- --------------------------------------------------------------------------------
TOWER LOUISIANA
- --------------------------------------------------------------------------------
MUNICIPAL INCOME
- --------------------------------------------------------------------------------
FUND
- --------------------------------------------------------------------------------
Semi-Annual Report
To Shareholders
February 28, 1993
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
0000000 (0/93)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for the Tower
Louisiana Municipal Income Fund. The report, which covers the six-month period
ended February 28, 1994, begins with an interview with the Fund's portfolio
manager and includes the Portfolio of Investments and Financial Statements.
As the tax burden on Louisiana residents is heavier than ever, the Tower
Louisiana Municipal Income Fund helps you keep more of what you earn. For
Louisiana residents the Fund puts your money to work pursuing double-tax-free
income free of federal income tax and Louisiana personal income tax, through a
portfolio of high-quality, long-term Louisiana municipal securities.
At the end of the period, net assets rose to $88.9 million, while the net asset
value stood at $11.25 per share. Tax-free dividends paid to shareholders during
the six-month period totaled $0.30 per share. The Fund also paid capital gains
distribution of $0.10 per share.
Thank you for selecting the Tower Louisiana Municipal Income Fund to keep more
income in your pocket. We will continue to keep you up to date on your progress
as we attempt to provide you with the highest quality service.
Sincerely,
Edward C. Gonzales
President
April 15, 1994
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Q
How did Tower Louisiana Municipal Income Fund (the "Fund") perform over the
six-month reporting period?
A
The effect of a stronger U.S. economy and generally rising interest rates
depressed municipal bond prices during the six-month period ended February
28, 1994. The Fund experienced a negative total rate of return during this
period of 2.60%*, which reflects the maximum sales load. The investment return
of the Fund was in line with other long-term municipal income funds.
Q
Is the Louisiana economy continuing its modest recovery?
A
Louisiana continues to show modest economic improvement thanks to a
generally improving U.S. economy, improving petro-chemical demand, and the
initial effects of casino and riverboat gaming. Employment statewide is
expected to report modest gains as well, despite cutbacks in state government
payrolls.
Q
With that in mind, have you made any major changes to the Fund's average
maturity level, diversification, and credit quality?
A
The Fund's effective maturity is currently 12 years. The Fund's yields are
down from its traditional levels. This provides an excellent opportunity to
once again increase the Fund's yield by extending the effective maturity to
the 17-20 year range. The Fund's diversification and credit quality strategies
will remain the same.
Q
In view of the Clinton Administration, what developments are you watching
for that may affect future portfolio decisions?
A
At this point in time, there are several major issues being discussed by
the Clinton Administration which we are watching very closely for their
potential effect on the fixed-income portfolios. We are very pleased with
Alan Greenspan and the Federal Reserve's goal of eliminating inflation before it
becomes a problem, as witnessed by their recent increase in short-term interest
rates. We feel that this will limit the overall increase in interest rates that
may have occurred had they not stepped in. Overall, a very robust economic
recovery will cause interest rates to move even higher. Thus, we are watching
the forces of a continued economic recovery, the offsetting forces of economic
drag induced by higher taxes, and the new national health plan which could cause
the overall economy to slow, helping bond prices.
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
TOWER LOUISIANA MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- --------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--100.2%
- -----------------------------------------------------------------------
LOUISIANA--100.2%
---------------------------------------------------------
$ 400,000 Alexandria, LA, 7.45% Utility Revenue Bonds
(MBIA Insured), 5/1/2003 AAA $ 462,648
---------------------------------------------------------
765,000 Alexandria, LA, 5.70% Sales & Use Tax (MBIA Insured),
8/1/2007 AAA 783,123
---------------------------------------------------------
500,000 Alexandria, LA, Health Care Public Trust Authority,
7.125% Hospital Revenue Bonds (Rapides Regional Medical
Center)/ (MBIA Insured), 2/1/2009 AAA 566,360
---------------------------------------------------------
370,000 Ascension Parish, LA, Parishwide School District,
5.40% (Series B)/(AMBAC Insured), 3/1/2013 AAA 365,238
---------------------------------------------------------
400,000 Bossier City, LA, 7.90% City Sales & Use Tax
(MBIA Insured), 12/1/2010 AAA 442,576
---------------------------------------------------------
200,000 Bossier City, LA, 6.875% City Sales & Use Tax
(FGIC Insured), 11/1/2011 AAA 220,264
---------------------------------------------------------
1,000,000 Caddo Parish, LA, 5.20% School District
(MBIA Insured), 3/1/2005 AAA 1,009,300
---------------------------------------------------------
1,000,000 Calcasieu Parish, LA, 7.50% Memorial Hospital Service
District (Lake Charles Memorial Hospital Project)/
(BIG Insured), 12/1/2018 AAA 1,118,690
---------------------------------------------------------
100,000 Calcasieu Parish, LA, School District, #22, 7.25%
(Series A)/(BIG Insured), 2/1/2009 AAA 112,209
---------------------------------------------------------
960,000 Denham Springs, LA, 7.20% Livingston Housing and Mortgage
Finance Bonds, 8/1/2010 AAA 1,122,366
---------------------------------------------------------
500,000 East Baton Rouge, LA, 7.25%, Sales and Use Tax
(MBIA Insured), 2/1/2006-2/1/2008 AAA 556,280
---------------------------------------------------------
1,930,000 East Baton Rouge, LA, 4.80% Sales and Use Tax
(FGIC Insured), 2/1/2006-2/1/2011 AAA 1,836,115
---------------------------------------------------------
</TABLE>
TOWER LOUISIANA MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- --------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------
LOUISIANA--CONTINUED
---------------------------------------------------------
$ 500,000 East Baton Rouge, LA, 6.50%, Sales and Uses Tax
(AMBAC Insured), 2/1/2013 AAA $ 538,085
---------------------------------------------------------
1,500,000 East Baton Rouge, LA, 5.20%-5.25% Sales & Use Tax
(FSA Insured), 2/1/2016-2/1/2017 AAA 1,418,670
---------------------------------------------------------
1,725,000 East Baton Rouge, LA, MFA, 7.40%-7.90%
(Series C)/(GNMA Guaranteed), 2/1/2002-8/1/2012 AAA 1,868,654
---------------------------------------------------------
200,000 East Baton Rouge, LA, MFA, 5.40% Refunding Bonds,
10/1/2025 AAA 189,566
---------------------------------------------------------
2,650,000 Greater New Orleans, 5.50%-6.20%, Expressway Commission
(MBIA Insured), 11/1/2007-11/1/2016 AAA 2,754,951
---------------------------------------------------------
1,000,000 Houma, LA, 6.25% Utility Revenue Bonds
(FGIC Insured), 1/1/2012 AAA 1,061,540
---------------------------------------------------------
1,165,000 Jefferson Parish, LA, Hospital Service District #1, 5.10%
(FGIC Insured), 1/1/2005 AAA 1,151,556
---------------------------------------------------------
4,000,000 Jefferson Parish, LA, Hospital Service District #2,
5.50%-5.75%
(MBIA Insured), 7/1/2008-7/1/2016 AAA 4,024,990
---------------------------------------------------------
3,000,000 Jefferson Parish, LA, 5.95%-6.25% School Board Sales &
Use Tax (MBIA Insured), 2/1/2001-2/1/2008 AAA 3,231,250
---------------------------------------------------------
725,000 Jefferson Parish, LA, 6.50% Drain Sales Tax Revenue Bonds
(AMBAC Insured), 11/1/2006-11/1/2011 AAA 780,161
---------------------------------------------------------
115,000 Jefferson Parish, LA, 7.70% (FGIC Insured),
9/1/2002 AAA 128,479
---------------------------------------------------------
820,000 Jefferson Parish, LA, Home Mortgage Authority, 7.10%
Single Family Revenue Bonds, 8/1/2010 AAA 856,474
---------------------------------------------------------
210,000 Jefferson Parish, LA, Housing Development Corp., 7.375%
Multi-Family Revenue Bonds (Concordia Project)/
(FNMA Collateralized), 8/1/2005 AAA 231,529
---------------------------------------------------------
1,100,000 Kenner, LA, 5.75% Sales Tax Revenue (FGIC Insured),
6/1/2006 AAA 1,151,920
---------------------------------------------------------
</TABLE>
TOWER LOUISIANA MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- --------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------
LOUISIANA--CONTINUED
---------------------------------------------------------
$4,125,000 Lafayette, LA, 5.30%-8.00% Sales Tax (Series 1986)/(FGIC
Insured), 3/1/2005-5/1/2009 AAA $ 4,467,339
---------------------------------------------------------
2,215,000 Lafayette, LA, 4.375%-4.70% Revenue Refunding Bonds
(AMBAC Insured), 11/1/2001-11/1/2004 AAA 2,157,107
---------------------------------------------------------
2,650,000 Louisiana HFA, 6.10%-6.20% Multifamily Housing
(GNMA Collateralized) 4/20/2018-6/20/2028 AAA 2,659,538
---------------------------------------------------------
350,000 Louisiana HFA, 5.85% Revenue Refunding Bonds
(GNMA Collateralized), 12/20/2008 AAA 350,556
---------------------------------------------------------
1,250,000 Louisiana PFA, 6.00% (Series C)/(Alton Ochsner Medical
Foundation)/(MBIA Insured), 5/15/2017 AAA 1,266,012
---------------------------------------------------------
1,825,000 Louisiana PFA, 6.50% (Series B)/(Alton Ochsner Medical
Foundation)/(MBIA Insured), 5/15/2022 AAA 1,953,277
---------------------------------------------------------
1,340,000 Louisiana PFA, 6.80%-6.85% Student Opportunity Loan
(FSA Insured), 1/1/2006-1/1/2009 AAA 1,373,373
---------------------------------------------------------
2,500,000 Louisiana PFA, 6.40%-6.50% (Lafayette General Medical
Center)/(FSA Insured), 10/1/2012-10/1/2022 AAA 2,688,320
---------------------------------------------------------
1,000,000 Louisiana PFA, 5.10% Revenue Refunding Bonds
(St. Francis Medical Center), 7/1/2007 AAA 977,230
---------------------------------------------------------
1,000,000 Louisiana PFA, 4.85% Crossover Refunding Bonds,
8/1/2006 AAA 960,260
---------------------------------------------------------
995,000 Louisiana PFA, 6.30% Hospital Revenue Crossover Bonds,
(Our Lady of the Lake Regional Hospital)/(MBIA Insured),
12/1/2016 AAA 1,044,422
---------------------------------------------------------
1,450,000 Louisiana PFA, 8.20% Health and Education Capital
Facilities
(BIG Insured), 12/1/2015 AAA 1,687,901
---------------------------------------------------------
95,000 Louisiana PFA, 7.90% Prerefunded Health and Education
Capital Facilities, 12/1/2015 AAA 111,118
---------------------------------------------------------
585,000 Louisiana PFA, 7.90%, 12/1/2015 AAA 668,579
---------------------------------------------------------
</TABLE>
TOWER LOUISIANA MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- --------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------
LOUISIANA--CONTINUED
---------------------------------------------------------
$1,000,000 Louisiana PFA, 4.60% Special Insurance Assessment Bonds,
10/1/2002 AAA $ 976,380
---------------------------------------------------------
900,000 Louisiana PFA, 8.00% (Series A)/(Touro Infirmary)/(BIG
Insured), 6/1/2009 AAA 1,044,009
---------------------------------------------------------
2,045,000 Louisiana PFA, 7.50% (Multi-family Housing)/
(FHLMC Collateralized), 6/1/2021 AAA 2,232,915
---------------------------------------------------------
500,000 Louisiana PFA, 6.20% (Southern Baptist Hospital, Inc.)/
(FSA Insured), 5/15/2002 AAA 539,615
---------------------------------------------------------
500,000 Louisiana PFA, 5.75% (Tulane University), 2/15/2018 AAA 498,695
---------------------------------------------------------
1,585,000 Louisiana PFA, 6.50% (Series A)/(General Health, Inc.)/
(MBIA Insured), 11/1/2014 AAA 1,652,584
---------------------------------------------------------
750,000 Louisiana PFA, 6.00% (General Health, Inc.)/(MBIA
Insured),
11/1/2012 AAA 781,133
---------------------------------------------------------
1,175,000 Louisiana PFA, Jefferson Parish Eastbank 7.60%-7.70%
(FGIC Insured), 8/1/2003-8/1/2010 AAA 1,357,008
---------------------------------------------------------
1,545,000 Monroe-Brentwood, LA, 6.50%-6.70%, Housing Development
Corp. (FNMA Collateralized), 2/1/2010-8/1/2021 AAA 1,588,938
---------------------------------------------------------
160,000 Morgan City, LA, 7.45% Utility Revenue Bonds
(AMBAC Insured), 3/1/2003 AAA 177,976
---------------------------------------------------------
3,750,000 New Orleans, LA, 6.00% GO Bonds (Audubon Park)/
(FGIC Insured), 10/1/2013-10/1/2017 AAA 3,866,805
---------------------------------------------------------
500,000 New Orleans, LA, 6.00% GO Bonds (AMBAC Insured),
12/1/2004 AAA 536,254
---------------------------------------------------------
500,000 New Orleans, LA, 7.00% GO Bonds (FGIC Insured),
9/1/2019 AAA 565,650
---------------------------------------------------------
1,250,000 New Orleans, LA, Home Mortgage Authority, 6.65% Single
Family Mortgage Revenue Bonds (Series A)/(GNMA
Collateralized), 9/1/2008 AAA 1,305,675
---------------------------------------------------------
</TABLE>
TOWER LOUISIANA MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- --------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------
LOUISIANA--CONTINUED
---------------------------------------------------------
$1,570,000 New Orleans, LA, Housing Development Corp., 7.375% Multi-
Family Revenue Bonds (FNMA Collateralized), 8/1/2005 AAA $ 1,717,073
---------------------------------------------------------
750,000 Orleans, LA, School District, 8.125% (MBIA Insured),
11/1/2007 AAA 837,300
---------------------------------------------------------
500,000 Orleans Parish, LA, Law Enforcement District,
7.10% GO Bonds (AMBAC Insured), 5/1/2010 AAA 557,670
---------------------------------------------------------
850,000 Orleans Parish, LA, School Board, 7.00% GO Bonds
(Series 1989A)/(MBIA Insured), 6/1/2009 AAA 916,360
---------------------------------------------------------
300,000 Plaquemines Parish, LA, 6.50% GO Bonds (AMBAC Insured),
8/1/2008 AAA 328,629
---------------------------------------------------------
1,300,000 Regional Transit Authority, 8.00% (FGIC Insured),
12/1/2008 AAA 1,510,197
---------------------------------------------------------
865,000 St. Bernard, LA, Home Mortgage Authority, 7.50% Single
Family Revenue Bonds (Series A)/(FGIC Insured), 9/1/2010 AAA 1,015,795
---------------------------------------------------------
1,485,000 St. Charles Parish, LA, 7.15% Waterworks & Waste-Water
(District #1) Utility Revenue Bonds (MBIA Insured),
7/1/2016 AAA 1,702,686
---------------------------------------------------------
500,000 St. Landry, LA, Consolidated School District #1, 6.10% GO
Bonds (MBIA Insured), 5/1/2008 AAA 522,965
---------------------------------------------------------
375,000 St. Mary's Parish, LA, Sewage District #5, 7.60% (AMBAC
Insured), 5/1/2004 AAA 426,619
---------------------------------------------------------
50,000 St. Tammany, LA, 7.90% Sales & Use Tax District #3
(Series A)/(FGIC Insured), 12/1/2003 AAA 58,483
---------------------------------------------------------
300,000 St. Tammany, LA, 7.20% Single Family Revenue Bonds,
7/1/2010 AAA 351,393
---------------------------------------------------------
604,301 St. Tammany Public Trust Financing Authority, 7.00%
(Series A), 6/1/2002 AAA 641,912
---------------------------------------------------------
1,875,000 Shreveport, LA, 5.95% Water & Sewer Revenue Bonds (Series
A)/(FGIC Insured), 12/1/2014 AAA 1,910,775
---------------------------------------------------------
</TABLE>
TOWER LOUISIANA MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- --------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------
LOUISIANA--CONTINUED
---------------------------------------------------------
$ 175,000 Slidell, LA, 7.50% Sales & Use Tax (MBIA Insured),
10/1/2005 AAA $ 197,888
---------------------------------------------------------
1,400,000 State of Louisiana, 7.25% Gas & Fuels Tax Revenue Bonds
(Series A)/(FGIC Insured), 11/15/2004 AAA 1,614,424
---------------------------------------------------------
2,550,000 State of Louisiana Correctional Facilities Corp., 5.60%
(FSA Insured), 12/15/2003 AAA 2,655,111
---------------------------------------------------------
700,000 State of Louisiana, Energy & Power Authority, 6.75%
Power Project Revenue Refunding Bonds (Rodemacher Unit
#2)/(FGIC Insured), 1/1/2008 AAA 774,788
---------------------------------------------------------
2,125,000 State of Louisiana, 5.375%-6.40% Refunding Bonds (Series
A)/(MBIA Insured), 8/1/2005-8/1/2010 AAA 2,231,147
---------------------------------------------------------
1,525,000 Terrebonne Parish, LA, 7.40%-7.50% Hospital Service
District #1 (Terrebonne General Medical Center)(BIG
Insured), 4/1/2003-4/1/2015 AAA 1,713,036
--------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $84,249,960) $89,155,914+
--------------------------------------------------------- -----------
</TABLE>
* Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings.
