FEDERATED MUNICIPAL TRUST, 497, 1994-12-29

FEDERATED MUNICIPAL TRUST
497, 1994-12-29

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BAYFUNDS(registration mark) SHARES
MASSACHUSETTS
MUNICIPAL
CASH TRUST

PROSPECTUS

FEDERATED SECURITIES CORP.
- --------------------------------------- MUTUAL
DISTRIBUTOR FUNDS AT BAYFUNS
DECEMBER 31, 1994 BAYBANK

[LOGO] PRINTED ON RECYCLED PAPER G00507-01 (12/94)

MASSACHUSETTS MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
BAYFUNDS(registration mark) SHARES

PROSPECTUS

The BayFunds Shares of Massachusetts Municipal Cash Trust (the "Fund") offered
by this prospectus represent interests in a non-diversified investment portfolio
of Federated Municipal Trust (the "Trust"), an open-end management investment
company (a mutual fund).

AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.

The investment objective of the Fund is to provide current income which is
exempt from federal regular income tax, and Massachusetts state income tax,
consistent with stability of principal. The Fund invests primarily in short-term
Massachusetts municipal securities, including securities of states, territories,
and possessions of the United States which are not issued by or on behalf of
Massachusetts or its political subdivisions and financing authorities, but which
are exempt from the federal regular and Massachusetts state income tax.
Shareholders can invest, reinvest, or redeem BayFunds Shares at any time with no
sales loads or redemption fees imposed by the Fund. Shareholders have access to
other portfolios in BayFunds.

THE BAYFUNDS SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS
OF BAYBANKS, INC., OR ITS SUBSIDIARIES, ARE NOT ENDORSED OR GUARANTEED BY
BAYBANKS, INC., OR ITS SUBSIDIARIES, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT
AGENCY. INVESTING IN THESE SHARES INVOLVES INVESTMENT RISKS INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.

This prospectus contains the information you should read and know before you
invest in BayFunds Shares. Keep this prospectus for future reference.

The Fund has also filed a Statement of Additional Information for BayFunds
Shares dated December 31, 1994, with the Securities and Exchange Commission. The
information contained in the Statement of Additional Information is incorporated
by reference into this prospectus. You may request a copy of the Statement of
Additional Information free of charge by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contact the Fund at the address
listed at the back of this prospectus.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

Prospectus dated December 31, 1994

TABLE OF CONTENTS

KEY FACTS

General Information........................................................... 1

Summary of Fund Expenses...................................................... 2

Financial Highlights--Bayfunds Shares......................................... 3

MATCHING THE FUND TO YOUR INVESTMENT NEEDS

Investment Objective and Policies............................................. 4

Acceptable Investments........................................................ 4

Investment Limitations........................................................ 8

SHAREHOLDER MANUAL

Pricing of Shares............................................................. 9

How to Buy Shares............................................................. 9

By Phone.................................................................10

By Mail..................................................................10
By Wire..................................................................10
Through BayBanks Offices.................................................10
Corporate Customers/Capital Markets..................................... 10

Automatic Investment Program..................................................11

How to Exchange Shares........................................................11
By Phone.................................................................12
By Mail..................................................................12
Through BayBanks Offices.................................................12
How to Redeem Shares..........................................................12

By Phone.................................................................13

By Mail..................................................................13
By Wire..................................................................13

Through BayBanks Offices.................................................14

ADDITIONAL INFORMATION YOU SHOULD KNOW

Dividends and Distributions...................................................14

Tax Information...............................................................15

Performance Information.......................................................16

Management, Distribution and
Administration..............................................................19

Other Classes of Shares.......................................................22

KEY FACTS

GENERAL INFORMATION

As a shareholder of the BayFunds Shares class (the "Shares") of the Fund, you
have access to all of the portfolios of BayFunds, an open-end, management
investment company. BayFunds consists of five separate, professionally managed
investment portfolios with distinct investment objectives and policies.

As of the date of this prospectus, BayFunds offers shares in five portfolios:

BAYFUNDS MONEY MARKET
PORTFOLIO
SEEKS TO PROVIDE CURRENT INCOME CONSISTENT WITH STABILITY OF PRINCIPAL AND
LIQUIDITY, BY INVESTING IN A PORTFOLIO OF MONEY MARKET INSTRUMENTS WITH
REMAINING MATURITIES OF 397 DAYS OR LESS;
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
SEEKS TO PROVIDE CURRENT INCOME CONSISTENT WITH STABILITY OF PRINCIPAL AND
LIQUIDITY, BY INVESTING, UNDER NORMAL MARKET CONDITIONS, AT LEAST 65% OF
THE VALUE OF ITS TOTAL ASSETS IN U.S. TREASURY OBLIGATIONS WITH REMAINING
MATURITIES OF 397 DAYS OR LESS;

BAYFUNDS SHORT TERM YIELD PORTFOLIO
SEEKS A HIGH LEVEL OF CURRENT INCOME CONSISTENT WITH PRESERVATION OF
CAPITAL, BY INVESTING IN A DIVERSIFIED PORTFOLIO OF HIGH-GRADE DEBT
OBLIGATIONS. THE FUND WILL MAINTAIN A DOLLAR-WEIGHTED AVERAGE MATURITY OF
THREE YEARS OR LESS;
BAYFUNDS BOND PORTFOLIO
SEEKS TO ACHIEVE HIGH CURRENT INCOME AND CAPITAL APPRECIATION, BY
INVESTING, UNDER NORMAL MARKET AND ECONOMIC CONDITIONS, AT LEAST 65% OF THE
VALUE OF ITS TOTAL ASSETS IN BONDS; AND
BAYFUNDS EQUITY PORTFOLIO
SEEKS TO PROVIDE LONG-TERM CAPITAL APPRECIATION, BY INVESTING, UNDER NORMAL
MARKET AND ECONOMIC CONDITIONS, AT LEAST 65% OF THE VALUE OF ITS TOTAL
ASSETS IN A BROADLY DIVERSIFIED PORTFOLIO OF EQUITY SECURITIES, WITH
CURRENT INCOME AS A SECONDARY CONSIDERATION.

SUMMARY OF FUND EXPENSES

<TABLE>
<S> <C> <C>
BAYFUNDS SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)................................... None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)........................ None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable)......................................................................... None
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................ None
Exchange Fee.................................................................................................. None
ANNUAL BAYFUNDS SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)............................................................................. 0.15%
12b-1 Fee..................................................................................................... None
Total Other Expenses.......................................................................................... 0.49%
Shareholder Services Fee (2)...................................................................... 0.06%
Total BayFunds Shares Operating Expenses (3).................................................................. 0.64%
</TABLE>

(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.50%.

(2) The maximum shareholder services fee is 0.25%.

(3) The Total BayFunds Shares Operating Expenses would have been 0.99% absent
the voluntary waiver of a portion of the management fee.

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of BayFunds Shares of the Fund will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Management, Distribution and Administration."
Wire-transferred redemptions may be subject to additional fees.

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS
<S> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each time period....... $ 7 $ 20 $ 36

<CAPTION>
EXAMPLE: 10 YEARS
<S> <C>
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each time period....... $ 80
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

The information set forth in the foregoing table and example relates only to the
BayFunds Shares of the Fund. The Fund also offers another class of shares called
Institutional Service Shares. BayFunds Shares and Institutional Service Shares
are subject to certain of the same expenses; however, Institutional Service
Shares are not subject to a Sub-Transfer Agent Fee. Certain expenses are
allocated as incurred by each class. These expenses are greater for BayFunds
Shares than for Institutional Service Shares. All other expenses are allocated
based upon the average daily net assets of each class. See "Other Classes of
Shares."

MASSACHUSETTS MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--BAYFUNDS SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Arthur Andersen LLP, the Fund's
independent public accountants. Their report dated December 14, 1994, on the
Fund's financial statements for the year ended October 31, 1994, and on the
following table for each of the periods presented, is included in the Annual
Report, which is incorporated by reference. This table should be read in
conjunction with the Fund's financial statements and notes thereto, which may be
obtained free of charge from the Fund.

<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1994 1993*
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------
Net investment income 0.02 0.01
- ---------------------------------------------------------------------------------- ------- -------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.02) (0.01)
- ---------------------------------------------------------------------------------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------- ------- -------
TOTAL RETURN** 2.05% 1.25%
- ----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------
Expenses 0.64% 0.65%(b)
- ----------------------------------------------------------------------------------
Net investment income 2.09% 1.85%(b)
- ----------------------------------------------------------------------------------
Expense waiver/reimbursement (a) 0.35% 0.43%(b)
- ----------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $41,912 $18,143
- ----------------------------------------------------------------------------------
</TABLE>

* Reflects operations for the period from March 8, 1993 (date of initial
public investment) to
October 31, 1993.

** Based on net asset value, which does not reflect the sales load or
redemption fee, if applicable.

(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

(b) Computed on an annualized basis.

MATCHING THE FUND TO
YOUR INVESTMENT NEEDS

IF YOU ARE SEEKING CURRENT INCOME WHICH IS EXEMPT FROM FEDERAL REGULAR
INCOME TAX AND MASSACHUSETTS STATE INCOME TAX CONSISTENT WITH LIQUIDITY AND
STABILITY OF PRINCIPAL, THEN THE FUND MAY BE A SUITABLE INVESTMENT.
THE FUND SEEKS TO MAINTAIN A STABLE $1.00 SHARE PRICE, REFERRED TO AS THE
NET ASSET VALUE PER SHARE, BY INVESTING IN A PORTFOLIO OF SHORT-TERM
MASSACHUSETTS MUNICIPAL SECURITIES. WHILE THE FUND CANNOT GUARANTEE A
STABLE SHARE PRICE, THE SHORT-TERM NATURE OF ITS INVESTMENTS HELPS TO
MINIMIZE PRICE FLUCTUATIONS.

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Fund is to provide current income which is
exempt from federal regular income tax, and Massachusetts state income tax
consistent with stability of principal. The investment objective cannot be
changed without approval of shareholders. While there is no assurance that the
Fund will achieve its investment objective, it endeavors to do so by following
the investment policies described in this prospectus.

Interest income of the Fund that is exempt from the income taxes described above
retains its tax-free status when distributed to the Fund's shareholders.
However, income distributed by the Fund may not necessarily be exempt from state
or municipal taxes in states other than Massachusetts.

The Fund pursues its investment objective by investing primarily in a portfolio
of Massachusetts municipal securities with remaining maturities of 13 months or
less at the time of purchase by the Fund. As a matter of investment policy,
which cannot be changed without the approval of shareholders, the Fund invests
its assets so that at least 80% of its annual interest income is exempt from
federal regular income tax and Massachusetts state income tax. The average
maturity of the securities in the Fund's portfolio, computed on a
dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the
investment policies may be changed by the Trustees without the approval of
shareholders. Shareholders will be notified before any material changes in these
policies become effective.

