TOWER MUTUAL FUNDS, 485BPOS, 1994-12-28

TOWER MUTUAL FUNDS
485BPOS, 1994-12-28

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1933 Act File No. 33-21321
1940 Act File No. 811-5536

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
X

Pre-Effective Amendment No.

Post-Effective Amendment No. 12 X

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940 X

Amendment No. 11 X

TOWER MUTUAL FUNDS

(Exact Name of Registrant as Specified in Charter)

Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)

(412) 288-1900
(Registrant's Telephone Number)

John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)

It is proposed that this filing will become effective:

immediately upon filing pursuant to paragraph (b)
x on December 31, 1994 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
75 days after filing pursuant to paragraph (a)(ii)
on _________________ pursuant to paragraph (a)(ii) of Rule
485.

If appropriate, check the following box:

This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.

Registrant has filed with the Securities and Exchange
Commission a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940, and:

x filed the Notice required by that Rule on October 18,
1994; or
intends to file the Notice required by that Rule on or
about ____________; or
during the most recent fiscal year did not sell any
securities pursuant to Rule 24f-2 under the Investment
Company Act of 1940, and, pursuant to Rule 24f-2(b)(2), need
not file the Notice.

Copies to:

Thomas J. Donnelly, Esquire Charles H. Morin, Esquire
Houston, Houston & Donnelly Dickstein, Shapiro & Morin,
L.L.P.
2510 Centre City Tower 2101 L Street, N.W.
650 Smithfield Street Washington, D.C. 20037
Pittsburgh, Pennsylvania 15222

CROSS REFERENCE SHEET

This Amendment to the Registration Statement of TOWER
MUTAL FUNDS, which consists of six portfolios, Tower Capital
Appreciation Fund; Tower Cash Reserve Fund; Tower Louisiana
Municipal Income Fund; Tower U.S. Government Income Fund;
Tower Total Return Bond Fund; and Tower U.S. Treasury Money
Market Fund, is comprised of the following:

PART A. INFORMATION REQUIRED IN A PROSPECTUS.

Prospectus Heading
(Rule 404(c) Cross Reference)

Item 1. Cover Page Cover Page.
Item 2. Synopsis Summary of Fund Expenses -
Equity and Income Funds;
Summary of Fund Expenses -
Money Market Funds; Financial
Highlights
Item 3. Condensed Financial
Information Performance Information.
Item 4. General Description of
Registrant Synopsis; Objective of Each
Fund; Portfolio Investment and
Strategies.
Item 5. Management of the Fund Tower Mutual Funds Information;
Management of Tower Mutual
Funds; Distribution of Fund
Shares; Distribution Plan;
Administration of the Funds.
Item 6. Capital Stock and Other
Securities Dividends; Capital Gains;
Shareholder Information; Voting
Rights; Massachusetts
Partnership Law; Effect of
Banking Laws; Tax Information;
Federal Income Tax; Louisiana
Municipal Income Fund -
Additional Tax Information.
Item 7. Purchase of Securities
Being Offered Net Asset Value; Investing in
the Funds; Share Purchases;
Minimum Investment Required;
What Shares Cost; Systematic
Investment Program;
Certificates and Confirmations;
Reducing the Sales Charge.
Item 8. Redemption or Repurchase Redeeming Shares; Systematic
Withdrawal Program; Accounts
With Low Balances; Exchange
Privilege.
Item 9. Pending Legal Proceedings None.
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL
INFORMATION.

Item 10. Cover Page Cover Page.
Item 11. Table of Contents Table of Contents.
Item 12. General Information and
History General Information About the
Funds.
Item 13. Investment Objectives and
Policies Investment Objective and
Policies of the Funds.
Item 14. Management of the Fund Tower Mutual Funds Management.
Item 15. Control Persons and Principal
Holders of Securities Not applicable.
Item 16. Investment Advisory and Other
Services Investment Advisory Service;
Administrative Services.
Item 17. Brokerage Allocation Brokerage Transactions.
Item 18. Capital Stock and Other
Securities Not applicable.
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered Purchasing Shares; Determining
Net Asset Value; Redeeming
Shares; Exchange Privilege.
Item 20. Tax Status Tax Status.
Item 21. Underwriters Distribution Plan.
Item 22. Performance Data Performance Comparisons.
Item 23. Financial Statements Filed in Part A.

TOWER MUTUAL FUNDS
Combined Prospectus

Tower Mutual Funds (the "Trust"), an open-end management investment company (a
mutual fund), offers investors interests in the following six investment
portfolios (collectively referred to as the "Funds" and individually as the
"Fund"), each having a distinct investment objective and policies:

EQUITY AND INCOME FUNDS

TOWER CAPITAL APPRECIATION FUND
TOWER LOUISIANA MUNICIPAL INCOME FUND
TOWER TOTAL RETURN BOND FUND
TOWER U.S. GOVERNMENT INCOME FUND

MONEY MARKET FUNDS

TOWER CASH RESERVE FUND
TOWER U.S. TREASURY MONEY MARKET FUND

THE SHARES OFFERED BY THIS COMBINED PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS
OF HIBERNIA NATIONAL BANK OR ITS AFFILIATES, ARE NOT ENDORSED OR GUARANTEED BY
HIBERNIA NATIONAL BANK OR ITS AFFILIATES, AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY.

