Silk
INVESTMENT ADVISER
The First National Bank of Boston
Boston, MA 02110
ADMINISTRATOR
SEI Fund Resources
Oaks, PA 19456
DISTRIBUTOR
SEI Financial Services Company
Oaks, PA 19456
LEGAL COUNSEL
Bingham, Dana & Gould LLP
Boston, MA 02110
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Boston, MA 02109
CUSTODIAN
The First National Bank of Boston
Boston, MA 02110
FOR MORE INFORMATION, INCLUDING A PROSPECTUS,
CALL 1-800-252-1784.
[1784 FUNDS LOGO]
SOUND CHOICES. STRAIGHT TALK.
INVESTMENT MANAGEMENT STRENGTH.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE FOR THE
GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND NAMED ABOVE. THIS REPORT IS
NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR
ACCOMPANIED BY A CURRENTLY EFFECTIVE PROSPECTUS.
BKB-F-041-01