ACCEPTABLE INVESTMENTS

The Fund invests primarily in debt obligations issued by or on behalf of
Massachusetts and its political subdivisions and financing authorities, and
obligations of other states, territories and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal regular income tax and Massachusetts state
income tax imposed upon non-corporate taxpayers.

MASSACHUSETTS MUNICIPAL SECURITIES. Massachusetts municipal securities are
generally issued to finance public works, such as airports, bridges, highways,
housing, hospitals, mass transportation projects, schools, streets, and water
and sewer works. They are also issued to repay outstanding obligations, to raise
funds for general operating expenses, and to make loans to other public
institutions and facilities.

Massachusetts municipal securities include industrial development bonds issued
by or on behalf of public authorities to provide financing aid to acquire sites
or construct and equip facilities for privately or publicly owned corporations.
The availability of this financing encourages these corporations to locate
within the sponsoring communities and thereby increases local employment.

ISSUERS OF GENERAL OBLIGATION BONDS INCLUDE STATES, COUNTIES, CITIES,
TOWNS, AND OTHER GOVERNMENTAL UNITS.

The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.

Examples of Massachusetts municipal securities include, but are not limited to:
tax and revenue anticipation notes ("TRANs") issued to finance working
capital needs in anticipation of receiving taxes or other revenues;
bond anticipation notes ("BANs") that are intended to be refinanced through a
later issuance of longer-term bonds;
municipal commercial paper and other short-term notes;
variable rate demand notes;
municipal bonds (including bonds having serial maturities and pre-refunded
bonds) and leases; and
participation, trust and partnership interests in any of the foregoing
obligations.
At least 80% of the value of the Fund's total assets will be invested in
Massachusetts municipal securities.

MASSACHUSETTS INVESTMENT RISKS. Yields on Massachusetts municipal securities
depend on a variety of factors, including: the general conditions of the
short-term municipal note market and of the municipal bond market; the size and
maturity of the particular offering; the maturity of the obligations; and the
rating of the issue. Further, any adverse economic conditions or developments
affecting the Commonwealth of Massachusetts or its municipalities could impact
the Fund's portfolio. The ability of the Fund to achieve its investment
objective also depends on the continuing ability of the issuers of Massachusetts
municipal securities and demand features, or the credit enhancers of either, to
meet their obligations for the payment of interest and principal when due.

Investing in Massachusetts municipal securities which meet the Fund's quality
standards may not be possible if the Commonwealth of Massachusetts or its
municipalities do not maintain their high quality, short-term current credit
ratings. In addition, certain Massachusetts constitutional amendments,
legislative measures, executive orders, administrative regulations, and voter
initiatives could result in adverse consequences affecting Massachusetts
municipal securities. An expanded discussion of the current economic risks
associated with the purchase of Massachusetts municipal securities is contained
in the Statement of Additional Information.

NON-DIVERSIFICATION. The Fund is a non-diversified investment portfolio. As
such, there is no limit on the percentage of assets which can be invested in any
single issuer. An investment in the Fund, therefore, will entail greater risk
than would exist in a diversified investment portfolio because the higher
percentage of investments among fewer issuers may result in greater fluctuation
in the total market value of the Fund's portfolio. Any economic, political, or
regulatory developments affecting the value of the securities in the Fund's
portfolio will have a greater impact on the total value of the portfolio
than would be the case if the portfolio were diversified among more issuers.

The Fund intends to comply with Subchapter M of the Internal Revenue Code. This
undertaking requires that at the end of each quarter of the taxable year, with
regard to at least 50% of the Fund's total assets, no more than 5% of its total
assets are invested in the securities of a single issuer; beyond that, no more
than 25% of its total assets are invested in securities of a single issuer.

VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term municipal
securities that have variable or floating interest rates and provide the Fund
with the right to tender the security for repurchase at its stated principal
amount plus accrued interest. Such securities typically bear interest at a rate
that is intended to cause the securities to trade at par. The interest rate may
float or be adjusted at regular intervals (ranging from daily to annually), and
is normally based on a published interest rate or interest rate index. Most
variable rate demand notes allow the Fund to demand the repurchase of the
security on not more than seven days' prior notice. Other notes only permit the
Fund to tender the security at the time of each interest rate adjustment or at
other fixed intervals. See "Demand Features." The Fund treats variable rate
demand notes as maturing on the later of the date of the next interest
adjustment or the date on which the Fund may next tender the security for
repurchase.

PARTICIPATION INTERESTS. The Fund may purchase interests in municipal securities
from financial institutions such as commercial and investment banks, savings and
loan associations and insurance companies. These interests may take the form of
participations, beneficial interests in a trust, partnership interests or any
other form of indirect ownership that allows the Fund to treat the income from
the investment as exempt from federal income tax. The Fund invests in these
participation interests in order to obtain credit enhancement or demand features
that would not be available through direct ownership of the underlying municipal
securities.

MUNICIPAL LEASES. Municipal leases are obligations issued by state and local
governments or authorities to finance the acquisition of equipment and
facilities and may be considered to be illiquid. They may take the form of a
lease, an installment purchase contract, a conditional sales contract, or a
participation certificate on any of the above.

RATINGS. The Massachusetts municipal securities in which the Fund invests must
either be rated in one of the two highest short-term rating categories by one or
more nationally recognized statistical rating organizations ("NRSROs") or be of
comparable quality to securities having such ratings. An NRSRO's two highest
rating categories are determined without regard for sub-categories and
gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard &
Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc.
("Moody's"), or FIN-1+, FIN-1 and FIN-2 by Fitch Investors Service ("Fitch") are
all considered rated in one of the two highest short-term rating categories. The
Fund will follow applicable regulations in determining whether a security rated
by more than one NRSRO can be treated as being in one of the two highest
short-term rating categories; currently, such securities must be rated by two
NRSROs in one of their two highest categories. See "Investment Limitations."

CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been
credit-enhanced by a guaranty, letter of credit or insurance. The Fund typically
evaluates the credit quality and ratings of credit-enhanced securities based
upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. The bankruptcy,
receivership or default of the credit enhancer will adversely affect the quality
and marketability of the underlying security.

The Fund may have more than 25% of its total assets invested in securities
credit-enhanced by banks.

DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or another
third party, and may not be transferred separately from the underlying security.
The Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.

RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are subject
to restrictions on resale under federal securities laws. Under criteria
established by the Trustees, certain restricted securities are considered
liquid. To the extent restricted securities are deemed to be illiquid, the Fund
will limit their purchase, together with other securities considered to be
illiquid, to 10% of its net assets.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more/less than the market value of the securities
on the settlement date.

The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter in transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.

TEMPORARY INVESTMENTS. From time to time, during periods of other than normal
market conditions, the Fund may invest in short-term, non-Massachusetts
municipal tax-exempt obligations or other taxable temporary investments. All
temporary investments will satisfy the same credit quality standards as the
Fund's acceptable investments. See "Ratings" above. Temporary investments
include: notes issued by or on behalf of municipal or corporate issuers;
marketable obligations issued or guaranteed by the U.S. government, its agencies
or instrumentalities; other debt securities; commercial paper; certificates of
deposit of banks; and repurchase agreements (arrangements in which banks,
broker/dealers, and other recognized financial institutions sell the Fund a
temporary investment and agree to repurchase it at a mutually agreed upon time
and price).

Although the Fund is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal regular income tax
or Massachusetts state income tax.

STANDBY COMMITMENTS. Some securities dealers are willing to sell municipal
securities to the Fund accompanied by their commitments to repurchase the
municipal securities prior to maturity, at the Fund's option, for the amortized
cost of the municipal securities at the time of repurchase. These arrangements
are not used to protect against changes in the market value of municipal
securities. They permit the Fund, however, to remain fully invested and still
provide liquidity to satisfy redemptions. The cost of municipal securities
accompanied by these "standby" commitments could be greater than the cost of
municipal securities without such commitments. Standby commitments are not
marketable or otherwise assignable and have value only to the Fund. The default
or bankruptcy of a securities dealer giving such a commitment would not affect
the quality of the municipal securities purchased. However, without a standby
commitment, these securities could be more difficult to sell. The Fund enters
into standby commitments only with those dealers whose credit the Adviser
believes to be of high quality.

INVESTMENT LIMITATIONS

The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge up to 15% of the value of those assets to secure such
borrowings. This investment limitation cannot be changed without shareholder
approval.

The Fund will not invest more than 5% of its total assets in industrial
development bonds or other municipal securities when the payment of principal
and interest is the responsibility of companies (or guarantors, where
applicable) with less than three years of continuous operations, including the
operation of any predecessor. This limitation can be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in this limitation becomes effective.

The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and the Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940, as amended (the "ICA"). In particular,
the Fund will comply with the various requirements of Rule 2a-7 under the ICA,
which regulates money market mutual funds. The Fund will determine the effective
maturity of its investments, as well as its ability to consider a security as
having received the requisite short-term ratings by NRSROs, according to Rule
2a-7. The Fund may change these operational policies to reflect changes in the
laws and regulations without the approval of its shareholders.

SHAREHOLDER MANUAL

SHARES ARE SOLD "NO-LOAD"--WITHOUT A SALES CHARGE. YOUR MINIMUM INITIAL
INVESTMENT IS ONLY $2,500 OR $500 IF YOU PARTICIPATE IN THE AUTOMATIC
INVESTMENT PROGRAM.

PRICING OF SHARES

The Fund attempts to stabilize the net asset value of its Shares at $1.00 by
valuing the portfolio securities using the amortized cost method. Net asset
value per Share for purposes of pricing purchases and redemptions is calculated
by dividing the value of all securities and other assets belonging to the Fund,
less the liabilities charged to the Fund by the number of outstanding Shares of
the Fund.

THE TERM "NET ASSET VALUE" PER SHARE REFERS TO THE VALUE OF ONE FUND
SHARE.

The Fund cannot guarantee that its net asset value will always remain at $1.00
per Share.

The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m.
(Eastern time), and the close of regular trading hours on the New York Stock
Exchange, currently 4:00 p.m. (Eastern time), Monday through Friday, except on
the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.

The Fund offers Shares only on days on which the New York Stock Exchange and the
Federal Reserve Bank of Boston are open for business ("Business Days"). If
BayBank Systems, Inc. (the "Shareholder Servicing Agent") receives your purchase
order on a non-Business Day, the order will not be executed until the next
Business Day in accordance with the Distributor's procedures. The Fund and the
Distributor reserve the right to reject any purchase request.