+ The cost of investments for federal tax purposes amounts to $84,249,960. The
net unrealized appreciation of investments on a federal tax basis amounts to
$4,905,954, which is comprised of $5,199,054 appreciation and $293,100
depreciation at February 28, 1994.
Note: The category of investments is shown as a percentage of net assets
($88,960,204) at February 28, 1994.
TOWER LOUISIANA MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
The following abbreviations are used in this portfolio:
<TABLE>
<S> <C>
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
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TOWER LOUISIANA MUNICIPAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------
Investments in municipal securities, at value (Notes 2A and 7)
(identified and tax cost, $84,249,960) $89,155,914
- ---------------------------------------------------------------------------------
Interest receivable 1,340,216
- ---------------------------------------------------------------------------------
Receivable for Fund shares sold 69,521
- --------------------------------------------------------------------------------- -----------
Total assets 90,565,651
- ---------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------
Payable to Bank $1,318,866
- --------------------------------------------------------------------
Dividends payable 184,832
- --------------------------------------------------------------------
Payable for Fund shares repurchased 70,168
- --------------------------------------------------------------------
Accrued expenses 31,581
- -------------------------------------------------------------------- ----------
Total liabilities 1,605,447
- --------------------------------------------------------------------------------- -----------
NET ASSETS for 7,909,826 shares of beneficial interest outstanding $88,960,204
- --------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------
Paid-in capital $84,007,649
- ---------------------------------------------------------------------------------
Net unrealized appreciation of investments 4,905,954
- ---------------------------------------------------------------------------------
Accumulated net realized gain on investments 44,641
- ---------------------------------------------------------------------------------
Undistributed net investment income 1,960
- --------------------------------------------------------------------------------- -----------
Total $88,960,204
- --------------------------------------------------------------------------------- -----------
NET ASSET VALUE and Redemption Price Per Share
($88,960,204 / 7,909,826 shares of beneficial interest outstanding) $11.25
- --------------------------------------------------------------------------------- -----------
COMPUTATION OF OFFERING PRICE: Offering Price Per Share (100/97 of $11.25)* $11.60
- --------------------------------------------------------------------------------- -----------
</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
SIX MONTHS ENDED FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------
Interest income (Note 2B) $ 2,599,772
- --------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------
Investment advisory fee (Note 5) $199,815
- ---------------------------------------------------------------------
Trustees' fees 2,831
- ---------------------------------------------------------------------
Custodian and recordkeeping fees and expenses 36,407
- ---------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 17,865
- ---------------------------------------------------------------------
Administrative personnel and services (Note 5) 58,604
- ---------------------------------------------------------------------
Auditing fees 6,450
- ---------------------------------------------------------------------
Legal fees 4,155
- ---------------------------------------------------------------------
Fund share registration costs 8,197
- ---------------------------------------------------------------------
Printing and postage 7,959
- ---------------------------------------------------------------------
Insurance premiums 3,000
- ---------------------------------------------------------------------
Miscellaneous 3,541
- --------------------------------------------------------------------- --------
Total expenses $348,824
- ---------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 5) 35,523
- --------------------------------------------------------------------- --------
Net expenses 313,301
- -------------------------------------------------------------------------------- -----------
Net investment income 2,286,471
- -------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------
Net realized gain on investment transactions (identified cost basis)-- 53,102
- --------------------------------------------------------------------------------
Net change in unrealized appreciation (2,030,959)
- -------------------------------------------------------------------------------- -----------
Net realized and unrealized loss on investments (1,977,857)
- -------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $ 308,614
- -------------------------------------------------------------------------------- -----------
</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 $ 2,286,471 $ 3,839,132
- -----------------------------------------------------------------
Net realized gain from investment transactions ($53,102 and
$795,853,
respectively, as computed for federal tax purposes) 53,102 795,853
- -----------------------------------------------------------------
Change in unrealized appreciation of investments (2,030,959 ) 3,748,172
- ----------------------------------------------------------------- ----------- -----------
Change in net assets resulting from operations 308,614 8,383,157
- ----------------------------------------------------------------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -----------------------------------------------------------------
Dividends to shareholders from net investment income (2,318,521 ) (3,830,259)
- -----------------------------------------------------------------
Distributions to shareholders from net realized gain on
investment transactions (789,173 ) (193,390)
- ----------------------------------------------------------------- ----------- -----------
Change in net assets resulting from distributions to
shareholders (3,107,694 ) (4,023,649)
- ----------------------------------------------------------------- ----------- -----------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- -----------------------------------------------------------------
Proceeds from sale of shares 11,583,532 34,754,196
- -----------------------------------------------------------------
Net asset value of shares issued to shareholders electing to
receive payment of dividends in Fund shares 1,610,809 2,029,983
- -----------------------------------------------------------------
Cost of shares redeemed (7,349,148 ) (12,776,386)
- ----------------------------------------------------------------- ----------- -----------
Change in net assets resulting from Fund share transactions 5,845,193 24,007,793
- ----------------------------------------------------------------- ----------- -----------
Change in net assets 3,046,113 28,367,301
- -----------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------
Beginning of period 85,914,091 57,546,790
- ----------------------------------------------------------------- ----------- -----------
End of period (including undistributed net investment income of
$1,960 and $34,010, respectively) $88,960,204 $85,914,091
- ----------------------------------------------------------------- ----------- -----------
</TABLE>
*See months ended February 28, 1994 (unaudited).
(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 0.30 0.62 0.64 0.64 0.64 0.43
- ------------------------------------------------
Net realized and unrealized gain
(loss) on investments (0.25) 0.73 0.48 0.48 (0.16) 0.14
- ------------------------------------------------ ------ ------ ------ ------ ------ ------
Total from investment operations 0.05 1.35 1.12 1.12 0.48 0.57
- ------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------
Dividends to shareholders from net
investment income (0.30) (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 (0.40) (0.66) (0.67) (0.64) (0.64) (0.43 )
- ------------------------------------------------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $11.25 $11.60 $10.91 $10.46 $9.98 $10.14
- ------------------------------------------------ ------ ------ ------ ------ ------ ------
TOTAL RETURN*** 0.42% 12.75% 11.02% 11.59% 4.89% 5.82 %
- ------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------
Expenses 0.71%(b) 0.66% 0.65% 0.74% 0.81% 0.62 %(b)
- ------------------------------------------------
Net investment income 5.15%(b) 5.59% 6.04% 6.29% 6.35% 6.57 %(b)
- ------------------------------------------------
Expense waiver/reimbursement (a) 0.08%(b) 0.14% 0.16% 0.20% 0.41% 0.61 %(b)
- ------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------
Net assets, end of period (000 omitted) $88,960 $85,914 $57,547 $42,210 $31,380 $12,285
- ------------------------------------------------
Portfolio turnover rate 8% 32% 19% 26% 32% 28 %
- ------------------------------------------------
* Six months ended February 28, 1994 (unaudited).
** 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 (Note 5).
(b) Computed on an annualized basis.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TOWER LOUISIANA MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Tower Louisiana Municipal Income Fund (the "Fund") is a non-diversified
portfolio of Tower Mutual Funds (the "Trust"), which is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. The Trust was organized in April 1988; however, investment operations
did not commence until October 14, 1988 (date of initial public investment). The
financial statements of the other portfolios of the Trust 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.
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--Municipal bonds are valued at fair value. An independent pricing
service values the Fund's municipal bonds taking into consideration yield, stability,
risk, quality, coupon, maturity, type of issue, trading characteristics, special
circumstances of security or trading market, and any other factors or market data it
deems relevant in determining valuations for normal institutional size trading units of
debt securities and does not rely exclusively on quoted prices. The Trustees have
determined that the fair value of debt securities with remaining maturities of sixty
days or less shall be their amortized cost value unless the particular circumstances of
the security indicate otherwise.
B. INCOME--Interest income is recorded on the accrual basis. Interest income includes
interest earned (net of premium) and original issue discount as required by the Internal
Revenue Code.
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal
Revenue Code applicable to investment companies and to distribute to shareholders each
year all of its net income, including any net realized gain on investments. Accordingly,
no provision for federal tax is necessary. Dividends paid by the Fund from net interest
earned on tax-exempt municipal bonds are not includable by shareholders as gross income
for federal income tax purposes, because the Fund intends to meet certain requirements
of the Internal Revenue Code applicable to regulated investment companies which will
enable the Fund to pay exempt-interest dividends.
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or
delayed delivery transactions. To the extent the Fund engages in such transactions, it
will do so for the purpose of acquiring portfolio securities consistent with its
investment objectives and policies and not for the purpose of investment leverage. The
Fund will record a when-issued security and the related liability on the trade date.
Until the securities are received and paid for, the Fund will
</TABLE>
TOWER LOUISIANA MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
maintain security positions such that sufficient liquid assets will be available to make
payment for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the settlement
date.
E. OTHER--Investment transactions are accounted for on the date of the transaction.
</TABLE>
(3) DIVIDENDS AND DISTRIBUTIONS
The Fund declares and pays dividends monthly to all shareholders invested in the
Fund on the record date. Capital gains realized by the Fund, if any, will be
distributed at least once every 12 months. Dividends to shareholders and capital
gain distributions, if any, are recorded on the ex-dividend date. Dividends and
distributions are automatically reinvested in additional shares of the Fund on
payment date at the ex-dividend date net asset value unless cash payments are
requested.
(4) 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 outstanding, beginning of period 7,404,215 5,273,561
- ------------------------------------------------------------------
Shares sold 1,001,807 3,098,538
- ------------------------------------------------------------------
Shares issued to shareholders electing to receive payment of
dividends in Fund shares 140,552 181,832
- ------------------------------------------------------------------
Shares redeemed (636,748 ) (1,149,716)
- ------------------------------------------------------------------ ----------- ----------
Shares outstanding, end of period 7,909,826 7,404,215
- ------------------------------------------------------------------ ----------- ----------
</TABLE>
*Six months ended February 28, 1994.
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Hibernia National Bank, the Fund's investment adviser ("Adviser"), is entitled
to receive for its services an annual investment advisory fee equal to 0.45 of
1% of the Fund's average daily net assets. Adviser may voluntarily choose to
waive a portion of its fee or reimburse certain expenses of the Fund. For the
six months ended February 28, 1994, Adviser earned an investment advisory fee of
$199,815, of which $35,523 was voluntarily waived.
Federated Administrative Services ("FAS") provides the Fund with certain
administrative personnel and services. The fee is based on the level of average
aggregate net assets of the Fund for the period. FAS may voluntarily choose to
waive a portion of its fee.
The Trust has adopted a Distribution Plan (the "Plan") for the Fund pursuant to
Rule 12b-1 under the Investment Company Act of 1940. The Fund will reimburse
Federated Securities Corp. ("FSC"), the
TOWER LOUISIANA MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
principal distributor, up to 0.25 of 1% of average daily net assets of the Fund
for fees the distributor paid which relate to the distribution and
administration of the Fund's shares. For the six months ended February 28, 1994,
the Fund did not pay a distribution fee.
Certain of the Officers and a Trustee of the Trust are Officers and Trustees of
FAS and FSC.
(6) INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term obligations) for the
six months ended February 28, 1994, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
PURCHASES-- $16,116,867
- ------------------------------------------------------------------------------- -----------
SALES-- $ 7,395,768
- ------------------------------------------------------------------------------- -----------
</TABLE>
(7) CONCENTRATION OF RISK
Since the Tower Louisiana Municipal Income Fund may invest 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 risk associated with such
factors, at February 28, 1994, 78.4% of the securities in the portfolio are
backed by various credit insurers. Three insurance companies backed 65.4% of the
securities in the portfolio.
<TABLE>
<S> <C>
TRUSTEES OFFICERS
</TABLE>
- --------------------------------------------------------------------------------
<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
C. Grant Anderson
Secretary
</TABLE>
Mutual funds are not obligations of or insured by any bank nor are they insured
by
the federal government or any of its agencies. Investment in these shares
involves risk, including the possible loss of principal.
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 CASH
- --------------------------------------------------------------------------------
RESERVE FUND
- --------------------------------------------------------------------------------
Semi-Annual Report
To Shareholders
February 28, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
0000000 (4/94)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for the Tower
Cash Reserve Fund. The report, which covers the six-month period ended February
28, 1994, begins with an interview with the Fund's portfolio manager and
includes the Portfolio of Investments and Financial Statements.
You have selected the Tower Cash Reserve Fund to put your cash to work through a
portfolio of high-quality money market securities. At the end of the reporting
period, more than half of the Fund's assets were invested in high quality
commercial paper issued by many well-known American companies, with a portion of
its assets invested in U.S. Treasury bills.
At the end of the period, net assets stood at $174.2 million. Dividends paid to
shareholders during the six-month period totaled $0.01 per share.
Thank you for putting your cash to work through the Tower Cash Reserve Fund. We
will continue to keep you up to date on your investment.
Sincerely,
Edward C. Gonzales
President
April 15, 1994
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Q
How did the low short-term interest rate environment affect the Tower Cash
Reserve Fund's (the "Fund") performance?
A
Low short-term interest rates resulted in the lowest dividend yield levels
in the Fund's history. Yields on available investments hovering around 3%
had a significant impact on payout. Also, since rates stayed so low for so
long, the added yield from buying commercial paper declined sharply, as did the
yield advantage of buying longer term maturities.
Q
Over the period, you continued to emphasize high-quality commercial paper
in the Fund. Would you expect that strategy to change?
A
The Fund strives to maintain 80% to 90% of its assets in very high quality,
liquid commercial paper. Currently, our own procedures require that we buy
higher quality paper than is actually specified in our prospectus. We have
temporarily reduced the percentage of the Fund invested in high-grade commercial
paper by buying U.S. Treasury bills, in order to increase our liquidity while
interest rates are rising.
Q
How much of a yield advantage over Treasury securities does high-quality
commercial paper typically offer?
A
Typically the high-quality commercial paper that we purchase in the Fund
yields 0.40% to 0.60% more than Treasury bills. In the last six months, the
yield pick up narrowed to only 0.15%, due to the demand for the limited
amount of commercial paper being issued. As the economy continues to expand, and
yield in general goes higher--we expect the yield advantage to widen to 0.40% to
0.50%, from today's level of 0.25%.
