TOWER
MUTUAL FUNDS
TOWER
TOTAL RETURN
BOND FUND
ANNUAL REPORT
TO SHAREHOLDERS
AUGUST 31, 1994
PRESIDENT'S MESSAGE
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Dear Shareholder:
I am pleased to present the Annual Report to Shareholders for Tower Total Return
Bond Fund (the "Fund"). The report, which covers the twelve-month period ended
August 31, 1994, begins with a review by the Fund's portfolio manager and
includes the Portfolio of Investments and Financial Statements.
Tower Total Return Bond Fund continued to pursue its investment goal of
maximizing total return.
At the end of the reporting period, its diversified portfolio consisted of
corporate bonds and U.S. government securities. Net assets stood at $72 million.
The recent rise in interest rates, which had a negative effect on all financial
markets, also helped cause a decline in the Fund's net asset value, which ended
the period at $9.64 per share. Of course, the Fund returned a total distribution
stream of $0.59 per share to you during the twelve-month period.
Thank you for selecting Tower Total Return Bond Fund as a convenient way to help
pursue the goal of earning income and growth through a diversified bond
portfolio. We will continue to keep you up to date on your investment as we
provide you with a high level of service.
Sincerely,
Edward C. Gonzales
President
October 15, 1994
INVESTMENT REVIEW
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The twelve months ended August 31, 1994, have been very traumatic for fixed
income investors. The final leg of nearly a ten year bull market for bonds
roared along until about mid-October of 1993, bringing the yields on long bonds
down to around 5.75%. This is the lowest level on the long bond in many years.
More importantly, these very low interest rates set the market up for some bad
news later in the year. Mortgage refinancing remained very high due to low
interest rates and cheap closing costs, so mortgage-backed securities did not
perform well in this period. Yield-hungry investers began buying securities with
very risky characteristics (i.e., derivatives).
In mid-October, investors and economists began to see trouble on the economic
horizon--an economic recovery that was too strong, signs of renewed inflationary
pressure, and a weak dollar. By early February, 1994, interest rates had risen
by 0.50% to 0.65% on most Treasury securities. Apparently the Federal Reserve
Board (the "Fed") saw the same problems and on February 4, 1994, moved to
increase interest rates for the first time in many years. By fiscal year end,
the Fed had raised interest rates on short term investments by 1.75%. Yields on
all securities rose in response, with fears of renewed inflation, a strong
economic recovery, and a weak dollar also encouraging rates on longer term
securities to increase. At fiscal year end, rates on Treasury securities had
risen by 1.10% to 1.75% from the February, 1994, levels since the lows seen in
October, 1993, rates had risen by 1.60% to 2.40%.
The significantly higher interest rates sent shocks through several important
sectors of the fixed income market. First, those securities such as principal
only bonds, inverse floaters, and certain other derivatives, which were great to
own when interest rates were falling, got hammered. Many "low risk" investors
were handed big losses from investments in these securities. Even some money
market mutual fund managers felt compelled to add capital to their funds to
cover losses sustained by market pressures on their securities. We did not have
any investments in the types of derivative securities which have caused so many
problems this year, such as inverse floaters, interest-only and principal-only
securities.
Not surprisingly, refinancing in the mortgage area dried up almost overnight and
repayments of existing mortgage-backed securities has slowed considerably. Bonds
that were expected to mature in one to two years are not likely to mature in
five years. Some of the more risky mortgage-backed security products saw their
expected maturity moved from around one year to twenty-five years. This
lengthening of average maturity, coupled with higher overall interest rates,
caused these securities to fall in value faster than Treasuries with similar
average maturities.
Since last year, the Tower Total Return Bond Fund had been gradually reducing
its investments in mortgage and corporate bond securities. In late 1993 and
early 1994, the Fund sold a significant majority of its remaining
mortgage-backed holdings. These holdings hurt our performance in late 1993, as
we were unable to sell the bonds at a reasonable value due to overall uneasiness
in the market.
Concern about renewed merger activity, expectations of higher bond issuance to
fund economic expansion, and belief that we were not being paid adequately for
the extra risk of owning corporate bonds caused us to reduce our holdings of
corporate bonds even further in late 1993.
We felt that these corporate bond holdings would under perform Treasuries as
this economy expanded. By year end, these fears had not yet materialized. We
gave up some current yield on the portfolio versus our index by holding
Treasuries rather than corporate bonds.
Our performance for the fiscal year of -2.46%* lags our index which was -1.45%.
Total return based on the offering price, which includes the 3% maximum sales
load, was -5.35%.* This short fall was a result of under performance in the
first four months of the year as we struggled to reassess our outlook on the
market and unwind our positions in the mortgage-backed sector of the market.
Gains from favorable positioning of the portfolio's average maturity relative to
our index were offset by our under-performance resulting from our lack of
corporate bond holdings during the period.
We continued to be concerned about further increases in short term interest
rates by the Fed as they try to find the level of interest rates that will slow
economic growth to acceptable levels. We still favor investments in Treasuries
over corporate bonds and mortgage-backed securities as we await opportunities to
invest in those sectors at more favorable levels. We are in a position to expect
higher short term interest rates and believe that the fixed income markets will
remain volatile for some time as we find a new equilibrium level on interest
rates going forward.
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth less than the principal amount invested.
TOWER TOTAL RETURN BOND FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN TOWER TOTAL RETURN BOND FUND.
The graph below illustrates the hypothetical investment of $10,000 in the
Tower Total Return Bond Fund (the "Fund") from November 2, 1992 (start of
performance) to August 31, 1994 compared to the Salomon Brothers Broad
Investment Grade Bond Index (SBBIGBI).
See Appendix A
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
*REPRESENTS A HYPOTHETICAL INVESTMENT OF $10,000 IN THE FUND AFTER DEDUCTING THE
MAXIMUM SALES CHARGE OF 4.50%, WHICH HAS BEEN REDUCED TO A MAXIMUM SALES CHARGE
OF 3.00%, ($10,000 INVESTMENT MINUS $450 SALES CHARGE = $9,550). THE FUND'S
PERFORMANCE ASSUMES THE REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS. THE
SALOMON BROTHERS BROAD INVESTMENT GRADE BOND INDEX HAS BEEN ADJUSTED TO REFLECT
REINVESTMENT OF DIVIDENDS ON SECURITIES IN THE INDEX.
THE SALOMON BROTHERS BROAD INVESTMENT GRADE BOND INDEX IS NOT ADJUSTED TO
REFLECT SALES LOADS, EXPENSES, OR OTHER FEES THAT THE SEC REQUIRES TO BE
REFLECTED IN THE FUND'S PERFORMANCE. THIS INDEX IS UNMANAGED.
TOWER TOTAL RETURN BOND FUND
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994
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<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- -------------------------------------------------------------------------------- ---------------
CORPORATE BONDS/ASSET BACKED SECURITIES--13.2%
- ------------------------------------------------------------------------------------------------
AUTO LOAN RECEIVABLES--0.2%
--------------------------------------------------------------------------------
$ 167,217 Select Auto Receivables Trust, 7.40%, 5/15/96 $ 167,964
-------------------------------------------------------------------------------- ---------------
AUTOMOTIVE--1.6%
--------------------------------------------------------------------------------
1,000,000 Ford Capital B.V., 10.125%, 11/15/2000 1,114,990
-------------------------------------------------------------------------------- ---------------
BANKING--2.6%
--------------------------------------------------------------------------------
1,000,000 BankAmerica Corp., 7.50%, 10/15/2002 969,140
--------------------------------------------------------------------------------
1,000,000 Signet Banking Corp., 5.20%, 2/15/2002 917,020
-------------------------------------------------------------------------------- ---------------
Total 1,886,160
-------------------------------------------------------------------------------- ---------------
FINANCE-RETAIL--5.5%
--------------------------------------------------------------------------------
1,000,000 CIT Group Securitization Corp., 5.75%, 6/15/2018 926,485
--------------------------------------------------------------------------------
1,000,000 Discover Credit Card Trust 1993 Class A, 6.25%, 8/15/2000 959,330
--------------------------------------------------------------------------------
1,000,000 Household Finance Corp., 9.00%, 9/1/95 1,022,940
--------------------------------------------------------------------------------
1,000,000 Sears Credit Account Trust 1989-E, 8.65%, 11/15/1994 1,021,470
-------------------------------------------------------------------------------- ---------------
Total 3,930,225
-------------------------------------------------------------------------------- ---------------
MISCELLANEOUS--0.3%
--------------------------------------------------------------------------------
236,393 USWFS 1990A, Manufactured Housing, 9.05%, 12/25/2010 240,653
-------------------------------------------------------------------------------- ---------------
UTILITIES--3.0%
--------------------------------------------------------------------------------
2,000,000 KN Energy Inc., 9.625%, 8/1/2021 2,163,740
-------------------------------------------------------------------------------- ---------------
TOTAL CORPORATE BONDS/ASSET BACKED SECURITIES
(IDENTIFIED COST, $9,817,157) 9,503,732
-------------------------------------------------------------------------------- ---------------
GOVERNMENT AGENCIES--13.4%
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FEDERAL HOME LOAN MORTGAGE CORP.--1.4%
--------------------------------------------------------------------------------
1,000,000 9.00%, Series 1024-I, 11/15/2005 1,030,330
-------------------------------------------------------------------------------- ---------------
FEDERAL NATIONAL MORTGAGE CORP.--5.6%
--------------------------------------------------------------------------------
116,263 11.00%, 4/1/2010-8/01/2019 128,143
--------------------------------------------------------------------------------
$ 3,900,000 8.05%, 7/14/2004 $ 3,929,406
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Total 4,057,549
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GOVERNMENT NATIONAL MORTGAGE ASSOC.--6.4%
--------------------------------------------------------------------------------
1,256,301 10.00%, 3/15/2016-9/15/2020 1,352,094
--------------------------------------------------------------------------------
1,421,658 9.00%, 8/15/2019-5/15/2020 1,479,405
--------------------------------------------------------------------------------
1,796,050 8.00%, 7/15/2016-4/15/2021 1,796,312
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Total 4,627,811
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TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST, $9,779,650) 9,715,690
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U.S. TREASURY OBLIGATIONS--59.4%
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U.S. TREASURY BILLS--11.3%
--------------------------------------------------------------------------------
8,500,000 6/1/95 8,168,670
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U.S. TREASURY BONDS--32.2%
--------------------------------------------------------------------------------
5,000,000 11.25%, 2/15/2015 6,888,650
--------------------------------------------------------------------------------
5,000,000 8.875%, 8/15/2017 5,674,600
--------------------------------------------------------------------------------
2,000,000 8.75%, 11/15/2008 2,183,040
--------------------------------------------------------------------------------
8,000,000 8.125%, 8/15/2019 8,442,080
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Total 23,188,370
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U.S. TREASURY NOTES--15.9%
--------------------------------------------------------------------------------
3,700,000 6.00%, 12/31/97 3,645,906
--------------------------------------------------------------------------------
3,000,000 4.375%, 8/15/96 2,907,870
--------------------------------------------------------------------------------
3,000,000 4.25%, 11/30/95 2,947,710
--------------------------------------------------------------------------------
2,000,000 4.00%, 1/31/96 1,951,060
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Total 11,452,546
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TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST, $43,306,509) 42,809,586
-------------------------------------------------------------------------------- ---------------
*REPURCHASE AGREEMENT--13.4%
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$ 9,660,000 HSBC Securities, Inc., 4.70%, dated 8/31/94, due 9/1/94
(at amortized cost) $ 9,660,000
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TOTAL INVESTMENTS (IDENTIFIED COST, $72,563,316) $ 71,689,008+
-------------------------------------------------------------------------------- ---------------
</TABLE>
* Repurchase agreement is fully collateralized by U.S. government and/or agency
obligations based on market prices at the date of the portfolio.
+ The cost of investments for federal tax purposes amounts to $72,563,316. The
net unrealized depreciation on a federal tax cost basis amounts to $874,308,
and is comprised of $50,964 appreciation and $925,272 depreciation at August
31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($72,088,187) at August 31, 1994.
(See Notes which are an integral part of the Financial Statements)
TOWER TOTAL RETURN BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994
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<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------------------------
Investments in securities $ 62,029,008
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Investment in repurchase agreement 9,660,000
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Total investments, at amortized cost and value
(identified and tax cost, $72,563,316) $ 71,689,008
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Cash 728
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Interest receivable 468,580
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Receivable for Fund shares sold 605
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Deferred expenses 2,882
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Total assets 72,161,803
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LIABILITIES:
- ------------------------------------------------------------------------------------------------
Dividends payable 19,238
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Payable for Fund shares redeemed 5,360
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Accrued expenses 49,018
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Total liabilities 73,616
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NET ASSETS for 7,481,164 shares of beneficial interest outstanding $ 72,088,187
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------------------------------------
Paid-in capital $ 74,346,264
- ------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (874,308)
- ------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (1,408,551)
- ------------------------------------------------------------------------------------------------
Undistributed net investment income 24,782
- ------------------------------------------------------------------------------------------------ ---------------
Total Net Assets $ 72,088,187
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSET VALUE and Redemption Proceeds Per Share
($72,088,187 / 7,481,164 shares of beneficial interest outstanding) $9.64
- ------------------------------------------------------------------------------------------------ ---------------
COMPUTATION OF OFFERING PRICE: Offering Price Per Share (100/97 of $9.64)* $9.94
- ------------------------------------------------------------------------------------------------ ---------------
</TABLE>
* See "What Shares Cost" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
TOWER TOTAL RETURN BOND FUND
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------------------
Interest income $ 4,400,306
- -------------------------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------------------------
Investment advisory fee $ 451,203
- ---------------------------------------------------------------------------------
Trustees' fees 3,902
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Administrative personnel and services fees 85,233
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Custodian fees 52,555
- ---------------------------------------------------------------------------------
Portfolio accounting fees 29,312
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Transfer and dividend disbursing agent fees and expenses 26,105
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Fund share registration costs 20,174
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Auditing fees 13,874
- ---------------------------------------------------------------------------------
Legal fees 5,807
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Printing and postage 19,914
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Insurance premiums 5,950
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Distribution services fee 60,445
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Miscellaneous 5,103
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Total expenses 779,577
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Net investment income 3,620,729
- ------------------------------------------------------------------------------------------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (1,407,891)
- -------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (3,658,165)
- ------------------------------------------------------------------------------------------------- ---------------
Net realized and unrealized gain (loss) on investments (5,066,056)
- ------------------------------------------------------------------------------------------------- ---------------
Change in net assets resulting from operations ($ 1,445,327)
- ------------------------------------------------------------------------------------------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TOWER TOTAL RETURN BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------------
1994 1993*
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------
Net investment income $ 3,620,729 $ 3,363,569
- -----------------------------------------------------------------------------
Net realized gain (loss) on investment transactions
($47,834 net loss and $135,685 net gain, respectively, as computed for
federal income tax purposes) (1,407,891) 135,685
- -----------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (3,658,165) 2,783,856
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from operations (1,445,327) 6,283,110
- ----------------------------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -----------------------------------------------------------------------------
Dividends to shareholders from net investment income (3,662,582) (3,296,933)
- -----------------------------------------------------------------------------
Distributions to shareholders from net realized gain on investment
transactions (136,345) --
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from distributions to shareholders (3,798,927) (3,296,933)
- ----------------------------------------------------------------------------- ---------------- ----------------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
- -----------------------------------------------------------------------------
Proceeds from sale of shares 26,200,656 78,658,653
- -----------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of dividends
declared 3,543,220 3,276,430
- -----------------------------------------------------------------------------
Cost of shares redeemed (16,019,025) (21,313,670)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from Fund share transactions 13,724,851 60,621,413
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets 8,480,597 63,607,590
- -----------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------
Beginning of period 63,607,590 --
- ----------------------------------------------------------------------------- ---------------- ----------------
End of period (including undistributed net investment income of $24,782 and
$66,636, respectively) $ 72,088,187 $ 63,607,590
- ----------------------------------------------------------------------------- ---------------- ----------------
</TABLE>
* Reflects operations for the period from November 2, 1992 (date of initial
public investment) to August 31, 1993.
(See Notes which are an integral part of the Financial Statements)
TOWER TOTAL RETURN BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31,
--------------------
1994 1993*
--------- ---------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.49 $ 10.00
- -----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------
Net investment income 0.57 0.56
- -----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.83) 0.48
- ----------------------------------------------------------------------------------------- --------- ---------
Total from investment operations (0.26) 1.04
- ----------------------------------------------------------------------------------------- --------- ---------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.57) (0.55)
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net realized gain on investment transactions (0.02) --
- ----------------------------------------------------------------------------------------- --------- ---------
Total distributions (0.59) (0.55)
- ----------------------------------------------------------------------------------------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.64 $ 10.49
- ----------------------------------------------------------------------------------------- --------- ---------
TOTAL RETURN** (2.46)% 10.39%
- -----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------
Expenses 1.21% 0.77%(b)
- -----------------------------------------------------------------------------------------
Net investment income 5.62% 6.56%(b)
- -----------------------------------------------------------------------------------------
Expense waiver/reimbursement (a) -- 0.22%(b)
- -----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $72,088 $63,608
- -----------------------------------------------------------------------------------------
Portfolio turnover rate 96% 78%
- -----------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from November 2, 1992 (date of initial
public investment) to August 31, 1993.
** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, 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.
(See Notes which are an integral part of the Financial Statements)
TOWER TOTAL RETURN BOND FUND
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Tower Mutual Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end management investment company.
The Trust consists of five diversified portfolios and one non-diversified
portfolio. The financial statements included herein present only those of Tower
Total Return Bond Fund (the "Fund"). The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--Listed corporate bonds (and other fixed-income and
asset backed securities) are valued at the last sale price reported on
national securities exchanges. Unlisted bonds and securities and short-term
obligations are valued at the price provided by an independent pricing
service. Short-term securities with remaining maturities of sixty days or
less may be stated at amortized cost, which approximates value.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral in support of
repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of
each repurchase agreement's underlying collateral to ensure that the value
of the collateral at least equals the principal amount of the repurchase
agreement, including accrued interest.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Trust's adviser to be creditworthy pursuant to the guidelines
established by the Board of Trustees (the "Trustees"). Risks may arise from
the potential inability of counterparties to honor the terms of the
repurchase agreement. Accordingly, the Fund could receive less than the
repurchase price on the sale of collateral securities.
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary. At August 31,
1994, the Fund, for federal tax purposes, had a capital loss carryforward
of $47,834, which will reduce the Fund's taxable income arising from future
net realized gain on investments, if any, to the extent permitted by the
Code, and thus will reduce the amount of the distribution to shareholders
which would otherwise be necessary to relieve the Fund of any liability for
federal tax. Pursuant to the Code, such capital loss carryforward will
expire in 2002. Additionally, net capital losses of $1,360,057 attributable
to security transactions incurred after October 31, 1993 are treated as
arising on September 1, 1994, the first day of the Fund's next taxable
year.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-
issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
F. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized using the straight-line method not to exceed a period of five
years from the Fund's commencement date.
G. OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------
1994 1993*
- -------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Shares sold 2,648,699 7,835,264
- --------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 355,310 319,848
- --------------------------------------------------------------------------------
Shares redeemed (1,587,686) (2,090,271)
- -------------------------------------------------------------------------------- ------------- -------------
Net change resulting from Fund share transactions 1,416,323 6,064,841
- -------------------------------------------------------------------------------- ------------- -------------
</TABLE>
* Reflects operations for the period from November 2, 1992 (date of initial
public investment) to August 31, 1993.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Hibernia National Bank, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.70 of 1% of the Fund's average daily net assets.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
DISTRIBUTION SERVICES FEE--The Trust has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Fund will reimburse Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's shares. The Plan provides that the Fund may
incur up to 0.25 of 1% of the average daily net assets of the Fund, annually, to
reimburse FSC.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Fund. The FServ fee is based on the size, type, and number of accounts and
transactions made by shareholders.
FServ also maintains the Fund's accounting records. The fee is based on the
level of the Fund's average net assets for the period, plus out-of-pocket
expenses.
Hibernia National Bank is the Fund's custodian. The fee is based on the level of
the Fund's average net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $50,000 were borne initially
by FAS. The Fund has agreed to reimburse FAS for organizational expenses during
the five year period following September 15, 1992 (date the Fund became
effective). For the year ended August 31, 1994, the Fund paid $4,303 pursuant to
this agreement.
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended August 31, 1994 were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------
PURCHASES-- $ 63,779,789
- ------------------------------------------------------------------------------------------------- ---------------
SALES-- $ 59,620,801
- ------------------------------------------------------------------------------------------------- ---------------
</TABLE>
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
TOWER MUTUAL FUNDS:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Tower Total Return Bond Fund (one of the
portfolios comprising Tower Mutual Funds) as of August 31, 1994, and the related
statement of operations for the year then ended and the statement of changes in
net assets and the financial highlights for the year then ended and the period
from November 2, 1992 to August 31, 1993. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1994, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Tower
Total Return Bond Fund at August 31, 1994, the results of its operations for the
year then ended, and the changes in its net assets and the financial highlights
for the year then ended and the period from November 2, 1992 to August 31, 1993,
in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
October 6, 1994
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Edward C. Gonzales Edward C. Gonzales
Robert L. diBenedetto, M.D. President and Treasurer
James A. Gayle, Sr. Jeffrey W. Sterling
J. Gordon Reische Vice President and Assistant Treasurer
Peter J. Germain
Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit
Insurance Corporation, the Federal Reserve Board, or any other government
agency. Investment in mutual funds involves investment risk, including possible
loss of principal amount invested.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the Fund's prospectus which
contains facts concerning its objective and policies, management fees, expenses
and other information.
TOWER
MUTUAL FUNDS
TOWER
U.S. TREASURY MONEY
MARKET FUND
ANNUAL REPORT
TO SHAREHOLDERS
AUGUST 31, 1994
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Annual Report to Shareholders for Tower U.S.
Treasury Money Market Fund (the "Fund"). The report, which covers the
twelve-month period ended August 31, 1994, begins with a review by the Fund's
portfolio manager and includes the Portfolio of Investments and Financial
Statements.
Tower U.S. Treasury Money Market Fund continues to put your cash to work every
day by investing in a portfolio of U.S. Treasury money market securities. Of
course, you always have easy access to your money on a daily basis.
At the end of the period, net assets stood at $45 million. Dividends paid to
shareholders during the twelve-month period totaled $0.03 per share.
Thank you for putting your cash to work through Tower U.S. Treasury Money Market
Fund. We will continue to keep you up to date on your investment as we provide
you with a high level of service.
Sincerely,
Edward C. Gonzales
President
October 15, 1994
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
The twelve months ended August 31, 1994 have seen a welcome increase in interest
rates on short-term investments available to money market fund investors. A
multi-year drop in interest rates continued until about mid-October of 1993,
when yields available on three-month Treasury securities dropped to
approximately 3.00%. In mid-October, investors and economists began to see
trouble on the economic horizon, primarily from a strong economic recovery.
Interest rates began to increase slightly; then increases were fueled by the
Federal Reserve Board (the "Fed"), who moved to raise short-term interest rates
in early February, 1994. By fiscal year end, the Fed had raised interest rates
on short-term investments by 1.75%. Yields available on all investments
available to the Fund rose in response to the Fed action. At fiscal year end, we
had seen interest rates on three-month Treasury bills rise from approximately
3.00% to approximately 4.70%.
Yields available on one-month Treasury securities were significantly less, due
to the flight of investors out of longer-term securities into short-term
Treasury bills. Fortunately, yields available on repurchase agreements allowed
us to provide a decent return on very short-term investments during the year.
Lately, many money market mutual funds sustained losses from investments in
certain types of securities, commonly referred to as derivatives. The managers
of your Fund did not have any investments in the types of derivatives securities
which have caused so many problems this year, such as inverse floaters,
interest-only and principal-only securities.
We continued to remain cautious about interest rates on short-term investments
in light of our expectation that the Fed will continue to increase interest
rates through 1994 and into 1995. We will continue to maintain our conservative
investment strategy realizing that this Fund's principal priority is
preservation of capital. We will maximize the investment return only after
assuring adequate safety and liquidity of your investments.
TOWER U.S. TREASURY MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- --------------- ------------------------------------------------------------------------------- ---------------
U.S. TREASURY BILLS--60.7%
- ------------------------------------------------------------------------------------------------
$ 27,500,000 9/22/94-1/5/95 $ 27,323,512
------------------------------------------------------------------------------- ---------------
*REPURCHASE AGREEMENTS--39.6%
- ------------------------------------------------------------------------------------------------
9,000,000 Merrill Lynch, Pierce, Fenner & Smith, Inc., 4.70%, dated
8/31/94, due 9/1/94 9,000,000
-------------------------------------------------------------------------------
8,849,000 HSBC Securities, Inc., 4.70%, dated 8/31/94, due 9/1/94 8,849,000
------------------------------------------------------------------------------- ---------------
TOTAL REPURCHASE AGREEMENTS 17,849,000
------------------------------------------------------------------------------- ---------------
TOTAL INVESTMENTS, AT AMORTIZED COST $ 45,172,512+
------------------------------------------------------------------------------- ---------------
</TABLE>
* Repurchase agreements are fully collateralized by U.S. Treasury obligations
based on market prices at the date of the portfolio.
+ Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($45,022,341) at August 31, 1994.
(See Notes which are an integral part of the Financial Statements)
TOWER U.S. TREASURY MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------------------------
Investments in securities $ 27,323,512
- -------------------------------------------------------------------------------
Investments in repurchase agreements 17,849,000
- ------------------------------------------------------------------------------- ---------------
Total investments, at amortized cost and value $ 45,172,512
- ------------------------------------------------------------------------------------------------
Cash 927
- ------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 9,237
- ------------------------------------------------------------------------------------------------
Interest receivable 2,330
- ------------------------------------------------------------------------------------------------
Deferred expenses 1,298
- ------------------------------------------------------------------------------------------------ ---------------
Total assets 45,186,304
- ------------------------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------------------------
Dividends payable 131,911
- -------------------------------------------------------------------------------
Payable to transfer and dividend disbursing agent 9,094
- -------------------------------------------------------------------------------
Accrued expenses 22,958
- ------------------------------------------------------------------------------- ---------------
Total liabilities 163,963
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSETS for 45,022,341 shares of beneficial interest outstanding $ 45,022,341
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSET VALUE, Offering Price, and Redemption Proceeds Per Share
($45,022,341 / 45,022,341 shares of beneficial interest outstanding) $1.00
- ------------------------------------------------------------------------------------------------ ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TOWER U.S. TREASURY MONEY MARKET FUND
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------------------
Interest income $ 1,443,637
- -------------------------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------
Investment advisory fee $ 164,112
- -----------------------------------------------------------------------------------
Trustees' fees 1,900
- -----------------------------------------------------------------------------------
Administrative personnel and services fees 54,326
- -----------------------------------------------------------------------------------
Custodian fees 39,048
- -----------------------------------------------------------------------------------
Portfolio accounting fees 24,693
- -----------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 23,823
- -----------------------------------------------------------------------------------
Fund share registration costs 14,842
- -----------------------------------------------------------------------------------
Auditing fees 13,856
- -----------------------------------------------------------------------------------
Legal fees 7,419
- -----------------------------------------------------------------------------------
Printing and postage 13,306
- -----------------------------------------------------------------------------------
Insurance premiums 5,030
- -----------------------------------------------------------------------------------
Miscellaneous 2,861
- ----------------------------------------------------------------------------------- ------------
Total expenses 365,216
- -----------------------------------------------------------------------------------
Deduct--
- -----------------------------------------------------------------------------------
Waiver of investment advisory fee $ 91,001
- -----------------------------------------------------------------------
Waiver of administrative personnel and services fees 1,781 92,782
- ----------------------------------------------------------------------- ---------- ------------
Net expenses 272,434
- ------------------------------------------------------------------------------------------------- --------------
Net investment income $ 1,171,203
- ------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TOWER U.S. TREASURY MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1994 1993*
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------------
Net investment income $ 1,171,203 $ 95,502
- ---------------------------------------------------------------------------- ------------------ ----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------------------
Dividends to shareholders from net investment income (1,171,203) (95,502)
- ---------------------------------------------------------------------------- ------------------ ----------------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
- ----------------------------------------------------------------------------
Proceeds from sale of shares 140,396,462 45,942,342
- ----------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of dividends
declared 66,203 45
- ----------------------------------------------------------------------------
Cost of shares redeemed (129,435,476) (11,947,235)
- ---------------------------------------------------------------------------- ------------------ ----------------
Change in net assets from Fund share transactions 11,027,189 33,995,152
- ---------------------------------------------------------------------------- ------------------ ----------------
Change in net assets 11,027,189 33,995,152
- ----------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------
Beginning of period 33,995,152 --
- ---------------------------------------------------------------------------- ------------------ ----------------
End of period $ 45,022,341 $ 33,995,152
- ---------------------------------------------------------------------------- ------------------ ----------------
</TABLE>
* Reflects operations for the period from July 19, 1993 (date of initial public
investment) to August 31, 1993.
(See Notes which are an integral part of the Financial Statements)
TOWER U.S. TREASURY MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1994 1993*
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00
- -----------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------
Net investment income 0.03 0.002
- ----------------------------------------------------------------------------------- --------- ---------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.03) (0.002)
- ----------------------------------------------------------------------------------- --------- ---------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00
- ----------------------------------------------------------------------------------- --------- ---------
TOTAL RETURN** 2.85% 0.34%
- -----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------
Expenses 0.66% 0.50%(b)
- -----------------------------------------------------------------------------------
Net investment income 2.85% 2.80%(b)
- -----------------------------------------------------------------------------------
Expense waiver/reimbursement (a) 0.23% 0.32%(b)
- -----------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $45,022 $33,995
- -----------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from July 19, 1993 (date of initial
public investment) to August 31, 1993.
** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, 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.
(See Notes which are an integral part of the Financial Statements)
TOWER U.S. TREASURY MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Tower Mutual Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end management investment company.
The Trust consists of five diversified portfolios and one non-diversified
portfolio. The financial statements included herein present only those of Tower
U.S. Treasury Money Market Fund (the "Fund"). The financial statements of the
other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral in support of
repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of
each repurchase agreement's underlying collateral to ensure that the value
of the collateral at least equals the principal amount of the repurchase
agreement, including accrued interest.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as brokers/dealers, which are
deemed by the Trust's adviser to be creditworthy pursuant to the guidelines
established by the Board of Trustees (the "Trustees").
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-
issued or delayed delivery transactions. The Fund records when-issued
securities on the trade
date and maintains security positions such that sufficient liquid assets
will be available to make payment for the securities purchased. Securities
purchased on a when-issued or delayed delivery basis are marked to market
daily and begin earning interest on the settlement date.
F. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized using the straight-line method not to exceed a period of five
years from the Fund's commencement date.
G. OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At August
31, 1994, capital paid-in aggregated $45,022,341. Transactions in Fund shares
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1994 1993*
<S> <C> <C>
- -------------------------------------------------------------------------------
Shares sold 140,396,462 45,942,342
- -------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 66,203 45
- -------------------------------------------------------------------------------
Shares redeemed (129,435,476) (11,947,235)
- ------------------------------------------------------------------------------- ---------------- ---------------
Net change resulting from Fund share transactions 11,027,189 33,995,152
- ------------------------------------------------------------------------------- ---------------- ---------------
</TABLE>
*For the period from July 19, 1993 (date of initial public investment) to August
31, 1993.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Hibernia National Bank, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.40 of 1% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive a portion of its fee and reimburse certain operating
expenses of the Fund. The Adviser can modify or terminate this voluntary waiver
and reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
DISTRIBUTION SERVICES FEE--The Trust has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Fund will reimburse Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's shares. The Plan provides that the Fund may
incur up to 0.25 of 1% of the average daily net assets of the Fund, annually, to
reimburse FSC. For the year ended August 31, 1994 Tower U.S. Treasury Money
Market Fund did not incur a distribution services fee.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Fund. The FServ fee is based on the size, type, and number of accounts and
transactions made by shareholders.
FServ also maintains the Fund's accounting records. The fee is based on the
level of the Fund's average net assets for the period, plus out-of-pocket
expenses.
Hibernia National Bank is the Fund's custodian. The fee is based on the level of
the Fund's average net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $30,000 were borne initially
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following July 19, 1993 (date the Fund became
effective). For the year ended August 31, 1994, the Fund paid $1,879 pursuant to
this agreement.
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
TOWER MUTUAL FUNDS:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Tower U.S. Treasury Money Market Fund (one of
the portfolios comprising Tower Mutual Funds) as of August 31, 1994, and the
related statement of operations for the year then ended and the statement of
changes in net assets and the financial highlights for the year then ended and
for the period from July 19, 1993 to August 31, 1993. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1994, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Tower
U.S. Treasury Money Market Fund at August 31, 1994, the results of its
operations for the year then ended, and the changes in its net assets and the
financial highlights for the year then ended and for the period from July 19,
1993 to August 31, 1993, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Pittsburgh Pennsylvania
October 6, 1994
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Edward C. Gonzales Edward C. Gonzales
Robert L. diBenedetto, M.D. President and Treasurer
James A. Gayle, Sr. Jeffrey W. Sterling
J. Gordon Reische Vice President and Assistant Treasurer
Peter J. Germain
Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank,
and are not insured or guaranteed by the U.S. government, the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other government
agency. Investment in mutual funds involves investment risk, including possible
loss of principal amount invested. Although money market funds seek to maintain
a stable net asset value of $1.00 per share, there is no assurance that they
will be able
to do so.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the Fund's prospectus which
contains facts concerning its objective and policies, management fees, expenses
and other information.
TOWER
MUTUAL FUNDS
TOWER
U.S. GOVERNMENT
INCOME FUND
ANNUAL REPORT
TO SHAREHOLDERS
AUGUST 31, 1994
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Annual Report to Shareholders for Tower U.S.
Government Income Fund (the "Fund"). The report, which covers the twelve-month
period ended August 31, 1994, begins with a review by the Fund's portfolio
manager and includes the Portfolio of Investments and Financial Statements.