HOW TO BUY SHARES

MINIMUM INVESTMENT. You can become a shareholder with an initial investment of
$2,500 or $500 if you participate in the Automatic Investment Program. You must
submit a completed application at the time of your initial purchase. Subsequent
investments must be in amounts of at least $100, or if you participate in the
Automatic Investment Program, the minimum for additional Share purchases is $50.
The Fund may waive any investment minimums from time to time. In addition, the
Fund may reduce or waive investment minimums for investors purchasing through
qualified BayBanks accounts.

If your purchase order is received in good order and accepted by the Fund from
Federated Services Company (the "Transfer Agent") by 1:00 p.m. (Eastern time) on
a Business Day, it will be executed at the net asset value next determined and
your Shares will begin earning dividends that day. The Transfer Agent will not
communicate your purchase order to the Fund until the Shareholder Servicing
Agent has received the purchase price in Federal funds or other immediately
available funds. If your purchase order is received in good order and accepted
by the Fund from the Transfer Agent after 1:00 p.m. (Eastern time), and prior to
4:00 p.m. (Eastern time), it will be executed at the net asset value next
determined and Shares will begin earning dividends the next Business Day. When
you purchase Shares by check, the order is considered received when the check is
converted into federal funds, normally within two Business Days.

The Shareholder Servicing Agent is responsible for the prompt transmission of
purchase orders received in good order to the Transfer Agent.

YOU MAY BUY SHARES BY TELEPHONE, MAIL, WIRE, OR IN PERSON THROUGH BAYBANKS
OFFICES.

BY PHONE. Once you are a shareholder, you may purchase additional Shares by
calling 1-800-BAYFUND (1-800-229-3863).

You must have previously authorized the Fund in writing to accept telephone
requests. If you have not done so, call 1-800-BAYFUND to receive the necessary
form and information on this Fund feature.

The establishment of certain types of deposit account relationships with
BayBanks may permit the direct deduction of your purchase price from your
BayBanks deposit account. Please call 1-800-BAYFUND to determine whether your
BayBanks deposit account qualifies.

For the protection of investors, all phone communications may be recorded where
not otherwise prohibited by law.

BY MAIL. If you make your initial Share purchase by mail, you must send a
completed application, and a check payable to the Fund, to:

BayFunds
P.O. Box 889
Burlington, MA 01803

You may obtain an application by calling
1-800-BAYFUND.

You may make subsequent investments in the Fund at any time by sending a check
for a minimum of $100 payable to the Fund at the following address:

BayFunds
P.O. Box 5-0900
Woburn, MA 01815-0900

along with either (a) the detachable form that regularly accompanies
confirmation of a prior transaction, (b) a subsequent order form that may be
obtained by calling 1-800-BAYFUND, or (c) a letter stating the amount of the
investment, the name of the Fund, the exact name and address of the account, and
your account number.

If the check does not clear, your purchase order will be cancelled.

BY WIRE. If you are a shareholder, you may purchase additional Shares by wire to
BayBanks, as agent for the Shareholder Servicing Agent, as follows:

BayBanks

ABA Number: 0110-0174-2

Attention: Mutual Funds Services

For Credit to: BayFunds Shares, Massachusetts Municipal Cash Trust; Account
37153931

Further Credit to: shareholder name and account number

Shares cannot be purchased by wire on days on which the New York Stock Exchange
and the Federal Reserve Wire System are not open for business and on the
following holidays: Martin Luther King Day, Columbus Day, or Veterans' Day.

THROUGH BAYBANKS OFFICES. You may place an order to purchase Shares in person
through designated BayBanks offices.

Purchase orders placed through BayBanks offices typically would be received by
the Transfer Agent within two Business Days. If you want more prompt processing,
you should consider another method, such as by phone. See above.

CORPORATE CUSTOMERS/CAPITAL MARKETS CUSTOMERS. Corporate and/or Capital Markets
customers of BayBanks interested in purchasing Shares
should consult their account relationship managers for procedures applicable to
their accounts or call 1-800-554-3311. This prospectus should be read in
conjunction with any materials provided by BayBanks regarding such procedures.

AUTOMATIC INVESTMENT PROGRAM

YOU CAN BUY SHARES CONVENIENTLY THROUGH THE AUTOMATIC INVESTMENT PROGRAM.

When you participate in the Automatic Investment Program, you can purchase
additional Shares in minimum amounts of $50. You must previously have authorized
in writing the total dollar amount to be deducted automatically from eligible
BayBanks deposit accounts or your deposit account maintained at a domestic
financial institution which is an automated clearing house member, and the
frequency of the deductions. The funds will be invested in Shares at the net
asset value next determined. The Fund may reduce or waive the investment
minimums for investors purchasing through qualified BayBanks accounts.

HOW TO EXCHANGE SHARES

IF YOUR INVESTMENT NEEDS CHANGE, YOU CAN EASILY REDEEM FUND SHARES AND
PURCHASE SHARES OF ANY BAYFUNDS' PORTFOLIO AT NO CHARGE.

BayFunds consists of the BayFunds Money Market Portfolio, the BayFunds U.S.
Treasury Money Market Portfolio, the BayFunds Short Term Yield Portfolio, the
BayFunds Bond Portfolio and the BayFunds Equity Portfolio. As a shareholder, you
have access to all of these portfolios ("Participating Funds") of BayFunds.
Because the BayFunds offer separate classes of shares, Fund shareholders (other
than certain trust and institutional investors, including qualified employee
benefit plans) must purchase shares of the Investment Shares class of these
Participating Funds.

You may redeem Shares having a net asset value of at least $100 and purchase
shares of any other Participating Funds in which you have an account. The
minimum initial investment to establish an account in any other Participating
Fund is $2,500 or $500 if you participate in the Automatic Investment Program.
BayFunds does not charge any fees for these transactions.

Shares will be redeemed at the net asset value next determined and Shares of the
Participating Fund to be acquired will be purchased at the net asset value per
share next determined after receipt of the request by the Transfer Agent on a
Business Day.

If you do not have an account in the Participating Fund whose shares you want to
acquire, you must establish an account. Prior to any such transaction, you must
receive a copy of the current prospectus of the Participating Fund into which a
purchase is to be effected. This account will be registered in the same name and
you will receive your dividends and distributions as an automatic reinvestment
in additional shares. If the new account registration (name, address, and
taxpayer identification number) is not identical to your existing account,
please call 1-800-BAYFUND for the necessary new account or transfer procedures.

You may find this privilege useful if your investment objectives or market
outlook should change after you invest in the Fund or in any of the
Participating Funds. You may obtain further information on this privilege and
obtain a prospectus by calling 1-800-BAYFUND.

The exchange privilege is available to shareholders resident in any state in
which Participating Funds' shares being acquired may be sold.

BayFunds reserves the right to terminate this privilege at any time on 60 days'
notice. Shareholders will be notified if this privilege is terminated.

Depending on the circumstances, an exchange with a fluctuating net asset value
Participating Fund may generate a short- or long-term capital gain or loss for
federal income tax purposes.

BY PHONE. You may provide instructions to redeem Shares and purchase shares of
any Participating Funds by calling 1-800-BAYFUND.

You must have previously authorized the Fund in writing to accept telephone
requests. If you have not done so, call 1-800-BAYFUND to receive the necessary
form and information on this Fund feature. The Fund uses reasonable procedures
(including a shareholder identity test and sending a written confirmation of
each telephone transaction) to confirm that instructions given by telephone are
genuine. However, the Fund is not responsible for the authenticity of telephone
instructions or for any losses caused by fraudulent or unauthorized telephone
instructions if the Fund reasonably believed that the instructions were genuine.

BY MAIL. You may send a written request to redeem Shares and purchase shares of
any Participating Funds to:

BayFunds
P.O. Box 889
Burlington, MA 01803

Your written request must include your name and tax identification number; the
name of the Fund, the dollar amount or number of Shares to be redeemed; the name
of the Participating Fund in which shares are to be purchased; and your account
number. Your request must be signed by the registered owner(s) exactly as
required by the account application.

THROUGH BAYBANKS OFFICES. You may place an order to redeem Shares and purchase
shares of any Participating Funds in person through designated BayBanks offices.

Orders received through designated BayBanks offices typically would be received
by the Transfer Agent within two Business Days. For more prompt processing, you
should consider another method, such as exchanging shares by phone. See above.

HOW TO REDEEM SHARES

WHEN YOU SELL YOUR SHARES--"REDEEM" THEM--YOU RECEIVE THE NET ASSET VALUE
PER SHARE NEXT DETERMINED AFTER YOU'VE MADE THE REQUEST. THERE ARE NO FEES
OR OTHER REDEMPTION CHARGES (EXCEPT FOR REDEMPTIONS BY WIRE). YOU MAY
REDEEM SOME OR ALL OF YOUR INVESTMENT.

The Fund redeems Shares at the net asset value next determined after the Fund
has received your redemption request from the Transfer Agent in proper form.
Redemption requests can be executed only on Business Days. If your redemption
request is received by the Shareholder Servicing Agent on a non-Business Day,
the Transfer Agent will not communicate your redemption request to the Fund
until the next Business Day.

Redemption proceeds may be credited to an eligible BayBanks deposit account,
paid by check, or paid by wire, as you previously designated in writing. The
Fund ordinarily will make payment for Shares redeemed after proper receipt from
the Transfer Agent of the redemption request and of all documents in proper form
within one Business Day to an eligible BayBanks deposit account, within five
Business Days if you requested redemption proceeds by check, or the same day by
wire if the Fund receives your redemption request from the Transfer Agent by
12:00 noon (Eastern time) on the day of redemption. Shares redeemed and wired
the same day will not receive the dividend declared on the day of redemption.

SIGNATURE GUARANTEES. If you request a redemption for an amount in excess of
$25,000 (no limitation if the proceeds are being credited to your BayBanks
deposit account), a redemption of any amount to be sent to an address other than
your address of record with the Fund, the transfer of the registration of
Shares, or a redemption of any amount payable to someone other than yourself as
the shareholder of record, your signature must be guaranteed on a written
redemption request by a trust company or insured commercial bank; an insured
savings and loan association or savings bank; a member firm of a national or
regional stock exchange; or any other "eligible guarantor institution," as
defined in the Securities Exchange Act of 1934. The Transfer Agent has adopted
standards for accepting signature guarantees from the above institutions. The
Fund may elect in the future to limit eligible signature guarantors to
institutions that are members of a signature guarantee program. The Fund does
not accept signatures guaranteed by a notary public. The Fund and the Transfer
Agent reserve the right to amend these standards at any time without notice. If
you have a question about the proper form for redemption requests, call
1-800-BAYFUND.

YOU MAY REDEEM SHARES BY PHONE, MAIL, WIRE OR THROUGH BAYBANKS OFFICES.