TOWER CASH RESERVE FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------------ ------------
<C> <S> <C> <C>
CORPORATE BONDS--1.2%
- -----------------------------------------------------------------------------------------
BANKING--1.2%
------------------------------------------------------------------------
$ 2,000,000 Morgan (J.P.) & Co., Inc., 8.875%, 8/1/94 $ 2,043,300
------------------------------------------------------------------------ ------------
*COMMERCIAL PAPER--65.7%
- -----------------------------------------------------------------------------------------
CHEMICALS--2.8%
------------------------------------------------------------------------
5,000,000 Dupont (E.I.) De Nemours & Co., 3.35%, 4/25/94 4,974,410
------------------------------------------------------------------------ ------------
FINANCE--AUTOMOTIVE--2.8%
------------------------------------------------------------------------
5,000,000 Ford Motor Credit Corp., 3.55%, 5/25/94 4,958,090
------------------------------------------------------------------------ ------------
FINANCE--COMMERCIAL--8.6%
------------------------------------------------------------------------
5,000,000 CIT Group Holdings, Inc., 3.07%, 3/2/94 4,999,574
------------------------------------------------------------------------
5,000,000 General Electric Capital Corp., 3.58%, 8/16/94 4,916,467
------------------------------------------------------------------------
5,000,000 Transamerica Financial Group, Inc., 3.23%, 3/14/94 4,994,168
------------------------------------------------------------------------ ------------
Total 14,910,209
------------------------------------------------------------------------ ------------
FINANCE--EQUIPMENT--2.8%
------------------------------------------------------------------------
5,000,000 John Deere Capital Corp., 3.33%, 3/28/94 4,987,512
------------------------------------------------------------------------ ------------
FINANCE--RETAIL--8.6%
------------------------------------------------------------------------
5,000,000 American General Finance Corp., 3.42%, 4/25/94 4,973,875
------------------------------------------------------------------------
5,000,000 Commercial Credit Co., 3.50%, 4/25/94 4,973,264
------------------------------------------------------------------------
5,000,000 Norwest Financial, Inc., 3.15%, 3/17/94 4,993,000
------------------------------------------------------------------------ ------------
Total 14,940,139
------------------------------------------------------------------------ ------------
FOOD & BEVERAGE--2.8%
------------------------------------------------------------------------
5,000,000 Heinz (H.J.) Co., 3.40%, 4/19/94 4,976,861
------------------------------------------------------------------------ ------------
FUNDING CORPORATION--14.3%
------------------------------------------------------------------------
5,000,000 Asset Securitization Corp., 3.08%, 3/31/94 4,987,167
------------------------------------------------------------------------
5,000,000 Beta Finance, Inc., 3.07%, 3/31/94 4,987,208
------------------------------------------------------------------------
5,000,000 CIESCO, 3.45%, 4/8/94 4,981,792
------------------------------------------------------------------------
5,000,000 Falcon Asset Securitization Corp., 3.37%, 3/23/94 4,989,703
------------------------------------------------------------------------
</TABLE>
TOWER CASH RESERVE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------------ ------------
<C> <S> <C> <C>
* COMMERCIAL PAPER--CONTINUED
- -----------------------------------------------------------------------------------------
FUNDING CORPORATION--CONTINUED
------------------------------------------------------------------------
$ 5,000,000 Paccar Financial Corp., 3.09%, 3/18/94 $ 4,992,704
------------------------------------------------------------------------ ------------
Total 24,938,574
------------------------------------------------------------------------ ------------
HEALTH CARE--2.9%
------------------------------------------------------------------------
5,000,000 Abbott Laboratories, 3.02%, 3/4/94 4,998,742
------------------------------------------------------------------------ ------------
OIL & OIL FINANCE--5.7%
------------------------------------------------------------------------
5,000,000 Chevron Oil Finance Co., 3.04%, 3/22/94 4,991,133
------------------------------------------------------------------------
5,000,000 Texaco, Inc., 3.40%, 5/19/94 4,962,694
------------------------------------------------------------------------ ------------
Total 9,953,827
------------------------------------------------------------------------ ------------
PRINTING & PUBLISHING--2.9%
------------------------------------------------------------------------
5,000,000 Gannett Co., 3.06%, 3/22/94 4,991,075
------------------------------------------------------------------------ ------------
TELECOMMUNICATIONS--5.7%
------------------------------------------------------------------------
5,000,000 Bellsouth Telecommunications, Inc., 3.27%, 3/3/94 4,999,092
------------------------------------------------------------------------
5,000,000 Southwestern Bell Capital Corp., 3.50%, 6/3/94 4,954,305
------------------------------------------------------------------------ ------------
Total 9,953,397
------------------------------------------------------------------------ ------------
TOBACCO--2.9%
------------------------------------------------------------------------
5,000,000 Philip Morris Cos., Inc., 3.06%, 3/24/94 4,990,225
------------------------------------------------------------------------ ------------
UTILITIES--2.9%
------------------------------------------------------------------------
5,000,000 Pacific Gas & Electric Co., 3.15%, 3/7/94 4,997,375
------------------------------------------------------------------------ ------------
TOTAL COMMERCIAL PAPER 114,570,436
------------------------------------------------------------------------ ------------
GOVERNMENT ISSUE--2.9%
- -----------------------------------------------------------------------------------------
5,000,000 Federal National Mortgage Association, 3.30%, 1/25/95 5,000,000
------------------------------------------------------------------------ ------------
U.S. TREASURY BILLS--21.6%
- -----------------------------------------------------------------------------------------
38,000,000 5/5/94--6/23/94 37,727,989
------------------------------------------------------------------------ ------------
</TABLE>
TOWER CASH RESERVE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------------ ------------
<C> <S> <C> <C>
** REPURCHASE AGREEMENT--8.7%
- -----------------------------------------------------------------------------------------
$15,129,000 State Street Bank and Trust Co., 3.40%, dated 2/28/94, due 3/1/94 (Note
2B) $ 15,129,000
------------------------------------------------------------------------ ------------
TOTAL INVESTMENTS, AT AMORTIZED COST $174,470,725+
------------------------------------------------------------------------ ------------
</TABLE>
* Each issue shows the rate of discount at the time of purchase.
** The 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
($174,235,075) at February 28, 1994.
(See Notes which are an integral part of the Financial Statements)
TOWER CASH RESERVE FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------
Investments, at amortized cost and value (Note 2A and 2B) $174,470,725
- -------------------------------------------------------------------------------
Cash 590
- -------------------------------------------------------------------------------
Receivable for Fund shares sold 52,030
- -------------------------------------------------------------------------------
Interest receivable 31,200
- ------------------------------------------------------------------------------- ------------
Total assets 174,554,545
- -------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------
Dividends payable $243,608
- --------------------------------------------------------------------
Distribution fee payable 31,002
- --------------------------------------------------------------------
Payable for Fund shares repurchased 3,223
- --------------------------------------------------------------------
Accrued expenses 41,637
- -------------------------------------------------------------------- --------
Total liabilities 319,470
- ------------------------------------------------------------------------------- ------------
NET ASSETS for 174,235,075 shares of beneficial interest outstanding $174,235,075
- ------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price and Redemption Price Per Share
($174,235,075 / 174,235,075 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
SIX MONTHS ENDED FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------
Interest income (Note 2C) $2,611,981
- ---------------------------------------------------------------------------------
EXPENSES--
- ---------------------------------------------------------------------------------
Investment advisory fee (Note 5) $325,924
- ----------------------------------------------------------------------
Trustees' fees 8,585
- ----------------------------------------------------------------------
Administrative personnel and services (Note 5) 107,535
- ----------------------------------------------------------------------
Custodian and recordkeeping fees and expenses 35,307
- ----------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 16,404
- ----------------------------------------------------------------------
Fund share registration costs 10,730
- ----------------------------------------------------------------------
Distribution fee (Note 5) 209,608
- ----------------------------------------------------------------------
Auditing fees 6,850
- ----------------------------------------------------------------------
Legal fees 5,601
- ----------------------------------------------------------------------
Printing and postage 10,507
- ----------------------------------------------------------------------
Insurance premiums 3,721
- ----------------------------------------------------------------------
Miscellaneous 2,729
- ---------------------------------------------------------------------- --------
Total expenses 743,501
- --------------------------------------------------------------------------------- ----------
Net investment income $1,868,480
- --------------------------------------------------------------------------------- ----------
</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 $ 1,868,480 $ 4,102,887
- --------------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- ---------------------------------------------------------------
Dividends to shareholders from net investment income (1,868,480) (4,102,887)
- --------------------------------------------------------------- ------------- -------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- ---------------------------------------------------------------
Proceeds from sales of shares 231,525,310 459,447,970
- ---------------------------------------------------------------
Net asset value of shares issued to shareholders electing to
receive payment of dividends in Fund shares 264,002 634,657
- ---------------------------------------------------------------
Cost of shares redeemed (211,605,913) (468,068,725)
- --------------------------------------------------------------- ------------- -------------
Change in net assets resulting from Fund share
transactions 20,183,399 (7,986,098)
- --------------------------------------------------------------- ------------- -------------
Change in net assets 20,183,399 (7,986,098)
- ---------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------
Beginning of period 154,051,676 162,037,774
- --------------------------------------------------------------- ------------- -------------
End of period $ 174,235,075 $ 154,051,676
- --------------------------------------------------------------- ------------- -------------
</TABLE>
* Six months ended February 28, 1994 (unaudited).
(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 0.01 0.02 0.04 0.06 0.08 0.07
- ----------------------------------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
- -----------------------------------
Dividends to shareholders from
net investment income (0.01) (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*** 1.14% 2.49% 3.75% 6.45% 8.02% 8.88%
- -----------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------
Expenses 0.91%(b) 0.89% 0.89% 0.80% 0.77% 0.75%(b)
- -----------------------------------
Net investment income 2.29%(b) 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) $174,235 $154,052 $162,038 $249,822 $300,668 $169,303
- -----------------------------------
</TABLE>
* Six months ended February 28, 1994 (unaudited).
** Reflects operations for the period from October 14, 1988 (date of initial
public investment) to August 31, 1989. Prior to October 14, 1988, net
investment income aggregating $0.02 per share was distributed to Federated
Administrative Services ("FAS").
*** 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 (Note 5).
(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
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Tower Cash Reserve Fund (the "Fund") is a diversified portfolio of Tower Mutual
Funds (the "Trust"), which is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company. The Trust was
organized in April 1988, however, investment operations of the Fund did not
commence until October 14, 1988 (date of initial public investment). 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.
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--The Board of Trustees ("Trustees") has determined that the best
method currently available for valuing portfolio securities is amortized cost. The
Fund's use of the amortized cost method to value its portfolio securities is conditioned
on its compliance with Rule 2a-7 under the Investment Company Act of 1940.
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 securities to ensure the existence of a proper level
of collateral.
The Fund will only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are deemed by the Fund's adviser to
be creditworthy pursuant to guidelines established by the Trustees. Risks may arise from
the potential inability of counterparties to honor the terms of the repurchase
agreements. Accordingly, the Fund could receive less than the repurchase price on the
sale of collateral securities.
C. INCOME--Interest income is recorded on the accrual basis. Interest income includes
interest and discount earned (net of premium), including original issue discount as
required by the Internal Revenue Code, plus realized gains, if any, on portfolio
securities.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies and distribute to shareholders
each year all of its taxable income. Accordingly, no provision for federal tax is
necessary.
</TABLE>
TOWER CASH RESERVE FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or
delayed delivery transactions. To the extent the Fund engages in such transactions, it
will do so for the purpose of acquiring portfolio securities consistent with its
investment objective and policies and not for the purpose of investment leverage. The
Fund will record a when-issued security and the related liability on the trade date.
Until the securities are received and paid for, the Fund will maintain security
positions such that sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed delivery basis
are marked to market daily and begin earning interest on the settlement date.
F. OTHER--Investment transactions are accounted for on the trade date of the transaction.
</TABLE>
(3) DIVIDENDS AND DISTRIBUTIONS
The Fund computes its net income daily and, immediately prior to the calculation
of its net asset value at the close of business, declares and records dividends
to shareholders of record at the time of the previous computation of the Fund's
net asset value. Payment of dividends is made monthly in cash, or in additional
shares at the net asset value on the payable date.
(4) 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
February 28, 1994, capital paid in aggregated $174,235,075. Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------
1994* 1993
- ----------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Shares outstanding, beginning of period 154,051,676 162,037,774
- -----------------------------------------------------------------
Shares sold 231,525,310 459,447,970
- -----------------------------------------------------------------
Shares issued to shareholders electing to receive payment of
dividends in Fund shares 264,002 634,657
- -----------------------------------------------------------------
Shares redeemed (211,605,913) (468,068,725)
- ----------------------------------------------------------------- ----------- ------------
Shares outstanding, end of period 174,235,075 154,051,676
- ----------------------------------------------------------------- ----------- ------------
</TABLE>
* Six months ended February 28, 1994.
TOWER CASH RESERVE FUND
- --------------------------------------------------------------------------------
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Hibernia National Bank, the Fund's investment adviser ("Adviser"), receives for
its services an annual investment advisory fee equal to 0.40 of 1% of the Fund's
average daily net assets.
Federated Administrative Services ("FAS") provides certain administrative
personnel and services. The fee is based on the level of aggregate average net
assets of the Fund for the period. FAS may voluntarily choose to waive a portion
of its fee.
The Trust has adopted a Distribution Plan (the "Plan") for the Fund pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended. The Fund will
reimburse Federated Securities Corp., ("FSC"), the principal distributor, up to
0.25 of 1% of average daily net assets of the Fund, for fees the distributor
paid which relate to the distribution and administration of the Fund's shares.
Certain of the Officers and a Trustee of the Trust are Officers and Trustees of
FAS and FSC.
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
Edward C. Gonzales
Edward C. Gonzales
President and Treasurer
Robert L. diBenedetto, M.D.
Jeffrey W. Sterling
James A. Gayle, Sr.
Vice President and
J. Gordon Reische
Assistant Treasurer
C. Grant Anderson
Secretary
Mutual funds are not obligations of or insured by any bank nor are they insured
by the federal government or any of its agencies.
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 CAPITAL
- --------------------------------------------------------------------------------
APPRECIATION
- --------------------------------------------------------------------------------
FUND
- --------------------------------------------------------------------------------
Semi-Annual Report
To Shareholders
February 28, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
0000000 (0/93)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for the Tower
Capital Appreciation Fund. The report, which covers the six-month period ended
February 28, 1994, begins with an interview with the Fund's portfolio manager
and includes the Portfolio of Investments and Financial Statements.
The Tower Capital Appreciation Fund is managed to help your money grow by
investing in a diversified portfolio of high quality stocks. As a shareholder,
you are participating in the growth of some of America's best-known companies,
household names whose products you use every day.
At the end of the period, net assets reached $145.2 million, while the net asset
value stood at $13.84 per share. During the period, the Fund paid capital gains
distributions of $1.13 per share, in addition to dividends of $0.12 per share.
Thank you for pursuing your long-term financial goals through the Tower Capital
Appreciation Fund. We will continue to keep you up to date on your progress as
we provide you with the highest level of service.
Sincerely,
Edward C. Gonzales
President
April 15, 1994
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Q
Over the period, how did the Tower Capital Appreciation Fund (the "Fund")
perform compared to Standard & Poor's 500 ("S&P 500")?
A
Over the past six months, the Fund outperformed the S&P 500 by 1.4
percentage points before sales charges.
Q
You follow a disciplined approach to stock selection. Can you give us an
idea of the process you follow?