Tower U.S. Government Income Fund continues to give you the opportunity to earn
income through one of the historically safest types of securities
available--U.S. government securities.
At the end of the period, net assets stood at $67 million. The recent rise in
interest rates, which had a negative effect on all financial markets, also
helped cause a decline in the Fund's net asset value, which ended the period at
$9.92 per share. Of course, the Fund returned a total distribution stream of
$0.73 per share to you during the twelve-month period.
Thank you for your confidence in Tower U.S. Government Income Fund. We will
continue to keep you up to date on your investment as we provide you with a high
level of service.
Sincerely,
Edward C. Gonzales
President
October 15, 1994
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
The twelve-month period ended August 31, 1994 provided a rocky ride for fixed
income investors. The rally and subsequent drop in interest rates observed in
the early part of the year stopped in mid-October, 1993. The market became
concerned about an overly strong economic recovery and interest rates began to
rise. This trend accelerated in early February, 1994, as the Federal Reserve
Board (the "Fed") confirmed their concern about a strong economic recovery by
increasing short term interest rates. The Fed increased interest rates by 1.75%
through August 31, 1994, and resulting yields on 5-year Treasuries increased by
2.25% during the fiscal year ended August 31, 1994.
Agency-issued mortgage-backed securities were particularly hard hit during the
period as extremely rapid prepayments during the first part of the year caused
high yielding bonds to pay off more quickly than anticipated. Once interest
rates began to rise, prepayments came to a screeching halt, causing the average
maturity of these bonds to lengthen significantly. This, combined with higher
interest rates, caused mortgage bond prices to decline by a larger amount than
comparable U.S. Treasury notes during the period.
The investment adviser intends to maintain the average maturity of the bonds in
the Fund in the 5 to 8 year range. Currently, the average maturity stands at 8.3
years. We will continue to utilize both Treasury and mortgage-backed securities
for the Fund. The portfolio currently contains 61 issues with U.S. Treasury
securities representing 40% of the portfolio and direct U.S. agency securities
an additional 8%. The remainder of the portfolio is primarily in U.S.
agency-backed, mortgage-backed bonds which provide additional income.
For the twelve months ended August 31, 1994, the resulting impact from
significantly higher interest rates provided a total return on a net asset value
per share basis to the Fund of -1.67%.* Total return based on the offering
price, which includes the 3% maximum sales load, was
- -4.58%.*
The investment adviser to the Fund will continuously monitor the U.S. Treasury
and agency markets to exploit opportunities consistent with the investment
objective of the Fund.
*Performance quoted represents past performance. Investment return and principal
value will fluctuate, so that an investor's shares, when redeemed, may be worth
less than the principal amount invested.
TOWER U.S. GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN TOWER U.S. GOVERNMENT INCOME FUND
.
The graph below illustrates the hypothetical investment of $10,000 in the Tower
U.S. Government Income Fund (the "Fund"), from October 14, 1988 (start of
performance) to August 31, 1994, compared to the Salomon Brothers Medium Term
Broad Index (SBMTBI).
See Appendix B
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
*REPRESENTS A HYPOTHETICAL INVESTMENT OF $10,000 IN THE FUND AFTER DEDUCTING THE
MAXIMUM SALES CHARGE OF 4.50%, WHICH HAS BEEN REDUCED TO A MAXIMUM SALES CHARGE
OF 3.00%, ($10,000 INVESTMENT MINUS $450 SALES CHARGE = $9,550). THE FUND'S
PERFORMANCE ASSUMES THE REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS. THE
SALOMON BROTHERS MEDIUM TERM BROAD INDEX HAS BEEN ADJUSTED TO REFLECT
REINVESTMENT OF DIVIDENDS ON SECURITIES IN THE INDEX.
THE SALOMON BROTHERS MEDIUM TERM BROAD INDEX IS NOT ADJUSTED TO REFLECT SALES
LOADS, EXPENSES, OR OTHER FEES THAT THE SEC REQUIRES TO BE REFLECTED IN THE
FUND'S PERFORMANCE. THIS INDEX IS UNMANAGED.
TOWER U.S. GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994
- --------------------------------------------------------------------------------
The obligations listed below are issued by the U.S. government, its agencies or
instrumentalities.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- -------------------------------------------------------------------------------- ---------------
LONG-TERM OBLIGATIONS--97.1%
- ------------------------------------------------------------------------------------------------
* FEDERAL HOME LOAN MORTGAGE CORP. PC--6.7%
--------------------------------------------------------------------------------
$ 1,637,313 10.00%, 5/1/2014-6/1/2020 $ 1,739,645
--------------------------------------------------------------------------------
683,012 9.50%, 10/1/2001-10/1/2019 712,236
--------------------------------------------------------------------------------
328,579 9.25%, 6/1/2002 341,209
--------------------------------------------------------------------------------
703,644 9.00%, 8/1/2001-5/1/2018 729,136
--------------------------------------------------------------------------------
977,753 8.75%, 1/1/2011-2/1/2017 999,439
-------------------------------------------------------------------------------- ---------------
Total 4,521,665
-------------------------------------------------------------------------------- ---------------
* FEDERAL HOME LOAN MORTGAGE CORP. REMIC--18.1%
--------------------------------------------------------------------------------
280,037 9.50%, Series 24B, 1/15/2005 283,580
--------------------------------------------------------------------------------
122,101 9.25%, Series 1C, 8/15/2013 122,408
--------------------------------------------------------------------------------
1,000,000 9.00%, Series 1015E, 6/15/2020 1,015,010
--------------------------------------------------------------------------------
1,000,000 7.50%, Series 1348 PN, 9/15/2021 948,790
--------------------------------------------------------------------------------
1,558,000 7.50%, Series 1378 ND, 9/15/2007 1,559,667
--------------------------------------------------------------------------------
2,000,000 7.00%, Series 1435 HC, 11/15/2005 1,843,980
--------------------------------------------------------------------------------
2,500,000 7.00%, Series 1440 PQ, 12/15/2006 2,337,450
--------------------------------------------------------------------------------
2,000,000 6.375%, Series 1449 GB, 11/15/2006 1,847,740
--------------------------------------------------------------------------------
1,750,000 6.10%, Series 1349E, 6/15/2016 1,696,608
--------------------------------------------------------------------------------
500,000 6.00%, Series 1524E, 10/15/2004 464,265
-------------------------------------------------------------------------------- ---------------
Total 12,119,498
-------------------------------------------------------------------------------- ---------------
* FEDERAL NATIONAL MORTGAGE ASSOCIATION REMIC--11.9%
--------------------------------------------------------------------------------
474,194 9.30%, Series 1990-10H, 8/25/2017 473,672
--------------------------------------------------------------------------------
238,342 9.00%, Series 1990-132E, 1/25/2018 238,066
--------------------------------------------------------------------------------
380,921 9.00%, Series 1990-93D, 10/25/2018 382,814
--------------------------------------------------------------------------------
2,000,000 9.00%, Series 1990-105H, 6/25/2019 2,025,500
--------------------------------------------------------------------------------
$ 1,425,101 8.00%, Series 1990-54E, 12/25/2003 $ 1,425,314
--------------------------------------------------------------------------------
2,500,000 8.00%, Series 1992-34G, 3/25/2022 2,427,975
--------------------------------------------------------------------------------
1,000,000 7.50%, Series 1992-117K, 3/25/2021 971,640
-------------------------------------------------------------------------------- ---------------
Total 7,944,981
-------------------------------------------------------------------------------- ---------------
* FEDERAL NATIONAL MORTGAGE ASSOCIATION DEBENTURES--8.3%
--------------------------------------------------------------------------------
5,500,000 8.05%, 7/14/2004 5,541,470
-------------------------------------------------------------------------------- ---------------
* FEDERAL NATIONAL MORTGAGE ASSOCIATION PC--1.6%
--------------------------------------------------------------------------------
238,328 10.75%, 1/1/2001 252,180
--------------------------------------------------------------------------------
141,121 9.50%, 8/1/2020 149,191
--------------------------------------------------------------------------------
656,637 8.50%, 2/1/2011 675,719
-------------------------------------------------------------------------------- ---------------
Total 1,077,090
-------------------------------------------------------------------------------- ---------------
* GOVERNMENT NATIONAL MORTGAGE ASSOCIATION PC--6.2%
--------------------------------------------------------------------------------
840,905 9.50%, 6/15/2020-7/15/2020 891,090
--------------------------------------------------------------------------------
734,445 9.00%, 2/15/2020 763,360
--------------------------------------------------------------------------------
1,674,691 8.00%, 11/15/2022 1,664,225
--------------------------------------------------------------------------------
890,871 7.50%, 10/15/2022 860,243
-------------------------------------------------------------------------------- ---------------
Total 4,178,918
-------------------------------------------------------------------------------- ---------------
U.S. TREASURY BOND--7.4%
--------------------------------------------------------------------------------
4,750,000 8.00%, 11/15/2021 4,968,215
-------------------------------------------------------------------------------- ---------------
U.S. TREASURY NOTES--32.4%
--------------------------------------------------------------------------------
20,832,000 5.75%-9.25%, 11/15/96 - 2/15/2004 21,715,209
-------------------------------------------------------------------------------- ---------------
MUNICIPAL BOND--4.5%
--------------------------------------------------------------------------------
3,500,000 Atlanta, GA, Downtown Development Authority, 6.25%, 2/1/2009 3,041,885
-------------------------------------------------------------------------------- ---------------
TOTAL LONG-TERM OBLIGATIONS (IDENTIFIED COST, $67,811,869) 65,108,931
-------------------------------------------------------------------------------- ---------------
**REPURCHASE AGREEMENT--2.4%
- ------------------------------------------------------------------------------------------------
$ 1,625,000 HSBC Securities Inc., 4.70%, dated 8/31/94, due 9/1/94
(at amortized cost) $ 1,625,000
-------------------------------------------------------------------------------- ---------------
TOTAL INVESTMENTS (IDENTIFIED COST, $69,436,869) $ 66,733,931+
-------------------------------------------------------------------------------- ---------------
</TABLE>
* Because of monthly principal payments, the average lives of the Government
National Mortgage Association Modified Pass-Through Securities (based upon
FHA/VA historical experience), Federal Home Loan Mortgage Corp. Participation
Certificates, and Federal National Mortgage Association Pass-Through
Securities are less than the indicated periods.
** Repurchase agreement is fully collateralized by U.S. government and/or agency
obligations based on market prices at the date of the portfolio.
+ The cost of investments for federal tax purposes amounts to $69,484,682. The
net unrealized depreciation of investments on a federal tax basis amounts to
$2,750,751 which is comprised of $343,236 appreciation and $3,093,987
depreciation at August 31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($67,051,015) at August 31, 1994.
The following abbreviations are used in this portfolio:
FHA/VA--Federal Housing Administration/Veterans Administration
PC--Participation Certificates
REMIC--Real Estate Mortgage Investment Conduit
(See Notes which are an integral part of the Financial Statements)
TOWER U.S. GOVERNMENT INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Investments, at amortized cost and value
(identified cost, $69,436,869 and tax cost, $69,484,682) $ 66,733,931
- -------------------------------------------------------------------------------------------------
Cash 366
- -------------------------------------------------------------------------------------------------
Interest receivable 581,203
- -------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 25,065
- ------------------------------------------------------------------------------------------------- ---------------
Total assets 67,340,565
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------------------
Dividends payable $ 265,303
- -----------------------------------------------------------------------------------
Payable for Fund shares redeemed 1,416
- -----------------------------------------------------------------------------------
Accrued expenses 22,831
- ----------------------------------------------------------------------------------- ------------
Total liabilities 289,550
- ------------------------------------------------------------------------------------------------- ---------------
NET ASSETS for 6,761,870 shares of beneficial interest outstanding $ 67,051,015
- ------------------------------------------------------------------------------------------------- ---------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------
Paid-in capital $ 70,485,284
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (2,702,938)
- -------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (757,964)
- -------------------------------------------------------------------------------------------------
Undistributed net investment income 26,633
- ------------------------------------------------------------------------------------------------- ---------------
Total Net Assets $ 67,051,015
- ------------------------------------------------------------------------------------------------- ---------------
NET ASSET VALUE and Redemption Proceeds Per Share
($67,051,015 / 6,761,870 shares of beneficial interest outstanding) $9.92
- ------------------------------------------------------------------------------------------------- ---------------
COMPUTATION OF OFFERING PRICE: OFFERING PRICE PER SHARE (100/97 OF $9.92)* $10.23
- ------------------------------------------------------------------------------------------------- ---------------
</TABLE>
*See "What Shares Cost" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
TOWER U.S. GOVERNMENT INCOME FUND
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------------------
Interest income $ 5,841,443
- -------------------------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------------------------
Investment advisory fee $ 354,418
- -----------------------------------------------------------------------------------
Trustees' fees 4,085
- -----------------------------------------------------------------------------------
Administrative personnel and services fees 104,100
- -----------------------------------------------------------------------------------
Custodian fees 45,563
- -----------------------------------------------------------------------------------
Portfolio accounting fees 25,888
- -----------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 39,760
- -----------------------------------------------------------------------------------
Fund share registration costs 10,832
- -----------------------------------------------------------------------------------
Auditing fees 13,896
- -----------------------------------------------------------------------------------
Legal fees 7,470
- -----------------------------------------------------------------------------------
Printing and postage 13,742
- -----------------------------------------------------------------------------------
Insurance premiums 6,318
- -----------------------------------------------------------------------------------
Miscellaneous 4,863
- ----------------------------------------------------------------------------------- ------------
Total expenses 630,935
- -----------------------------------------------------------------------------------
Deduct--
- -----------------------------------------------------------------------------------
Waiver of investment advisory fee 47,256
- ----------------------------------------------------------------------------------- ------------
Net expenses 583,679
- ------------------------------------------------------------------------------------------------- ---------------
Net investment income 5,257,764
- ------------------------------------------------------------------------------------------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (639,236)
- -------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (6,333,912)
- ------------------------------------------------------------------------------------------------- ---------------
Net realized and unrealized gain (loss) on investments (6,973,148)
- ------------------------------------------------------------------------------------------------- ---------------
Change in net assets resulting from operations ($1,715,384)
- ------------------------------------------------------------------------------------------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TOWER U.S. GOVERNMENT INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
<S> <C> <C>
1994 1993
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------
Net investment income $ 5,257,764 $ 5,233,980
- -----------------------------------------------------------------------------
Net realized gain (loss) on investment transactions
($97,781 net loss and $286,215 net gain, respectively,
as computed for federal tax purposes) (639,236) 167,841
- -----------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (6,333,912) 915,245
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from operations (1,715,384) 6,317,066
- ----------------------------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -----------------------------------------------------------------------------
Dividends to shareholders from net investment income (5,207,830) (5,270,138)
- -----------------------------------------------------------------------------
Distributions to shareholders from net realized gain on investment
transactions (286,051) (76,597)
- -----------------------------------------------------------------------------
Distributions to shareholders in excess of net investment income -- (23,301)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from distributions to shareholders (5,493,881) (5,370,036)
- ----------------------------------------------------------------------------- ---------------- ----------------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
- -----------------------------------------------------------------------------
Proceeds from sale of shares 13,454,908 34,426,646
- -----------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of dividends
declared 1,317,799 1,122,190
- -----------------------------------------------------------------------------
Cost of shares redeemed (27,109,534) (11,544,650)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from Fund share transactions (12,336,827) 24,004,186
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets (19,546,092) 24,951,216
- -----------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------
Beginning of period 86,597,107 61,645,891
- ----------------------------------------------------------------------------- ---------------- ----------------
End of period (including undistributed net investment income of $26,633 and
$0, respectively) $ 67,051,015 $ 86,597,107
- ----------------------------------------------------------------------------- ---------------- ----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TOWER U.S. GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1994 1993 1992 1991 1990 1989*
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.85 $ 10.75 $ 10.49 $ 10.07 $ 10.20 $ 10.17
- ------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------
Net investment income 0.69 0.74 0.79 0.85 0.86 0.69
- ------------------------------------------------
Net realized and unrealized gain (loss)
on investments (0.89) 0.12 0.30 0.43 (0.11) 0.03
- ------------------------------------------------ --------- --------- --------- --------- --------- ---------
Total from investment operations (0.20) 0.86 1.09 1.28 0.75 0.72
- ------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------
Dividends to shareholders from net
investment income (0.69) (0.74) (0.79) (0.85) (0.86) (0.69)
- ------------------------------------------------
Distributions to shareholders from net
realized gain on investment transactions (0.04) (0.01) (0.04) (0.01) (0.02) --
- ------------------------------------------------
Distributions in excess of net investment
income -- (0.01)(a) -- -- -- --
- ------------------------------------------------ --------- --------- --------- --------- --------- ---------
Total distributions (0.73) (0.76) (0.83) (0.86) (0.88) (0.69)
- ------------------------------------------------ --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.92 $ 10.85 $ 10.75 $ 10.49 $ 10.07 $ 10.20
- ------------------------------------------------ --------- --------- --------- --------- --------- ---------
TOTAL RETURN** (1.67%) 8.11% 10.72% 13.27% 7.48% 9.20%
- ------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------
Expenses 0.74% 0.68% 0.69% 0.68% 0.69% 0.59 (c)
- ------------------------------------------------
Net investment income 6.68% 7.03% 7.51% 8.30% 8.50% 8.64 (c)
- ------------------------------------------------
Expense waiver/reimbursement(b) 0.06% 0.11% 0.11% 0.17% 0.45% 0.52 (c)
- ------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------
Net assets, end of period (000 omitted) $ 67,051 $ 86,597 $ 61,646 $ 48,482 $ 32,596 $ 15,753
- ------------------------------------------------
Portfolio turnover rate 26% 61% 36% 20% 32% 42%
- ------------------------------------------------
</TABLE>
* Reflects operations for the period from October 14, 1988 (date of initial
public investment) to August 31, 1989.
** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Distributions in excess of net investment income for the fiscal year ended
August 31, 1993, were a result of certain book and tax timing differences.
These distributions do not represent a return of capital for federal tax
purposes.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(c) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
TOWER U.S. GOVERNMENT INCOME FUND
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Tower Mutual Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end management investment company.
The Trust consists of five diversified portfolios and one non-diversified
portfolio. The financial statements included herein present only those of Tower
U.S. Government Income Fund (the "Fund"). The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--U.S. government obligations are generally valued at
the mean between the over-the-counter bid and asked prices as furnished by
an independent pricing service. Short-term securities with remaining
maturities of sixty days or less may be stated at amortized cost, which
approximates value.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral in support of
repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of
each repurchase agreement's underlying collateral to ensure that the value
of the collateral at least equals the principal amount of the repurchase
agreement, including accrued interest.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as brokers/dealers, which are
deemed by the Trust's adviser to be creditworthy pursuant to the guidelines
established by the Board of Trustees (the "Trustees"). Risks may arise from
the potential inability of counterparties to honor the terms of the
repurchase agreement. Accordingly, the Fund could receive less than the
repurchase price on the sale of collateral securities.
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially
all of its taxable income. Accordingly, no provisions for federal tax are
necessary. At August 31, 1994, the Fund, for federal tax purposes, had a
capital loss carryforward of $97,781, which will reduce the Fund's taxable
income arising from future net realized gain on investments, if any, to the
extent permitted by the Code, and thus will reduce the amount of the
distributions to shareholders which would otherwise be necessary to relieve
the Fund of any liability for federal tax. Pursuant to the Code, such
capital loss carryforward will expire in 2002. Additionally, net capital
losses of $612,016 attributable to security transactions incurred after
October 31, 1993 are treated as arising on September 1, 1994, the first day
of the Fund's next taxable year.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-
issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
F. OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1994 1993
<S> <C> <C>
Shares sold 1,291,084 3,288,664
- --------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 127,820 105,193
- --------------------------------------------------------------------------------
Shares redeemed (2,640,253) (1,143,712)
- -------------------------------------------------------------------------------- ------------- -------------
Net change resulting from Fund share transactions (1,221,349) 2,250,145
- -------------------------------------------------------------------------------- ------------- -------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Hibernia National Bank, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.45 of 1% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive a portion of its fee and reimburse certain operating
expenses of the Fund. The Adviser can modify or terminate this voluntary waiver
and reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
DISTRIBUTION SERVICES FEE--The Trust has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Fund will reimburse Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's shares. The Plan provides that the Fund may
incur up to 0.25 of 1% of the average daily net assets of the Fund, annually, to
reimburse FSC. For the year ended August 31, 1994 Tower U.S. Government Income
Fund did not incur a distribution services fee.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Fund. The FServ fee is based on the size, type, and number of accounts and
transactions made by shareholders.
FServ also maintains the Fund's accounting records. The fee is based on the
level of the Fund's average net assets for the period, plus out-of-pocket
expenses.
Hibernia National Bank is the Fund's custodian. The fee is based on the level of
the Fund's average net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $41,274 were borne initially
by FAS. The Fund has agreed to reimburse FAS for organizational expenses during
the five year period following October 14, 1988 (date the Fund became
effective). For the year ended August 31, 1994, the Fund paid $720, completing
its obligation pursuant to this agreement.
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended August 31, 1994 were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------
PURCHASES-- $ 19,820,425
- ------------------------------------------------------------------------------------------------- ---------------
SALES-- $ 33,004,581
- ------------------------------------------------------------------------------------------------- ---------------
</TABLE>
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
TOWER MUTUAL FUNDS:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Tower U.S. Government Income Fund (one of the
portfolios comprising Tower Mutual Funds) as of August 31, 1994, and the related
statement of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended and the financial
highlights for each of the six years in the period then ended. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion of these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1994, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Tower
U.S. Government Income Fund at August 31, 1994, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the six years
in the period then ended, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
October 6, 1994
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Edward C. Gonzales Edward C. Gonzales
Robert L. diBenedetto, M.D. President and Treasurer
James A. Gayle, Sr. Jeffrey W. Sterling
J. Gordon Reische Vice President and Assistant Treasurer
Peter J. Germain
Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal amount invested.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the Fund's prospectus which
contains facts concerning its objective and policies, management fees, expenses
and other information.
TOWER
MUTUAL FUNDS
TOWER
CASH RESERVE
FUND
ANNUAL REPORT
TO SHAREHOLDERS
AUGUST 31, 1994
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Annual Report to Shareholders for Tower Cash Reserve
Fund (the "Fund"). The report, which covers the twelve-month period ended August
31, 1994, begins with a review by the Fund's portfolio manager and includes the
Portfolio of Investments and Financial Statements.
Tower Cash Reserve Fund continues to put your cash to work every day earning
income from a portfolio of high-quality money market securities. At the end of
the reporting period, 73% of the Fund's assets were invested in high-quality
commercial paper issued by many well-known American companies. The remaining
assets were invested in government securities and a repurchase agreement backed
by government securities.
At the end of the period, net assets stood at $184 million. Dividends paid to
shareholders during the twelve-month period totaled $0.03 per share.
Thank you for putting your cash to work through Tower Cash Reserve Fund. We will
continue to keep you up to date on your investment.
Sincerely,
Edward C. Gonzales
President
October 15, 1994
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
The twelve months ended August 31, 1994 have seen a welcome increase in interest
rates on short-term investments available to money market fund investors. A
multi-year drop in interest rates continued until about mid-October of 1993,
when yields available on three-month Treasury securities dropped to
approximately 3.00%. In mid-October, investors and economists began to see
trouble on the economic horizon, primarily from a strong economic recovery.
Interest rates began to increase slightly; then increases were fueled by the
Federal Reserve Board (the "Fed"), who moved to raise short-term interest rates
in early February, 1994. By fiscal year end, the Fed had raised interest rates
on short-term investments by 1.75%. Yields available on all investments
available to the Fund rose in response to the Fed action. At year end, we had
seen interest rates on three-month Treasury bills rise from approximately 3.00%
to approximately 4.70%.
Yields available on one-month Treasury securities were significantly less, due
to the flight of investors out of longer-term securities into short-term
Treasury bills. Fortunately, yields available on repurchase agreements allowed
us to provide a decent return on very short-term investments during the year.
The yield advantage of investing in non-government securities, such as
commercial paper, remained very low at approximately 0.15% during most of the
year. As interest rates began to increase, the relative yield also widened with
the investment manager being able to realize a yield advantage by buying
commercial paper at approximately 0.25%. Also for the first time in recent
history, securities issued by federal agencies, such as the Federal Home Loan
Bank, provided attractive yields as compared to commercial paper.
Lately, many money market mutual funds sustained losses from investments in
certain types of securities, commonly referred to as derivatives. The managers
of your Fund did not have any investments in the types of derivatives securities
which have caused so many problems this year, such as inverse floaters,
interest-only and principal-only securities.
We continued to remain cautious about interest rates on short-term investments
in light of our expectation that the Fed will continue to increase interest
rates through 1994 and into 1995. We will continue to maintain our conservative
investment strategy realizing that this Fund's principal priority is
preservation of capital. We will maximize the investment return only after
assuring adequate safety and liquidity of your investments.
TOWER CASH RESERVE FUND
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
*COMMERCIAL PAPER--73.1%
- ----------------------------------------------------------------------------------------------
CHEMICALS--2.7%
-----------------------------------------------------------------------------
$ 5,000,000 duPont (E.I.) deNemours & Co., 4.55%, 10/25/94 $ 4,965,875
----------------------------------------------------------------------------- -----------------
COMPUTERS--2.7%
-----------------------------------------------------------------------------
5,000,000 Hewlett Packard Co., 4.47%, 9/21/94 4,987,583
----------------------------------------------------------------------------- -----------------
FINANCE--AUTOMOTIVE--2.7%
-----------------------------------------------------------------------------
5,000,000 Ford Motor Credit Co., 4.82%, 11/10/94 4,953,139
----------------------------------------------------------------------------- -----------------
FINANCE--COMMERCIAL--10.8%
-----------------------------------------------------------------------------
5,000,000 CIT Group Holdings, Inc., 4.43%, 9/6/94 4,996,924
-----------------------------------------------------------------------------
5,000,000 General Electric Capital Co., 4.97%, 1/17/95 4,904,742
-----------------------------------------------------------------------------
5,000,000 Transamerica Financial Group, Inc., 4.43%, 9/21/94 4,987,694
-----------------------------------------------------------------------------
5,000,000 USAA Capital Corp., 4.75%, 10/27/94 4,963,055
----------------------------------------------------------------------------- -----------------
Total 19,852,415
----------------------------------------------------------------------------- -----------------
FINANCE--RETAIL--5.4%
-----------------------------------------------------------------------------
5,000,000 American General Finance Corp., 4.75%, 10/27/94 4,963,056
-----------------------------------------------------------------------------
5,000,000 Commercial Credit Co., 4.40%, 9/8/94 4,995,722
----------------------------------------------------------------------------- -----------------
Total 9,958,778
----------------------------------------------------------------------------- -----------------
FUNDING CORPORATION--10.8%
-----------------------------------------------------------------------------
5,000,000 Beta Finance, Inc., 4.83%, 11/23/94 4,944,321
-----------------------------------------------------------------------------
5,000,000 CIESCO, 4.729%, 9/15/94 4,991,007
-----------------------------------------------------------------------------
5,000,000 Falcon Asset Securitization Corp., 4.47%, 9/7/94 4,996,275
-----------------------------------------------------------------------------
5,000,000 Paccar Financial Corp., 4.40%, 9/8/94 4,995,722
----------------------------------------------------------------------------- -----------------
Total 19,927,325
----------------------------------------------------------------------------- -----------------
HEALTH CARE--8.2%
-----------------------------------------------------------------------------
5,000,000 Abbott Laboratories, 4.42%, 9/7/94 4,996,317
-----------------------------------------------------------------------------
5,000,000 Ciba Geigy Corp., 4.40%, 9/7/94 4,996,333
-----------------------------------------------------------------------------
$ 5,000,000 Colgate-Palmolive Co., 4.43%, 9/1/94 $ 5,000,000
----------------------------------------------------------------------------- -----------------
Total 14,992,650
----------------------------------------------------------------------------- -----------------
MANUFACTURING--2.7%
-----------------------------------------------------------------------------
5,000,000 Cargill, Inc., 4.60%, 9/16/94 4,990,417
----------------------------------------------------------------------------- -----------------
OIL & OIL FINANCE--13.6%
-----------------------------------------------------------------------------
5,000,000 Amoco Credit Corp., 4.38%, 9/6/94 4,996,958
-----------------------------------------------------------------------------
5,000,000 Chevron Oil Finance Co., 4.498%, 9/7/94 4,996,317
-----------------------------------------------------------------------------
5,000,000 Exxon Credit Corp., 4.40%, 9/6/94 4,996,944
-----------------------------------------------------------------------------
5,000,000 Plantation Pipe Line Co., 4.80%, 11/14/94 4,950,667
-----------------------------------------------------------------------------
5,000,000 Texaco, Inc., 4.75%, 10/17/94 4,969,653
----------------------------------------------------------------------------- -----------------
Total 24,910,539
----------------------------------------------------------------------------- -----------------
PRINTING & PUBLISHING--2.7%
-----------------------------------------------------------------------------
5,000,000 Donnelley (RR) & Sons Co., 4.375%, 9/6/94 4,996,962
----------------------------------------------------------------------------- -----------------
TELECOMMUNICATIONS--5.4%
-----------------------------------------------------------------------------
5,000,000 American Telephone & Telegraph Co., 4.77%, 11/15/94 4,950,312
-----------------------------------------------------------------------------
5,000,000 BellSouth Telecommunications, Inc., 4.38%, 9/7/94 4,996,350
----------------------------------------------------------------------------- -----------------
Total 9,946,662
----------------------------------------------------------------------------- -----------------
TOBACCO--2.7%
-----------------------------------------------------------------------------
5,000,000 Philip Morris Cos., Inc., 4.32%, 9/15/94 4,991,600
----------------------------------------------------------------------------- -----------------
UTILITIES--2.7%
-----------------------------------------------------------------------------
5,000,000 South Carolina Electric & Gas, 4.70%, 9/19/94 4,988,250
----------------------------------------------------------------------------- -----------------
TOTAL COMMERCIAL PAPER 134,462,195
----------------------------------------------------------------------------- -----------------
U.S. GOVERNMENT AGENCIES--16.2%
- ----------------------------------------------------------------------------------------------
15,000,000 Federal Home Loan Bank, 4.67%, 10/11/94 14,922,167
-----------------------------------------------------------------------------
$ 15,000,000 Federal National Mortgage Association, 4.55%-4.74%,
12/1/94-1/25/94 $ 14,880,183
----------------------------------------------------------------------------- -----------------
TOTAL U.S. GOVERNMENT AGENCIES 29,802,350
----------------------------------------------------------------------------- -----------------
**REPURCHASE AGREEMENT--11.0%
- ----------------------------------------------------------------------------------------------
20,212,000 HSBC, Inc., 4.70%, dated 8/31/94, due 9/1/94 20,212,000
----------------------------------------------------------------------------- -----------------
TOTAL INVESTMENTS, AT AMORTIZED COST AND VALUE $ 184,476,545+
----------------------------------------------------------------------------- -----------------
</TABLE>
* Each issue shows the rate of discount at the time of purchase.
** Repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
+ Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($183,921,983) at August 31, 1994.
(See Notes which are an integral part of the Financial Statements)
TOWER CASH RESERVE FUND
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -----------------------------------------------------------------------------------------------
Investments in securities $ 164,264,545
- ----------------------------------------------------------------------------
Investment in repurchase agreement 20,212,000
- ---------------------------------------------------------------------------- -----------------
Total investments, at amortized cost and value $ 184,476,545
- -----------------------------------------------------------------------------------------------
Interest receivable 26,131
- ----------------------------------------------------------------------------------------------- -----------------
Total assets 184,502,676
- -----------------------------------------------------------------------------------------------
LIABILITIES:
- -----------------------------------------------------------------------------------------------
Dividends payable 485,106
- ----------------------------------------------------------------------------
Payable to transfer and dividend disbursing agent 14,360
- ----------------------------------------------------------------------------
Accrued expenses 81,227
- ---------------------------------------------------------------------------- -----------------
Total liabilities 580,693
- ----------------------------------------------------------------------------------------------- -----------------
NET ASSETS for 183,921,983 shares of beneficial interest outstanding $ 183,921,983
- ----------------------------------------------------------------------------------------------- -----------------
NET ASSET VALUE, Offering Price, and Redemption Proceeds Per Share
($183,921,983 / 183,921,983 shares of beneficial interest outstanding) $1.00
- ----------------------------------------------------------------------------------------------- -----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TOWER CASH RESERVE FUND
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------------
Interest income $ 6,166,995
- --------------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------------------
Investment advisory fee $ 681,321
- ------------------------------------------------------------------------------------
Trustees' fees 8,269
- ------------------------------------------------------------------------------------
Administrative personnel and services fees 225,124
- ------------------------------------------------------------------------------------
Custodian fees 49,890
- ------------------------------------------------------------------------------------
Portfolio accounting fees 24,662
- ------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 43,296
- ------------------------------------------------------------------------------------
Fund share registration costs 26,236
- ------------------------------------------------------------------------------------
Auditing fees 13,986
- ------------------------------------------------------------------------------------
Legal fees 10,960
- ------------------------------------------------------------------------------------
Printing and postage 18,457
- ------------------------------------------------------------------------------------
Insurance premiums 7,333
- ------------------------------------------------------------------------------------
Distribution services fee 425,826
- ------------------------------------------------------------------------------------
Miscellaneous 8,417
- ------------------------------------------------------------------------------------ ------------
Total expenses 1,543,777
- -------------------------------------------------------------------------------------------------- --------------
Net investment income $ 4,623,218
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TOWER CASH RESERVE FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1994 1993
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------------------
Net investment income $ 4,623,218 $ 4,102,887
- -------------------------------------------------------------------------- ------------------ ------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------------------------------
Dividends to shareholders from net investment income (4,623,218) (4,102,887)
- -------------------------------------------------------------------------- ------------------ ------------------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
- --------------------------------------------------------------------------
Proceeds from sale of shares 356,956,748 459,447,970
- --------------------------------------------------------------------------
Net asset value of shares issued to shareholders
in payment of dividends declared 616,017 634,657
- --------------------------------------------------------------------------
Cost of shares redeemed (327,702,458) (468,068,725)
- -------------------------------------------------------------------------- ------------------ ------------------
Change in net assets from Fund share transactions 29,870,307 (7,986,098)
- -------------------------------------------------------------------------- ------------------ ------------------
Change in net assets 29,870,307 (7,986,098)
- --------------------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------------------
Beginning of period 154,051,676 162,037,774
- -------------------------------------------------------------------------- ------------------ ------------------
End of period $ 183,921,983 $ 154,051,676
- -------------------------------------------------------------------------- ------------------ ------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TOWER CASH RESERVE FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1994 1993 1992 1991 1990 1989*
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------
Net investment income 0.03 0.02 0.04 0.06 0.08 0.07
- ---------------------------------------- --------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
- ----------------------------------------
Dividends to shareholders from net
investment income (0.03) (0.02) (0.04) (0.06) (0.08) (0.07)
- ---------------------------------------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN** 2.73% 2.49% 3.75% 6.45% 8.02% 6.86%
- ----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------
Expenses 0.91% 0.89% 0.89% 0.80% 0.77% 0.75 (b)
- ----------------------------------------
Net investment income 2.71% 2.48% 3.79% 6.30% 7.71% 8.68 (b)
- ----------------------------------------
Expense waiver/reimbursement (a) -- -- 0.03% -- 0.01% --
- ----------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------
Net assets, end of period (000
omitted) $183,922 $154,052 $162,038 $249,822 $300,668 $169,303
- ----------------------------------------
</TABLE>
* Reflects operations for the period from October 14, 1988 (date of initial
public investment) to August 31, 1989.
** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, 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.
(See Notes which are an integral part of the Financial Statements)
TOWER CASH RESERVE FUND
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Tower Mutual Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end management investment company.
The Trust consists of five diversified portfolios and one non-diversified
portfolio. The financial statements included herein present only those of Tower
Cash Reserve Fund (the "Fund"). The financial statements of the other portfolios
are presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral in support of
repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of
each repurchase agreement's underlying collateral to ensure that the value
of the collateral at least equals the principal amount of the repurchase
agreement, including accrued interest.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions such as brokers/dealers, which are deemed
by the Trust's adviser to be creditworthy pursuant to guidelines
established by the Board of Trustees (the "Trustees").
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-
issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to
make payment for the securities purchased. Securities purchased on a
when-issued or delayed delivery basis are marked to market daily and begin
earning interest on the settlement date.
F. OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At August
31, 1994, capital paid-in aggregated $183,921,983. Transactions in Fund shares
were as follow:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1994 1993
<S> <C> <C>
- -----------------------------------------------------------------------------
Shares sold 356,956,748 459,447,970
- -----------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 616,017 634,657
- -----------------------------------------------------------------------------
Shares redeemed (327,702,458) (468,068,725)
- ----------------------------------------------------------------------------- ---------------- ----------------
Net change resulting from Fund share transactions 29,870,307 (7,986,098)
- ----------------------------------------------------------------------------- ---------------- ----------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Hibernia National Bank, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.40 of 1% of the Fund's average daily net assets.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
DISTRIBUTION SERVICES FEE--The Trust has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Fund will reimburse Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's shares. The Plan provides that the Fund may
incur up to 0.25 of 1% of the average daily net assets of the Fund, annually, to
reimburse FSC.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Fund. The FServ fee is based on the size, type, and number of accounts and
transactions made by shareholders.
FServ also maintains the Fund's accounting records. The fee is based on the
level of the Fund's average net assets for the period, plus out-of-pocket
expenses.
Hibernia National Bank is the Fund's custodian. The fee is based on the level of
the Fund's average net assets for the period, plus out-of-pocket expenses.
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
TOWER MUTUAL FUNDS:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Tower Cash Reserve Fund (one of the portfolios
comprising Tower Mutual Funds) as of August 31, 1994, and the related statement
of operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended and the financial highlights
for each of the six years in the period then ended. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1994, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Tower
Cash Reserve Fund at August 31, 1994, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the six years in the
period then ended, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
October 6, 1994
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Edward C. Gonzales Edward C. Gonzales
Robert L. diBenedetto, M.D. President and Treasurer
James A. Gayle, Sr. Jeffrey W. Sterling
J. Gordon Reische Vice President and Assistant Treasurer
Peter J. Germain
Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal amount invested. Although money market
funds seek to maintain a stable net asset value of $1.00 per share, there is no
assurance that they will be able to do so.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses and other information.
TOWER
MUTUAL FUNDS
TOWER
LOUISIANA MUNICIPAL
INCOME FUND
ANNUAL REPORT
TO SHAREHOLDERS
AUGUST 31, 1994
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Annual Report to Shareholders for Tower Louisiana
Municipal Income Fund (the "Fund"). The report, which covers the twelve-month
period ended August 31, 1994, begins with a review by the Fund's portfolio
manager and includes the Portfolio of Investments and Financial Statements.
Tower Louisiana Municipal Income Fund invests in high-quality, long-term
municipal bonds issued across Louisiana. These bonds, used to finance important
public projects, help you earn double-tax-free income, free of federal income
tax and Louisiana personal income tax for Louisiana residents.*
At the end of the period, net assets stood at $79.7 million. The recent rise in
interest rates, which had a negative effect on all financial markets, also
helped cause a decline in the Fund's net asset value, which ended the period at
$10.82 per share. Of course, the Fund paid a double-tax-free dividend stream of
$0.59 per share to you during the twelve-month period. In addition, the Fund
also paid capital gains distributions of $0.10 per share.
Thank you for your confidence in Tower Louisiana Municipal Income Fund. We will
continue to keep you up to date as you pursue double-tax-free income.
Sincerely,
Edward C. Gonzales
President
October 15, 1994
*Income may be subject to the federal alternative minimum tax.
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
The twelve-month period ended August 31, 1994 was a challenging time for
municipal fixed income investors. A turn from a steady but slow economic growth
pattern with good news on the inflation front changed in October as investors
began to fear that the economy was growing at a rate which would cause a
resurgence in inflation. This fear was confirmed in early February when the
Federal Reserve Board began its process of increasing interest rates by a total
of 1.75% in order to slow down economic growth and prevent the economy from
expanding at a rate which would cause higher inflation. As a result of this
activity, we saw interest rates available on 10-year AAA rated municipal bonds
decline from approximately 4.55% to below 4.30% before rising sharply in
February from about 4.40% to approximately 5.60%. By the end of the second
quarter, interest rates available on 10-year AAA municipal bonds hovered around
5.30%. The municipal bond market has not fared as badly as other fixed income
markets due to the fact that higher Federal Income Tax legislation supported by
the Clinton administration has spurred strong demand for tax-exempt securities.
For the past twelve months, the Tower Louisiana Municipal Income Fund has
continued to invest only in AAA rated Louisiana municipal bonds. The Fund
focuses primarily on credit worthy securities possessing insurance issued by one
of the major municipal bond insurance companies, such as Financial Security
Assurance, Municipal Bond Investors Assurance, American Municipal Bond Assurance
Corporation, and Financial Guaranty Insurance Company. Each of these insurers
possesses a AAA rating by both Standard & Poor's Ratings Group and Moody's
Investors Service, Inc. To a lesser degree, the Fund also invests in Louisiana
municipal bonds secured by U.S. Treasury or agency bonds.
The effective maturity of the Fund remains around 13-1/2 years so that maximum
income can be realized. The investment adviser intends to diversify among
various types of issuers. Currently, major holdings are spread among state and
local general obligation, mortgage revenue, hospital revenue, sales tax revenue,
and utility revenue bonds.
For the twelve-month period ended August 31, 1994, the Fund experienced a total
return of -0.76%* based on the net asset value, as a result of significantly
higher interest rates observed during the year. Total return based on the
offering price, which includes the 3% maximum sales load, was -3.75%* for the
same period.
The investment adviser to the Fund will continuously monitor the Louisiana
municipal bond market to exploit opportunities consistent with the investment
objective of the Fund.
*Performance quoted represents past performance. Investment return and principal
value will fluctuate, so that an investor's shares, when redeemed, may be worth
less than the principal amount invested.
TOWER LOUISIANA MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN TOWER LOUISIANA MUNICIPAL INCOME FUND
.
The graph below illustrates the hypothetical investment of $10,000 in the
Tower Louisiana Municipal Income Fund (the "Fund") from October 14, 1988 (start
of performance) to August 31, 1994, compared to the Lehman Ten Year Insured
Index (LTYII).
See Appendix C
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY
MAY BE WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT
OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
*REPRESENTS A HYPOTHETICAL INVESTMENT OF $10,000 IN THE FUND AFTER DEDUCTING
THE MAXIMUM SALES CHARGE OF 4.50%, WHICH HAS BEEN REDUCED TO A MAXIMUM
SALES CHARGE OF 3.00%, ($10,000 INVESTMENT MINUS $450 SALES CHARGE =
$9,550). THE FUND'S PERFORMANCE ASSUMES THE REINVESTMENT OF ALL DIVIDENDS
AND DISTRIBUTIONS. THE LEHMAN TEN YEAR INSURED INDEX HAS BEEN ADJUSTED TO
REFLECT REINVESTMENT OF DIVIDENDS ON SECURITIES IN THE INDEX.
THE LEHMAN TEN YEAR INSURED INDEX IS NOT ADJUSTED TO REFLECT SALES LOADS,
EXPENSES, OR OTHER FEES THAT THE SEC REQUIRES TO BE REFLECTED IN THE FUND'S
PERFORMANCE. THIS INDEX IS UNMANAGED.
TOWER LOUISIANA MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ----------- ---------------
LONG-TERM MUNICIPAL SECURITIES--97.4%
- -----------------------------------------------------------------------------------
LOUISIANA--97.4%
-------------------------------------------------------------------
$ 765,000 Alexandria, LA, 5.70% Sales & Use Tax (MBIA Insured), 8/1/2007 AAA $ 753,969
-------------------------------------------------------------------
370,000 Ascension Parish, LA, Parishwide School District, 5.40% (Series
B)/(AMBAC Insured), 3/1/2013 AAA 340,548
-------------------------------------------------------------------
200,000 Bossier City, LA, 6.875% City Sales & Use Tax (FGIC Insured),
11/1/2011 AAA 210,866
-------------------------------------------------------------------
100,000 Calcasieu Parish, LA, School District, Pound22, 7.25%
(SeriesA)/(BIG Insured), 2/1/2009 AAA 109,433
-------------------------------------------------------------------
960,000 Denham Springs, LA, 7.20% Livingston Housing and Mortgage Finance
Bonds, 8/1/2010 AAA 1,069,642
-------------------------------------------------------------------
500,000 East Baton Rouge, LA, 7.25% Sales and Use Tax (MBIA Insured),
2/1/2006-2/1/2008 AAA 546,180
-------------------------------------------------------------------
1,930,000 East Baton Rouge, LA, 4.80% Sales and Use Tax (FGIC Insured),
2/1/2006-2/1/2011 AAA 1,708,590
-------------------------------------------------------------------
500,000 East Baton Rouge, LA, 6.50% Sales & Use Tax (AMBAC Insured),
2/1/2013 AAA 516,090
-------------------------------------------------------------------
1,500,000 East Baton Rouge, LA, 5.20% Sales & Use Tax (FSA Insured),
2/1/2016-2/1/2017 AAA 1,314,300
-------------------------------------------------------------------
1,725,000 East Baton Rouge, LA, MFA, 7.40%-7.90%, (Series C)/ (GNMA
Collateralized), 2/1/2002-8/1/2012 AAA 1,809,818
-------------------------------------------------------------------
200,000 East Baton Rouge, LA, MFA, 5.40% Refunding Bonds, 10/1/2025 AAA 170,776
-------------------------------------------------------------------
2,650,000 Greater New Orleans, 5.50%-6.20% Expressway Commission (MBIA
Insured), 11/1/2007-11/1/2016 AAA 2,616,678
-------------------------------------------------------------------
1,000,000 Houma, LA, 6.25% Utility Revenue Bonds (FGIC Insured), 1/1/2012 AAA 1,015,310
-------------------------------------------------------------------
$ 1,165,000 Jefferson Parish, LA, Hospital Service District Pound1, 5.10% (FGIC
Insured), 1/1/2005 AAA $ 1,113,507
-------------------------------------------------------------------
1,000,000 Jefferson Parish, LA, Hospital Service District Pound2, 5.50% (MBIA
Insured), 7/1/2008 AAA 969,790
-------------------------------------------------------------------
3,000,000 Jefferson Parish, LA, 5.95%-6.25% School Board Sales & Use Tax
(MBIA Insured), 2/1/2001-2/1/2008 AAA 3,104,590
-------------------------------------------------------------------
725,000 Jefferson Parish, LA, 6.50% Drain Sales Tax Revenue Bonds (AMBAC
Insured), 11/1/2006-11/1/2011 AAA 749,599
-------------------------------------------------------------------
115,000 Jefferson Parish, LA, 7.70% (FGIC Insured), 9/1/2002 AAA 124,548
-------------------------------------------------------------------
820,000 Jefferson Parish, LA, Home Mortgage Authority, 7.10% Single Family
Revenue Bonds, 8/1/2010 AAA 853,374
-------------------------------------------------------------------
210,000 Jefferson Parish, LA, Housing Development Corp., 7.375%
Multi-Family Revenue Bonds (Concordia
Project)/(FNMA Collateralized), 8/1/2005 AAA 223,549
-------------------------------------------------------------------
1,100,000 Kenner, LA, 5.75% Sales Tax Revenue (FGIC Insured), 6/1/2006 AAA 1,106,897
-------------------------------------------------------------------
50,000 Lafayette, LA, 8.00%, Public Improvement Sales Revenue Bonds (FGIC
Insured), 3/1/2009 AAA 56,066
-------------------------------------------------------------------
1,075,000 Lafayette, LA, 5.30% Sales Tax (Series 1986)/(FGIC Insured),
3/1/2005 AAA 1,063,917
-------------------------------------------------------------------
1,000,000 Lafayette, LA, 4.70% Utils. Revenue Refunding Bonds (AMBAC
Insured), 11/1/2004 AAA 927,940
-------------------------------------------------------------------
2,650,000 Louisiana HFA, 6.10%-6.20%, Revenue Multi-Family Housing-Woodward-A
(GNMA Collateralized),
12/20/2018-6/20/2028 AAA 2,546,307
-------------------------------------------------------------------
350,000 Louisiana HFA, 5.85% Revenue Refunding Bonds Multi-Family
Housing-Woodward-A (GNMA Collateralized), 12/20/2008 AAA 344,967
-------------------------------------------------------------------
$ 1,250,000 Louisiana PFA, 6.00% (Series C)/(Alton Ochsner Medical
Foundation)/(MBIA Insured), 5/15/2017 AAA $ 1,218,125
-------------------------------------------------------------------
1,825,000 Louisiana PFA, 6.50% (Series B)/(Alton Ochsner Medical
Foundation)/(MBIA Insured), 5/15/2022 AAA 1,853,616
-------------------------------------------------------------------
1,340,000 Louisiana PFA, 6.80%-6.85% Student Opportunity Loan (FSA Insured),
1/1/2006-1/1/2009 AAA 1,387,985
-------------------------------------------------------------------
1,500,000 Louisiana PFA, 6.40%-6.50% (Lafayette General Medical Center)/(FSA
Insured), 10/1/2012-10/1/2022 AAA 1,527,000
-------------------------------------------------------------------
1,000,000 Louisiana PFA, 5.10% Revenue Refunding Bonds
(St. Francis Medical Center), 7/1/2007 AAA 937,170
-------------------------------------------------------------------
2,225,000 Louisiana PFA, 5.70%-5.75% Revenue Refunding Bonds (Womans Hospital
Foundation), 10/1/2008-10/1/2009 AAA 2,196,871
-------------------------------------------------------------------
1,000,000 Louisiana PFA, 4.85% Crossover Refunding Bonds, Jefferson Parish
Eastbank, 8/1/2006 AAA 916,600
-------------------------------------------------------------------
995,000 Louisiana PFA, 6.30% Hospital Revenue Crossover Bonds, (Our Lady of
the Lake Regional Hospital)/(MBIA Insured), 12/1/2016 AAA 1,001,796
-------------------------------------------------------------------
1,450,000 Louisiana PFA, 8.20% Health and Education Capital Facilities (BIG
Insured), 12/1/2015 AAA 1,643,633
-------------------------------------------------------------------
95,000 Louisiana PFA, 7.90% Prerefunded Health and Education Capital
Facilities, 12/1/2015 AAA 107,940
-------------------------------------------------------------------
585,000 Louisiana PFA, 7.90%, Unrefunded--Health & Education, 12/1/2015 AAA 656,253
-------------------------------------------------------------------
1,000,000 Louisiana PFA, 4.60% Special Insurance Assessment Bonds, 10/1/2002 AAA 941,230
-------------------------------------------------------------------
2,045,000 Louisiana PFA, 7.50% (Multi-Family Housing Walmsley
--A), (FHLMC Collateralized), 6/1/2021 AAA 2,199,827
-------------------------------------------------------------------
$ 500,000 Louisiana PFA, 6.20% (Southern Baptist Hospital, Inc.)/ (FSA
Insured), 5/15/2002 AAA $ 527,790
-------------------------------------------------------------------
500,000 Louisiana PFA, 5.75% (Tulane University), 2/15/2018 AAA 471,765
-------------------------------------------------------------------
750,000 Louisiana PFA, 6.00% (General Health, Inc.)/(MBIA Insured),
11/1/2012 AAA 745,005
-------------------------------------------------------------------
1,175,000 Louisiana PFA, Jefferson Parish Eastbank 7.60%-7.70% (FGIC
Insured), 8/1/2003-8/1/2010 AAA 1,319,174
-------------------------------------------------------------------
2,000,000 Louisiana Stadium & Expo Dist., 6.00% Revenue Refunding Bonds (FGIC
Insured), 7/1/2024 AAA 1,951,020
-------------------------------------------------------------------
1,000,000 Louisiana Stadium & Expo Dist., 6.00% Revenue Refunding Bonds
(Series A)/(FGIC Insured), 7/1/2016 AAA 984,360
-------------------------------------------------------------------
1,545,000 Monroe-Brentwood, LA, 6.50%-6.70%, Housing Development Corp. (FNMA
Collateralized),
2/1/2010-8/1/2021 AAA 1,562,790
-------------------------------------------------------------------
160,000 Morgan City, LA, 7.45% Utility Revenue Bonds (AMBAC Insured),
3/1/2003 AAA 182,826
-------------------------------------------------------------------
3,000,000 New Orleans, LA, 6.00% GO Bonds (Audubon Park)/ (FGIC Insured),
10/1/2013-10/1/2017 AAA 2,948,115
-------------------------------------------------------------------
500,000 New Orleans, LA, 6.00% GO Bonds (AMBAC Insured), 12/1/2004 AAA 519,896
-------------------------------------------------------------------
500,000 New Orleans, LA, 7.00% GO Bonds (FGIC Insured),
9/1/2019 AAA 532,705
-------------------------------------------------------------------
4,375,000 New Orleans, LA, Zero Coupon, GO UT Bonds, (AMBAC Insured),
9/1/2013-9/1/2016 AAA 1,240,142