BY PHONE. You may redeem Shares by calling
1-800-BAYFUND.

You must have previously authorized the Fund in writing to accept telephone
requests. If you have not done so, call 1-800-BAYFUND to receive the necessary
form.

In the event of drastic economic or market changes, you may experience
difficulty in redeeming by telephone. If this occurs, you should consider
another method of redemption, such as by mail or by wire. See below. The Fund
uses reasonable procedures (including a shareholder identity test and sending a
written confirmation of each telephone transaction) to confirm that instructions
given by telephone are genuine. However, the Fund is not responsible for the
authenticity of telephone instructions or for any losses caused by fraudulent or
unauthorized telephone instructions if the Fund reasonably believed that the
instructions were genuine.

BY MAIL. You may redeem Shares by submitting a written request for redemption
to:

BayFunds
P.O. Box 889
Burlington, MA 01803

Your written request must include your name and tax identification number, the
Fund's name, the dollar amount or number of Shares to be redeemed, and your
account number. Your request must be signed by the registered owner(s) exactly
as required by the account application.

BY WIRE. You may redeem Shares by wire (see "How to Buy Shares--By Wire") or by
calling
1-800-BAYFUND. Redemption proceeds of at least $1,000 will be wired directly to
the domestic commercial bank and account you previously designated in writing.
You are charged a fee for each wire redemption and the fee is deducted from your
redemption proceeds.

The Fund reserves the right to wire redemption proceeds within seven days after
receiving the redemption order if, in its judgment, an earlier payment could
adversely affect the Fund. The Fund also reserves the right to terminate or
modify the telephone and wire redemption procedures at any time. In that event,
shareholders would be promptly notified. Neither the Fund, the Transfer Agent,
the Sub-Transfer Agent, nor the Shareholder Servicing Agent will be responsible
for the authenticity of redemption instructions received by phone.

THROUGH BAYBANKS OFFICES. You may place an order to redeem Shares in person
through designated BayBanks offices.

Redemption orders received through designated BayBanks offices typically would
be received by the Transfer Agent within two Business Days. For more prompt
processing, you should consider another method, such as by phone. See page 13.

REDEMPTIONS BEFORE PURCHASE INSTRUMENTS CLEAR. If any portion of the Shares to
be redeemed represents an investment made with uncollected funds, the Fund
reserves the right to delay payment of proceeds until the Shareholder Servicing
Agent is reasonably certain that the funds have been collected, which could take
up to five business days.

ADDITIONAL INFORMATION YOU
SHOULD KNOW

MINIMUM BALANCE. Due to the high cost of maintaining accounts with low balances,
the Fund may redeem your Shares and send you the proceeds if, due to shareholder
redemptions your account balance falls below a minimum value of $1,000. However,
before Shares are redeemed to close an account, the shareholder will be notified
in writing and given 60 days to purchase additional Shares to meet the minimum
balance requirement. The Fund reserves the right to amend this standard upon 60
days' prior written notice to shareholders. The Fund also reserves the right to
redeem Shares involuntarily or make payment for redemptions in the form of
securities if it appears appropriate to do so in light of the Fund's
responsibilities under the ICA.

CONFIRMATIONS AND STATEMENTS. Confirmations of each purchase, exchange or
redemption are sent to each shareholder. Monthly statements are sent to report
transactions as well as dividends paid during the month. The Fund may suspend or
terminate its practice of confirming each transaction at any time without
notice.

DIVIDENDS AND DISTRIBUTIONS

YOU EARN DIVIDENDS DAILY AND RECEIVE THEM MONTHLY AS AN AUTOMATIC
REINVESTMENT IN ADDITIONAL SHARES.

Dividends from the Fund's net investment income are declared daily to
shareholders of record immediately following the 1:00 p.m. (Eastern time)
pricing of Shares. Dividends are paid monthly within five Business Days after
the end of such calendar month. The Fund does not expect to realize any net
long-term capital gains. However, if any such gains are realized, they
will be distributed to shareholders at least annually.

You will receive your dividends and your distributions as an automatic
reinvestment in additional Shares at the net asset value next determined on the
payment dates.

TAX INFORMATION

THIS DISCUSSION OF TAXES IS FOR GENERAL INFORMATION ONLY. PLEASE CONSULT
YOUR OWN TAX ADVISER ABOUT YOUR PARTICULAR SITUATION.

FEDERAL INCOME TAX. The Fund intends to meet the requirements of the Internal
Revenue Code in order not to be liable for any federal income taxes on income
and gains distributed to Fund shareholders. The Fund will distribute
substantially all of its net investment income and realized gains at least
annually.

The Fund will be treated as a single, separate entity for federal income tax
purposes.

INTEREST ON SOME MUNICIPAL SECURITIES MAY BE SUBJECT TO THE FEDERAL
ALTERNATIVE MINIMUM TAX.

Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on some municipal bonds may be included in
calculating the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.

The alternative minimum tax, equal to up to 28% of alternative minimum taxable
income for individuals and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is equal to
the regular taxable income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.

The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase all
types of municipal bonds, including private activity bonds. Should the Fund
purchase any such bonds, a portion of the Fund's dividends may be treated as a
tax preference item.

In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, the difference will be included in the
calculation of the corporation's alternative minimum tax.

Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.

These tax consequences apply to dividends received as additional Shares.
Information on the tax status of dividends and distributions is provided
annually.

MASSACHUSETTS TAX CONSIDERATIONS. Under existing Massachusetts laws,
distributions made by the Fund will not be subject to Massachusetts personal
income taxes to the extent that such distributions qualify as exempt interest
dividends under the Internal Revenue Code, and represent (i) obligations issued
by the Commonwealth of Massachusetts, its political subdivisions or agencies; or
(ii) obligations of the United States, its territories or possessions to the
extent exempt from taxation by the states pursuant to federal law. Conversely,
to the extent that distributions made by the Fund are derived from other types
of obligations, such distributions may be subject to Massachusetts personal
income taxes.

Shareholders subject to the Massachusetts corporate excise tax must include all
dividends paid by the Fund in their net income, and the value of their shares of
stock in the Fund in their net worth, when computing the Massachusetts corporate
excise tax.

OTHER STATE AND LOCAL TAXES. Income from the Fund is not necessarily free from
state income taxes in states other than Massachusetts or from personal property
taxes. State laws differ on this issue, and shareholders are urged to consult
their own tax advisers regarding the status of their accounts under state and
local tax laws.

PERFORMANCE INFORMATION

From time to time, in advertisements or in reports to shareholders, the
performance and yield of the Fund may be quoted and compared to those of other
mutual funds with similar investment objectives and to relevant money market
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For example,
the performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., a widely recognized independent service which
monitors the performance of mutual funds.

National financial publications in which performance and yield data are reported
may include The Wall Street Journal, The New York Times, Forbes, or Money
magazine. Publications of a local or regional nature, such as The Boston Globe
or The Boston Herald, may also be used in comparing the performance and yield of
the Fund.

YIELD. The yield of the Shares represents the annualized rate of income earned
on an investment in the Shares over a seven-day period. It is the annualized
dividends earned during the period on the investment shown as a percentage of
the investment. The effective yield is calculated similarly to the yield but,
when annualized, the income earned by an investment in the Shares is assumed to
be reinvested daily. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment. The
tax-equivalent yield of the BayFunds Shares is calculated similarly to the
yield, but is adjusted to reflect the taxable yield that the BayFunds Shares
would have had to earn to equal their actual yield, assuming a specific tax
rate.

Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in the Shares after reinvesting all income distributions. It is
calculated by dividing that change by the initial investment and is expressed as
a percentage.

Yield, effective yield, tax-equivalent yield and total return will be calculated
separately for BayFunds Shares and Institutional Service Shares. The yield,
effective yield, tax-equivalent yield and total return for Institutional Service
Shares will exceed that of BayFunds Shares due to the difference in Class
Expenses.

From time to time, the Fund may advertise the performance of BayFunds Shares
using certain financial publications and/or compare the performance of BayFunds
Shares to certain indices.

TAX-EQUIVALENT YIELD. For the seven day periods ended October 31, 1994, and
November 30, 1994, the tax-equivalent yields for BayFunds Shares were 5.60% and
6.16%, respectively, and 5.74% and 6.30%, respectively, for Institutional
Service Shares.

The tax-equivalent yield for both classes of shares is calculated similarly to
the yield, but is adjusted to reflect the taxable yield that BayFunds Shares
would have had to earn to equal its actual yield, assuming a 39.6% federal tax
rate and the 12% regular personal income tax rate imposed by Massachusetts and
assuming that income earned by the Fund is 100% tax-exempt on a regular federal,
state, and local basis.

TAX-EQUIVALENCY TABLE

Both classes of Shares may also use a tax-equivalency table in advertising and
sales literature. The interest earned by the municipal securities in the Fund's
portfolio generally remains free from federal regular income tax, and from the
regular personal income taxes imposed by Massachusetts.* As the table below
indicates, a "tax-free" investment is an attractive choice for investors,
particularly in times of narrow spreads between "tax-free" and taxable yields.

<TABLE>
TAXABLE YIELD EQUIVALENT FOR 1994
STATE OF MASSACHUSETTS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TAX BRACKET:
FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60%

COMBINED FEDERAL
AND STATE 27.00% 40.00% 43.00% 48.00% 51.60%
- --------------------------------------------------------------------------------
JOINT RETURN: $1- $38,001- $91,851- $140,001- Over
38,000 91,850 140,000 250,000 $ 250,000

SINGLE RETURN: $1- $22,751- $55,101- $115,001- Over
22,750 55,100 115,000 250,000 $ 250,000
- --------------------------------------------------------------------------------
TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT
- --------------------------------------------------------------------------------
1.50% 2.05% 2.50% 2.63% 2.88% 3.10%
2.00 2.74 3.33 3.51 3.85 4.13
2.50 3.42 4.17 4.39 4.81 5.17
3.00 4.11 5.00 5.26 5.77 6.20
3.50 4.79 5.83 6.14 6.73 7.23
4.00 5.48 6.67 7.02 7.69 8.26
4.50 6.16 7.50 7.89 8.65 9.30
5.00 6.85 8.33 8.77 9.62 10.33
5.50 7.53 9.17 9.65 10.58 11.36
6.00 8.22 10.00 10.53 11.54 12.40
</TABLE>

NOTE: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes
paid on comparable taxable investments were not used to increase federal
deductions.

The above chart is for illustrative purposes only. It is not an indicator of
past or future performance of either class of Shares.

* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local regular or alternative minimum taxes.

MANAGEMENT, DISTRIBUTION
AND ADMINISTRATION

The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of this
prospectus, the Board of Trustees ("Trustees") has established two classes of
shares, BayFunds Shares and Institutional Service Shares. This prospectus
relates only to BayFunds Shares of the Fund (the "Shares").