INVESTMENT IN THE SHARES OFFERED BY THIS COMBINED PROSPECTUS INVOLVES
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.

THE TOWER CASH RESERVE FUND AND THE TOWER U.S. TREASURY MONEY MARKET FUND
ATTEMPT TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO
ASSURANCE THAT THESE FUNDS WILL BE ABLE TO DO SO.

This combined prospectus contains the information you should read and know
before you invest in any of the Funds of the Trust. Keep this combined
prospectus for future reference.

Additional information about the Trust is contained in the Trust's Combined
Statement of Additional Information dated December 31, 1994, which has also been
filed with the Securities and Exchange Commission. The information contained in
the Combined Statement of Additional Information is incorporated by reference
into this combined prospectus. You may request a copy of the Combined Statement
of Additional Information free of charge, obtain other information, or make
inquiries about any of the Funds by writing to the Trust or calling toll-free
1-800-999-0124.

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

Prospectus dated December 31, 1994

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

SYNOPSIS 1
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES--EQUITY AND
INCOME FUNDS 2
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES--MONEY
MARKET FUNDS 3
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 4
- ------------------------------------------------------
OBJECTIVE OF EACH FUND 10
- ------------------------------------------------------
Capital Appreciation Fund 10
Acceptable Investments 10
Portfolio Turnover 11
Investment Limitations 11
Louisiana Municipal Income Fund 11
Acceptable Investments 11
Other Investment Techniques 12
Louisiana Municipal Securities 13
Municipal Bond Insurance 13
Investment Risks 16
Non-Diversification 16
Investment Limitations 16
Total Return Bond Fund 17
Acceptable Investments 17
Mortgage-Backed Securities 18
Asset-Backed Securities 18
Collateralized Mortgage Obligations ("CMOs") 19
Investment Limitations 20
U.S. Government Income Fund 20
Acceptable Investments 20
Investment Limitations 20
Cash Reserve Fund 21
Acceptable Investments 21
Ratings 22
Credit Enhancement 22
Demand Features 22
Concentration of Investments 23
Investment Limitations 23
U.S. Treasury Money Market Fund 23
Acceptable Investments 23
Investment Limitations 23

PORTFOLIO INVESTMENTS AND STRATEGIES 23
- ------------------------------------------------------
Borrowing Money 23
Foreign Securities 24
Investing in Securities of Other Investment
Companies 24
Lending of Portfolio Securities 24
Put and Call Options 25
Financial Futures and Options on Futures 25
Regulatory Compliance 27
Repurchase Agreements 27
Restricted and Illiquid Securities 27
Temporary Investments 28
U.S. Government Securities 29
When-Issued and Delayed Delivery Transactions 29

TOWER MUTUAL FUNDS INFORMATION 30
- ------------------------------------------------------
Management of Tower Mutual Funds 30
Board of Trustees 30
Investment Adviser 30
Advisory Fees 30
Adviser's Background 30
Distribution of Fund Shares 31
Distribution Plan 31
Administration of the Funds 32
Administrative Services 32
Custodian 32
Transfer Agent and Dividend Disbursing Agent 32
Legal Counsel 32
Independent Auditors 32

NET ASSET VALUE 33
- ------------------------------------------------------

INVESTING IN THE FUNDS 33
- ------------------------------------------------------
Share Purchases 33
Through Hibernia National Bank 33
Through Authorized Broker/Dealers 34
Minimum Investment Required 34
What Shares Cost 34
Purchases at Net Asset Value 35
Sales Charge Reallowance 35
Other Payments to Financial Institutions 35
Reducing the Sales Charge 35
Quantity Discounts and Accumulated Purchases 35
Letter of Intent 36
Reinvestment Privilege 36
Concurrent Purchases 36
Systematic Investment Program 37
Exchanging Securities for Fund Shares 37
Certificates and Confirmations 37
Dividends 38
Capital Gains 38

EXCHANGE PRIVILEGE 38
- ------------------------------------------------------
Tower Mutual Funds 38
Exchanging Shares 38
Exchange-by-Telephone 39
Written Exchange 39

REDEEMING SHARES 39
- ------------------------------------------------------
By Telephone 39
By Mail 40
Sytematic Withdrawal Program 41
Accounts with Low Balances 41

SHAREHOLDER INFORMATION 41
- ------------------------------------------------------
Voting Rights 41
Massachusetts Partnership Law 42

EFFECT OF BANKING LAWS 42
- ------------------------------------------------------

TAX INFORMATION 43
- ------------------------------------------------------
Federal Income Tax 43
Louisiana Municipal Income Fund--Additional
Tax Information Louisiana Taxes 43
Other State and Local Taxes 44

PERFORMANCE INFORMATION 44
- ------------------------------------------------------

ADDRESSES Inside Back Cover
- ------------------------------------------------------

SYNOPSIS
- --------------------------------------------------------------------------------

The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated April 8, 1988. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. Each Fund is designed for institutions and
individuals as a convenient means of accumulating an interest in a
professionally managed portfolio.