A
The equity market has become relatively efficient over the past several
decades with advancements in technology and the growth of pension and other
institutional investors. Over 80 percent of all trading in stocks is now
done by institutional investors, all of whom have ready access to the same Wall
Street securities research. Therefore, we believe that consistent superior
performance can be best achieved through an emphasis on objective stock
selection valuation within the framework of a disciplined portfolio construction
process.
The Fund's core equity management style utilizes various quantitative tools that
control those market risks that are mostly unpredictable, and emphasizes pure
stock selection. Our stock selection models look at the growth in companies'
earnings and the valuation placed on the stock by the market. The bias of
"value" or "growth" models is virtually eliminated. These selection models then
quantitatively evaluate and rank our 1,400 stock universe allowing our portfolio
managers to construct optimal portfolios without taking unwarranted risks. The
result is consistent, superior, long-term performance at below-average levels of
risk.
TOWER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ----------------------------------------------------------------- ------------
<C> <C> <S> <C>
COMMON STOCKS--98.2%
- ------------------------------------------------------------------------------------
BASIC INDUSTRY--7.5%
-----------------------------------------------------------------
18,100 American Greetings Corp. $ 504,537
-----------------------------------------------------------------
37,900 Avery Dennison Corp. 1,184,375
-----------------------------------------------------------------
18,100 * Crown Cork & Seal, Inc. 685,537
-----------------------------------------------------------------
10,700 Hercules, Inc. 1,231,837
-----------------------------------------------------------------
14,000 Kimberly-Clark Corp. 773,500
-----------------------------------------------------------------
13,900 Louisiana Pacific Corp. 597,700
-----------------------------------------------------------------
27,800 Monsanto Co. 2,130,175
-----------------------------------------------------------------
10,600 Newmont Gold Co. 479,650
-----------------------------------------------------------------
15,700 Nucor Corp. 908,638
-----------------------------------------------------------------
43,900 Praxair, Inc. 823,125
-----------------------------------------------------------------
9,400 Scott Paper Co. 426,525
-----------------------------------------------------------------
59,100 Worthington Industries Inc. 1,152,450
----------------------------------------------------------------- ------------
Total 10,898,049
----------------------------------------------------------------- ------------
CAPITAL GOODS--10.1%
-----------------------------------------------------------------
11,500 Briggs & Stratton Corp. 980,375
-----------------------------------------------------------------
12,000 Deere & Co. 1,012,500
-----------------------------------------------------------------
42,700 General Electric Co. 4,499,513
-----------------------------------------------------------------
29,900 General Motors Corp. Cl'H' 1,076,400
-----------------------------------------------------------------
14,400 McDonnell Douglas Corp. 1,717,200
-----------------------------------------------------------------
6,700 Minnesota Mining & Manufacturing Co. 706,013
-----------------------------------------------------------------
21,700 Philips N.V. 537,075
-----------------------------------------------------------------
60,500 Teledyne, Inc. 1,262,938
-----------------------------------------------------------------
29,300 Textron, Inc. 1,699,400
-----------------------------------------------------------------
64,500 Wheelabrator Technologies, Inc. 1,217,437
----------------------------------------------------------------- ------------
Total 14,708,851
----------------------------------------------------------------- ------------
</TABLE>
TOWER CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ----------------------------------------------------------------- ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------
CONSUMER--11.3%
-----------------------------------------------------------------
12,700 Anheuser-Busch Cos., Inc. $ 628,650
-----------------------------------------------------------------
24,300 Clorox Co. 1,297,012
-----------------------------------------------------------------
41,200 Coca Cola Co. 1,756,150
-----------------------------------------------------------------
13,600 Colgate Palmolive Co. 885,700
-----------------------------------------------------------------
42,700 ConAgra, Inc. 1,168,913
-----------------------------------------------------------------
14,600 CPC International, Inc. 715,400
-----------------------------------------------------------------
13,700 Kellogg Co. 691,850
-----------------------------------------------------------------
39,700 Pepsico, Inc. 1,553,262
-----------------------------------------------------------------
40,900 Philip Morris Cos., Inc. 2,290,400
-----------------------------------------------------------------
41,000 Proctor & Gamble Co. 2,352,375
-----------------------------------------------------------------
59,000 * RJR Nabisco Holdings Corp. 405,625
-----------------------------------------------------------------
74,100 Sara Lee Corp. 1,657,988
-----------------------------------------------------------------
59,900 Whitman Corp. 958,400
----------------------------------------------------------------- ------------
Total 16,361,725
----------------------------------------------------------------- ------------
CONSUMER CYCLICAL--17.6%
-----------------------------------------------------------------
20,900 American Stores Co. 997,975
-----------------------------------------------------------------
17,100 Armstrong World Industries, Inc. 925,537
-----------------------------------------------------------------
19,300 * Caesers World, Inc. 1,102,512
-----------------------------------------------------------------
2,300 CBS, Inc. 706,675
-----------------------------------------------------------------
12,000 Centex Corp. 447,000
-----------------------------------------------------------------
32,100 Chrysler Corp. 1,821,675
-----------------------------------------------------------------
29,700 Disney (Walt) Co. 1,429,312
-----------------------------------------------------------------
38,700 Dow Jones & Co., Inc. 1,538,325
-----------------------------------------------------------------
22,400 Ford Motor Co. 1,391,600
-----------------------------------------------------------------
25,500 Gannett, Inc. 1,377,000
-----------------------------------------------------------------
17,300 Gap, Inc. 782,825
-----------------------------------------------------------------
23,400 General Motors Corp. 1,363,050
-----------------------------------------------------------------
</TABLE>
TOWER CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ----------------------------------------------------------------- ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------
CONSUMER CYCLICAL--CONTINUED
-----------------------------------------------------------------
16,800 Goodyear Tire and Rubber $ 760,200
-----------------------------------------------------------------
24,400 Hasbro, Inc. 860,100
-----------------------------------------------------------------
74,800 J.C. Penney Co., Inc. 4,095,300
-----------------------------------------------------------------
10,000 * King World Productions, Inc. 372,500
-----------------------------------------------------------------
33,900 May Dept. Stores Co. 1,483,125
-----------------------------------------------------------------
18,000 * Safeway, Inc. 445,500
-----------------------------------------------------------------
44,800 Sears Roebuck & Co. 2,044,000
-----------------------------------------------------------------
14,940 V.F. Corp. 759,900
-----------------------------------------------------------------
45,400 Wendy's International, Inc. 800,175
----------------------------------------------------------------- ------------
Total 25,504,286
----------------------------------------------------------------- ------------
ENERGY--10.1%
-----------------------------------------------------------------
23,800 Amoco Corp. 1,243,550
-----------------------------------------------------------------
30,100 Ashland Oil Co. 1,234,100
-----------------------------------------------------------------
29,900 Chevron Corp. 2,593,825
-----------------------------------------------------------------
34,500 Diamond Shamrock, Inc. 1,000,500
-----------------------------------------------------------------
30,000 Dresser Industries, Inc. 682,500
-----------------------------------------------------------------
19,200 Enron Oil and Gas Co. 825,600
-----------------------------------------------------------------
20,600 Exxon Corp. 1,336,425
-----------------------------------------------------------------
42,200 Mobil Corp. 3,317,975
-----------------------------------------------------------------
13,300 Royal Dutch Petroleum Co. 1,421,439
-----------------------------------------------------------------
10,800 Texaco, Inc. 700,650
-----------------------------------------------------------------
10,300 Unocal Corp. 283,250
----------------------------------------------------------------- ------------
Total 14,639,814
----------------------------------------------------------------- ------------
FINANCIAL--10.9%
-----------------------------------------------------------------
17,000 Aetna Life & Casualty Co. 1,020,000
-----------------------------------------------------------------
35,800 AFLAC, Inc. 1,060,575
-----------------------------------------------------------------
25,900 Bank of New York Co., Inc. 2,127,038
-----------------------------------------------------------------
</TABLE>
TOWER CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ----------------------------------------------------------------- ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------
FINANCIAL--CONTINUED
-----------------------------------------------------------------
71,400 Bear Stearns Cos., Inc. $ 1,544,025
-----------------------------------------------------------------
61,700 Chase Manhattan Corp. 2,012,963
-----------------------------------------------------------------
57,800 * Citicorp 2,398,700
-----------------------------------------------------------------
27,500 Dean Witter Discover & Co. 990,000
-----------------------------------------------------------------
94,400 PNC Bank Corp. 2,607,800
-----------------------------------------------------------------
16,000 Transamerica Corp. 812,000
-----------------------------------------------------------------
36,200 U.S. Life Corp. 1,411,800
----------------------------------------------------------------- ------------
Total 15,984,901
----------------------------------------------------------------- ------------
HEALTH CARE--7.7%
-----------------------------------------------------------------
42,300 Abbott Laboratories 1,168,538
-----------------------------------------------------------------
17,700 * Amgen, Inc. 738,975
-----------------------------------------------------------------
32,000 Bristol Myers Squibb Co. 1,768,000
-----------------------------------------------------------------
23,200 Humana, Inc. 452,400
-----------------------------------------------------------------
49,600 Johnson & Johnson 1,990,200
-----------------------------------------------------------------
20,200 Lilly Eli & Co. 1,113,525
-----------------------------------------------------------------
63,500 Merck & Co., Inc. 2,055,812
-----------------------------------------------------------------
20,900 Schering-Plough 1,248,775
-----------------------------------------------------------------
20,200 Up John Co. 585,800
----------------------------------------------------------------- ------------
Total 11,122,025
----------------------------------------------------------------- ------------
TECHNOLOGY--7.2%
-----------------------------------------------------------------
8,900 * Cisco Systems, Inc. 656,375
-----------------------------------------------------------------
14,400 * Compaq Computer Corp. 1,422,000
-----------------------------------------------------------------
40,100 Computer Associates International, Inc. 1,473,675
-----------------------------------------------------------------
16,800 Intel Corp. 1,157,100
-----------------------------------------------------------------
21,800 International Business Machines 1,152,675
-----------------------------------------------------------------
39,800 Moore Corp., Ltd. 746,250
-----------------------------------------------------------------
66,800 * National Semiconductor Corp. 1,452,900
-----------------------------------------------------------------
</TABLE>
TOWER CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ----------------------------------------------------------------- ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------
TECHNOLOGY--CONTINUED
-----------------------------------------------------------------
14,200 Texas Instruments, Inc. $ 1,146,650
-----------------------------------------------------------------
81,100 * Unisys Corp. 1,175,950
----------------------------------------------------------------- ------------
Total 10,383,575
----------------------------------------------------------------- ------------
TRANSPORTATION--2.0%
-----------------------------------------------------------------
17,300 Airbourne Freight Corp. 644,425
-----------------------------------------------------------------
45,600 Consolidated Freightways 1,219,800
-----------------------------------------------------------------
15,700 Norfolk Southern Corp. 1,083,300
----------------------------------------------------------------- ------------
Total 2,947,525
----------------------------------------------------------------- ------------
UTILITIES--13.8%
-----------------------------------------------------------------
52,200 Ameritech Corp. 2,094,525
-----------------------------------------------------------------
102,000 Baltimore Gas & Electric Co. 2,371,500
-----------------------------------------------------------------
53,800 General Public Utilities Corp. 1,540,025
-----------------------------------------------------------------
71,400 GTE Corp. 2,329,425
-----------------------------------------------------------------
75,500 Pacific Gas & Electric Co. 2,387,688
-----------------------------------------------------------------
58,400 Panhandle Eastern Corp. 1,277,500
-----------------------------------------------------------------
89,300 Southwestern Bell Corp. 3,493,862
-----------------------------------------------------------------
75,500 Sprint Corp. 2,802,937
-----------------------------------------------------------------
26,400 Telefonos De Mexico SA 1,772,100
----------------------------------------------------------------- ------------
Total 20,069,562
----------------------------------------------------------------- ------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $130,382,611) 142,620,313
----------------------------------------------------------------- ------------
</TABLE>
TOWER CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- -----------------------------------------------------------------
<C> <C> <S> <C>
**REPURCHASE AGREEMENT--1.6%
- ------------------------------------------------------------------------------------
$2,377,000 State Street Bank and Trust Co., 3.40%, dated 2/28/94, due 3/1/94
(at amortized cost) (Note 2B) $ 2,377,000
----------------------------------------------------------------- ------------
TOTAL INVESTMENTS (IDENTIFIED COST, $132,759,611) $144,997,313+
----------------------------------------------------------------- ------------
</TABLE>
* Non-income producing.
** The 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 $132,759,611. The
net unrealized appreciation of investments on a federal income tax basis
amounts to $12,237,702, which is comprised of $15,616,476 appreciation and
$3,378,774 depreciation at February 28, 1994.
Note: The categories of investments are shown as a percentage of net assets
($145,187,550) at
February 28, 1994.
(See Notes which are an integral part of the Financial Statements)
TOWER CAPITAL APPRECIATION FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in securities, at value (Notes 2A and 2B)
(identified and tax cost $132,759,611) $144,997,313
- --------------------------------------------------------------------------------
Cash 605
- --------------------------------------------------------------------------------
Receivable for investments sold 9,394,953
- --------------------------------------------------------------------------------
Dividends and interest receivable 402,566
- --------------------------------------------------------------------------------
Receivable for Fund shares sold 37,386
- -------------------------------------------------------------------------------- ------------
Total assets 154,832,823
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for investments purchased $9,387,018
- -------------------------------------------------------------------
Payable for Fund shares repurchased 223,450
- -------------------------------------------------------------------
Dividend tax withheld 1,403
- -------------------------------------------------------------------
Accrued expenses 33,402
- ------------------------------------------------------------------- ----------
Total liabilities 9,645,273
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 10,487,908 shares of beneficial interest outstanding $145,187,550
- -------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid-in capital $130,586,939
- --------------------------------------------------------------------------------
Net unrealized appreciation of investments 12,237,702
- --------------------------------------------------------------------------------
Accumulated net realized gain on investments 2,074,159
- --------------------------------------------------------------------------------
Undistributed net investment income 288,750
- -------------------------------------------------------------------------------- ------------
Total $145,187,550
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE and Redemption Price Per Share
($145,187,550 / 10,487,908 shares of beneficial interest outstanding) $13.84
- -------------------------------------------------------------------------------- ------------
COMPUTATION OF OFFERING PRICE: Offering Price Per Share (100/97 of $13.84)* $14.27
- -------------------------------------------------------------------------------- ------------
</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
SIX MONTHS ENDED FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------
Dividends $ 1,878,361
- --------------------------------------------------------------------------------
Interest 48,695
- -------------------------------------------------------------------------------- -----------
Total investment income (Note 2C) 1,927,056
- --------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------
Investment advisory fee (Note 5) $532,766
- ---------------------------------------------------------------------
Trustees' fees 4,215
- ---------------------------------------------------------------------
Administrative personnel and services (Note 5) 93,764
- ---------------------------------------------------------------------
Custodian and recordkeeping fee and expenses 39,431
- ---------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 14,806
- ---------------------------------------------------------------------
Fund share registration costs 5,788
- ---------------------------------------------------------------------
Auditing fees 7,467
- ---------------------------------------------------------------------
Legal fees 3,765
- ---------------------------------------------------------------------
Printing and postage 10,003
- ---------------------------------------------------------------------
Insurance premiums 3,857
- ---------------------------------------------------------------------
Miscellaneous 1,597
- --------------------------------------------------------------------- --------
Total expenses 717,459
- -------------------------------------------------------------------------------- -----------
Net investment income 1,209,597
- -------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------
Net realized gain on investments (identified cost basis) 5,891,690
- --------------------------------------------------------------------------------
Net change in unrealized appreciation on investments (2,139,666)
- -------------------------------------------------------------------------------- -----------
Net realized and unrealized gain on investments 3,752,024
- -------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $ 4,961,621
- -------------------------------------------------------------------------------- -----------
</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 $ 1,209,597 $ 2,634,754
- ----------------------------------------------------------------
Net realized gain from investment transactions
($5,891,690 and $7,421,915, respectively, as computed for
federal tax purposes) 5,891,690 7,054,404
- ----------------------------------------------------------------
Change in unrealized appreciation of investments (2,139,666) 11,463,261
- ---------------------------------------------------------------- ------------ ------------
Change in net assets resulting from operations 4,961,621 21,152,419
- ---------------------------------------------------------------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- ----------------------------------------------------------------
Dividends to shareholders from net investment income (1,234,055) (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 (12,108,960) (13,692,831)
- ---------------------------------------------------------------- ------------ ------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- ----------------------------------------------------------------
Proceeds from sale of shares 11,763,700 90,108,432
- ----------------------------------------------------------------
Net asset value of shares issued to shareholders electing to
receive payment of dividends in Fund shares 10,106,648 11,137,152
- ----------------------------------------------------------------
Cost of shares redeemed (10,343,130) (41,550,742)
- ---------------------------------------------------------------- ------------ ------------
Change in net assets resulting from Fund share transactions 11,527,218 59,694,842
- ---------------------------------------------------------------- ------------ ------------
Change in net assets 4,379,879 67,154,430
- ----------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------
Beginning of period 140,807,671 73,653,241
- ---------------------------------------------------------------- ------------ ------------
End of period (including undistributed net investment income
of $288,750 and $313,208, respectively) $145,187,550 $140,807,671
- ---------------------------------------------------------------- ------------ ------------
</TABLE>
* Six months ended February 28, 1994 (unaudited).