Shares are designed primarily for individuals, partnerships and corporations who
seek a convenient means of accumulating an interest in a professionally managed,
non-diversified portfolio limited to short-term Massachusetts municipal
securities. The Fund is not likely to be a suitable investment for
non-Massachusetts taxpayers or retirement plans since it intends to invest
primarily in Massachusetts municipal securities.

AS A SHAREHOLDER, YOU ARE ENTITLED TO VOTE ON CERTAIN MATTERS.

VOTING RIGHTS. Each Share of the Fund gives the shareholder one vote in Trustee
elections and other matters submitted to shareholders for vote. All shares of
all classes of each portfolio in the Trust have equal voting rights except that
in matters affecting only a particular Fund or class, only shares of that
particular Fund or class are entitled to vote.

As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of Trustees
under certain circumstances. Trustees may be removed by the Trustees or by
shareholders at a special meeting. A special meeting of the shareholders shall
be called by the Trustees upon the written request of shareholders owning at
least 10% of the outstanding shares of all series of the Trust entitled to vote.

A BOARD OF TRUSTEES SUPERVISES FEDERATED MUNICIPAL TRUST.

The Trust is managed by a Board of Trustees. The Trustees are responsible for
managing the business affairs of the Trust and for exercising all of the powers
of the Trust except those reserved for the shareholders. An Executive Committee
handles the Trustees' responsibilities between meetings of the Trustees.

INVESTMENT ADVISER

ACTING UNDER THE DIRECTION OF THE TRUSTEES, THE ADVISER MAKES INVESTMENT
DECISIONS FOR THE FUND.

Pursuant to an investment advisory contract (the "Advisory Contract") with the
Trust, investment decisions for the Fund are made by Federated Management, the
Fund's investment adviser (the "Adviser") subject to direction by the Trustees.
The Adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Fund.

ADVISORY FEES. The Adviser receives an annual investment advisory fee equal to
.50 of 1% of the Fund's average daily net assets. Under the Advisory Contract,
which provides for the voluntary waiver of the advisory fee by the Adviser, the
Adviser may voluntarily waive some or all of the

advisory fee. This does not include reimbursement to the Fund of any expenses
incurred by shareholders who use the transfer agent's sub-accounting facilities.
The Adviser can terminate this voluntary waiver of expenses at any time in its
sole discretion. The Adviser has also undertaken to reimburse the Fund for
operating expenses in excess of limitations established by certain states.

THE ADVISER HAS EXTENSIVE INVESTMENT EXPERIENCE.

ADVISER'S BACKGROUND. Federated Management, a Delaware business trust organized
on April 11, 1989, is a registered investment adviser under the Investment
Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the
Class A (voting) shares of Federated Investors are owned by a trust, the
trustees of which are John F. Donahue, Chairman and Trustee of Federated
Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue,
who is President and Trustee of Federated Investors.

Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. Total assets under management or administration by these
and other subsidiaries of Federated Investors are approximately $70 billion.
Federated Investors, which was founded in 1956 as Federated Investors, Inc.,
develops and manages mutual funds primarily for the financial industry.
Federated Investors' track record of competitive performance and its
disciplined, risk-averse investment philosophy serve approximately 3,500 client
institutions nationwide. Through these same client institutions, individual
shareholders also have access to this same level of investment expertise.

DISTRIBUTION

FEDERATED SECURITIES CORP. IS THE PRINCIPAL DISTRIBUTOR FOR SHARES OF THE
FUND.

Federated Securities Corp. is the principal distributor (the "Distributor") for
the Shares of the Fund. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.

SHAREHOLDER SERVICING ARRANGEMENTS. The Distributor may pay financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide certain services to shareholders. These
services may include, but are not limited to, distributing prospectuses and
other information, providing accounting assistance, and communicating or
facilitating purchases and redemptions of shares. Any fees paid for these
services by the Distributor will be reimbursed by the Adviser and not the Fund.

The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Trustees will consider appropriate changes in the administrative services.

State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.

ADMINISTRATION

VARIOUS ORGANIZATIONS PROVIDE SERVICES TO THE FUND.

ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Fund.
Federated Administrative Services provides these at an annual rate which relates
to the average aggregate daily net assets of all funds advised by subsidiaries
of Federated Investors ("Federated Funds") as specified below:

<TABLE>
<CAPTION>
AVERAGE AGGREGATE
MAXIMUM DAILY NET ASSETS
ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
<C> <S>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of
$750 million
</TABLE>

The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, a subsidiary of Federated Investors, is transfer agent
for the Shares of the Fund and dividend disbursing agent for the Fund.

The Fund's Transfer Agent maintains a Share account for each shareholder of
record. Share certificates are not issued.

SUB-TRANSFER AGENT. Supervised Service Company, Inc. (the "Sub-Transfer Agent"),
Kansas City, Missouri, is the sub-transfer agent for the Shares of the Fund. The
Institutional Service Shares class has no sub-transfer agent.

CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Fund.

SHAREHOLDER SERVICING AGENT. BayBank Systems, Inc., Waltham, Massachusetts, is
the Fund's shareholder servicing agent. The Fund may pay the Shareholder
Servicing Agent a fee based on the average daily net asset value of Shares for
which it provides shareholder services. These shareholder services include, but
are not limited to, distributing prospectuses and other information, providing
shareholder assistance and communicating or facilitating purchases and
redemptions of Shares. This fee will be equal to .25 of 1% of the Fund's average
daily net assets for which the Shareholder Servicing Agent provides services;
however, the Shareholder Servicing Agent may choose voluntarily to waive all or
a portion of its fee at any time.

LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, L.L.P., Washington,
D.C.

INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund
are Arthur Andersen LLP, Pittsburgh, Pennsylvania.

OTHER CLASSES OF SHARES

Institutional Service Shares are sold to accounts for which financial
institutions act in an agency capacity. Investments in Institutional Service
Shares are subject to a minimum initial investment of $25,000. Institutional
Service Shares are sold at net asset value.

The Distributor may pay an administrative fee to a financial institution or
broker for administrative services provided to the Institutional Service Shares
class, and may pay such a fee for administrative services provided to the
BayFunds Shares class. Any fee paid by the Distributor for administrative
services will not be an expense of either class, but will be reimbursed to the
Distributor by the Adviser.

The amount of dividends payable to Institutional Service Shares will exceed the
amount of dividends payable to BayFunds Shares by an amount equal to the
sub-transfer agent fee allocated to the BayFunds Shares.

The stated advisory fee is the same for both
classes of the Fund.

The presentation of the "Financial Highlights" of Institutional Service Shares,
that appears on the next page, is required by law.

MASSACHUSETTS MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1994 1993 1992 1991 1990*
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------
Net investment income 0.02 0.02 0.03 0.05 0.03
- ------------------------------------------------------------------ --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------
Dividends to shareholders from net investment income (0.02) (0.02) (0.03) (0.05) (0.03)
- ------------------------------------------------------------------ --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------ --------- --------- --------- --------- ---------
TOTAL RETURN** 2.14% 1.99% 2.87% 4.63% 2.59%
- ------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------
Expenses 0.55% 0.53% 0.34% 0.30% 0.17%(b)
- ------------------------------------------------------------------
Net investment income 2.12% 1.97% 2.82% 4.48% 5.66%(b)
- ------------------------------------------------------------------
Expense waiver/reimbursement (a) 0.35% 0.43% 0.55% 0.69% 0.57%(b)
- ------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------
Net assets, end of period (000 omitted) $90,013 $84,524 $85,570 $81,681 $63,483
- ------------------------------------------------------------------
</TABLE>

* Reflects operations for the period from May 18, 1990 (date of initial public
investment) to
October 31, 1990.

** Based on net asset value, which does not reflect sales load or redemption
fee, if applicable.

(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

(b) Computed on an annualized basis.

<PAGE>

THIS PAGE INTENTIONALLY LEFT BLANK

ADDRESSES

Massachusetts Municipal Cash Trust
BayFunds Shares
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

INVESTMENT ADVISER
Federated Management
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Federated Services Company
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

SUB-TRANSFER AGENT
Supervised Service Company, Inc.
811 Main Street
Kansas City, Missouri 64105

SHAREHOLDER SERVICING AGENT
BayBank Systems, Inc.
One BayBank Technology Place
Waltham, Massachusetts 02154

CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1119
Boston, Massachusetts 02266

LEGAL COUNSEL
Houston, Houston & Donnelly
2510 Centre City Tower
Pittsburgh, Pennsylvania 15222

LEGAL COUNSEL
Dickstein, Shapiro & Morin, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037

INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
2100 One PPG Place
Pittsburgh, Pennsylvania 15222

Massachusetts Municipal Cash Trust

(A Portfolio of Federated Municipal Trust)

BayFundsR Shares
Statement of Additional Information

This Statement of Additional Information should be read with the
prospectus for BayFunds Shares of Massachusetts Municipal Cash
Trust (the "Fund") dated December 31, 1994. This Statement is not
a prospectus. To receive a copy of the prospectus, write to the
Fund or call toll-free 1-800-BAYFUND (1-800-229-3863).
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated December 31, 1994