As of the date of this prospectus, shares are offered in the following six
Funds:

Tower Capital Appreciation Fund ("Capital Appreciation Fund")--seeks to
provide growth of capital and income by investing primarily in a
diversified portfolio of common stocks;

Tower Louisiana Municipal Income Fund ("Louisiana Municipal Income
Fund")--seeks to provide current income which is generally exempt from
federal regular income tax and the personal income taxes imposed by the
state of Louisiana by investing primarily in a non-diversified portfolio
of Louisiana municipal securities;

Tower Total Return Bond Fund ("Total Return Bond Fund")--seeks to
maximize total return by investing in a diversified portfolio of
government, mortgage-backed, asset-backed and corporate securities, as
well as collateralized mortgage obligations;

Tower U.S. Government Income Fund ("U.S. Government Income Fund")--seeks
to provide current income by investing in a diversified portfolio
consisting primarily of U.S. government securities;

Tower Cash Reserve Fund ("Cash Reserve Fund")--seeks to provide current
income consistent with stability of principal by investing in a
diversified portfolio of high quality money market instruments; and

Tower U.S. Treasury Money Market Fund ("U.S. Treasury Money Market Fund"
and together with the Cash Reserve Fund, the "Money Market Funds")--seeks
to provide current income consistent with stability of principal and
liquidity by investing in a diversified portfolio limited to short-term
U.S. Treasury obligations.

For information on how to purchase shares of any of the Funds, please refer to
"Investing in the Funds." In most cases, the minimum initial investment of
$1,000 is required for each Fund; in the case of the Money Market Funds, a
minimum initial investment of $1,000 is required unless the investment is in a
retirement plan, in which case the minimum initial investment is $250. See
"Minimum Investment Required." Shares of the Money Market Funds are sold at net
asset value without a sales charge. Shares of Capital Appreciation Fund,
Louisiana Municipal Income Fund, Total Return Bond Fund, and U.S. Government
Income Fund are sold at net asset value plus a maximum sales charge of 3.00%,
which may be reduced as discussed under "Reducing the Sales Charge." Shares of
each Fund are redeemed at net asset value. Information on redeeming shares may
be found under "Redeeming Shares." Additionally, information regarding the
exchange privilege offered with respect to the Trust may be found under
"Exchange Privilege." Hibernia National Bank is the investment adviser and
custodian to the Funds and receives compensation for these services.

One or more Funds may make certain investments and employ certain investment
techniques that involve risks, including entering into repurchase agreements,
lending portfolio securities, and entering into futures contracts and related
options as hedges. These risks and those associated with investing in Louisiana
municipal securities, mortgage-backed securities, asset-backed securities,
when-issued securities, and variable rate securities are described under
"Objective of Each Fund" and "Portfolio Investments and Strategies."

SUMMARY OF FUND EXPENSES--
EQUITY AND INCOME FUNDS
- --------------------------------------------------------------------------------

SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<CAPTION>
LOUISIANA TOTAL U.S.
CAPITAL MUNICIPAL RETURN GOVERNMENT
APPRECIATION INCOME BOND INCOME
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)................... 3.00% 3.00% 3.00% 3.00%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................... None None None None
Contingent Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds,
as applicable)........................................ None None None None
Redemption Fee (as a percentage of amount redeemed, if
applicable)........................................... None None None None
Exchange Fee.............................................. None None None None

ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fees (1)....................................... 0.75% 0.37% 0.70% 0.39%
12b-1 Fees (2)............................................ 0.25% 0.00% 0.25% 0.00%
Total Other Expenses...................................... 0.26% 0.44% 0.36% 0.48%
Total Operating Expenses (3).......................... 1.26% 0.81% 1.31% 0.87%
</TABLE>

(1) The management fees of the Louisiana Municipal Income Fund and the U.S.
Government Income Fund have been reduced to reflect the voluntary waivers by
the investment adviser. The adviser may terminate these voluntary waivers at
any time at its sole discretion. The maximum management fees for the
Louisiana Municipal Income Fund and the U.S. Government Income Fund are each
0.45%.

(2) Under the Rule 12b-1 distribution plans, the Louisiana Municipal Income Fund
and U.S. Government Income Fund can pay the distributor up to 0.25% as a
12b-1 fee.