-------------------------------------------------------------------
1,250,000 New Orleans, LA, Home Mortgage Authority, 6.65% Single Family
Mortgage Revenue Bonds (Series A)/ (GNMA Collateralized), 9/1/2008 AAA 1,287,212
-------------------------------------------------------------------
$ 1,520,000 New Orleans, LA, Housing Development Corp., 7.375% Multi-Family
Revenue Bonds (FNMA Collateralized),
8/1/2005 AAA $ 1,618,278
-------------------------------------------------------------------
750,000 Orleans, LA, Levee District, 8.125% (MBIA Insured),
11/1/2007 AAA 817,935
-------------------------------------------------------------------
500,000 Orleans Parish, LA, Law Enforcement District, 7.10% GO Bonds (AMBAC
Insured), 5/1/2010 AAA 533,435
-------------------------------------------------------------------
850,000 Orleans Parish, LA, School Board, 7.00% GO Bonds (Series
1989A)/(MBIA Insured), 6/1/2009 AAA 899,683
-------------------------------------------------------------------
300,000 Plaquemines Parish, LA, 6.50% GO Bonds (AMBAC Insured), 8/1/2008 AAA 314,226
-------------------------------------------------------------------
1,300,000 Regional Transit Authority, 8.00% (FGIC Insured),
12/1/2008 AAA 1,468,584
-------------------------------------------------------------------
865,000 St. Bernard, LA, Home Mortgage Authority, 7.50% Single Family
Revenue Bonds (Series A)/(FGIC Insured),
9/1/2010 AAA 967,753
-------------------------------------------------------------------
1,485,000 St. Charles Parish, LA, 7.15% Waterworks & Waste-Water (District
Pound1) Utility Revenue Bonds (MBIA Insured), 7/1/2016 AAA 1,614,076
-------------------------------------------------------------------
500,000 St. Charles Parish, LA, 5.95% Environmental Improvement Revenue
Bonds (FSA Insured), 12/1/2023 AAA 472,870
-------------------------------------------------------------------
500,000 St. Landry, LA, Consolidated School District Pound1, 6.10% GO Bonds
(MBIA Insured), 5/1/2008 AAA 509,805
-------------------------------------------------------------------
375,000 St. Mary's Parish, LA, Sewage District Pound5, 7.60% (AMBAC
Insured), 5/1/2004 AAA 413,460
-------------------------------------------------------------------
50,000 St. Tammany, LA, 7.90% Sales & Use Tax District Pound3 (Series
A)/(FGIC Insured), 12/1/2003 AAA 56,810
-------------------------------------------------------------------
300,000 St. Tammany, LA, 7.20% Single Family Revenue Bonds, 7/1/2010 AAA 333,612
-------------------------------------------------------------------
$ 509,038 St. Tammany Public Trust Financing Authority, 7.00%, (Series A),
6/1/2002 AAA $ 516,547
-------------------------------------------------------------------
1,400,000 St. Tammany Parish, LA, 6.125%-6.25%, Revenue Refunding Bonds,
Hospital Service District Pound2, (Series 1994),
10/1/2011-10/1/2014 AAA 1,405,380
-------------------------------------------------------------------
1,875,000 Shreveport, LA, 5.95% Water & Sewer Revenue Bonds (Series A)/(FGIC
Insured), 12/1/2014 AAA 1,827,450
-------------------------------------------------------------------
175,000 Slidell, LA, 7.50% Sales & Use Tax (MBIA Insured),
10/1/2005 AAA 192,679
-------------------------------------------------------------------
1,400,000 State of Louisiana, 7.25% Gas & Fuels Tax Revenue Bonds (Series
A)/(FGIC Insured), 11/15/2004 AAA 1,554,770
-------------------------------------------------------------------
500,000 State of Louisiana, 6.40% GO UT Bonds, (MBIA Insured), 5/1/2006 AAA 529,225
-------------------------------------------------------------------
550,000 State of Louisiana, 6.00% Revenue Refunding Bonds (Energy & Power
Authority Project)/(Rodemacher Unit Pound2)/(FGIC Insured),
1/1/2013 AAA 544,522
-------------------------------------------------------------------
1,625,000 State of Louisiana, 5.375%-5.80% GO UT Refunding Bonds (Series
A)/(MBIA Insured), 8/1/2005-8/1/2010 AAA 1,619,186
-------------------------------------------------------------------
1,500,000 State of Louisiana, 6.10% GO UT Bonds, (Series A)/ (AMBAC Insured),
5/1/2011 AAA 1,512,300
-------------------------------------------------------------------
$ 1,525,000 Terrebonne Parish, LA, 7.40%-7.50% Hospital Service District Pound1
(Terrebonne General Medical Center)/(BIG Insured),
4/1/2003-4/1/2015 AAA $ 1,673,295
------------------------------------------------------------------- ---------------
TOTAL INVESTMENTS (IDENTIFIED COST $76,558,042) $ 77,623,978+
------------------------------------------------------------------- ---------------
</TABLE>
* Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings. Current credit ratings are unaudited.
+ The cost of investments for federal income tax purposes amounts to
$76,558,042. The net unrealized appreciation of investments on a federal
income tax basis amounts to $1,065,936 which is comprised of $2,473,064
appreciation and $1,407,128 depreciation at August 31, 1994.
Note: The category of investments is shown as a percentage of net assets
($79,697,902) at August 31, 1994.
The following abbreviations are used in this portfolio:
AMBAC-- American Municipal Bond
Assurance Corporation
BIG--Bond Investors Guaranty
FGIC-- Financial Guaranty Insurance Company
FHLMC-- Federal Home Loan Mortgage Corp.
FNMA-- Federal National Mortgage Association
FSA--Financial Security Assurance
GNMA-- Government National Mortgage Association
GO-- General Obligation
HFA--Housing Finance Authority
MBIA-- Municipal Bond Investors Assurance
MFA-- Mortgage Finance Authority
PFA--Public Facility Authority
UT--Unlimited Tax
(See Notes which are an integral part of the Financial Statements)
TOWER LOUISIANA MUNICIPAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Investments in municipal securities, at value
(identified and tax cost $76,558,042) $ 77,623,978
- -------------------------------------------------------------------------------------------------
Cash 802,578
- -------------------------------------------------------------------------------------------------
Interest receivable 1,183,092
- -------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 358,791
- ------------------------------------------------------------------------------------------------- ---------------
Total assets 79,968,439
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- -----------------------------------------------------------------------------------
Dividends payable $ 161,068
- -----------------------------------------------------------------------------------
Payable for Fund shares redeemed 82,000
- -----------------------------------------------------------------------------------
Accrued expenses 27,469
- ----------------------------------------------------------------------------------- ------------
Total liabilities 270,537
- ------------------------------------------------------------------------------------------------- ---------------
NET ASSETS for 7,363,286 shares of beneficial interest outstanding $ 79,697,902
- ------------------------------------------------------------------------------------------------- ---------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------
Paid-in capital $ 78,075,939
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 1,065,936
- -------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments 554,884
- -------------------------------------------------------------------------------------------------
Undistributed net investment income 1,143
- ------------------------------------------------------------------------------------------------- ---------------
Total Net Assets $ 79,697,902
- ------------------------------------------------------------------------------------------------- ---------------
NET ASSET VALUE and Redemption Proceeds Per Share
($79,697,902 / 7,363,286 shares of beneficial interest outstanding) $10.82
- ------------------------------------------------------------------------------------------------- ---------------
COMPUTATION OF OFFERING PRICE: Offering Price Per Share (100/97 of $10.82)* $11.15
- ------------------------------------------------------------------------------------------------- ---------------
</TABLE>
* See "What Shares Cost" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
TOWER LOUISIANA MUNICIPAL INCOME FUND
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------------------
Interest income $5,085,444
- -------------------------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------------------------
Investment advisory fee $ 384,286
- -----------------------------------------------------------------------------------
Trustees' fees 4,177
- -----------------------------------------------------------------------------------
Administrative personnel and services fees 112,857
- -----------------------------------------------------------------------------------
Custodian fees 46,833
- -----------------------------------------------------------------------------------
Portfolio accounting fees 30,081
- -----------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 44,418
- -----------------------------------------------------------------------------------
Fund share registration costs 9,817
- -----------------------------------------------------------------------------------
Auditing fees 13,901
- -----------------------------------------------------------------------------------
Legal fees 5,282
- -----------------------------------------------------------------------------------
Printing and postage 15,513
- -----------------------------------------------------------------------------------
Insurance premiums 6,279
- -----------------------------------------------------------------------------------
Miscellaneous 3,755
- ----------------------------------------------------------------------------------- ------------
Total expenses 677,199
- -----------------------------------------------------------------------------------
Deduct--Waiver of investment advisory fee 68,318
- ----------------------------------------------------------------------------------- ------------
Net expenses 608,881
- ------------------------------------------------------------------------------------------------- ---------------
Net investment income 4,476,563
- ------------------------------------------------------------------------------------------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions (identified cost basis) 563,347
- -------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (5,870,977)
- ------------------------------------------------------------------------------------------------- ---------------
Net realized and unrealized gain (loss) on investments (5,307,630)
- ------------------------------------------------------------------------------------------------- ---------------
Change in net assets resulting from operations ($831,067)
- ------------------------------------------------------------------------------------------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TOWER LOUISIANA MUNICIPAL INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1994 1993
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------
Net investment income $ 4,476,563 $ 3,839,132
- -----------------------------------------------------------------------------
Net realized gain (loss) on investment transactions
($563,347 and $803,678 net gains, respectively,
as computed for federal tax purposes) 563,347 795,853
- -----------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (5,870,977) 3,748,172
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from operations (831,067) 8,383,157
- ----------------------------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS
- -----------------------------------------------------------------------------
Dividends to shareholders from net investment income (4,509,430) (3,830,259)
- -----------------------------------------------------------------------------
Distributions to shareholders from net realized gain on investment
transactions (789,175) (193,390)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from distributions to shareholders (5,298,605) (4,023,649)
- ----------------------------------------------------------------------------- ---------------- ----------------
FUND SHARE (PRINCIPAL) TRANSACTIONS
- -----------------------------------------------------------------------------
Proceeds from sale of shares 17,361,944 34,754,196
- -----------------------------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of dividends declared 2,766,399 2,029,983
- -----------------------------------------------------------------------------
Cost of shares redeemed (20,214,860) (12,776,386)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from Fund share transactions (86,517) 24,007,793
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets (6,216,189) 28,367,301
- -----------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------
Beginning of period 85,914,091 57,546,790
- ----------------------------------------------------------------------------- ---------------- ----------------
End of period (including undistributed net investment income of $1,143 and
$34,010, respectively) $ 79,697,902 $ 85,914,091
- ----------------------------------------------------------------------------- ---------------- ----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TOWER LOUISIANA MUNICIPAL INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1994 1993 1992 1991 1990 1989*
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.60 $ 10.91 $ 10.46 $ 9.98 $ 10.14 $ 10.00
- ----------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------
Net investment income 0.59 0.62 0.64 0.64 0.64 0.43
- ----------------------------------------------
Net realized and unrealized gain
(loss) on investments (0.68) 0.73 0.48 0.48 (0.16) 0.14
- ---------------------------------------------- --------- --------- --------- --------- --------- ---------
Total from investment operations (0.09) 1.35 1.12 1.12 0.48 0.57
- ----------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------
Dividends to shareholders from net
investment income (0.59) (0.62) (0.64) (0.64) (0.64) (0.43)
- ----------------------------------------------
Distributions to shareholders from net
realized gain on investment transactions (0.10) (0.04) (0.03) -- -- --
- ---------------------------------------------- --------- --------- --------- --------- --------- ---------
Total distributions (0.69) (0.66) (0.67) (0.64) (0.64) (0.43)
- ---------------------------------------------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 10.82 $ 11.60 $ 10.91 $ 10.46 $ 9.98 $ 10.14
- ---------------------------------------------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN** (0.76%) 12.75% 11.02% 11.59% 4.89% 5.82%
- ----------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------
Expenses 0.71% 0.66% 0.65% 0.74% 0.81% 0.62%(b)
- ----------------------------------------------
Net investment income 5.24% 5.59% 6.04% 6.29% 6.35% 6.57%(b)
- ----------------------------------------------
Expense waiver/reimbursement (a) 0.08% 0.14% 0.16% 0.20% 0.41% 0.61%(b)
- ----------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------
Net assets, end of period (000 omitted) $ 79,698 $ 85,914 $ 57,547 $ 42,210 $ 31,380 $ 12,285
- ----------------------------------------------
Portfolio turnover rate 33% 32% 19% 26% 32% 28%
- ----------------------------------------------
</TABLE>
* Reflects operations for the period from October 14, 1988 (date of initial
public investment) to August 31, 1989.
** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, 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.
(See Notes which are an integral part of the Financial Statements)
TOWER LOUISIANA MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Tower Mutual Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end management investment company.
The Trust consists of five diversified portfolios and one non-diversified
portfolio. The financial statements included herein present only those of Tower
Louisiana Municipal Income Fund (the "Fund"). The financial statements of the
other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--Municipal bonds are valued by an independent pricing
service taking into consideration yield, liquidity, risk, credit, quality,
coupon, maturity, type of issue, and any other factors or market data it
deems relevant in determining valuations for normal institutional-size
trading units of debt securities. The independent pricing service does not
rely exclusively on quoted prices. Short-term securities with remaining
maturities of sixty days or less may be stated at amortized cost, which
approximates value.
B. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its tax-exempt income.
Accordingly, no provisions for federal tax are necessary.
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-
issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
E. OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1994 1993
<S> <C> <C>
Shares sold 1,535,457 3,098,538
- --------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 247,317 181,832
- --------------------------------------------------------------------------------
Shares redeemed (1,823,703) (1,149,716)
- -------------------------------------------------------------------------------- ------------- -------------
Net change resulting from Fund share transactions (40,929) 2,130,654
- -------------------------------------------------------------------------------- ------------- -------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Hibernia National Bank, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.45 of 1% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive a portion of its fee and reimburse certain operating
expenses of the Fund. The Adviser can modify or terminate this voluntary waiver
and reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
DISTRIBUTION SERVICES FEE--The Trust has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Fund will reimburse Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's shares. The Plan provides that the Fund may
incur up to 0.25 of 1% of the average daily net assets of the Fund, annually, to
reimburse FSC. For the year ended August 31, 1994, Tower Louisiana Municipal
Income Fund did not incur a distribution services fee.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Fund. The FServ fee is based on the size, type, and number of accounts and
transactions made by shareholders.
FServ also maintains the Fund's accounting records. The fee is based on the
level of the Fund's average net assets for the period, plus out-of-pocket
expenses.
Hibernia National Bank is the Fund's custodian. The fee is based on the level of
the Fund's average net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $45,138 were borne initially
by FAS. The Fund has agreed to reimburse FAS for organizational expenses during
the five year period following October 14, 1988 (date the Fund became
effective). For the year ended August 31, 1994, the Fund paid $715 completing
its obligation pursuant to this agreement.