FEDERATED SECURITIES CORP.
Distributor
A subsidiary of Federated
Investors

General Information About the
Fund 1
Investment Objective and Policies 1
Acceptable Investments 1
When-Issued and Delayed
Delivery Transactions 2
Temporary Investments 2
Investment Limitations 2
Massachusetts Investment Risks 4
Federated Municipal Trust
Management 5
The Funds 8
Fund Ownership 9
Trustee Liability 9
Investment Advisory Services 9
Adviser to the Fund 9
Advisory Fees 9
Administrative Services 9
Shareholder Servicing Agent 10
Brokerage Transactions 10
Conversion to Federal Funds 10
Exchanging Securities for
Shares 11
Determining Net Asset Value 11
Use of the Amortized Cost
Method 11
Redeeming BayFunds Shares 12
Redemption in Kind 12
Massachusetts Law 12
Tax Status 13
The Fund's Tax Status 13
Massachusetts State Income Tax 13
Yield 13
Effective Yield 14
Performance Comparisons 14
General Information About the Fund
The Fund is a portfolio in Federated Municipal Trust (the "Trust"). The
Trust was established as a Massachusetts business trust under a
Declaration of Trust dated September 1, 1989.
Shares of the Fund are offered in two classes known as BayFunds Shares
and Institutional Service Shares. This Statement of Additional
Information relates to the BayFunds Shares ("Shares") of the Fund.
Investment Objective and Policies
The Fund's investment objective is to provide current income which is
exempt from federal regular income tax, and Massachusetts state income
tax, consistent with stability of principal. The investment objective
cannot be changed without approval of shareholders.
Acceptable Investments
The Fund invests primarily in debt obligations issued by or on behalf of
Massachusetts and of other states, territories, and possessions of the
United States, including the District of Columbia, and any political
subdivision or financing authority of any of these, the income from
which is, in the opinion of qualified legal counsel, exempt from both
federal regular income tax and Massachusetts state income tax imposed
upon non-corporate taxpayers.
When determining whether a Massachusetts municipal security presents
minimal credit risks, the investment adviser considers the
creditworthiness of the issuer of the security, the issuer of a demand
feature if the Fund has the unconditional right to demand payment for
the security, or the guarantor of payment by either of those issuers.
If a security loses its rating or the security's rating is reduced below
the required minimum after the Fund purchases it, the Fund is not
required to sell the security. The investment adviser considers this
event, however, in its determination of whether the Fund should continue
to hold the security in its portfolio. If ratings made by Moody's
Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Group
("S&P") change because of changes in those organizations or in their
ratings systems, the Fund will try to use comparable short-term ratings
as standards in accordance with the investment policies described in the
Fund's prospectus.
Municipal Leases
The Fund may purchase municipal securities in the form of
participation interests which represent undivided proportional
interests in lease payments by a governmental or nonprofit entity.
The lease payments and other rights under the lease provide for
and secure the payments on the certificates. Lease obligations may
be limited by municipal charter or the nature of the appropriation
for the lease. In particular, lease obligations may be subject to
periodic appropriation. If the entity does not appropriate funds
for future lease payments, the entity cannot be compelled to make
such payments. Furthermore, a lease may provide that the
participants cannot accelerate lease obligations upon default. The
participants would only be able to enforce lease payments as they
became due. In the event of a default or failure of appropriation,
unless the participation interests are credit enhanced, it is
unlikely that the participants would be able to obtain an
acceptable substitute source of payment.
Under the criteria currently established by the Board of Trustees
("Trustees"), the Fund's investment adviser must consider the
following factors in determining the liquidity of municipal lease
securities: (1) the frequency of trades and quotes for the
security; (2) the volatility of quotations and trade prices for
the security; (3) the number of dealers willing to purchase or
sell the security and the number of potential purchasers; (4)
dealer undertakings to make a market in the security; (5) the
nature of the security and the nature of the marketplace trades;
(6) the rating of the security and the financial condition and
prospects of the issuer of the security; (7) such other factors as
may be relevant to the Fund's ability to dispose of the security;
(8) whether the lease can be terminated by the lessee; (9) the
potential recovery, if any, from a sale of the leased property
upon termination of the lease; (10) the lessee's general credit
strength; (11) the likelihood that the lessee will discontinue
appropriating funding for the leased property because the property
is no longer deemed essential to its operations; and (12) any
credit enhancement or legal recourse provided upon an event of
nonappropriation or other termination of the lease.
When-Issued and Delayed Delivery Transactions
These transactions are arrangements in which the Fund purchases
securities with payment and delivery scheduled for a future time. The
Fund engages in when-issued and delayed delivery transactions only for
the purpose of acquiring portfolio securities connected with the Fund's
investment objective and policies, not for investment leverage.
These transactions are made to secure what is considered to be an
advantageous price and yield for the Fund. Settlement dates may be a
month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
No fees or other expenses, other than normal transaction costs, are
incurred. However, liquid assets of the Fund sufficient to make payment
for the securities to be purchased are segregated on the Fund's records
at the trade date. These securities are marked to market daily and
maintained until the transaction has been settled.
The Fund does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than
20% of the total value of its assets.
Temporary Investments
The Fund may also invest in high quality, temporary investments during
times of unusual market conditions for defensive purposes and to
maintain liquidity.
Repurchase Agreements
Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell
U.S. government securities or other securities to the Fund and
agree at the time of sale to repurchase them at a mutually agreed
upon time and price within one year from the date of acquisition.
The Fund or its custodian will take possession of the securities
subject to repurchase agreements and these securities will be
marked to market daily. To the extent that the original seller
does not repurchase the securities from the Fund, the Fund could
receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for
bankruptcy or became insolvent, disposition of such securities by
the Fund might be delayed pending court action. The Fund believes
that under the regular procedures normally in effect for custody
of the Fund's portfolio securities subject to repurchase
agreements, a court of competent jurisdiction would rule in favor
of the Fund and allow retention or disposition of such securities.
The Fund will only enter into repurchase agreements with banks and
other recognized financial institutions, such as broker/dealers,
which are deemed by the Fund's adviser to be creditworthy,
pursuant to guidelines established by the Trustees.
From time to time, such as when suitable Massachusetts municipal
securities are not available, the Fund may maintain a portion of its
assets in cash. Any portion of the Fund's assets maintained in cash will
reduce the amount of assets in Massachusetts municipal securities and
thereby reduce the Fund's yield.
Investment Limitations
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any
securities on margin but may obtain such short-term credits as are
necessary for the clearance of transactions.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities except that the Fund may
borrow money in amounts up to one-third of the value of its total
assets, including the amounts borrowed.
The Fund will not borrow money for investment leverage, but rather
as a temporary, extraordinary, or emergency measure or to
facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The
Fund will not purchase any securities while borrowings in excess
of 5% of its total assets are outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets
except to secure permitted borrowings. In those cases, it may
pledge assets having a market value not exceeding the lesser of
the dollar amounts borrowed or 15% of the value of total assets at
the time of the pledge.
Diversification of Investments
With regard to at least 50% of its total assets, no more than 5%
of its total assets are to be invested in the securities of a
single issuer, and no more than 25% of its total assets are to be
invested in the securities of a single issuer at the close of each
quarter of each fiscal year. Under this limitation, each
governmental subdivision, including states, territories,
possessions of the United States or their political subdivisions,
agencies, authorities, instrumentalities, or similar entities will
be considered a separate issuer if its assets and revenues are
separate from those of the governmental body creating it and the
security is backed only by its own assets and revenues.
Industrial development bonds backed only by the assets and
revenues of a nongovernmental issuer are considered to be issued
solely by that issuer. If, in the case of an industrial
development bond or government-issued security, a governmental or
other entity guarantees the security, such guarantee would be
considered a separate security issued by the guarantor, as well as
the other issuer, subject to limited exclusions allowed by the
Investment Company Act of 1940.
Investing in Real Estate
The Fund will not purchase or sell real estate or real estate
limited partnerships, although it may invest in securities of
issuers whose business involves the purchase or sale of real
estate or in securities which are secured by real estate or
interests in real estate.
Investing in Commodities
The Fund will not purchase or sell commodities, commodity
contracts, or commodity futures contracts.
Investing in Restricted Securities
The Fund will not invest more than 10% of its net assets in
securities subject to restrictions on resale under the Securities
Act of 1933.
Underwriting
The Fund will not underwrite any issue of securities, except as it
may be deemed to be an underwriter under the Securities Act of
1933 in connection with the sale of securities in accordance with
its investment objective, policies, and limitations.
Lending Cash or Securities
The Fund will not lend any of its assets except that it may
acquire publicly or nonpublicly issued Massachusetts municipal
securities or temporary investments or enter into repurchase
agreements in accordance with its investment objective, policies,
and limitations.
Concentration of Investments
The Fund will not purchase securities if, as a result of such
purchase, 25% or more of the value of its total assets would be
invested in any one industry or in industrial development bonds or
other securities, the interest upon which is paid from revenues of
similar types of projects. However, the Fund may invest as
temporary investments more than 25% of the value of its total
assets in cash or cash items, securities issued or guaranteed by
the U.S. government, its agencies, or instrumentalities, or
instruments secured by these money market instruments, such as
repurchase agreements.
The above investment limitations cannot be changed without shareholder
approval. The Fund does not consider the issuance of separate classes of
shares to involve the issuance of "senior securities" within the meaning
of the investment limitation set forth above. The following limitations,
however, may be changed by the Trustees without shareholder approval.
Shareholders will be notified before any material change in these
limitations becomes effective.
Investing in Securities of Other Investment Companies
The Fund will not purchase securities of other investment
companies except as part of a merger, consolidation,
reorganization, or other acquisition.
Investing in New Issuers
The Fund will not invest more than 5% of the value of its total
assets in industrial development bonds or other municipal
securities where the principal and interest are the responsibility
of companies (or guarantors, where applicable) with less than
three years of continuous operations, including the operation of
any predecessor.
Investing in Issuers Whose Securities are Owned by Officers and
Trustees of the Trust
The Fund will not purchase or retain the securities of any issuer
if the officers and Trustees of the Trust or the Fund's investment
adviser, owning individually more than 1/2 of 1% of the issuer's
securities, together own more than 5% of the issuer's securities.
Dealing in Puts and Calls
The Fund will not purchase or sell puts, calls, straddles,
spreads, or any combination of them, except that the Fund may
purchase municipal securities accompanied by agreements of sellers
to repurchase them at the Fund's option.
Investing in Minerals
The Fund will not purchase or sell oil, gas, or other mineral
exploration or development programs or leases.
Investing in Illiquid Securities
The Fund will not invest more than 10% of the value of its net
assets in securities which are illiquid, including repurchase
agreements providing for settlement in more than seven days after
notice, certain restricted securities not determined by the
Trustees to be liquid, and non-negotiable fixed time deposits with
maturities over seven days.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not
result in a violation of such restriction.
The Fund does not expect to borrow money or pledge securities in excess
of 5% of the value of its net assets during the coming fiscal year.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of
investment to be "cash items."
Massachusetts Investment Risks
The Fund invests in obligations of Massachusetts issuers which results
in the Fund's performance being subject to risks associated with the
overall economic conditions present within Massachusetts (the
"Commonwealth"). The following information is a brief summary of the
recent prevailing economic conditions and a general summary of the
Commonwealth's financial status. This information is based on official
statements relating to securities that have been offered by
Massachusetts issuers and from other sources believed to be reliable but
should not be relied upon as a complete description of all relevant
information.
The Commonwealth has a diverse economy with manufacturing, education,
health care, computers and financial services all being significant
contributors. Massachusetts is generally considered the leader in
research and development within the biotechnology, software and robotics
industries as well as having many highly prestigious universities. In
addition to a highly skilled and educated workforce, the Commonwealth
has one of the higher average per capita incomes in this country.
Throughout the early to mid-1980's Massachusetts had a strong economy
which was evidenced by low unemployment and high personal income growth
as compared to national averages. However, beginning in the late 1980's,
economic growth in the New England region and Massachusetts, in
particular, slowed and showed pronounced deterioration in the
construction, real estate, financial and manufacturing sectors. Between
1988 and 1992 there were extensive job losses that resulted in a 10%
reduction in the work force. In addition, after years of above average
property value growth, property values have decreased an estimated 6%
over the same period.
The two major revenue sources available to cities and towns in
Massachusetts are local property taxes and local aid from the
Commonwealth. Property taxes are subject to limitations imposed by a
state-wide initiative approved by the voters in November, 1980 (commonly
known as Proposition 2-1/2), which limits the property taxes that may be
levied by any city or town in any fiscal year to the lesser of (i) 2.5%
of the full valuation of the real estate and personal property therein
or (ii) 2.5% over the previous year's levy limit plus any growth in the
tax base from new construction. In recent years the decrease in property
values due to the recession and the limitations of tax levy growth
imposed by Prop 2-1/2 have resulted in budget constraints for many
cities and towns.
The overall financial condition of the Commonwealth can also be
illustrated by the changes of its debt ratings. During the period in
which the Commonwealth has experienced its financial difficulties
beginning in 1988, its general obligation long-term debt ratings as
determined by Moody's and S&P decreased from Aa and AA+, respectively,
to a low of Baa and BBB. Since then the Commonwealth has had its debt
ratings raised by the two rating agencies to A and A+ (Moody's and S&P)
reflecting its improved fiscal performance.
The Fund's concentration in securities issued by the Commonwealth and
its political subdivisions provides a greater level of risk than a fund
which is diversified across numerous states and municipal entities. The
ability of the Commonwealth or its municipalities to meet their
obligations will depend on the availability of tax and other revenues;
economic, political, and demographic conditions within the Commonwealth;
and the underlying fiscal condition of the Commonwealth and its
municipalities.
Federated Municipal Trust Management
Officers and Trustees are listed with their addresses, present
positions with Federated Municipal Trust, and principal occupations.