(3) Total Operating Expenses for the Louisiana Municipal Income Fund and the
U.S. Government Income Fund are estimated to be 0.89% and 0.93%,
respectively, absent the voluntary waivers described above in note (1).
Total Operating Expenses were 1.09% for the Capital Appreciation Fund, 0.71%
for the Louisiana Municipal Income Fund, 1.21% for the Total Return Bond
Fund and 0.74% for the U.S. Government Income Fund for the fiscal year ended
August 31, 1994. The Total Operating Expenses in the table above reflect a
reduction in the voluntary waiver of the 12b-1 fee for the Capital
Appreciation Fund and the Total Return Bond Fund for the fiscal year ending
August 31, 1995.

THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUNDS WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "TOWER MUTUAL FUNDS INFORMATION" AND "INVESTING IN THE FUNDS."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.

<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1)
5% annual return; (2) redemption at the end of each time period; and (3)
payment of the maximum sales load of 3.00%. The Funds charge no
redemption fees.
Capital Appreciation Fund............................................ $42 $69 $ 97 $178
Louisiana Municipal Income Fund...................................... $38 $55 $ 74 $127
Total Return Bond Fund............................................... $43 $70 $100 $183
U.S. Government Income Fund.......................................... $39 $57 $ 77 $134
</TABLE>

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

SUMMARY OF FUND EXPENSES--
MONEY MARKET FUNDS
- --------------------------------------------------------------------------------

SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<CAPTION>
U.S. TREASURY
CASH MONEY
RESERVE MARKET
FUND FUND
<S> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price)..................................................................... None None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering
price).............................................................................. None None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable)................................................. None None
Redemption Fee (as a percentage of amount redeemed, if applicable).................... None None
Exchange Fee.......................................................................... None None

ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fees (1)................................................................... 0.40% 0.18%
12b-1 Fees (2)........................................................................ 0.25% 0.00%
Total Other Expenses.................................................................. 0.26% 0.36%
Total Operating Expenses (3)...................................................... 0.91% 0.54%
</TABLE>

(1) The management fee for the U.S. Treasury Money Market Fund has been reduced
to reflect the voluntary waiver by the investment adviser. The adviser may
terminate this voluntary waiver at any time at its sole discretion. The
maximum management fee for the U.S. Treasury Money Market Fund is 0.40%.

(2) Under the Rule 12b-1 distribution plan, the U.S. Treasury Money Market Fund
can pay the distributor up to 0.25% as a 12b-1 fee.

(3) Total Operating Expenses for the U.S. Treasury Money Market Fund are
estimated to be 0.76% absent the voluntary waiver described above in note
(1). Total Operating Expenses were 0.91% for the Cash Reserve Fund and 0.66%
for the U.S. Treasury Money Market Fund for the fiscal year ended August 31,
1994.

<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1)
5% annual return and (2) redemption at the end of each time period. The
Funds charge no redemption fees.
Cash Reserve Fund................................................... $9 $29 $50 $112
U.S. Treasury Money Market Fund..................................... $6 $17 $30 $ 68
</TABLE>

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

TOWER CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

THE FOLLOWING TABLE HAS BEEN AUDITED BY ERNST & YOUNG LLP, THE FUND'S
INDEPENDENT AUDITORS. THEIR REPORT DATED OCTOBER 6, 1994 ON THE FUND'S FINANCIAL
STATEMENTS IS INCORPORATED BY REFERENCE TO THE ANNUAL REPORT DATED AUGUST 31,
1994. THIS TABLE SHOULD BE READ IN CONJUNCTION WITH THE FUND'S FINANCIAL
STATEMENTS AND NOTES THERETO, WHICH MAY BE OBTAINED FROM THE FUND.

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1994 1993 1992 1991 1990 1989*
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.60 $ 14.02 $ 14.35 $ 11.93 $ 12.94 $ 10.17
- --------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------
Net investment income 0.23 0.28 0.29 0.33 0.38 0.33
- --------------------------------------------------
Net realized and unrealized gain (loss) on
investments 0.36 2.02 0.11 2.45 (0.76) 2.68
- -------------------------------------------------- --------- --------- --------- --------- --------- ---------
Total from investment operations 0.59 2.30 0.40 2.78 (0.38) 3.01
- --------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------
Dividends to shareholders from net investment
income (0.25) (0.30) (0.27) (0.36) (0.39) (0.24)
- --------------------------------------------------
Distributions to shareholders from net realized
gain on investment transactions (1.13) (1.42) (0.46) -- (0.22) --
- --------------------------------------------------
Distributions in excess of net investment
income -- -- -- -- (0.02 (a) --
- -------------------------------------------------- --------- --------- --------- --------- --------- ---------
Total distributions (1.38) (1.72) (0.73) (0.36) (0.63) (0.24)
- -------------------------------------------------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 13.81 $ 14.60 $ 14.02 $ 14.35 $ 11.93 $ 12.94
- -------------------------------------------------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN** 4.27% 17.89% 2.93% 23.77% (3.11%) 32.29%
- --------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------
Expenses 1.09% 0.85% 0.83% 0.74% 0.42% 0.56%(b)
- --------------------------------------------------
Net investment income 1.67% 2.10% 1.99% 2.58% 3.06% 4.00%(b)
- --------------------------------------------------
Expense waiver/reimbursement (c) -- 0.18% 0.25% 0.29% 0.75% 0.83%(b)
- --------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------
Net assets, end of period (000 omitted) $139,081 $140,808 $73,653 $87,927 $60,448 $48,093
- --------------------------------------------------
Portfolio turnover rate 118% 127% 163% 124% 123% 70%
- --------------------------------------------------
</TABLE>

* Reflects operations for the period from October 14, 1988 (date of initial
public investment) to August 31, 1989.

** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

(a) Distributions in excess of net realized gain on investment transactions for
the fiscal year ended August 31, 1990, were a result of certain book and tax
timing differences. These distributions do not represent a return of capital
for federal tax purposes.

(b) Computed on an annualized basis.

Further information about the Tower Capital Appreciation Fund's performance is
contained in the Fund's annual report dated August 31, 1994, which can be
obtained free of charge by calling
1-800-999-0124 to request a copy.

TOWER LOUISIANA MUNICIPAL INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1994 1993 1992 1991 1990 1989*
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.60 $ 10.91 $ 10.46 $ 9.98 $ 10.14 $ 10.00
- ----------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------
Net investment income 0.59 0.62 0.64 0.64 0.64 0.43
- ----------------------------------------------
Net realized and unrealized gain
(loss) on investments (0.68) 0.73 0.48 0.48 (0.16) 0.14
- ---------------------------------------------- --------- --------- --------- --------- --------- ---------
Total from investment operations (0.09) 1.35 1.12 1.12 0.48 0.57
- ----------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------
Dividends to shareholders from net
investment income (0.59) (0.62) (0.64) (0.64) (0.64) (0.43)
- ----------------------------------------------
Distributions to shareholders from net
realized gain on investment transactions (0.10) (0.04) (0.03) -- -- --
- ---------------------------------------------- --------- --------- --------- --------- --------- ---------
Total distributions (0.69) (0.66) (0.67) (0.64) (0.64) (0.43)
- ---------------------------------------------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 10.82 $ 11.60 $ 10.91 $ 10.46 $ 9.98 $ 10.14
- ---------------------------------------------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN** (0.76%) 12.75% 11.02% 11.59% 4.89% 5.82%
- ----------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------
Expenses 0.71% 0.66% 0.65% 0.74% 0.81% 0.62%(b)
- ----------------------------------------------
Net investment income 5.24% 5.59% 6.04% 6.29% 6.35% 6.57%(b)
- ----------------------------------------------
Expense waiver/reimbursement (a) 0.08% 0.14% 0.16% 0.20% 0.41% 0.61%(b)
- ----------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------
Net assets, end of period (000 omitted) $ 79,698 $ 85,914 $ 57,547 $ 42,210 $ 31,380 $ 12,285
- ----------------------------------------------
Portfolio turnover rate 33% 32% 19% 26% 32% 28%
- ----------------------------------------------
</TABLE>

* Reflects operations for the period from October 14, 1988 (date of initial
public investment) to August 31, 1989.

** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

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

(b) Computed on an annualized basis.

Further information about the Tower Louisiana Municipal Income Fund's
performance is contained in the Fund's annual report dated August 31, 1994,
which can be obtained free of charge by calling 1-800-999-0124 to request a
copy.

TOWER TOTAL RETURN BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31,
--------------------
1994 1993*
-------- ---------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.49 $ 10.00
- -----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------
Net investment income 0.57 0.56
- -----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.83) 0.48
- ----------------------------------------------------------------------------------------- --------- ---------
Total from investment operations (0.26) 1.04
- ----------------------------------------------------------------------------------------- --------- ---------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.57) (0.55)
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net realized gain on investment transactions (0.02) --
- ----------------------------------------------------------------------------------------- --------- ---------
Total distributions (0.59) (0.55)
- ----------------------------------------------------------------------------------------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.64 $ 10.49
- ----------------------------------------------------------------------------------------- --------- ---------
TOTAL RETURN** (2.46%) 10.39%
- -----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------
Expenses 1.21% 0.77%(b)
- -----------------------------------------------------------------------------------------
Net investment income 5.62% 6.56%(b)
- -----------------------------------------------------------------------------------------
Expense waiver/reimbursement (a) -- 0.22%(b)
- -----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $72,088 $63,608
- -----------------------------------------------------------------------------------------
Portfolio turnover rate 96% 78%
- -----------------------------------------------------------------------------------------
</TABLE>

* Reflects operations for the period from November 2, 1992 (date of initial
public investment) to August 31, 1993.

** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

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

(b) Computed on an annualized basis.

Further information about the Tower Total Return Bond Fund's performance is
contained in the Fund's annual report dated August 31, 1994, which can be
obtained free of charge by calling
1-800-999-0124 to request a copy.