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended August 31, 1994 were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------
PURCHASES-- $ 28,179,922
- ------------------------------------------------------------------------------------------------- ---------------
SALES-- $ 27,681,575
- ------------------------------------------------------------------------------------------------- ---------------
</TABLE>
(6) CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable general tax-exempt mutual fund. In order
to reduce the credit risk associated with such factors, at August 31, 1994, 87%
of the securities in the portfolio of investments are backed by letters of
credit or bond insurance of various financial institutions and financial
guaranty assurance agencies. The value of investments insured by, or supported
(backed) by a letter of credit for any one institution or agency ranged from 3%
to 27%.
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
TOWER MUTUAL FUNDS:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of Tower Louisiana Municipal Income Fund (one of
the portfolios comprising Tower Mutual Funds), as of August 31, 1994, and the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended and the
financial highlights for each of the six years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1994, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Tower
Louisiana Municipal Income Fund at August 31, 1994, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the six years in the period then ended, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
October 6, 1994
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Edward C. Gonzales Edward C. Gonzales
Robert L. diBenedetto, M.D. President and Treasurer
James A. Gayle, Sr. Jeffrey W. Sterling
J. Gordon Reische Vice President and Assistant Treasurer
Peter J. Germain
Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the FDIC, the
Federal Reserve Board, or any other government agency. Investment in mutual
funds involves investment risk, including possible loss of principal amount
invested.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the Fund's prospectus which
contains facts concerning its objective and policies, management fees, expenses
and other information.
TOWER
MUTUAL FUNDS
TOWER
CAPITAL APPRECIATION
FUND
ANNUAL REPORT
TO SHAREHOLDERS
AUGUST 31, 1994
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Annual Report to Shareholders for Tower Capital
Appreciation Fund (the "Fund"). The report, which covers the twelve-month period
ended August 31, 1994, begins with a review by the Fund's portfolio manager and
includes the Portfolio of Investments and Financial Statements.
As a shareholder in Tower Capital Appreciation Fund, you are investing in a wide
range of high-quality stocks issued by some of America's most well-known
companies. American Greetings Corp., Kimberly-Clark, Deere & Company, General
Motors, American Brands, Anheuser-Busch, Coca-Cola, Kellogg, J.C. Penney,
Chrysler, McDonald's and AT&T are just a few of the companies that you invest in
through the Fund.
At the end of the period, net assets stood at $139 million, while the net asset
value stood at $13.81 per share. The recent series of interest rate increases,
which had a negative effect on all financial markets, also helped cause a
decline in the Fund's net asset value. However, please keep in mind that
investing in stocks is a long-term activity, and that stock investments will
naturally fluctuate in value over short-term periods.
During the twelve-month period, the Fund paid capital gains distributions to you
of $1.13 per share, in addition to dividends of $0.25 per share.
Thank you for pursuing your long-term financial goals through Tower Capital
Appreciation Fund. We will continue to keep you up to date as we provide you
with a high level of service.
Sincerely,
Edward C. Gonzales
President
October 15, 1994
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
The twelve months ended August 31, 1994 proved to be rather disappointing for
equity investors as returns were below average. The primary cause of the weak
equity market appears to be directly related to rising interest rates in the
United States, which began in February, 1994. The rise in rates has led to a
sawtooth pattern in equity prices since February, 1994. This under-performance
in the equity markets has served to offset some of the gains that were achieved
during 1993.
The Tower Capital Appreciation Fund continues to focus on its equity selection
and portfolio construction strategy, which attempts to limit the risks
associated with market and industry factors. We use a very disciplined approach
that focuses on picking companies with improving earnings prospects and selling
at a reasonable stock price evaluation. The portfolio is broadly diversified and
currently holds a relatively high number of holdings indicating our belief that
the market is likely to experience a great deal of volatility over the coming
months. During the last twelve months, the portfolio provided the investor a
total return of 4.27%* based on the asset value. Total return based on the
offering price, which includes the 3% maximum sales load, was 1.15%* for the
same period. As was discussed earlier, the net asset value did not show the same
type of appreciation that was achieved in prior years, therefore, dividends paid
on common stocks held in the portfolio provided a higher than normal percentage
of the total return for the portfolio. The investment adviser of the Fund will
continue to monitor the equity market to exploit any opportunities consistent
with the Fund's investment objective.
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth less than the principal amount invested.
TOWER CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN TOWER CAPITAL APPRECIATION FUND
.
The graph below illustrates the hypothetical investment of $10,000 in the
Tower Capital Appreciation Fund (the "Fund"), from October 14, 1988 (start of
performance) to August 31, 1994, compared to Standard & Poor's 500 Index (the
"S&P 500").
See Appendix D
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
*REPRESENTS A HYPOTHETICAL INVESTMENT OF $10,000 IN THE FUND AFTER DEDUCTING THE
MAXIMUM SALES CHARGE OF 4.50%, WHICH HAS BEEN REDUCED TO A MAXIMUM SALES CHARGE
OF 3.00%, ($10,000 INVESTMENT MINUS $450 SALES CHARGE = $9,550). THE FUND'S
PERFORMANCE ASSUMES THE REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS. THE
S&P 500 HAS BEEN ADJUSTED TO REFLECT REINVESTMENT OF DIVIDENDS ON SECURITIES IN
THE INDEX.
THE S&P 500 IS NOT ADJUSTED TO REFLECT SALES LOADS, EXPENSES, OR OTHER FEES THAT
THE SEC REQUIRES TO BE REFLECTED IN THE FUND'S PERFORMANCE. THIS INDEX IS
UNMANAGED.
TOWER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- -------------- ------------------------------------------------------------------------------- -----------------
COMMON STOCKS--98.9%
- -----------------------------------------------------------------------------------------------
BASIC INDUSTRY--7.5%
-------------------------------------------------------------------------------
35,000 American Greetings Corp. $ 1,050,000
-------------------------------------------------------------------------------
18,700 duPont (E.I.) deNemours & Co. 1,131,350
-------------------------------------------------------------------------------
8,100 Hercules, Inc. 872,775
-------------------------------------------------------------------------------
9,100 International Paper Co. 701,838
-------------------------------------------------------------------------------
18,800 Kimberly-Clark Corp. 1,116,250
-------------------------------------------------------------------------------
23,600 Monsanto Co. 1,949,950
-------------------------------------------------------------------------------
13,900 Nucor Corp. 959,100
-------------------------------------------------------------------------------
5,300 Phelps Dodge Corp. 336,550
-------------------------------------------------------------------------------
43,900 Praxair, Inc. 998,725
-------------------------------------------------------------------------------
59,100 Worthington Industries, Inc. 1,270,650
------------------------------------------------------------------------------- -----------------
Total 10,387,188
------------------------------------------------------------------------------- -----------------
CAPITAL GOODS--9.9%
-------------------------------------------------------------------------------
7,600 Alco Standard Corp. 495,900
-------------------------------------------------------------------------------
24,500 Allied Signal, Inc. 915,688
-------------------------------------------------------------------------------
11,500 Briggs & Stratton Corp. 886,937
-------------------------------------------------------------------------------
12,000 Deere & Co. 891,000
-------------------------------------------------------------------------------
14,000 Emerson Electric Co. 869,750
-------------------------------------------------------------------------------
15,800 Equifax, Inc. 462,150
-------------------------------------------------------------------------------
13,500 Fluor Corp. 715,500
-------------------------------------------------------------------------------
58,800 General Electric Co. 2,925,300
-------------------------------------------------------------------------------
34,700 General Motors Corp. (Class H) 1,301,250
-------------------------------------------------------------------------------
11,200 McDonnell Douglas Corp. 1,324,400
-------------------------------------------------------------------------------
29,600 Minnesota Mining & Manufacturing Co. 1,631,700
-------------------------------------------------------------------------------
21,700 Philips N.V. 707,962
-------------------------------------------------------------------------------
12,300 Textron, Inc. $ 679,575
------------------------------------------------------------------------------- -----------------
Total 13,807,112
------------------------------------------------------------------------------- -----------------
CONSUMER--11.4%
-------------------------------------------------------------------------------
9,900 American Brands, Inc. 356,400
-------------------------------------------------------------------------------
12,700 Anheuser-Busch Cos., Inc. 692,150
-------------------------------------------------------------------------------
13,300 Avon Products, Inc. 786,362
-------------------------------------------------------------------------------
33,400 Coca Cola Co. 1,536,400
-------------------------------------------------------------------------------
6,300 Colgate Palmolive Co. 360,675
-------------------------------------------------------------------------------
42,700 ConAgra, Inc. 1,398,425
-------------------------------------------------------------------------------
41,300 Coors (Adolph) Co. 841,487
-------------------------------------------------------------------------------
14,600 CPC International, Inc. 781,100
-------------------------------------------------------------------------------
17,300 Gillette Co. 1,252,088
-------------------------------------------------------------------------------
24,000 Kellogg Co. 1,359,000
-------------------------------------------------------------------------------
9,000 Newell Cos. 428,625
-------------------------------------------------------------------------------
14,700 Pepsico, Inc. 486,938
-------------------------------------------------------------------------------
40,200 Philip Morris Cos., Inc. 2,452,200
-------------------------------------------------------------------------------
23,600 Proctor & Gamble Co. 1,436,650
-------------------------------------------------------------------------------
7,800 Quaker Oats Co. 626,925
-------------------------------------------------------------------------------
59,900 Whitman Corp. 1,033,275
------------------------------------------------------------------------------- -----------------
Total 15,828,700
------------------------------------------------------------------------------- -----------------
CONSUMER CYCLICAL--16.7%
-------------------------------------------------------------------------------
31,800 American Stores Co. 802,950
-------------------------------------------------------------------------------
17,100 Armstrong World Industries, Inc. 833,625
-------------------------------------------------------------------------------
11,000 Capital Cities/ABC, Inc. 922,625
-------------------------------------------------------------------------------
2,300 CBS, Inc. 739,163
-------------------------------------------------------------------------------
26,700 Chrysler Corp. 1,284,937
-------------------------------------------------------------------------------
25,200 Dayton Hudson Corp. 2,135,700
-------------------------------------------------------------------------------
18,100 Donnelley (R.R.) & Sons Co. $ 547,525
-------------------------------------------------------------------------------
12,200 Dun & Bradstreet Corp. 703,025
-------------------------------------------------------------------------------
10,000 Eastman Kodak Co. 497,500
-------------------------------------------------------------------------------
18,400 *Federated Department Stores, Inc. 388,700
-------------------------------------------------------------------------------
44,800 Ford Motor Co. 1,310,400
-------------------------------------------------------------------------------
12,600 Gannett Co. 630,000
-------------------------------------------------------------------------------
17,300 Gap, Inc. 743,900
-------------------------------------------------------------------------------
23,400 General Motors Corp. 1,175,850
-------------------------------------------------------------------------------
16,800 Goodyear Tire and Rubber 588,000
-------------------------------------------------------------------------------
52,300 J.C. Penney Co., Inc. 2,752,287
-------------------------------------------------------------------------------
10,000 *King World Productions, Inc. 377,500
-------------------------------------------------------------------------------
27,700 Mattel, Inc. 796,375
-------------------------------------------------------------------------------
10,300 May Department Stores Co. 422,300
-------------------------------------------------------------------------------
29,500 McDonald's Corp. 833,375
-------------------------------------------------------------------------------
14,800 Nordstrom, Inc. 695,600
-------------------------------------------------------------------------------
12,600 Readers Digest Association, Inc. 535,500
-------------------------------------------------------------------------------
18,000 *Safeway, Inc. 492,750
-------------------------------------------------------------------------------
18,700 Sears Roebuck & Co. 885,913
-------------------------------------------------------------------------------
12,600 Sherwin Williams Co. 417,375
-------------------------------------------------------------------------------
8,400 Tektronix, Inc. 288,750
-------------------------------------------------------------------------------
11,900 V.F. Corp. 629,213
-------------------------------------------------------------------------------
45,400 Wendy's International, Inc. 720,725
------------------------------------------------------------------------------- -----------------
Total 23,151,563
------------------------------------------------------------------------------- -----------------
ENERGY--9.9%
-------------------------------------------------------------------------------
23,800 Amoco Corp. 1,377,425
-------------------------------------------------------------------------------
30,100 Ashland Oil, Inc. 1,140,037
-------------------------------------------------------------------------------
14,700 British Petroleum PLC 1,117,200
-------------------------------------------------------------------------------
38,400 Enron Oil and Gas Co. $ 739,200
-------------------------------------------------------------------------------
43,900 Exxon Corp. 2,612,050
-------------------------------------------------------------------------------
32,000 Mobil Corp. 2,696,000
-------------------------------------------------------------------------------
26,900 Phillips Petroleum Co. 891,063
-------------------------------------------------------------------------------
22,100 Royal Dutch Petroleum Co. 2,489,012
-------------------------------------------------------------------------------
11,300 Schlumberger Ltd. 644,100
------------------------------------------------------------------------------- -----------------
Total 13,706,087
------------------------------------------------------------------------------- -----------------
FINANCIAL--11.9%
-------------------------------------------------------------------------------
20,600 AFLAC, Inc. 739,025
-------------------------------------------------------------------------------
41,600 American Express Co. 1,170,000
-------------------------------------------------------------------------------
13,100 American International Group, Inc. 1,231,400
-------------------------------------------------------------------------------
52,400 BankAmerica Corp. 2,587,250
-------------------------------------------------------------------------------
46,400 Chase Manhattan Corp. 1,751,600
-------------------------------------------------------------------------------
48,200 Citicorp 2,132,850
-------------------------------------------------------------------------------
35,900 Dean Witter Discover & Co. 1,530,237
-------------------------------------------------------------------------------
34,200 First Chicago Corp. 1,778,400
-------------------------------------------------------------------------------
60,900 PNC Bank Corp. 1,705,200
-------------------------------------------------------------------------------
21,600 Transamerica Corp. 1,152,900
-------------------------------------------------------------------------------
20,800 U.S. Life Corp. 746,200
------------------------------------------------------------------------------- -----------------
Total 16,525,062
------------------------------------------------------------------------------- -----------------
HEALTH CARE--8.5%
-------------------------------------------------------------------------------
37,700 Abbott Laboratories 1,131,000
-------------------------------------------------------------------------------
14,200 *Amgen, Inc. 749,050
-------------------------------------------------------------------------------
25,300 Bristol Myers Squibb Co. 1,454,750
-------------------------------------------------------------------------------
9,200 Columbia/HCA Healthcare 391,000
-------------------------------------------------------------------------------
16,300 Humana, Inc. 346,375
-------------------------------------------------------------------------------
47,300 Johnson & Johnson 2,370,913
-------------------------------------------------------------------------------
10,400 Lilly (Eli) & Co. $ 591,500
-------------------------------------------------------------------------------
61,300 Merck & Co., Inc. 2,091,863
-------------------------------------------------------------------------------
25,700 National Medical Enterprises, Inc. 469,025
-------------------------------------------------------------------------------
13,700 Pfizer, Inc. 935,025
-------------------------------------------------------------------------------
18,900 Schering-Plough 1,320,637
------------------------------------------------------------------------------- -----------------
Total 11,851,138
------------------------------------------------------------------------------- -----------------
TECHNOLOGY--7.9%
-------------------------------------------------------------------------------
5,300 *Cabletron Systems, Inc. 561,137
-------------------------------------------------------------------------------
41,100 *Compaq Computer Corp. 1,536,112
-------------------------------------------------------------------------------
21,800 Computer Associates International, Inc. 874,725
-------------------------------------------------------------------------------
17,100 Hewlett Packard Co. 1,536,863
-------------------------------------------------------------------------------
16,200 International Business Machines Corp. 1,111,725
-------------------------------------------------------------------------------
18,800 *Microsoft Corp. 1,092,750
-------------------------------------------------------------------------------
63,500 *National Semiconductor Corp. 1,182,688
-------------------------------------------------------------------------------
25,000 *Oracle Systems Corp. 1,067,188
-------------------------------------------------------------------------------
7,300 Scientific-Atlanta, Inc. 326,675
-------------------------------------------------------------------------------
21,900 Texas Instruments, Inc. 1,705,463
------------------------------------------------------------------------------- -----------------
Total 10,995,326
------------------------------------------------------------------------------- -----------------
TRANSPORTATION--1.6%
-------------------------------------------------------------------------------
17,300 Airbourne Freight Corp. 527,650
-------------------------------------------------------------------------------
45,600 Consolidated Freightways, Inc. 1,094,400
-------------------------------------------------------------------------------
10,300 Norfolk Southern Corp. 661,775
------------------------------------------------------------------------------- -----------------
Total 2,283,825
------------------------------------------------------------------------------- -----------------
UTILITIES--13.6%
-------------------------------------------------------------------------------
31,400 Ameritech Corp. 1,299,175
-------------------------------------------------------------------------------
57,600 AT&T Corp. 3,153,600
-------------------------------------------------------------------------------
81,500 Baltimore Gas & Electric Co. 1,874,500
-------------------------------------------------------------------------------
</TABLE>
TOWER CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNTS VALUE
<C> <S> <C>
- -------------- ------------------------------------------------------------------------------- -----------------
COMMON STOCKS--CONTINUED
- -----------------------------------------------------------------------------------------------
UTILITIES--CONTINUED
-------------------------------------------------------------------------------
23,700 Bell Atlantic Corp. $ 1,297,575
-------------------------------------------------------------------------------
21,900 BellSouth Corp. 1,300,312
-------------------------------------------------------------------------------
81,200 Detroit Edison Co. 2,212,700
-------------------------------------------------------------------------------
51,200 General Public Utilities Corp. 1,337,600
-------------------------------------------------------------------------------
42,300 GTE Corp. 1,343,025
-------------------------------------------------------------------------------
55,400 Pacific Telesis Group 1,828,200
-------------------------------------------------------------------------------
30,200 Southwestern Bell Corp. 1,249,525
-------------------------------------------------------------------------------
17,900 Sprint Corp. 709,288
-------------------------------------------------------------------------------
43,700 Williams Cos., Inc. 1,360,162
------------------------------------------------------------------------------- -----------------
Total 18,965,662
------------------------------------------------------------------------------- -----------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $124,659,892) 137,501,663
------------------------------------------------------------------------------- -----------------
**REPURCHASE AGREEMENT--0.9%
- -----------------------------------------------------------------------------------------------
$ 1,267,000 HSBC Securities, Inc., 4.70%, dated 8/31/94, due 9/1/94
(at amortized cost) 1,267,000
------------------------------------------------------------------------------- -----------------
TOTAL INVESTMENTS (IDENTIFIED COST, $125,926,892) $ 138,768,663+
------------------------------------------------------------------------------- -----------------
</TABLE>
* Non-income producing.