(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 0.12 0.28 0.29 0.33 0.38 0.33
- --------------------------------------------
Net realized and unrealized gain (loss)
on investments 0.37 2.02 0.11 2.45 (0.76) 2.68
- -------------------------------------------- ----- ----- ----- ----- ----- -----
Total from investment operations 0.49 2.30 0.40 2.78 (.38) 3.01
- --------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------
Dividends to shareholders from net
investment income (0.12) (0.30) (0.27) (0.36) (0.39) (0.24 )
- --------------------------------------------
Distributions in excess of net realized
gain on investment transactions -- -- -- -- (0.02)(a) --
- --------------------------------------------
Distributions to shareholders from net
realized gain on investment transactions (1.13) (1.42) (0.46) -- (0.22) --
- -------------------------------------------- ----- ----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS (1.25) (1.72) (0.73) (0.36) (0.63) (0.24 )
- -------------------------------------------- ----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD $13.84 $14.60 $14.02 $14.35 $11.93 $12.94
- -------------------------------------------- ----- ----- ----- ----- ----- -----
TOTAL RETURN*** 3.54% 17.89% 2.93% 23.77% (3.11%) 32.29 %
- --------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------
Expenses 1.01%(c) 0.85% 0.83% 0.74% 0.42% 0.56 %(c)
- --------------------------------------------
Net investment income 1.70%(c) 2.10% 1.99% 2.58% 3.06% 4.00 %(c)
- --------------------------------------------
Expense waiver/reimbursement (b) -- 0.18% 0.25% 0.29% 0.75% 0.83 %(c)
- --------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------
Net assets, end of period (000 omitted) $145,188 $140,808 $73,653 $87,927 $60,448 $48,093
- --------------------------------------------
Portfolio turnover rate 67% 127% 163% 124% 123% 70 %
- --------------------------------------------
</TABLE>
* Six months ended February 28, 1994 (unaudited).
** Reflects operations for the period from October 14, 1988 (date of initial
public investment) to August 31, 1989. Net investment income prior to
October 14, 1988, aggregating $0.17 per share, was distributed to Federated
Administrative Services ("FAS").
*** 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 income tax purposes.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(c) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
TOWER CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Tower Capital Appreciation Fund (the "Fund") is a diversified portfolio of Tower
Mutual Funds (the "Trust"), which is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company. The Trust was
organized in April 1988; however, investment operations of the Fund did not
commence until October 14, 1988 (date of initial public investment). 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.
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--Listed equity securities are valued at last sale prices reported
on national securities exchanges. Unlisted securities or listed securities in which
there were no sales are valued at the mean between bid and asked prices. Short-term
obligations are ordinarily valued at the mean between bid and asked prices as furnished
by an independent pricing service. However, short-term obligations with maturities of
sixty days or less are valued 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 securities to ensure the existence of a proper level
of collateral.
The Fund will only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are deemed by the Fund's adviser to
be creditworthy pursuant to guidelines established by the Trustees. 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. INCOME--Interest income is recorded on the accrual basis. Interest income includes
interest and discount earned (net of premium) on short-term obligations and interest
earned on all other debt securities including original issue discount as required by the
Internal Revenue Code.
Dividend income is recorded on the ex-dividend date.
</TABLE>
TOWER CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute to
shareholders each year all of its taxable income, including any net realized gain on
investments. Accordingly, no provision for federal tax is necessary.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or
delayed delivery transactions. To the extent the Fund engages in such transactions, it
will do so for the purpose of acquiring portfolio securities consistent with its
investment objective and policies and not for the purpose of investment leverage. The
Fund will record a when-issued security and the related liability on the trade date.
Until the securities are received and paid for, the Fund will maintain security
positions such that sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed delivery basis
are marked to market daily and begin earning interest on the settlement date.
F. OTHER--Investment transactions are accounted for on the trade date of the transaction.
</TABLE>
(3) DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid quarterly to all shareholders invested in the
Fund on the record date. Capital gains realized by the Fund, if any, will be
distributed at least once every 12 months. Dividends to shareholders and capital
gain distributions, if any, are recorded on the ex-dividend date. Dividends and
distributions are automatically reinvested in additional shares of the Fund on
payment date at net asset value unless cash payments are requested.
(4) 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 outstanding, beginning of period 9,642,355 5,253,294
- -------------------------------------------------------------------
Shares sold 829,806 6,504,265
- -------------------------------------------------------------------
Shares issued to shareholders electing to receive payment of
dividends in Fund shares 738,325 840,004
- -------------------------------------------------------------------
Shares redeemed (722,578) (2,955,208)
- ------------------------------------------------------------------- ---------- ----------
Shares outstanding, end of period 10,487,908 9,642,355
- ------------------------------------------------------------------- ---------- ----------
</TABLE>
* Six months ended February 28, 1994.
TOWER CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Hibernia National Bank, the Fund's investment adviser ("Adviser"), receives for
its services an annual investment advisory fee equal to 0.75 of 1% of the Fund's
average daily net assets. Adviser may voluntarily choose to waive a portion of
its fee or reimburse certain expenses of the Fund.
Federated Administrative Services ("FAS") provides the Fund with certain
administrative personnel and services. The fee is based on the level of average
aggregate net assets of the Fund for the period. FAS may voluntarily choose to
waive a portion of its fee.
The Trust has adopted a Distribution Plan (the "Plan") for the Fund pursuant to
Rule 12b-1 under the Investment Company Act of 1940 as amended. The Fund will
reimburse Federated Securities Corp. ("FSC"), the principal distributor, from
the net assets of the Fund, for fees the distributor paid which relate to the
distribution and administration of the Fund's shares. For the six months ended
February 28, 1994, the Fund did not pay a distribution fee.
Certain of the Officers and a Trustee of the Trust are Officers and Trustees of
FAS and FSC.
(6) INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term obligations) for the
six months ended February 28, 1994, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
PURCHASES $92,992,327
- ------------------------------------------------------------------------------- -----------
SALES $92,008,302
- ------------------------------------------------------------------------------- -----------
</TABLE>
<TABLE>
<S> <C>
TRUSTEES OFFICERS
</TABLE>
- --------------------------------------------------------------------------------
<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
C. Grant Anderson
Secretary
</TABLE>
Mutual funds are not obligations of or insured by any bank nor are they insured
by
the federal government or any of its agencies. Investment in these shares
involves risk, including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the Fund's prospectus which contains facts concerning its
objective and policies, management fees, expenses and other information.
- --------------------------------------------------------------------------------
TOWER
- --------------------------------------------------------------------------------
U.S. GOVERNMENT
- --------------------------------------------------------------------------------
INCOME FUND
- --------------------------------------------------------------------------------
Semi-Annual Report
To Shareholders
February 28, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
0000000 (4/94)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for the Tower
U.S. Government Income Fund. The report, which covers the six-month period ended
February 28, 1994, begins with an interview with the Fund's portfolio manager
and includes the Portfolio of Investments and Financial Statements.
In an ever-complex world of investments, the Tower U.S. Government Income Fund
delivers the peace of mind that comes with investing in U.S. government
securities, historically among the safest securities available.
At the end of the period, net assets stood at $81.5 million, while the net asset
value stood at $10.41 per share. Dividends paid to shareholders during the
six-month period totaled $0.35 per share. The Fund also paid capital gains
distributions of $0.04 per share.
Thank you for selecting the Tower U.S. Government Income Fund. We will continue
to keep you up to date on your investment as we attempt to provide you with the
highest level of service.
Sincerely,
Edward C. Gonzales
President
April 15, 1994
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Q
How did the Tower U.S. Government Income Fund (the "Fund") perform over the
six-month reporting period?
A
The effect of a stronger U.S. economy, renewed inflation concerns and
generally rising interest rates depressed government bond prices during the
six-month period ending February 28, 1994. The Fund experienced a slightly
negative total rate of return of .28%,* which does not reflect the sales load.**
The relatively short-term nature of the Fund (7 years) and the defensive nature
of the Fund's portfolio largely mitigated the effects of the rising interest
rates.
Q
Over the period, interest rates remained low. Have mortgage prepayments
continued to affect your strategy?
A
The low interest rate environment and the resulting accelerated mortgage
prepayments have caused us to reduce the portfolio's reliance on
mortgage-backed securities. While the Fund continues to maintain a
significant percentage of its assets in mortgage-related securities, newer
investments are being redirected to U.S. treasuries and non-callable agencies.
Q
Do you anticipate adjusting the duration of the Fund?
A
We anticipate maintaining the Fund's duration in its historical range of
3.0 to 4.0 years, depending on the market conditions.
Q
What is your outlook for interest rates and their effect on the Fund?
A
Interest rates have now retraced all of their gains of 1993. Given current
economic and inflation forecasts, rates should begin to stabilize at or
near current levels. Given this outlook, we would be inclined to maintain
our current portfolio structure with no changes in portfolio duration or average
maturity.
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
** A negative total rate of return of 3.23% reflects the maximum sales load.
TOWER U.S. GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
The obligations listed below are issued by the U.S. government, its agencies or
instrumentalities.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- -------------------------------------------------------------------- -----------
<C> <C> <S> <C>
LONG-TERM OBLIGATIONS--96.2%
- -----------------------------------------------------------------------------------
* FEDERAL HOME LOAN MORTGAGE CORP. PC--7.1%
--------------------------------------------------------------------
$2,076,836 10.00%, 6/1/2018 $ 2,268,943
--------------------------------------------------------------------
882,643 9.50%, 10/1/2001-10/1/2019 936,967
--------------------------------------------------------------------
350,129 9.25%, 6/1/2002 369,169
--------------------------------------------------------------------
855,965 9.00%, 8/1/2001-5/1/2018 909,124
--------------------------------------------------------------------
1,273,251 8.75%, 1/1/2011-2/1/2017 1,341,689
-------------------------------------------------------------------- -----------
Total 5,825,892
-------------------------------------------------------------------- -----------
* FEDERAL HOME LOAN MORTGAGE CORP. REMIC--15.8%
--------------------------------------------------------------------
340,502 9.50%, Series 24B, 1/15/2005 350,179
--------------------------------------------------------------------
253,948 9.25%, Series 1C, 8/15/2013 256,594
--------------------------------------------------------------------
1,000,000 9.00%, Series 1015E, 6/15/2020 1,043,050
--------------------------------------------------------------------
1,000,000 7.50%, Series 1348 PN, 9/15/2021 1,005,770
--------------------------------------------------------------------
1,558,000 7.50%, Series 1378 ND, 9/15/2007 1,585,701
--------------------------------------------------------------------
2,000,000 7.00%, Series 1435 HC, 11/15/2005 1,996,140
--------------------------------------------------------------------
2,500,000 7.00%, Series 1440 PQ, 12/15/2006 2,483,975
--------------------------------------------------------------------
2,000,000 6.375%, Series 1449 GB, 11/15/2006 1,958,560
--------------------------------------------------------------------
1,750,000 6.10%, Series 1349E, 6/15/2016 1,729,665
--------------------------------------------------------------------
500,000 6.00%, Series 1524E, 10/15/2004 487,650
-------------------------------------------------------------------- -----------
Total 12,897,284
-------------------------------------------------------------------- -----------
* FEDERAL NATIONAL MORTGAGE ASSOCIATION REMIC--14.4%
--------------------------------------------------------------------
1,000,000 9.30%, Series 1990-10H, 8/25/2017 1,011,910
--------------------------------------------------------------------
1,880,362 9.00%, Series 1990-132E, 1/25/2018 1,902,794
--------------------------------------------------------------------
779,096 9.00%, Series 1990-93D, 10/25/2018 789,076
--------------------------------------------------------------------
</TABLE>
TOWER U.S. GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- -------------------------------------------------------------------- -----------
<C> <C> <S> <C>
LONG-TERM OBLIGATIONS--CONTINUED
- -----------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION REMIC--CONTINUED
--------------------------------------------------------------------
$2,000,000 9.00%, Series 1990-105H, 6/25/2019 $ 2,061,160
--------------------------------------------------------------------
178,525 8.95%, Series 1990-109E, 11/25/2016 179,011
--------------------------------------------------------------------
2,000,000 8.00%, Series 1990-54E, 12/25/2003 2,018,740
--------------------------------------------------------------------
2,500,000 8.00%, Series 1992-34G, 3/25/2022 2,561,725
--------------------------------------------------------------------
171,505 7.50%, Series 1991-85D, 4/25/2013 171,228
--------------------------------------------------------------------
1,000,000 7.50%, Series 1992-117K, 3/25/2021 1,006,180
-------------------------------------------------------------------- -----------
Total 11,701,824
-------------------------------------------------------------------- -----------
* FEDERAL NATIONAL MORTGAGE ASSOCIATION PC--1.6%
--------------------------------------------------------------------
302,821 10.75%, 1/1/2001 325,057
--------------------------------------------------------------------
141,672 9.50%, 8/1/2020 153,846
--------------------------------------------------------------------
744,643 8.50%, 2/1/2011 794,207
-------------------------------------------------------------------- -----------
Total 1,273,110
-------------------------------------------------------------------- -----------
* GOVERNMENT NATIONAL MORTGAGE ASSOCIATION PC--6.8%
--------------------------------------------------------------------
1,113,653 9.50%, 6/15/2020 1,203,781
--------------------------------------------------------------------
903,866 9.00%, 2/15/2020 966,568
--------------------------------------------------------------------
2,274,881 8.00%, 11/15/2022 2,387,898
--------------------------------------------------------------------
953,242 7.50%, 10/15/2022 980,047
-------------------------------------------------------------------- -----------
Total 5,538,294
-------------------------------------------------------------------- -----------
U.S. TREASURY BONDS--10.1%
--------------------------------------------------------------------
7,250,000 7.125%-8.50%, 2/15/2020-2/15/2023 8,212,240
-------------------------------------------------------------------- -----------
U.S. TREASURY NOTES--36.1%
--------------------------------------------------------------------
26,582,000 5.25%-9.25%, 11/15/96-8/15/2003 29,411,267
-------------------------------------------------------------------- -----------
MUNICIPAL BOND--4.3%
--------------------------------------------------------------------
3,500,000 Atlanta, GA, Downtown Development Authority, 6.25%, 2/1/2009 3,472,945
-------------------------------------------------------------------- -----------
TOTAL LONG-TERM OBLIGATIONS (IDENTIFIED COST, $77,813,453) 78,332,856
-------------------------------------------------------------------- -----------
</TABLE>
TOWER U.S. GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- -------------------------------------------------------------------- -----------
<C> <C> <S> <C>
** REPURCHASE AGREEMENT--3.1%
- -----------------------------------------------------------------------------------
$2,496,000 State Street Bank and Trust Co., 3.40%, dated 2/28/94, due 3/1/94
(at amortized cost)(Note 2B) $ 2,496,000
-------------------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $80,309,453) $80,828,856+
-------------------------------------------------------------------- -----------
</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
Securities, and Federal National Mortgage Association Pass-Through Securities
are less than the indicated periods.