TOWER U.S. GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1994 1993 1992 1991 1990 1989*
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.85 $ 10.75 $ 10.49 $ 10.07 $ 10.20 $ 10.17
- ------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------
Net investment income 0.69 0.74 0.79 0.85 0.86 0.69
- ------------------------------------------------
Net realized and unrealized gain (loss)
on investments (0.89) 0.12 0.30 0.43 (0.11) 0.03
- ------------------------------------------------ --------- --------- --------- --------- --------- ---------
Total from investment operations (0.20) 0.86 1.09 1.28 0.75 0.72
- ------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------
Dividends to shareholders from net
investment income (0.69) (0.74) (0.79) (0.85) (0.86) (0.69)
- ------------------------------------------------
Distributions to shareholders from net
realized gain on investment transactions (0.04) (0.01) (0.04) (0.01) (0.02) --
- ------------------------------------------------
Distributions in excess of net investment
income -- (0.01 (a) -- -- -- --
- ------------------------------------------------ --------- --------- --------- --------- --------- ---------
Total distributions (0.73) (0.76) (0.83) (0.86) (0.88) (0.69)
- ------------------------------------------------ --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.92 $ 10.85 $ 10.75 $ 10.49 $ 10.07 $ 10.20
- ------------------------------------------------ --------- --------- --------- --------- --------- ---------
TOTAL RETURN** (1.67%) 8.11% 10.72% 13.27% 7.48% 9.20%
- ------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------
Expenses 0.74% 0.68% 0.69% 0.68% 0.69% 0.59 (c)
- ------------------------------------------------
Net investment income 6.68% 7.03% 7.51% 8.30% 8.50% 8.64 (c)
- ------------------------------------------------
Expense waiver/reimbursement(b) 0.06% 0.11% 0.11% 0.17% 0.45% 0.52 (c)
- ------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------
Net assets, end of period (000 omitted) $ 67,051 $ 86,597 $ 61,646 $ 48,482 $ 32,596 $ 15,753
- ------------------------------------------------
Portfolio turnover rate 26% 61% 36% 20% 32% 42%
- ------------------------------------------------
</TABLE>

* Reflects operations for the period from October 14, 1988 (date of initial
public investment) to August 31, 1989.

** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

(a) Distributions in excess of net investment income for the fiscal year ended
August 31, 1993, were a result of certain book and tax timing differences.
These distributions do not represent a return of capital for federal tax
purposes.

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

Further information about the Tower U.S. Government Income Fund's performance is
contained in the Fund's annual report dated August 31, 1994, which can be
obtained free of charge by calling 1-800-999-0124 to request a copy.

TOWER CASH RESERVE FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1994 1993 1992 1991 1990 1989*
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------
Net investment income 0.03 0.02 0.04 0.06 0.08 0.07
- ---------------------------------------- --------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
- ----------------------------------------
Dividends to shareholders from net
investment income (0.03) (0.02) (0.04) (0.06) (0.08) (0.07)
- ---------------------------------------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN** 2.73% 2.49% 3.75% 6.45% 8.02% 6.86%
- ----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------
Expenses 0.91% 0.89% 0.89% 0.80% 0.77% 0.75 (b)
- ----------------------------------------
Net investment income 2.71% 2.48% 3.79% 6.30% 7.71% 8.68 (b)
- ----------------------------------------
Expense waiver/reimbursement (a) -- -- 0.03% -- 0.01% --
- ----------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------
Net assets, end of period (000
omitted) $183,922 $154,052 $162,038 $249,822 $300,668 $169,303
- ----------------------------------------
</TABLE>

* Reflects operations for the period from October 14, 1988 (date of initial
public investment) to August 31, 1989.

** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

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

(b) Computed on an annualized basis.

TOWER U.S. TREASURY MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1994 1993*
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00
- -----------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------
Net investment income 0.03 0.002
- ----------------------------------------------------------------------------------- --------- ---------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.03) (0.002)
- ----------------------------------------------------------------------------------- --------- ---------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00
- ----------------------------------------------------------------------------------- --------- ---------
TOTAL RETURN** 2.85% 0.34%
- -----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------
Expenses 0.66% 0.50%(b)
- -----------------------------------------------------------------------------------
Net investment income 2.85% 2.80%(b)
- -----------------------------------------------------------------------------------
Expense waiver/reimbursement (a) 0.23% 0.32%(b)
- -----------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $45,022 $33,995
- -----------------------------------------------------------------------------------
</TABLE>

* Reflects operations for the period from July 19, 1993 (date of initial
public investment) to August 31, 1993.

** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

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

(b) Computed on an annualized basis.

OBJECTIVE OF EACH FUND
- --------------------------------------------------------------------------------

The investment objective and policies of each Fund appear below. The investment
objective of a Fund cannot be changed without the approval of holders of a
majority of that Fund's shares. While there is no assurance that a Fund will
achieve its investment objective, it endeavors to do so by following the
investment policies described in this prospectus.