John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life
and Casualty Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds. Mr. Donahue is the father of J.
Christopher Donahue , Vice President of the Trust.

Thomas G. Bigley
28th Floor
One Oxford Center
Pittsburgh, PA 15219

Trustee

Director, Oberg Manufacturing Co.; Chairman of the Board,
Children's Hospital of Pittsburgh; Director, Trustee or Managing
General Partner of the Funds; formerly, Senior Partner, Ernst &
Young LLP.

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Trustee
President, Investment Properties Corporation; Senior Vice-President,
John R. Wood and Associates, Inc., Realtors; President, Northgate
Village Development Corporation; Partner or Trustee in private real
estate ventures in Southwest Florida; Director, Trustee, or Managing
General Partner of the Funds; formerly, President, Naples Property
Management, Inc.

William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and
Director, Ryan Homes, Inc.

James E. Dowd
571 Hayward Mill Road
Concord, MA
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Director,
Blue Cross of Massachusetts, Inc.

Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Trustee
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals; Professor of Medicine and Trustee, University of Pittsburgh;
Director of Corporate Health, University of Pittsburgh Medical Center;
Director, Trustee, or Managing General Partner of the Funds.

Edward L. Flaherty, Jr.@
Two Gateway Center - Suite 674
Pittsburgh, PA
Trustee
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Counsel, Horizon Financial, F.A., Western Region.

Glen R. Johnson*
Federated Investors Tower
Pittsburgh, PA
President and Trustee
Trustee, Federated Investors; President and/or Trustee of some of the
Funds; staff member, Federated Securities Corp. and Federated
Administrative Services.

Peter E. Madden
225 Franklin Street
Boston, MA
Trustee
Consultant; State Representative, Commonwealth of Massachusetts;
Director, Trustee, or Managing General Partner of the Funds; formerly,
President, State Street Bank and Trust Company and State Street Boston
Corporation and Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer
Two Gateway Center - Suite 674
Pittsburgh, PA
Trustee
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman, Horizon Financial, F.A.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Trustee
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
Management Center; Director, Trustee, or Managing General Partner of the
Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing
General Partner of the Funds.

J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Vice President
President and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; President and Director,
Federated Research Corp.; President, Passport Research, Ltd.; Trustee,
Federated Administrative Services, Federated Services Company, and
Federated Shareholder Services; President or Vice President of the
Funds; Director, Trustee, or Managing General Partner of some of the
Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee
of the Trust.

Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Vice President
Executive Vice President and Trustee, Federated Investors; Director,
Federated Research Corp.; Chairman and Director, Federated Securities
Corp.; President or Vice President of some of the Funds; Director or
Trustee of some of the Funds.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Vice President and Treasurer
Vice President, Treasurer, and Trustee, Federated Investors; Vice
President and Treasurer, Federated Advisers, Federated Management,
Federated Research, Federated Research Corp., and Passport Research,
Ltd.; Executive Vice President, Treasurer, and Director, Federated
Securities Corp.; Trustee, Federated Services Company and Federated
Shareholder Services; Chairman, Treasurer, and Trustee, Federated
Administrative Services; Trustee or Director of some of the Funds; Vice
President and Treasurer of the Funds.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Vice President and
Secretary, Federated Research Corp. and Passport Research, Ltd.;
Trustee, Federated Services Company; Executive Vice President,
Secretary, and Trustee, Federated Administrative Services; Secretary and
Trustee, Federated Shareholder Services; Executive Vice President and
Director, Federated Securities Corp.; Vice President and Secretary of
the Funds.

* This Trustee is deemed to be an "interested person" as defined
in the Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of
the Board of Trustees handles the responsibilities of the Board
of Trustees between meetings of the Board.