** Repurchase agreement is fully collateralized by U.S. government and/or agency
obligations based on market prices at the date of the portfolio.
+ The cost of investments for federal tax purposes amounts to $125,971,666. The
net unrealized appreciation of investments on a federal tax cost basis
amounts to $12,796,997, which is comprised of $14,403,199 appreciation and
$1,606,202 depreciation at August 31, 1994. The Fund hereby designates
$5,100,000 as a capital gain dividend for the purpose of the dividend paid
deduction.
Note: The categories of investments are shown as a percentage of net assets
($139,080,790) at August 31, 1994.
(See Notes which are an integral part of the Financial Statements)
TOWER CAPITAL APPRECIATION FUND
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -----------------------------------------------------------------------------------------------
Investments at amortized cost and value
(identified cost, $125,926,892, tax cost $125,971,666) $ 138,768,663
- -----------------------------------------------------------------------------------------------
Dividends and interest receivable 421,804
- -----------------------------------------------------------------------------------------------
Receivable for Fund shares sold 13,385
- ----------------------------------------------------------------------------------------------- -----------------
Total assets 139,203,852
- -----------------------------------------------------------------------------------------------
LIABILITIES:
- -----------------------------------------------------------------------------------------------
Payable for Fund shares redeemed $ 63,688
- -----------------------------------------------------------------------------------
Accrued expenses 59,374
- ----------------------------------------------------------------------------------- ----------
Total liabilities 123,062
- ----------------------------------------------------------------------------------------------- -----------------
NET ASSETS for 10,068,611 shares of beneficial interest outstanding $ 139,080,790
- ----------------------------------------------------------------------------------------------- -----------------
NET ASSETS CONSIST OF:
- -----------------------------------------------------------------------------------------------
Paid-in capital $ 124,846,774
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 12,841,771
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments 1,234,495
- -----------------------------------------------------------------------------------------------
Undistributed net investment income 157,750
- ----------------------------------------------------------------------------------------------- -----------------
Total Net Assets $ 139,080,790
- ----------------------------------------------------------------------------------------------- -----------------
NET ASSET VALUE and Redemption Proceeds Per Share
($139,080,790 / 10,068,611 shares of beneficial interest outstanding) $13.81
- ----------------------------------------------------------------------------------------------- -----------------
COMPUTATION OF OFFERING PRICE: Offering Price Per Share (100/97 of $13.81)* $14.24
- ----------------------------------------------------------------------------------------------- -----------------
</TABLE>
*See "What Shares Cost" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
TOWER CAPITAL APPRECIATION FUND
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------------------
Interest income $ 92,459
- -------------------------------------------------------------------------------------------------
Dividend income 3,756,293
- ------------------------------------------------------------------------------------------------- ---------------
Total investment income 3,848,752
- -------------------------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------------------------
Investment advisory fee $ 1,048,592
- ---------------------------------------------------------------------------------
Trustees' fees 4,654
- ---------------------------------------------------------------------------------
Administrative personnel and services fees 184,784
- ---------------------------------------------------------------------------------
Custodian fees 45,242
- ---------------------------------------------------------------------------------
Portfolio accounting fees 27,276
- ---------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 32,593
- ---------------------------------------------------------------------------------
Fund share registration costs 7,762
- ---------------------------------------------------------------------------------
Auditing fees 13,936
- ---------------------------------------------------------------------------------
Legal fees 7,286
- ---------------------------------------------------------------------------------
Printing and postage 17,522
- ---------------------------------------------------------------------------------
Insurance premiums 7,232
- ---------------------------------------------------------------------------------
Distribution services fee 113,224
- ---------------------------------------------------------------------------------
Miscellaneous 7,704
- --------------------------------------------------------------------------------- --------------
Total expenses 1,517,807
- ------------------------------------------------------------------------------------------------- ---------------
Net investment income 2,330,945
- ------------------------------------------------------------------------------------------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) 5,052,026
- -------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (1,535,597)
- ------------------------------------------------------------------------------------------------- ---------------
Net realized and unrealized gain (loss) on investments 3,516,429
- ------------------------------------------------------------------------------------------------- ---------------
Change in net assets resulting from operations $ 5,847,374
- ------------------------------------------------------------------------------------------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TOWER CAPITAL APPRECIATION FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1994 1993
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------------
Net investment income $ 2,330,945 $ 2,634,754
- ----------------------------------------------------------------------------
Net realized gain (loss) on investment transactions ($5,096,800
and $7,421,915, net gains, respectively, as computed for
federal tax purposes) 5,052,026 7,054,404
- ----------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (1,535,597) 11,463,261
- ---------------------------------------------------------------------------- ----------------- -----------------
Change in net assets resulting from operations 5,847,374 21,152,419
- ---------------------------------------------------------------------------- ----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS
- ----------------------------------------------------------------------------
Dividends to shareholders from net investment income (2,486,403) (2,631,936)
- ----------------------------------------------------------------------------
Distributions to shareholders from net realized gain on
investment transactions (10,874,905) (11,060,895)
- ---------------------------------------------------------------------------- ----------------- -----------------
Change in net assets from distributions to shareholders (13,361,308) (13,692,831)
- ---------------------------------------------------------------------------- ----------------- -----------------
FUND SHARE (PRINCIPAL) TRANSACTIONS
- ----------------------------------------------------------------------------
Proceeds from sale of shares 24,840,898 90,108,432
- ----------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of dividends
declared 10,583,871 11,137,152
- ----------------------------------------------------------------------------
Cost of shares redeemed (29,637,716) (41,550,742)
- ---------------------------------------------------------------------------- ----------------- -----------------
Change in net assets from Fund share transactions 5,787,053 59,694,842
- ---------------------------------------------------------------------------- ----------------- -----------------
Change in net assets (1,726,881) 67,154,430
- ----------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------
Beginning of period 140,807,671 73,653,241
- ---------------------------------------------------------------------------- ----------------- -----------------
End of period (including undistributed net investment
income of $157,750 and $313,208, respectively) $ 139,080,790 $ 140,807,671
- ---------------------------------------------------------------------------- ----------------- -----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TOWER CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1994 1993 1992 1991 1990 1989*
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.60 $ 14.02 $ 14.35 $ 11.93 $ 12.94 $ 10.17
- --------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------
Net investment income 0.23 0.30 0.29 0.33 0.38 0.33
- --------------------------------------------------
Net realized and unrealized gain (loss) on
investments 0.36 2.00 0.11 2.45 (0.76) 2.68
- -------------------------------------------------- --------- --------- --------- --------- --------- ---------
Total from investment operations 0.59 2.30 0.40 2.78 (0.38) 3.01
- --------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------
Dividends to shareholders from net investment
income (0.25) (0.30) (0.27) (0.36) (0.39) (0.24)
- --------------------------------------------------
Distributions to shareholders from net realized
gain on investment transactions (1.13) (1.42) (0.46) -- (0.22) --
- --------------------------------------------------
Distributions in excess of net investment
income -- -- -- -- (0.02 (a) --
- -------------------------------------------------- --------- --------- --------- --------- --------- ---------
Total distributions (1.38) (1.72) (0.73) (0.36) (0.63) (0.24)
- -------------------------------------------------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 13.81 $ 14.60 $ 14.02 $ 14.35 $ 11.93 $ 12.94
- -------------------------------------------------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN** 4.27% 17.89% 2.93% 23.77% (3.11%) 32.29%
- --------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------
Expenses 1.09% 0.85% 0.83% 0.74% 0.42% 0.56%(b)
- --------------------------------------------------
Net investment income 1.67% 2.10% 1.99% 2.58% 3.06% 4.00%(b)
- --------------------------------------------------
Expense waiver/reimbursement (c) -- 0.18% 0.25% 0.29% 0.75% 0.83%(b)
- --------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------
Net assets, end of period (000 omitted) $139,081 $140,808 $73,653 $87,927 $60,448 $48,093
- --------------------------------------------------
Portfolio turnover rate 118% 127% 163% 124% 123% 70%
- --------------------------------------------------
</TABLE>
* Reflects operations for the period from October 14, 1988 (date of initial
public investment) to August 31, 1989.
** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Distributions in excess of net realized gain on investment transactions for
the fiscal year ended August 31, 1990, were a result of certain book and tax
timing differences. These distributions do not represent a return of capital
for federal tax purposes.
(b) Computed on an annualized basis.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
TOWER CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Tower Mutual Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end management investment company.
The Trust consists of five diversified portfolios and one non-diversified
portfolio. The financial statements included herein present only those of Tower
Capital Appreciation Fund (the "Fund"). The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--Listed equity securities are valued at the last sale
price reported on national securities exchanges. Unlisted securities and
short-term obligations (and private placement securities) are generally
valued at the price provided by an independent pricing service. Short-term
securities with remaining maturities of sixty days or less may be stated at
amortized cost, which approximates value.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral in support of
repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of
each repurchase agreement's underlying collateral to ensure that the value
of the collateral at least equals the principal amount of the repurchase
agreement, including accrued interest.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as brokers/dealers, which are
deemed by the Trust's adviser to be creditworthy pursuant to the guidelines
established by the Board of Trustees (the "Trustees"). Risks may arise from
the potential inability of counterparties to honor the terms of the
repurchase agreement. Accordingly, the Fund could receive less than the
repurchase price on the sale of collateral securities.
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Interest income and expenses are accrued daily. Bond premium and discount,
if applicable, are amortized as required by the Internal Revenue Code, as
amended (the "Code").
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-
issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
F. OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1994 1993
<S> <C> <C>
Shares sold 1,813,334 6,504,265
- ----------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 774,171 840,004
- ----------------------------------------------------------------------------------
Shares redeemed (2,161,249) (2,955,208)
- ---------------------------------------------------------------------------------- ------------- -------------
Net change resulting from Fund share transactions 426,256 4,389,061
- ---------------------------------------------------------------------------------- ------------- -------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Hibernia National Bank, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.75 of 1% of the Fund's average daily net assets.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
DISTRIBUTION SERVICES FEE--The Trust has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Fund will reimburse Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's shares. The Plan provides that the Fund may
incur up to 0.25 of 1% of the average daily net assets of the Fund, annually, to
reimburse FSC.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Fund. The FServ fee is based on the size, type, and number of accounts and
transactions made by shareholders.
FServ also maintains the Fund's accounting records. The fee is based on the
level of the Fund's average net assets for the period, plus out-of-pocket
expenses.
Hibernia National Bank is the Fund's custodian. The fee is based on the level of
the Fund's average net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $25,239 were borne initially
by FAS. The Fund has agreed to reimburse FAS for organizational expenses during
the five year period following October 14, 1988 (date the Fund became
effective). For the year ended August 31, 1994, the Fund paid $1,183 completing
its obligation pursuant to this agreement.
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended August 31, 1994 were as follows:
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------
PURCHASES-- $ 160,793,836
- ----------------------------------------------------------------------------------------------- -----------------
SALES-- $ 164,898,267
- ----------------------------------------------------------------------------------------------- -----------------
</TABLE>
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
TOWER MUTUAL FUNDS:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Tower Capital Appreciation Fund (one of the
portfolios comprising Tower Mutual Funds) as of August 31, 1994, and the related
statement of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended and the financial
highlights for each of the six years in the period then ended. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion of these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1994, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Tower
Capital Appreciation Fund at August 31, 1994, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the six years in
the period then ended, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
October 6, 1994
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Edward C. Gonzales Edward C. Gonzales
Robert L. diBenedetto, M.D. President and Treasurer
James A. Gayle, Sr. Jeffrey W. Sterling
J. Gordon Reische Vice President and Assistant Treasurer
Peter J. Germain
Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal amount invested.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the Fund's prospectus which
contains facts concerning its objective and policies, management fees, expenses
and other information.
TOWER APPENDIX
A . The graphic presentation here displayed consists of a
boxed legend in the upper center indicating the components
of the corresponding line graph. Tower Total Return Bond
Fund (the "Fund") is represented by a broken line and
Salomon Brothers Broad Investment Grade Bond Index (SBBIGBI)
is represented by a solid line. The line graph is a visual
representation of a comparison of change in value of a
hypothetical $10,000 purchase in the Fund after deducting
the maximum sales charge of 4.50% and Salomon Brothers Broad
Investment Grade Bond Index. The "x" axis reflects the cost
of the investment. The "y" axis reflects computation
periods from November 2, 1992 through August 31, 1994. The
right margin reflects the ending value of the hypothetical
investment in the Fund as compared to SBBIGBI; the ending
values are $10,283 and $10,965, respectively. There is also
a legend in the lower half of the graphic presentation
which indicates the Average Annual Total Return for the 1
year period, as well as the Average Annual Total Return from
the inception date of the Fund, November 2, 1992; the
Average Annual Total Returns are (5.35)% and 2.52%,
respectively.
B . The graphic presentation here displayed consists of a
boxed legend in the upper center indicating the components
of the corresponding line graph. Tower U.S. Government
Income Fund (the "Fund") is represented by a broken line and
Salomon Brothers Medium Term Broad Index (SBMTBI) is
represented by a solid line. The line graph is a visual
representation of a comparison of change in value of a
hypothetical $10,000 purchase in the Fund after deducting
the maximum sales charge of 4.50% and Salomon Brothers
Medium Broad Index. The "x" axis reflects the cost of the
investment. The "y" axis reflects computation periods from
October 14, 1988 through August 31, 1994. The right margin
reflects the ending value of the hypothetical investment in
the Fund as compared to SBMTBI; the ending values are
$14,965 and $16,598, respectively. There is also a legend
in the lower half of the graphic presentation which
indicates the Average Annual Total Return for the 1 year
period, 5 year period, as well as the Average Annual Total
Return from the inception date of the Fund, October 14,
1988; the Average Annual Total Returns are (4.58)%, 6.83%
and 7.39%, respectively.
C. The graphic presentation here displayed consists of a
boxed legend in the upper center indicating the components
of the corresponding line graph. Tower Louisiana Municipal
Income Fund (the "Fund") is represented by a broken line and
Lehman Ten Year Insured Index (LTYII) is represented by a
solid line. The line graph is a visual representation of a
comparison of change in value of a hypothetical $10,000
purchase in the Fund after deducting the maximum sales
charge of 4.50% and Lehman Ten Year Insured Index. The "x"
axis reflects the cost of the investment. The "y" axis
reflects computation periods from October 14, 1988 through
August 31, 1994. The right margin reflects the ending value
of the hypothetical investment in the Fund as compared to
LTYII; the ending values are $14,694 and $16,186,
respectively. There is also a legend in the lower half of
the graphic presentation which indicates the Average Annual
Total Return for the 1 year period, 5 year period, as well
as the Average Annual Total Return from the inception date
of the Fund, October 14, 1988; the Average Annual Total
Returns are (3.75)%, 7.13% and 7.05%, respectively.
D. The graphic presentation here displayed consists of a
boxed legend in the upper center indicating the components
of the corresponding line graph. Tower Capital
Appreciation Fund (the "Fund") is represented by a broken
line and Standard and Poor's 500 Index (S&P 500) is
represented by a solid line. The line graph is a visual
representation of a comparison of change in value of a
hypothetical $10,000 purchase in the Fund after deducting
the maximum sales charge of 4.50% and Standard and Poor's
500 Index. The "x" axis reflects the cost of the investment.
The "y" axis reflects computation periods from October 14,
1988 through August 31, 1994. The right margin reflects the
ending value of the hypothetical investment in the Fund as
compared to S&P 500; the ending values are $19,170 and
$21,078, respectively. There is also a legend in the lower
half of the graphic presentation which indicates the
Average Annual Total Return for the 1 year period, 5 year
period, as well as the Average Annual Total Return from the
inception date of the Fund, October 14, 1988; the Average
Annual Total Returns are 1.15%, 8.04% and 12.01%,
respectively.