Unless indicated otherwise, the investment policies of a Fund may be changed by
the Board of Trustees ("Trustees") without approval of shareholders.
Shareholders will be notified before any material change in these policies
becomes effective.

Additional information about investment limitations, strategies that one or more
Funds may employ, and certain investment policies mentioned below appear in the
"Portfolio Investments and Strategies" section of this combined prospectus and
in the Combined Statement of Additional Information.

CAPITAL APPRECIATION FUND

The investment objective of the Capital Appreciation Fund is to provide growth
of capital and income. The Fund's investment approach is based on the conviction
that over the long term the economy will continue to expand and develop and that
this economic growth will be reflected in the growth of the revenues and
earnings of publicly held corporations.

ACCEPTABLE INVESTMENTS. The Fund attempts to achieve its investment objective
by investing primarily in a professionally managed, diversified portfolio of
common stocks. The securities in which the Fund invests include, but are not
limited to:

common stocks of companies selected by the Fund's investment adviser on
the basis of traditional research techniques, including assessment of
earnings and dividend growth prospects of the companies. Ordinarily,
these companies will be in the top 30% of their industries with regard to
revenues. However, other factors such as product position, market share,
potential earnings growth, or asset values will be considered by the
investment adviser and may outweigh revenues. At least 65% of the Fund's
portfolio will be invested in common stocks, unless it is in a defensive
position;

preferred stocks, corporate bonds, notes, warrants, rights, and
convertible securities of these companies; and

U.S. government securities.

In addition, the Fund may engage in when-issued and delayed delivery
transactions and invest in foreign securities, temporary investments, and
repurchase agreements. The Fund may also purchase put options on its portfolio
securities and on futures contracts and write call options on its portfolio
securities.

The Fund reserves the right to attempt to hedge the portfolio by entering into
financial futures contracts and to write calls on financial futures contracts.
The Fund will notify shareholders before it begins engaging in these
transactions. See "Portfolio Investments and Strategies."

PORTFOLIO TURNOVER. The Fund conducts portfolio transactions to accomplish its
investment objective, to invest new money obtained from selling its shares, and
to meet redemption requests. The Fund may dispose of portfolio securities at any
time if it appears that selling the securities will help the Fund achieve its
investment objective. The Fund's rate of portfolio turnover may exceed that of
certain other mutual funds with the same investment objective. A higher rate of
portfolio turnover involves correspondingly greater brokerage commissions and
other expenses which must be borne directly by the Fund and, thus, indirectly by
its shareholders. In addition, a high rate of portfolio turnover may result in
the realization of larger amounts of capital gains which, when distributed to
the Fund's shareholders, are taxable to them. Nevertheless, transactions for the
Fund's portfolio will be based only upon investment considerations and will not
be limited by any other considerations when the Fund's investment adviser deems
it appropriate to make changes in the Fund's portfolio.

INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Investing in Securities of Other Investment
Companies," "Lending of Portfolio Securities," and "Restricted and Illiquid
Securities."

LOUISIANA MUNICIPAL INCOME FUND

The investment objective of the Louisiana Municipal Income Fund is to provide
current income which is generally exempt from federal regular income tax and the
personal income taxes imposed by the state of Louisiana. (Federal regular income
tax does not include the federal individual alternative minimum tax or the
federal alternative minimum tax for corporations.)

The Fund attempts to achieve its investment objective by investing in a
professionally managed portfolio primarily limited to Louisiana municipal
securities. As a matter of fundamental investment policy, the Fund will invest
its assets so that, under normal circumstances, at least 80% of its annual
interest income is exempt from federal regular and Louisiana state income taxes
or at least 80% of its total assets are invested in obligations, the interest
income from which is exempt from federal regular and Louisiana state income
taxes.

ACCEPTABLE INVESTMENTS

MUNICIPAL SECURITIES. The municipal securities in which the Fund invests
are:

debt obligations, including industrial development bonds, issued on
behalf of the state of Louisiana, its political subdivisions or agencies;

debt obligations issued by or on behalf of any state, territory or
possession of the United States, including the District of Columbia, or
any political subdivision or agency of any of these; and

participation interests, as described below, in any of the above
obligations;

the interest from which is, in the opinion of bond counsel for the issuers,
or in the opinion of officers of Tower Mutual Funds and/or the investment
adviser to the Fund, exempt from both federal regular income tax and the
personal income tax imposed by the state of Louisiana. (Municipal
securities not issued by the state of Louisiana, its political subdivisions
or agencies, which may generate interest income subject to the Louisiana
personal income
tax, may also be purchased by the Fund.) As a matter of investment policy
which may be changed without shareholder approval, at least 65% of the
Fund's total assets will be invested in Louisiana municipal securities. It
is likely that shareholders will be required to include interest from a
portion of the municipal securities owned by the Fund in calculating the
federal individual alternative minimum tax or the federal alternative
minimum tax for corporations.