** The 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 $80,309,453. The
net unrealized appreciation of investments on a federal tax basis amounts to
$519,403, which is comprised of $1,284,404 appreciation and $765,001
depreciation at February 28, 1994.
Note: The categories of investments are shown as a percentage of net assets
($81,450,722) at February 28, 1994.
<TABLE>
<S> <C> <C>
FHA/VA -- Federal Housing Administration/Veterans Administration
PC -- Participation Certificates
REMIC -- Real Estate Mortgage Investment Conduit
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TOWER U.S. GOVERNMENT INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in securities, at value (Notes 2A and 2B)
(identified and tax cost, $80,309,453) $80,828,856
- --------------------------------------------------------------------------------
Cash 36,069
- --------------------------------------------------------------------------------
Interest receivable 1,115,881
- --------------------------------------------------------------------------------
Receivable for Fund shares sold 157,739
- --------------------------------------------------------------------------------
Receivable for investments sold 19,267
- -------------------------------------------------------------------------------- -----------
Total assets 82,157,812
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Dividends payable $356,872
- ---------------------------------------------------------------------
Payable for Fund shares repurchased 323,572
- ---------------------------------------------------------------------
Accrued expenses 26,646
- --------------------------------------------------------------------- --------
Total liabilities 707,090
- -------------------------------------------------------------------------------- -----------
NET ASSETS for 7,820,582 shares of beneficial interest outstanding $81,450,722
- -------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid-in capital $81,164,654
- --------------------------------------------------------------------------------
Net unrealized appreciation of investments 519,403
- --------------------------------------------------------------------------------
Accumulated net realized loss on investments (200,653)
- --------------------------------------------------------------------------------
Accumulated distributions in excess of net investment income (Note 3) (32,682)
- -------------------------------------------------------------------------------- -----------
Total $81,450,722
- -------------------------------------------------------------------------------- -----------
NET ASSET VALUE and Redemption Price Per Share
($81,450,722 / 7,820,582 shares of beneficial interest outstanding) $10.41
- -------------------------------------------------------------------------------- -----------
COMPUTATION OF OFFERING PRICE: Offering Price Per Share
(100/97 of $10.41)* $10.73
- -------------------------------------------------------------------------------- -----------
</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
SIX MONTHS ENDED FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------
Interest income (Note 2C) $ 3,094,380
- --------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------
Investment advisory fee (Note 5) $191,936
- ---------------------------------------------------------------------
Trustees' fees 3,216
- ---------------------------------------------------------------------
Administrative personnel and services (Note 5) 56,215
- ---------------------------------------------------------------------
Custodian and record keeping fees and expenses 40,176
- ---------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 18,194
- ---------------------------------------------------------------------
Fund share registration costs 6,653
- ---------------------------------------------------------------------
Auditing fees 6,679
- ---------------------------------------------------------------------
Legal fees 3,534
- ---------------------------------------------------------------------
Printing and postage 8,830
- ---------------------------------------------------------------------
Insurance premiums 3,126
- ---------------------------------------------------------------------
Miscellaneous 2,377
- --------------------------------------------------------------------- --------
Total expenses 340,936
- ---------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 5) 25,591
- --------------------------------------------------------------------- --------
Net expenses 315,345
- -------------------------------------------------------------------------------- -----------
Net investment income 2,779,035
- -------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------
Net realized (loss) on investment (identified cost basis) (81,925)
- --------------------------------------------------------------------------------
Net change in unrealized appreciation on investments (3,111,571)
- -------------------------------------------------------------------------------- -----------
Net realized and unrealized loss on investments (3,193,496)
- -------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $ (414,461)
- -------------------------------------------------------------------------------- -----------
</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,
----------------------------
1994* 1993
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------
Net investment income $ 2,779,035 $ 5,233,980
- -----------------------------------------------------------------
Net realized gain (loss) from investment transactions (($81,925)
and $286,215 net gain (loss), respectively, as computed for
federal tax purposes) (81,925) 167,841
- -----------------------------------------------------------------
Change in unrealized appreciation of investments (3,111,571) 915,245
- ----------------------------------------------------------------- ------------ ------------
Change in net assets resulting from operations (414,461) 6,317,066
- ----------------------------------------------------------------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -----------------------------------------------------------------
Dividends to shareholders from net investment income (2,779,035) (5,270,138)
- -----------------------------------------------------------------
Distributions in excess of net investment income (9,381) (23,301)
- -----------------------------------------------------------------
Distributions to shareholders from net realized gain on
investment transactions (286,051) (76,597)
- ----------------------------------------------------------------- ------------ ------------
Change in net assets resulting from distributions to
shareholders (3,074,467) (5,370,036)
- ----------------------------------------------------------------- ------------ ------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- -----------------------------------------------------------------
Proceeds from sale of shares 8,774,201 34,426,646
- -----------------------------------------------------------------
Net asset value of shares issued to shareholders electing to
receive payment of dividends in Fund shares 763,892 1,122,190
- -----------------------------------------------------------------
Cost of shares redeemed (11,195,550) (11,544,650)
- ----------------------------------------------------------------- ------------ ------------
Change in net assets resulting from Fund share transactions (1,657,457) 24,004,186
- ----------------------------------------------------------------- ------------ ------------
Change in net assets (5,146,385) 24,951,216
- -----------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------
Beginning of period 86,597,107 61,645,891
- ----------------------------------------------------------------- ------------ ------------
End of period $ 81,450,722 $ 86,597,107
- ----------------------------------------------------------------- ------------ ------------
</TABLE>
* Six months ended February 28, 1994 (unaudited).
(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 0.35 0.74 0.79 0.85 0.86 0.69
- ------------------------------------------
Net realized and unrealized gain (loss)
on investments (0.40) 0.12 0.30 0.43 (0.11) 0.03
- ------------------------------------------ ----- ----- ----- ----- ----- -----
Total from investment operations (0.05) 0.86 1.09 1.28 0.75 0.72
- ------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------
Dividends to shareholders from net
investment income (0.35) (0.74) (0.79) (0.85) (0.86) (0.69 )
- ------------------------------------------
Distributions in excess of net
investment income -- (0.01)(a) -- -- -- --
- ------------------------------------------
Distributions to shareholders from net
realized gain on investment transactions (.04) (0.01) (0.04) (0.01) (0.02) --
- ------------------------------------------ ----- ----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS (0.39) (0.76) (0.83) (0.86) (0.88) (0.69 )
- ------------------------------------------ ----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD $10.41 $10.85 $10.75 $10.49 $10.07 $10.20
- ------------------------------------------ ----- ----- ----- ----- ----- -----
TOTAL RETURN*** (.28%) 8.11% 10.72% 13.27% 7.64% 9.20 %
- ------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------
Expenses 0.74%(c) 0.68% 0.69% 0.68% 0.69% 0.59 %(c)
- ------------------------------------------
Net investment income 6.51%(c) 7.03% 7.51% 8.30% 8.50% 8.64 %(c)
- ------------------------------------------
Expense waiver/reimbursement (b) .06%(c) 0.11% 0.11% 0.17% 0.45% 0.52 %(c)
- ------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------
Net assets, end of period (000 omitted) $81,451 $86,597 $61,646 $48,482 $32,596 $15,753
- ------------------------------------------
Portfolio turnover rate 16% 61% 36% 20% 32% 42 %
- ------------------------------------------
</TABLE>
* Six months ended February 28, 1994 (unaudited).
** Reflects operations for the period from October 14, 1988 (date of initial
public investment), to August 31, 1989. Net investment income prior to
October 14, 1988, aggregating $0.17 per share was distributed to Federated
Administrative Services ("FAS").
*** 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 income
tax purposes.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(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
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Tower U.S. Government Income Fund (the "Fund") is a diversified portfolio of
Tower Mutual Funds (the "Trust"), which is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The Trust was organized in April 1988; however, investment operations of the
Fund did not commence until October 14, 1988 (date of initial public
investment). 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.
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--U.S. government obligations are valued at the mean between the
over-the-counter bid and asked prices as furnished by an independent pricing service.
U.S. government obligations maturing in sixty days or less are valued 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 securities to ensure the existence of a proper level
of collateral.
The Fund will only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are deemed by the Fund's adviser to
be creditworthy pursuant to guidelines established by the Trustees. 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.
</TABLE>
TOWER U.S. GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
C. INCOME--Interest income is recorded on the accrual basis. Interest income includes
interest and discount earned (net of premium) on short-term obligations, and interest
earned on all other debt securities including original issue discount as required by the
Internal Revenue Code.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute to
shareholders each year all of its taxable income, including any net realized gain on
investments. Accordingly, no provision for federal tax is necessary. Net capital losses
of $70,562 attributable to security transactions incurred after October 31, 1992, are
treated as arising on 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. To the extent the Fund engages in such transactions, it
will do so for the purpose of acquiring portfolio securities consistent with its
investment objective and policies and not for the purpose of investment leverage. The
Fund will record a when-issued security and the related liability on the trade date.
Until the securities are received and paid for, the Fund will maintain security
positions such that sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed delivery basis
are marked to market daily and begin earning interest on the settlement date.
F. OTHER--Investment transactions are accounted for on the trade date of the transaction.
</TABLE>
(3) DIVIDENDS AND DISTRIBUTIONS
The Fund declares and pays dividends monthly to all shareholders invested in the
Fund on the record date. Capital gains realized by the Fund, if any, will be
distributed at least once every 12 months. Dividends to shareholders and capital
gain distributions, if any, are recorded on the ex-dividend date. Dividends and
distributions are automatically reinvested in additional shares of the Fund on
payment date at net asset value unless cash payments are requested.
For the six months ended February 28, 1994, the Fund had net investment income
different from that determined for tax purposes because of certain timing
differences. These timing differences resulted in distributions to shareholders
in excess of net investment income. These distributions do not represent a
return of capital for federal income tax purposes.
TOWER U.S. GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
(4) 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 outstanding, beginning of period 7,983,219 5,733,074
- -----------------------------------------------------------------
Shares sold 823,957 3,288,664
- -----------------------------------------------------------------
Shares issued to shareholders electing to receive
payment of dividends in Fund shares 72,255 105,193
- -----------------------------------------------------------------
Shares redeemed (1,058,849) (1,143,712)
- ----------------------------------------------------------------- ---------- ----------
Shares outstanding, end of period 7,820,582 7,983,219
- ----------------------------------------------------------------- ---------- ----------
</TABLE>
* Six months ended February 28, 1994.
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Hibernia National Bank, the Fund's investment adviser ("Adviser"), receives for
its services an annual investment advisory fee equal to 0.45 of 1% of the Fund's
average daily net assets. Adviser may voluntarily choose to waive a portion of
its fee or reimburse certain expenses of the Fund. For the six months ended
February 28, 1994, Adviser earned an investment advisory fee of $191,936 of
which $25,591 was voluntarily waived.
Federated Administrative Services ("FAS") provides the Fund with certain
administrative personnel and services. The fee is based on the level of average
aggregate net assets of the Fund for the period. FAS may voluntarily choose to
waive a portion of its fee.
The Trust has adopted a Distribution Plan (the "Plan") for the Fund pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended. The Fund will
reimburse Federated Securities Corp. ("FSC") the principal distributor, up to
0.25 of 1% of average daily net assets of the Fund, for fees FSC paid which
relate to the distribution and administration of the Fund's shares. For the six
months ended February 28, 1994, the Fund did not pay a distribution fee.
Certain of the Officers and a Trustee of the Trust are Officers and Trustees of
FAS and FSC.
TOWER U.S. GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
(6) INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term obligations) for the
six months ended February 28, 1994, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
PURCHASES $13,369,409
- ------------------------------------------------------------------------------- -----------
SALES $17,109,292
- ------------------------------------------------------------------------------- -----------
</TABLE>
<TABLE>
<S> <C>
TRUSTEES OFFICERS
</TABLE>
- --------------------------------------------------------------------------------
<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
C. Grant Anderson
Secretary
</TABLE>
Mutual funds are not obligations of or insured by any bank nor are they
insured by the federal government or any of its agencies. Investment
in these shares involves risk, including the possible loss of principal.
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 TOTAL
- --------------------------------------------------------------------------------
RETURN BOND
- --------------------------------------------------------------------------------
FUND
- --------------------------------------------------------------------------------
Semi-Annual Report
To Shareholders
February 28, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
0000000 (0/93)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for the Tower
Total Return Bond Fund. The report, which covers the six-month period ended
February 28, 1994, begins with an interview with the Fund's portfolio manager
and includes the Portfolio of Investments and Financial Statements.
The Tower Total Return Bond Fund is managed to help your money earn income and
grow in value by investing in a diversified portfolio of corporate bonds and
U.S. government securities.
At the end of the period, net assets stood at $63.2 million, while the net asset
value stood at $10.06 per share. Dividends paid to shareholders during the
six-month period totaled $0.31 per share. The Fund also paid capital gains
distributions of $0.02 per share.
Thank you for your confidence in the Tower Total Return Bond Fund. We will
continue to keep you up to date on your investment as we attempt to provide you
with the highest level of service.
Sincerely,
Edward C. Gonzales
President
April 15, 1994
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Q
Over the period, how did Tower Total Return Bond Fund (the "Fund") perform?
A
During the six-month period ending February 28, 1994, the Fund experienced
a total return loss of approximately 1%*, which does not reflect the sales
load.** In general, fixed-income portfolios invested in a broad range of
fixed-income securities performed similarly. The drop in interest rates
generally observed during the period caused many bonds to go up in value. But
this decline in interest rates caused prepayments of mortgage-backed securities
to increase significantly, which hurt the prices of those securities. These
combined forces resulted in relatively flat performance for the period.
Q
In view of the current interest rate environment, what is the portfolio's
current investment mix?
A
Given our expectation that interest rates on shorter term investments will
rise, and that we expect the yield advantage of buying corporate bonds and
mortgage-backed securities to increase as this economic expansion
continues, we are focusing on investing a higher percentage of our investments
in U.S. Treasury securities with an average maturity just short of the bond
market in general. As spreads widen on corporate bonds and mortgage-backed
securities, we would anticipate selling our Treasury securities and investing in
those higher yielding securities. We believe that the Federal Reserve (the
"Fed") will continue to increase interest rates. The sharp rise in rates
observed since February the 4th, suggests that most of the increase in interest
rates may already be over. Hence, we think that long-term interest rates should
remain stable or fall slightly from these levels, while shorter term interest
rates may rise more as the Fed tightens.
Q
Does this mix reflect any changes during the reporting period?
A
A change in mix out of corporate bonds and mortgage securities into
Treasuries has been ongoing over the last six months as a reflection of our
belief that the yield advantage of buying corporate bonds is not as
attractive as it should be. In addition, we have avoided or sold mortgage-backed
securities to avoid some of the dangers inherent with the rapid prepayment of
mortgages by homeowners over the last year.
Q
It appears that interest rates are finally turning upward. What is your
outlook for interest rates in the future?