The Funds
As referred to in the list of Trustees and Officers, "Funds" includes
the following investment companies:
American Leaders Fund, Inc.; Annuity Management Series; Arrow Funds;
Automated Cash Management Trust; Automated Government Money Trust; Cash
Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D.
Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated
Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust;
Federated Growth Trust; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index Trust;
Federated Institutional Trust; Federated Intermediate Government Trust;
Federated Master Trust; Federated Short-Intermediate Government Trust;
Federated Short-Term U.S. Government Trust; Federated Stock Trust;
Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First
Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate
U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.;
Fortress Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.;
Government Income Securities, Inc.; High Yield Cash Trust; Insight
Institutional Series, Inc.; Insurance Management Series; Intermediate
Municipal Trust; International Series, Inc.; Investment Series Funds,
Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty
High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.;
Liberty U.S. Government Money Market Trust; Liberty Term Trust, Inc. -
1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series
Trust; The Medalist Funds: Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income
Trust; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; Portage
Funds; RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal
Trust; Star Funds; The Starburst Funds; The Starburst Funds II; Stock
and Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free
Instruments Trust; Trademark Funds; Trust for Financial Institutions;
Trust For Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; World Investment
Series, Inc.
Fund Ownership
Officers and Trustees, as a group, do not own more than 1% of the Fund's
outstanding shares as of November 30, 1994.
As of November 30, 1994, the following shareholders of record owned 5%
or more of the outstanding BayFunds Shares of the Fund: Express & Co.,
Boston, Massachusetts, owned approximately 4,528,072 shares (10.63%);
Claire S. Caine & Daniel B. Caine, Newton, Massachusetts, owned
approximately 3,681,018 shares (8.65%).
As of December 12, 1994, the following shareholders of record owned 5%
or more of the outstanding Institutional Service Shares of the Fund:
State Street Bank and Trust Company, North Quincy, Massachusetts, owned
approximately 27,210,780 shares (32.77%); John & Company, Burlington,
Massachusetts, owned approximately 16,467,900 shares (19.83%); and Scaup
& Company, Boston, Massachusetts, owned approximately 4,226,057 shares
(5.09%).
Trustee Liability
The Trust's Declaration of Trust provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, they
are not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence,
or reckless disregard of the duties involved in the conduct of their
office.
Investment Advisory Services
Adviser to the Fund
The Fund's investment adviser is Federated Management (the "Adviser").
It is a subsidiary of Federated Investors. All of the voting securities
of Federated Investors are owned by a trust, the trustees of which are
John F. Donahue, his wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Trust, the Fund, or any
shareholder of the Fund for any losses that may be sustained in the
purchase, holding, or sale of any security, or for anything done or
omitted by it, except acts or omissions involving willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties imposed
upon it by its contract with the Trust.
Advisory Fees
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus. During the fiscal years
ended October 31, 1994, 1993, and 1992, the Fund's adviser earned
$643,293, $498,975, and $445,783, respectively of which $445,711,
$427,232, and $445,783, respectively, were voluntarily waived because of
undertakings to limit the Fund's expenses.
State Expense Limitations
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose
shares are registered for sale in those states. If the Fund's
normal operating expenses (including the investment advisory fee,
but not including brokerage commissions, interest, taxes, and
extraordinary expenses) exceed 2-1/2% per year of the first $30
million of average net assets, 2% per year of the next $70 million
of average net assets, and 1-1/2% per year of the remaining
average net assets, the Adviser will reimburse the Fund for its
expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
expense limitation, the investment advisory fee paid will be
reduced by the amount of the excess, subject to an annual
adjustment. If the expense limitation is exceeded, the amount to
be reimbursed by the adviser will be limited by the amount of the
investment advisory fee.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
Administrative Services
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus. Prior to March 1, 1994, Federated
Administrative Services, Inc., also a subsidiary of Federated Investors,
served as the Fund's administrator. For purposes of this Statement of
Additional Information, Federated Administrative Services and Federated
Administrative Services, Inc. may hereinafter collectively be referred
to as the "Administrators." For the fiscal year ended October 31, 1994,
the Administrators collectively earned $195,483. For the fiscal years
ended October 31, 1993, and 1992, Federated Administrative Services,
Inc., earned $253,380, and $197,636, respectively. Dr. Henry J.
Gailliot, an officer of Federated Management, the adviser to the Fund,
holds approximately 20% of the outstanding common stock and serves as
director of Commercial Data Services, Inc., a company which provides
computer processing services to Federated Administrative Services, Inc.
Shareholder Servicing Agent
Under a Shareholder Servicing Plan, the Fund may pay a fee to BayBank
Systems, Inc., as shareholder servicing agent, for services provided
which are necessary for the maintenance of shareholder accounts. These
activities and services may include, but are not limited to: providing
office space, equipment, telephone facilities, and various clerical,
supervisory, computer, and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing
purchase and redemption transactions and automatic investments of client
account cash balance; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and
addresses. For the fiscal period ending October 31, 1994, payments in
the amount of $19,344 were made to the shareholder servicing agent.
Brokerage Transactions
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the
order at a favorable price. In working with dealers, the Adviser will
generally use those who are recognized dealers in specific portfolio
instruments, except when a better price and execution of the order can
be obtained elsewhere. The Adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to review by the
Trustees.
The Adviser may select brokers and dealers who offer brokerage and
research services. These services may be furnished directly to the Fund
or to the adviser and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions
charged by such persons are reasonable in relationship to the value of
the brokerage and research services provided.
Research services provided by brokers may be used by the Adviser or by
affiliates of Federated Investors in advising Federated funds and other
accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have
paid, it would tend to reduce their expenses.
Purchasing BayFunds Shares
Investors may purchase Shares of the Fund on days on which the New York
Stock Exchange and the Federal Reserve Bank of Boston are open for
business. The procedure for purchasing Shares is explained in the
prospectus under "How to Buy Shares."
Conversion to Federal Funds
It is the Fund's policy to be as fully invested as possible so that
maximum interest may be earned. To this end, all payments from
shareholders must be in Federal funds or be converted into Federal
funds. The Shareholder Servicing Agent (as defined in the prospectus)
acts as the shareholder's agent in depositing checks and converting them
to Federal funds.
Exchanging Securities for Shares
The Fund may accept securities in exchange for Shares. The Fund will
allow such exchanges only upon the prior approval of the Fund and a
determination by the Fund and the Adviser that the securities to be
exchanged are acceptable.
Any securities exchanged must meet the investment objective and policies
of the Fund, must have a readily ascertainable market value and must be
liquid. The Fund acquires the exchanged securities for investment and
not for resale. The market value of any securities exchanged in an
initial investment. plus any cash, must be at least $25,000.
Securities accepted by the Fund will be valued in the same manner as the
Fund values its assets. The basis of the exchange will depend upon the
net asset value of Shares on the day the securities are valued. One
Share of the Fund will be issued for each equivalent amount of
securities accepted.
Any interest earned on the securities prior to the exchange will be
considered in valuing the securities. All interest, dividends,
subscription or other rights attached to the securities become the
property of the Fund, along with the securities.
Determining Net Asset Value
The Fund attempts to stabilize the value of a share at $1.00. The days
on which net asset value is calculated by the Fund are described in the
prospectus.
Use of the Amortized Cost Method
The Trustees have decided that the best method for determining the value
of portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than at
current market value.
The Fund's use of the amortized cost method of valuing portfolio
instruments depends on its compliance with certain conditions in Rule 2a-
7 (the "Rule") promulgated by the Securities and Exchange Commission
under the Investment Company Act of 1940. Under the Rule, the Trustees
must establish procedures reasonably designed to stabilize the net asset
value per share, as computed for purposes of distribution and
redemption, at $1.00 per share, taking into account current market
conditions and the Fund's investment objective.
Under the Rule, the Fund is permitted to purchase instruments which are
subject to demand features or standby commitments. As defined by the
Rule, a demand feature entitles the Fund to receive the principal amount
of the instrument from the issuer or a third party on (1) no more than
30 days' notice or (2) specified intervals not exceeding thirteen months
on no more than 30 days' notice. A standby commitment entitles the Fund
to achieve same-day settlement and to receive an exercise price equal to
the amortized cost of the underlying instrument plus accrued interest at
the time of exercise.
Although demand features and standby commitments are techniques and are
defined as "puts" under the Rule, the Fund does not consider them to be
"puts" as that term is used in the Fund's investment limitations. Demand
features and standby commitments are features which enhance an
instrument's liquidity, and the investment limitation which proscribes
puts is designed to prohibit the purchase and sale of put and call
options and is not designed to prohibit the Fund from using techniques
which enhance the liquidity of portfolio instruments.
Monitoring Procedures
The Trustees' procedures include monitoring the relationship
between the amortized cost value per share and the net asset value
per share based upon available indications of market value. The
Trustees will decide what, if any, steps should be taken if there
is a difference of more than 0.5% between the two values. The
Trustees will take any steps they consider appropriate (such as
redemption in kind or shortening the average portfolio maturity)
to minimize any material dilution or other unfair results arising
from differences between the two methods of determining net asset
value.
Investment Restrictions
The Rule requires that the Fund limit its investments to
instruments that, in the opinion of the Trustees, present minimal
credit risk and have received the requisite rating from one or
more nationally recognized statistical rating organizations. If
the instruments are not rated, the Trustees must determine that
they are of comparable quality. The Rule also requires the Fund to
maintain a dollar-weighted average portfolio maturity (not more
than 90 days) appropriate to the objective of maintaining a stable
net asset value of $1.00 per share. In addition, no instrument
with a remaining maturity of more than 397 days can be purchased
by the Fund. For a discussion of the treatment of variable rate
municipal securities with demand features, refer to "Variable Rate
Demand Notes" in the prospectus.
Should the disposition of a portfolio security result in a dollar-
weighted average portfolio maturity of more than 90 days, the Fund
will invest its available cash so as to reduce the average
maturity to 90 days or less as soon as possible.
The Fund may attempt to increase yield by trading portfolio securities
to take advantage of short-term market variations. This policy may, from
time to time, result in high portfolio turnover. Under the amortized
cost method of valuation, neither the amount of daily income nor the net
asset value is affected by any unrealized appreciation or depreciation
of the portfolio.
In periods of declining interest rates, the indicated daily yield on
Shares of the Fund, computed by dividing the annualized daily income on
the Fund's portfolio by the net asset value computed as above, may tend
to be higher than a similar computation made by using a method of
valuation based upon market prices and estimates.
In periods of rising interest rates, the indicated daily yield on Shares
of the Fund computed the same way may tend to be lower than a similar
computation made by using a method of calculation based upon market
prices and estimates.
Redeeming BayFunds Shares
The Fund redeems Shares at the next computed net asset value after the
Fund receives the redemption request from the Transfer Agent in proper
form. Redemption procedures are explained in the prospectus under "How
to Redeem Shares."
Redemption in Kind
Although the Fund intends to redeem shares in cash, it reserves the
right under certain circumstances to pay the redemption price in whole
or in part by a distribution of securities from the Fund's portfolio. To
the extent available, such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities
and Exchange Commission rules, taking such securities at the same value
employed in determining net asset value and selecting the securities in
a manner the Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940 which obligates the Fund to redeem shares for any
one shareholder in cash only up to the lesser of $250,000 or 1% of the
net asset value of the respective class during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption
is made in kind, shareholders receiving their securities and selling
them before their maturity could receive less than the redemption value
of their securities and could incur certain transaction costs.
Monthly Statements
Shareholders of the Fund who have eligible BayBanks deposit
accounts will receive combined monthly statements containing all
information relating to their deposit account(s) and BayFunds
transactions.
Companion Account Availability
Certain BayBanks deposit account customers may elect to open a
companion BayFunds account to facilitate BayFunds transactions.
Massachusetts Law
Under certain circumstances, shareholders may be held personally liable
under Massachusetts law for obligations of the Trust. To protect
shareholders, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of shareholders for acts or
obligations of the Trust. These documents require notice of this
disclaimer to be given in each agreement, obligation, or instrument that
the Trust or its Trustees enter into or sign.
In the unlikely event a shareholder is held personally liable for the
Trust's obligations, the Trust is required to use its property to
protect or compensate the shareholder. On request, the Trust will defend
any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from
liability as a shareholder will occur only if the Trust cannot meet its
obligations to indemnify shareholders and pay judgments against them
from its assets.
Tax Status
The Fund's Tax Status
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Fund
must, among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
Massachusetts State Income Tax
Individual shareholders of the Fund who are subject to Massachusetts
income taxation will not be required to pay Massachusetts income tax on
that portion of their dividends which are attributable to: interest
earned on Massachusetts tax-free municipal obligations; gain from the
sale of certain of such obligations; and interest earned on obligations
of United States territories or possessions, to the extent interest on
such obligations is exempt from taxation by the state pursuant to
federal law. All remaining dividends will be subject to Massachusetts
income tax.
If a shareholder of the Fund is a Massachusetts business corporation or
any foreign business corporation which exercises its charter, qualifies
to do business, actually does business or owns or uses any part of its
capital, plant or other property in Massachusetts, then it will be
subject to Massachusetts excise taxation either as a tangible property
corporation or as an intangible property corporation. If the corporate
shareholder is a tangible property corporation, it will be taxed upon
its net income allocated to Massachusetts and the value of certain
tangible property. If it is an intangible property corporation, it will
be taxed upon its net income and net worth allocated to Massachusetts.
Net income is gross income less allowable deductions for federal income
tax purposes, subject to specified modifications. Dividends received
from the Fund are includable in gross income and generally may not be
deducted by a corporate shareholder in computing its net income. The
corporation's shares in the Fund are not includable in the computation
of the tangible property base of a tangible property corporation, but
are includable in the computation of the net worth base of an intangible
property corporation.
Shares of Massachusetts Municipal Cash Trust will be exempt from local
property taxes in Massachusetts.
Yield
The Fund's yield for BayFunds Shares for the seven-day period ended
October 31, 1994 was 2.71%. The yield for Institutional Service Shares
was 2.78% for the same period.
The Fund calculates the yield for both classes of shares daily, based
upon the seven days ending on the day of the calculation, called the
"base period." This yield is computed by:
o determining the net change in the value of a hypothetical account
with a balance of one share at the beginning of the base period, with
the net change excluding capital changes but including the value of
any additional shares purchased with dividends earned from the
original one share and (on funds that pay dividends daily) all
dividends declared on the original and any purchased shares;
o dividing the net change in the account's value by the value of the
account at the beginning of the base period to determine the base
period return; and
o multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees
in connection with services provided in conjunction with an investment
in any class of shares, the performance will be reduced for those
shareholders paying those fees.
Effective Yield
The Fund's effective yield for BayFunds Shares for the seven-day period
ended October 31, 1994 was 2.75%. The effective yield for Institutional
Service Shares was 2.82% for the same period.
The Fund's effective yield for both classes of Shares is computed by
compounding the unannualized base period return by:
o adding 1 to the base period return;
o raising the sum to the 365/7th power; and
o subtracting 1 from the result.
Performance Comparisons
The performance of Shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates on money market instruments;
o changes in the Fund's or any class of Shares' expenses; and
o the relative amount of Fund cash flow.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the compositions
of any index used, prevailing market conditions, portfolio compositions
of other funds, and methods used to value portfolio securities and
compute offering price. The financial publications and/or indices which
the Fund uses in advertising may include:
o Lipper Analytical Services, Inc., ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any. From time to time, the Fund will
quote its Lipper ranking in the "money market funds" category in
advertising and sales literature.
From time to time as it deems appropriate, the Fund may advertise the
performance of its shares using charts, graphs and description, compared
to federally insured bank products, including certificates of deposit
and time deposits, and to money market funds using the Lipper Analytical
Services money market instruments average. Unlike federally insured bank
products, the shares of the Fund are not insured.
Advertisements and other sales literature for BayFunds Shares may refer
to total return. Total return is the historic change in the value of an
investment in BayFunds Shares based on the monthly reinvestment of
dividends over a specified period of time.
0032603B (12/94)