A
Yes, interest rates have moved up sharply on short-term investments since
late January. Yields on 3-month Treasury bills have risen from just under
3.00% to over 3.60%. We expect that the Fed will cause short-term interest
rates to increase further over the next six months or so. We would not be
surprised to see the 3-month Treasury bill yielding 4.00% to 4.10% by year end.
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
** A total return loss of 5.39% reflects the maximum sales load.
TOWER TOTAL RETURN BOND FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ------------------------------------------------------------------ -----------
<C> <C> <S> <C>
CORPORATE BONDS/ASSET BACKED SECURITIES--23.5%
- -------------------------------------------------------------------------------------
AUTO LOAN RECEIVABLES--0.4%
------------------------------------------------------------------
$ 242,154 Select Auto Receivables Trust, 7.40%, 5/15/96 $ 246,455
------------------------------------------------------------------ -----------
AUTOMOTIVE--1.9%
------------------------------------------------------------------
1,000,000 Ford Capital B.V., 10.125%, 11/15/2000 1,190,970
------------------------------------------------------------------ -----------
BANKING--3.2%
------------------------------------------------------------------
1,000,000 BankAmerica Corp., 7.50%, 10/15/2002 1,044,440
------------------------------------------------------------------
1,000,000 Signet Banking Corp., 5.20%, 2/15/2002 965,650
------------------------------------------------------------------ -----------
Total 2,010,090
------------------------------------------------------------------ -----------
DIVERSIFIED--1.8%
------------------------------------------------------------------
1,000,000 Penn Central Corp., 10.625%, 4/15/2000 1,157,430
------------------------------------------------------------------ -----------
FINANCE-RETAIL--6.4%
------------------------------------------------------------------
1,000,000 CIT Group Securitization Corp., 5.75%, 6/15/2018 972,830
------------------------------------------------------------------
1,000,000 Discover Credit Card Trust 1993 Class A, 6.25%, 8/15/2000 1,003,670
------------------------------------------------------------------
1,000,000 Household Finance Corp., 9.00%, 9/1/95 1,057,210
------------------------------------------------------------------
1,000,000 Sears Credit Account Trust 1989-E, 8.65%, 11/15/94 1,038,540
------------------------------------------------------------------ -----------
Total 4,072,250
------------------------------------------------------------------ -----------
MISCELLANEOUS--4.2%
------------------------------------------------------------------
1,000,000 Temple Inland Inc., 8.95%, 3/16/98 1,092,620
------------------------------------------------------------------
344,308 USWFS 1990 A Manufactured Housing, 9.05%, 12/25/2010 348,181
------------------------------------------------------------------
1,000,000 Procter & Gamble Profit Sharing Trust, 9.36%, 1/1/2021 1,211,210
------------------------------------------------------------------ -----------
Total 2,652,011
------------------------------------------------------------------ -----------
UTILITIES--5.6%
------------------------------------------------------------------
2,000,000 KN Energy Inc., 9.625%, 8/1/2021 2,343,640
------------------------------------------------------------------
</TABLE>
TOWER TOTAL RETURN BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ------------------------------------------------------------------ -----------
<C> <C> <S> <C>
CORPORATE BONDS/ASSET BACKED SECURITIES--CONTINUED
- -------------------------------------------------------------------------------------
UTILITIES--CONTINUED
------------------------------------------------------------------
$1,000,000 Texas Utilities Electric Co., 9.75%, 5/1/2021 $ 1,166,240
------------------------------------------------------------------ -----------
Total 3,509,880
------------------------------------------------------------------ -----------
TOTAL CORPORATE BONDS/ASSET BACKED SECURITIES
(IDENTIFIED COST, $14,360,193) 14,839,086
------------------------------------------------------------------ -----------
GOVERNMENT AGENCIES--32.6%
- -------------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP.--20.6%
------------------------------------------------------------------
1,000,000 9.00%, Series 1024-I, 11/15/2005 1,049,150
------------------------------------------------------------------
1,000,000 9.00%, Series 28-I, 2/15/2020 1,009,300
------------------------------------------------------------------
3,613,000 8.60%, Series 85-C, 1/15/2021 3,787,689
------------------------------------------------------------------
2,000,000 8.00%, Series 33-D, 4/15/2020 2,043,060
------------------------------------------------------------------
5,000,000 7.70%, Series 1199-G, 11/15/2020 5,116,250
------------------------------------------------------------------ -----------
Total 13,005,449
------------------------------------------------------------------ -----------
FEDERATED NATIONAL MORTGAGE CORP.--2.9%
------------------------------------------------------------------
134,661 11.00%, 4/1/2010-11/25/2019 151,368
------------------------------------------------------------------
1,620,000 8.60%, Series 89-87-J, 11/25/2019 1,697,792
------------------------------------------------------------------ -----------
Total 1,849,160
------------------------------------------------------------------ -----------
GOVERNMENT NATIONAL MORTGAGE ASSOC.--9.1%
------------------------------------------------------------------
1,546,554 10.00%, 3/15/2016-9/15/2020 1,705,075
------------------------------------------------------------------
1,917,647 9.00%, 8/15/2019-5/15/2020 2,050,675
------------------------------------------------------------------
1,905,134 8.00%, 7/15/2016-4/15/2021 2,001,340
------------------------------------------------------------------ -----------
Total 5,757,090
------------------------------------------------------------------ -----------
TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST $20,377,682) 20,611,699
------------------------------------------------------------------ -----------
U.S. TREASURY OBLIGATIONS--41.6%
- -------------------------------------------------------------------------------------
U.S. TREASURY BILLS--10.9%
------------------------------------------------------------------
7,000,000 8/25/94 6,884,920
------------------------------------------------------------------ -----------
U.S. TREASURY BONDS--12.2%
------------------------------------------------------------------
2,000,000 12.50%, 8/15/2014 3,139,360
------------------------------------------------------------------
</TABLE>
TOWER TOTAL RETURN BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ------------------------------------------------------------------ -----------
<C> <C> <S> <C>
U.S. TREASURY OBLIGATIONS--CONTINUED
- -------------------------------------------------------------------------------------
U.S. TREASURY BONDS--CONTINUED
------------------------------------------------------------------
$1,000,000 11.625%, 11/15/2004 $ 1,410,930
------------------------------------------------------------------
3,000,000 7.125%, 2/15/2023 3,132,180
------------------------------------------------------------------ -----------
Total 7,682,470
------------------------------------------------------------------ -----------
U.S. TREASURY NOTES--18.5%
------------------------------------------------------------------
3,700,000 6.00%, 12/31/97 3,785,544
------------------------------------------------------------------
3,000,000 4.375%, 8/15/96 2,967,180
------------------------------------------------------------------
3,000,000 4.25%, 11/30/95 2,983,110
------------------------------------------------------------------
2,000,000 4.00%, 1/31/96 1,974,980
------------------------------------------------------------------ -----------
Total 11,710,814
------------------------------------------------------------------ -----------
TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST, $26,610,305) 26,278,204
------------------------------------------------------------------ -----------
*REPURCHASE AGREEMENT--1.4%
- -------------------------------------------------------------------------------------
867,000 State Street Bank and Trust Co., 3.40%, dated 2/28/94, due 3/1/94
(at amortized cost) (Note 2B) 867,000
------------------------------------------------------------------ -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $62,215,180) 62,595,989+
------------------------------------------------------------------ -----------
</TABLE>
* The 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 $62,215,180. The
net unrealized appreciation of investments on a federal tax basis amounts to
$380,809, which is comprised of $1,005,936 appreciation and $625,127
depreciation at February 28, 1994.
Note: The categories of investments are shown as a percentage of net assets
($63,187,824) at
February 28, 1994.
(See Notes which are an integral part of the Financial Statements)
TOWER TOTAL RETURN BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in securities, at value (Notes 2A and 2B)
(identified and tax cost, $62,215,180) $62,595,989
- --------------------------------------------------------------------------------
Cash 703
- --------------------------------------------------------------------------------
Dividends and interest receivable 595,962
- --------------------------------------------------------------------------------
Receivable for Fund shares sold 105,630
- --------------------------------------------------------------------------------
Receivable for investments sold 14,377
- --------------------------------------------------------------------------------
Deferred expenses (Note 2F) 1,501
- -------------------------------------------------------------------------------- -----------
Total assets 63,314,162
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for Fund shares repurchased $55,893
- ----------------------------------------------------------------------
Dividends payable 23,923
- ----------------------------------------------------------------------
Accrued expenses 46,522
- ---------------------------------------------------------------------- -------
Total liabilities 126,338
- -------------------------------------------------------------------------------- -----------
NET ASSETS for 6,280,106 shares of beneficial interest outstanding $63,187,824
- -------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid-in capital $62,619,576
- --------------------------------------------------------------------------------
Net unrealized appreciation of investments 380,809
- --------------------------------------------------------------------------------
Accumulated net realized gain on investments 145,025
- --------------------------------------------------------------------------------
Undistributed net investment income 42,414
- -------------------------------------------------------------------------------- -----------
Total $63,187,824
- -------------------------------------------------------------------------------- -----------
NET ASSET VALUE and Redemption Price Per Share
($63,187,824 / 6,280,106 shares of beneficial interest outstanding) $10.06
- -------------------------------------------------------------------------------- -----------
COMPUTATION OF OFFERING PRICE: Offering Price Per Share (100/95.5 of $10.06)* $10.53
- -------------------------------------------------------------------------------- -----------
</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
SIX MONTHS ENDED FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------
Interest income (Note 2C) $ 2,080,226
- --------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------
Investment advisory fee (Note 5) $206,712
- ---------------------------------------------------------------------
Trustees' fees 2,023
- ---------------------------------------------------------------------
Administrative personnel and services (Note 5) 39,004
- ---------------------------------------------------------------------
Custodian and recordkeeping fees and expenses 38,654
- ---------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 11,861
- ---------------------------------------------------------------------
Legal fees 3,092
- ---------------------------------------------------------------------
Printing and postage 9,902
- ---------------------------------------------------------------------
Miscellaneous 3,530
- ---------------------------------------------------------------------
Fund share registration costs 10,212
- ---------------------------------------------------------------------
Auditing fees 6,555
- ---------------------------------------------------------------------
Insurance premiums 2,786
- --------------------------------------------------------------------- --------
Total expenses 334,331
- --------------------------------------------------------------------- -----------
Net investment income 1,745,895
- -------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------
Net realized gain on investments (identified cost basis) 145,685
- --------------------------------------------------------------------------------
Net change in unrealized appreciation on investments (2,403,047)
- -------------------------------------------------------------------------------- -----------
Net realized and unrealized (loss) on investments (2,257,362)
- -------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $ (511,467)
- -------------------------------------------------------------------------------- -----------
</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 $ 1,745,895 $ 3,363,569
- -----------------------------------------------------------------
Net realized gain from investment transactions ($145,685 and
$135,685, respectively, as computed for federal tax purposes) 145,685 135,685
- -----------------------------------------------------------------
Change in unrealized appreciation of investments (2,403,047) 2,783,856
- ----------------------------------------------------------------- ----------- ------------
Change in net assets resulting from operations (511,467) 6,283,110
- ----------------------------------------------------------------- ----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -----------------------------------------------------------------
Dividends to shareholders from net investment income (1,770,117) (3,296,933)
- -----------------------------------------------------------------
Distributions to shareholders from net realized gain on
investments (136,345) --
- ----------------------------------------------------------------- ----------- ------------
Change in net assets resulting from distributions to shareholders (1,906,462) (3,296,933)
- ----------------------------------------------------------------- ----------- ------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- -----------------------------------------------------------------
Proceeds from sale of shares 9,701,728 78,658,653
- -----------------------------------------------------------------
Net asset value of shares issued to shareholders electing to
receive payment of dividends in Fund shares 1,652,908 3,276,430
- -----------------------------------------------------------------
Cost of shares redeemed (9,356,473) (21,313,670)
- ----------------------------------------------------------------- ----------- ------------
Change in net assets resulting from Fund share transactions 1,998,163 60,621,413
- ----------------------------------------------------------------- ----------- ------------
Change in net assets (419,766) 63,607,590
- -----------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------
Beginning of period 63,607,590 --
- ----------------------------------------------------------------- ----------- ------------
End of period (including undistributed net investment income
of $42,414 and $66,636, respectively) $63,187,824 $ 63,607,590
- ----------------------------------------------------------------- ----------- ------------
</TABLE>
* Six months ended February 28, 1994 (unaudited).
** 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 0.30 0.56
- -------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.40) 0.48
- ------------------------------------------------------------------------- ------- -------
Total from investment operations (0.10) 1.04
- ------------------------------------------------------------------------- ------- -------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.31) (0.55)
- -------------------------------------------------------------------------
Distributions to shareholders from net realized gain on investments (0.02) --
- ------------------------------------------------------------------------- ------- -------
TOTAL DISTRIBUTIONS (0.33) (0.55)
- ------------------------------------------------------------------------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 10.06 $ 10.49
- ------------------------------------------------------------------------- ------- -------
TOTAL RETURN*** (0.97%) 10.39%
- -------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------
Expenses 1.13%(b) 0.77%(b)
- -------------------------------------------------------------------------
Net investment income 5.90%(b) 6.56%(b)
- -------------------------------------------------------------------------
Expense waiver/reimbursement (a) -- 0.22%(b)
- -------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------
Net assets, end of period (000 omitted) $63,188 $63,608
- -------------------------------------------------------------------------
Portfolio turnover rate 38% 78%
- -------------------------------------------------------------------------
* Six months ended February 28, 1994 (unaudited).
** 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 (Note 5).
(b) Computed on an annualized basis.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TOWER TOTAL RETURN BOND FUND
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Tower Total Return Bond Fund (the "Fund") is a diversified portfolio of Tower
Mutual Funds (the "Trust"), which is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company. The Trust was
organized in April 1988; however, investment operations of the Fund did not
commence until November 2, 1992 (date of initial public investment). 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.
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--Bonds and asset-backed securities listed on national securities
exchanges are valued at the last reported sale price on that day. Unlisted securities,
listed securities in which there were no sales, and U.S. government obligations are
valued at the mean between bid and asked prices as furnished by an independent pricing
service. Short-term obligations are ordinarily valued at the mean between bid and asked
prices as furnished by an independent pricing service. However, short-term obligations
with maturities of sixty days or less are valued 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 securities to ensure the existence of a proper level of
collateral.
The Fund will only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are deemed by the Fund's adviser to
be creditworthy pursuant to guidelines established by the Board of Trustees
("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. INCOME--Interest income is recorded on the accrual basis. Interest income includes
interest and discount earned (net of premium) on short-term obligations, and interest
earned on all other debt securities including original issue discount as required by the
Internal Revenue Code.
</TABLE>
TOWER TOTAL RETURN BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute to
shareholders each year all of its taxable income, including any net realized gain on
investments. Accordingly, no provision for federal tax is necessary.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or
delayed delivery transactions. To the extent the Fund engages in such transactions, it
will do so for the purpose of acquiring portfolio securities consistent with its
investment objective and policies and not for the purpose of investment leverage. The
Fund will record a when-issued security and the related liability on the trade date.
Until the securities are received and paid for, the Fund will maintain security
positions such that sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed delivery basis
are marked to market daily and begin earning interest on the settlement date.
F. DEFERRED EXPENSES--Costs incurred by the Fund with respect to registration of its shares
in its first fiscal year, excluding the initial expense of registering the shares, have
been deferred and are being amortized using the reverse sum of the years digit basis
through October 1997.
G. OTHER--Investment transactions are accounted for on the trade date of the transaction.
</TABLE>
(3) DIVIDENDS AND DISTRIBUTIONS
The Fund declares and pays dividends monthly to all shareholders invested in the
Fund on the record date. Capital gains realized by the Fund, if any, will be
distributed at least once every 12 months. Dividends to shareholders and capital
gain distributions, if any, are recorded on the ex-dividend date. Dividends and
distributions are automatically reinvested in additional shares of the Fund on
payment date at net asset value unless cash payments are requested.
(4) 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 outstanding, beginning of period 6,064,841 --
- -------------------------------------------------------------------
Shares sold 953,174 7,835,264
- -------------------------------------------------------------------
Shares issued to shareholders electing to receive payment of
dividends in Fund shares 160,446 319,848
- -------------------------------------------------------------------
Shares redeemed (898,355) (2,090,271)
- ------------------------------------------------------------------- ---------- ----------
Shares outstanding, end of period 6,280,106 6,064,841
- ------------------------------------------------------------------- ---------- ----------
</TABLE>
* Six months ended February 28, 1994.
** For the period from November 2, 1992 (date of initial public investment) to
August 31, 1993.
TOWER TOTAL RETURN BOND FUND
- --------------------------------------------------------------------------------
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Hibernia National Bank, the Fund's investment adviser ("Adviser"), is entitled
to receive for its services an annual investment advisory fee equal to 0.70 of
1% of the Fund's average daily net assets. Adviser may voluntarily choose to
waive a portion of its fee or reimburse certain expenses of the Fund.
Federated Administrative Services ("FAS") provides the Fund with certain
administrative personnel and services. The fee is based on the level of average
aggregate net assets of the Fund for the period. FAS may voluntarily choose to
waive a portion of its fee.
Expenses of organizing the Fund ($19,186) were borne initially by FAS. The Fund
has agreed to reimburse FAS for the organization expenses borne by FAS during
the five-year period following September 15, 1992, the date the Trust's
portfolio became effective. Pursuant to this agreement, the Fund reimbursed
$2,996 in organization expenses during the six months ended February 28, 1994.
The Trust has adopted a Distribution Plan (the "Plan") for the Fund pursuant to
Rule 12b-1 under the Investment Company Act of 1940. The Fund will reimburse
Federated Securities Corp. ("FSC"), the principal distributor, up to 0.25 of 1%
of the average daily net assets of the Fund, for fees the distributor paid which
relate to the distribution and administration of the Fund's shares. For the six
months ended February 28, 1994, the Fund did not pay a distribution fee.
Certain of the Officers and a Trustee of the Trust are Officers and Trustees of
FAS and FSC.
(6) INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term obligations) for the
six months ended February 28, 1994, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
PURCHASES $23,076,299
- ------------------------------------------------------------------------------- -----------
SALES $21,889,522
- ------------------------------------------------------------------------------- -----------
</TABLE>
<TABLE>
<S> <C>
TRUSTEES OFFICERS
</TABLE>
- --------------------------------------------------------------------------------
<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
C. Grant Anderson
Secretary
</TABLE>
Mutual funds are not obligations of or insured by any bank nor are they insured
by the federal government or any of its agencies. Investment in the shares
involves risk, including the possible loss of principal.
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 U.S.
- --------------------------------------------------------------------------------
TREASURY MONEY
- --------------------------------------------------------------------------------
MARKET FUND
- --------------------------------------------------------------------------------
Semi-Annual Report
To Shareholders
February 28, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
0000000 (0/93)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for the Tower
U.S. Treasury Money Market Fund. The report, which covers the six-month period
ended February 28, 1994, begins with an interview with the Fund's portfolio
manager and includes the Portfolio of Investments and Financial Statements.
You have selected the Tower U.S. Treasury Money Market Fund to put your cash to
work through a portfolio of U.S. Treasury securities. Of course, you also have
daily access to your money.
At the end of the period, net assets stood at 41.9 million. Dividends paid to
shareholders during the six-month period totaled $0.01 per share.
Thank you for selecting the Tower U.S. Treasury Money Market Fund. We will
continue to keep you up to date on your investment as we provide you with the
highest level of service.
Sincerely,
Edward C. Gonzales
President
April 15, 1994
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Q
How did the low short-term interest rate environment affect the Tower U.S.
Treasury Money Market Fund's (the "Fund") performance?
A
Yields below 3% on short-term U.S. Treasury securities observed until
January of 1994 severely affected the yields payable to our investors.
These yield levels on Treasuries are the lowest levels seen since the early
70's, and resulting dividends from money market funds were at the lowest level
since their general inception in the late 70's.
Q
The Fund invests exclusively in U.S. Treasury money market securities. Can
you give our shareholders an overview of the advantages of these securities
compared to a money market fund that invests in non-government securities?
A
There are several advantages to investing in a fund whose entire portfolio
consists of direct obligations of the U.S. Treasury. The first of these
advantages is the riskless nature of U.S. Treasury obligations in that they
will not default as to payments of principal and interest. Commercial paper and
non-government securities have a very small risk of a default in repayment of
principal and interest. The second advantage to owning Treasury securities is
the ability to quickly sell holdings should we experience large shareholder
withdrawals from the Fund. The liquidity of Treasury securities affords us the
opportunity to occasionally trade securities to increase the yield on the
portfolio, which is passed through to our shareholders.
Q
It appears that interest rates are finally turning upward. What is your
outlook for interest rates in the future?
A
Since late January, interest rates on 3-month Treasury bills have risen
from below 3.00% to approximately 3.60%. The Federal Reserve has announced
its intentions to fight inflation by increasing interest rates on
short-term investments. Our expectations are that yields available on 3-month
Treasury bills will be between 4.00% and 4.10% by year end.
TOWER U.S. TREASURY MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ----------------------------------------------------------------- ------------
<C> <C> <S> <C>
U.S. TREASURY NOTES--12.0%
- ------------------------------------------------------------------------------------
$5,000,000 5.00%-8.50%, 3/31/94-6/30/94 $ 5,022,648
----------------------------------------------------------------- ------------
U.S. TREASURY BILLS--51.1%
- ------------------------------------------------------------------------------------
21,500,000 3/10/94-6/16/94 21,390,440
----------------------------------------------------------------- ------------
*REPURCHASE AGREEMENTS--37.0%
- ------------------------------------------------------------------------------------
6,000,000 Carroll McEntee & McGinley, Inc., 3.40%, dated 2/28/94, due
3/1/94 6,000,000
-----------------------------------------------------------------
5,000,000 Merrill Lynch, Pierce, Fenner & Smith, Inc., 3.30%, dated
2/28/94, due 3/1/94 5,000,000
-----------------------------------------------------------------
4,506,000 State Street Bank and Trust Co., 3.40%, dated 2/28/94, due 3/1/94 4,506,000
----------------------------------------------------------------- ------------
TOTAL REPURCHASE AGREEMENTS (NOTE 2B) 15,506,000
----------------------------------------------------------------- ------------
TOTAL INVESTMENTS, AT AMORTIZED COST $ 41,919,088+
----------------------------------------------------------------- ------------
</TABLE>
* The 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
($41,895,378) at
February 28, 1994.
(See Notes which are an integral part of the Financial Statements)
TOWER U.S. TREASURY MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------
Investments in repurchase agreements (Note 2B) $15,506,000
- -------------------------------------------------------------------
Investments in other securities 26,413,088
- ------------------------------------------------------------------- -----------
Total investments, at amortized cost and value (Note 2A) $41,919,088
- ---------------------------------------------------------------------------------
Interest receivable 124,508
- ---------------------------------------------------------------------------------
Receivable for Fund shares sold 2,708
- ---------------------------------------------------------------------------------
Deferred expenses (Note 2F) 465
- --------------------------------------------------------------------------------- -----------
Total assets 42,046,769
- ---------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------
Dividends payable 81,016
- -------------------------------------------------------------------
Accrued expenses and other liabilities 58,237
- -------------------------------------------------------------------
Payable for Fund shares repurchased 12,138
- ------------------------------------------------------------------- -----------
Total liabilities 151,391
- --------------------------------------------------------------------------------- -----------
NET ASSETS for 41,895,378 shares of beneficial interest outstanding $41,895,378
- --------------------------------------------------------------------------------- -----------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share
($41,895,378 / 41,895,378 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
SIX MONTHS ENDED FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------
Interest income (Note 2C) $571,797
- -------------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 73,827
- -------------------------------------------------------------------------
Trustees' fees 1,019
- -------------------------------------------------------------------------
Administrative personnel and services (Note 5) 25,000
- -------------------------------------------------------------------------
Custodian and recordkeeping fees and expenses 30,552
- -------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 10,360
- -------------------------------------------------------------------------
Fund share registration costs 9,803
- -------------------------------------------------------------------------
Auditing fees 6,368
- -------------------------------------------------------------------------
Insurance premiums 2,373
- -------------------------------------------------------------------------
Legal fees 2,830
- -------------------------------------------------------------------------
Printing and postage 5,330
- -------------------------------------------------------------------------
Miscellaneous 916
- ------------------------------------------------------------------------- --------
Total expenses 168,378
- -------------------------------------------------------------------------
Deduct--
- -------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $41,344
- ---------------------------------------------------------------
Waiver of administrative service fee (Note 5) 2,325 43,669
- --------------------------------------------------------------- ------- --------
Net expenses 124,709
- ------------------------------------------------------------------------------------- --------
Net investment income $447,088
- ------------------------------------------------------------------------------------- --------
</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 $ 447,088 $ 95,502
- ---------------------------------------------------------------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- ----------------------------------------------------------------
Dividends to shareholders from net investment income (447,088) (95,502)
- ---------------------------------------------------------------- ------------ ------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- ----------------------------------------------------------------
Proceeds from sale of shares 69,558,729 45,942,342
- ----------------------------------------------------------------
Net asset value of shares issued to shareholders electing to
receive payment of dividends in Fund shares 6,338 45
- ----------------------------------------------------------------
Cost of shares redeemed (61,664,841) (11,947,235)
- ---------------------------------------------------------------- ------------ ------------
Change in net assets resulting from Fund share transactions 7,900,226 33,995,152
- ---------------------------------------------------------------- ------------ ------------
Change in net assets 7,900,226 33,995,152
- ----------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------
Beginning of period 33,995,152 --
- ---------------------------------------------------------------- ------------ ------------
End of period $ 41,895,378 $ 33,995,152
- ---------------------------------------------------------------- ------------ ------------
</TABLE>
* Six months ended February 28, 1994 (unaudited).
** 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 0.01 0.002
- ------------------------------------------------------------------------ ---- -----
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.01) (0.002)
- ------------------------------------------------------------------------ ---- -----
NET ASSET VALUE, END OF PERIOD $1.00 $1.00
- ------------------------------------------------------------------------ ---- -----
TOTAL RETURN*** 1.20 % 0.34 %
- ------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------
Expenses 0.68 %(b) 0.50 %(b)
- ------------------------------------------------------------------------
Net investment income 2.42 %(b) 2.80 %(b)
- ------------------------------------------------------------------------
Expense waiver/reimbursement(a) 0.23 %(b) 0.44 %(b)
- ------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
Net assets, end of period (000 omitted) $41,895 $33,995
- ------------------------------------------------------------------------
</TABLE>
* Six months ended February 28, 1994 (unaudited).
** 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 (Note 5).
(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
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Tower U.S. Treasury Money Market Fund (the "Fund") is a diversified portfolio of
Tower Mutual Funds (the "Trust"), which is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The Trust was organized in April 1988; however, investment operations of the
Fund did not commence until July 19, 1993 (date of initial public investment).
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.
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--The Board of Trustees ("Trustees") has determined that the best
method currently available for valuing portfolio securities is amortized cost. The
Fund's use of the amortized cost method to value its portfolio securities is conditioned
on its compliance with Rule 2a-7 under the Investment Company Act of 1940, as amended.
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 investments to ensure the existence of a proper level
of collateral.
The Fund will only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are deemed by the Fund's adviser to
be creditworthy pursuant to guidelines established by the Trustees. 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. INCOME--Interest income is recorded on the accrual basis. Interest income includes
interest and discount earned (net of premium), including original issue discount as
required by the Internal Revenue Code, plus or minus realized gains or losses, if any,
on portfolio securities.
</TABLE>
TOWER U.S. TREASURY MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute to
shareholders each year all of its taxable income. Accordingly, no provision for federal
tax is necessary.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or
delayed delivery transactions. To the extent the Fund engages in such transactions, it
will do so for the purpose of acquiring portfolio securities consistent with its
investment objective and policies and not for the purpose of investment leverage. The
Fund will record a when-issued security and the related liability on the trade date.
Until the securities are received and paid for, the Fund will maintain security
positions such that sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed delivery basis
are marked to market daily and begin earning interest on the settlement date.
F. DEFERRED EXPENSES--Costs incurred by the Fund with respect to registration of its shares
in its first fiscal year, excluding the initial expense of registering the shares, have
been deferred and are being amortized using the reverse sum of the years digit basis
through July 1998.
G. OTHER--Investment transactions are accounted for on the trade date of the transaction.
</TABLE>
(3) DIVIDENDS
The Fund computes its net income daily, and immediately prior to the calculation
of its net asset value at the close of business, declares and records dividends
to shareholders of record at the time of the previous computation of the Fund's
net asset value. Payment of dividends is made monthly in cash, or in additional
shares at the net asset value on the payable date.
(4) 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
February 28, 1994, capital paid in aggregated $41,895,378. Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------
1994* 1993**
- ----------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Shares outstanding, beginning of period 33,995,152 --
- -----------------------------------------------------------------
Shares sold 69,558,729 45,942,342
- -----------------------------------------------------------------
Shares issued to shareholders electing to receive payment of
dividends in Fund shares 6,338 45
- -----------------------------------------------------------------
Shares redeemed (61,664,841) (11,947,235)
- ----------------------------------------------------------------- ----------- -----------
Shares outstanding, end of period 41,895,378 33,995,152
- ----------------------------------------------------------------- ----------- -----------
</TABLE>
* Six months ended February 28, 1994.
** For the period from July 19, 1993 (date of initial public investment) to
August 31, 1993.
TOWER U.S. TREASURY MONEY MARKET FUND
- --------------------------------------------------------------------------------
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Hibernia National Bank, the Fund's investment adviser ("Adviser"), receives for
its services an annual investment advisory fee equal to 0.40 of 1% of the Fund's
average daily net assets. Adviser may voluntarily choose to waive a portion of
its fee or reimburse certain expenses of the Fund. For the six months ended
February 28, 1994, Adviser earned an investment advisory fee of $73,827 of which
$41,344 was voluntarily waived.
Federated Administrative Services ("FAS") provides the Fund with certain
administrative personnel and services. The fee is based on the level of average
aggregate net assets of the Fund for the period. FAS may voluntarily choose to
waive a portion of its fee. For the six months ended February 28, 1994, FAS
earned $25,000, of which $2,325 was voluntarily waived.
Expenses of organizing the Fund ($18,919) were borne initially by FAS. The Fund
has agreed to reimburse FAS for the organizational expenses, during the
five-year period following the date the Fund's registration statement first
became effective. Pursuant to this agreement, the Fund reimbursed $1,000 in
organization expenses during the six months ended February 28, 1994.
The Trust has adopted a Distribution Plan (the "Plan") for the Fund pursuant to
Rule 12b-1 under the Investment Company Act of 1940. The Fund will reimburse
Federated Securities Corp. ("FSC"), the principal distributor, up to 0.25 of 1%
of average daily net assets of the Fund for fees the distributor paid which
relate to the distribution and administration of the Fund's shares. For the six
months ended February 28, 1994, the fund did not pay a distribution fee.
Certain of the Officers and a Trustee of the Trust are Officers and Trustees of
FAS and FSC.
<TABLE>
<S> <C>
TRUSTEES OFFICERS
</TABLE>
- --------------------------------------------------------------------------------
<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
C. Grant Anderson
Secretary
</TABLE>
Mutual funds are not obligations of or insured by any bank nor are they insured
by
the federal government or any of its agencies.
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.