CHARACTERISTICS. The municipal securities which the Fund buys are:

rated Baa or above by Moody's Investors Service, Inc. ("Moody's") or BBB
or above by Standard & Poor's Ratings Group ("S&P"). Bonds rated BBB by
S&P or Baa by Moody's have speculative characteristics. Changes in
economic conditions or other circumstances are more likely to lead to
weakened capacity to make principal and interest payments than higher
rated bonds. A description of the rating categories is contained in the
Appendix to the Combined Statement of Additional Information;

insured by a municipal bond insurance company which is rated AAA by S&P
or Aaa by Moody's;

guaranteed at the time of purchase by the U.S. government as to the
payment of principal and interest;

fully collateralized by an escrow of U.S. government securities; or

unrated if determined to be of comparable quality to one of the foregoing
rating categories by the Fund's adviser.

PARTICIPATION INTERESTS. The Fund may purchase participation interests
from financial institutions such as commercial banks, savings and loan
associations, and insurance companies. These participation interests give
the Fund an undivided interest in Louisiana municipal securities.

The municipal securities subject to the participation interests are not
limited to maturities of one year or less, so long as the participation
interests include the right to demand payment, typically within seven days,
from the issuers of those interests. The Fund will purchase only
participation interests which have such a demand feature or which mature in
less than one year. The financial institutions from which the Fund
purchases participation interests frequently provide or secure irrevocable
letters of credit or guarantees to assure that the participation interests
are of high quality. The Trustees will determine that participation
interests meet the prescribed quality standards for the Fund.

OTHER INVESTMENT TECHNIQUES. The Fund may purchase a right to sell a security
held by it back to the issuer or to another party at an agreed upon price at any
time during a stated period or on a certain date. These rights may be referred
to as "liquidity puts" or "standby commitments."

The Fund may also hedge all or a portion of its investments by entering into
futures contracts or options on them. Any gains realized on these futures
contracts and options are taxable. Before the Fund begins using these investment
techniques, it will notify shareholders.

In addition, the Fund may concentrate certain of its investments, engage in
when-issued and delayed delivery transactions, and invest in temporary
investments and repurchase agreements. See "Portfolio Investments and
Strategies."

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

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

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

The Louisiana Municipal Income Fund may invest more than 25% of the value of its
total assets in industrial development and pollution control bonds, which may
result in more than 25% of the Fund's total assets being invested in one
industry. The Fund may also invest more than 25% of its assets in housing bonds,
which are revenue bonds. Legislative actions at the state or federal level,
changes in national or regional economic conditions, or changes in the quality
of mortgages securing some housing bonds are some of the factors that could
affect housing bonds.

MUNICIPAL BOND INSURANCE. The Fund may purchase municipal securities covered by
insurance which guarantees the timely payment of principal at maturity and
interest on such securities. These insured municipal securities are either (1)
covered by an insurance policy applicable to a particular security, whether
obtained by the issuer of the security or by a third party ("Issuer-Obtained
Insurance") or (2) insured under master insurance policies issued by municipal
bond insurers, which may be purchased by the Fund (the "Policies").

The Fund will require or obtain municipal bond insurance when purchasing
municipal securities which would not otherwise meet the Fund's quality
standards. The Fund may also require or obtain municipal bond insurance when
purchasing or holding specific municipal securities when, in the opinion of the
Fund's investment adviser, such insurance would benefit the Fund, for example,
through improvement of portfolio quality or increased liquidity of certain
securities. The Fund's investment adviser anticipates that more than 50% of the
Fund's net assets will be invested in municipal securities which are insured.

Issuer-Obtained Insurance policies are noncancellable and continue in force as
long as the municipal securities are outstanding and their respective insurers
remain in business. If a municipal security is covered by Issuer-Obtained
Insurance, then such security need not be insured by the Policies purchased by
the Fund.

The Fund may purchase two types of Policies issued by municipal bond insurers.
One type of Policy covers certain municipal securities only during the period in
which they are in the Fund's portfolio. In the event that a municipal security
covered by such a Policy is sold from the Fund, the insurer of the relevant
Policy will be liable only for those payments of interest and principal which
are then due and owing.

The other type of Policy covers municipal securities not only while they remain
in the Fund's portfolio but also until their final maturity even if they are
sold out of the Fund's portfolio, so that the coverage may benefit all
subsequent holders of those municipal securities. The Fund will obtain insurance
which covers municipal securities until final maturity even after they are sold
out of the Fund's portfolio only if, in the judgment of the investment adviser,
the Fund would receive net proceeds from the sale of those securities, after
deducting the cost of such permanent insurance and related fees, significantly
in excess of the proceeds it would receive if such municipal securities were
sold without insurance.

The premiums for the Policies are paid by the Fund and the yield on the Fund's
portfolio is reduced thereby. Premiums for the Policies are paid by the Fund
monthly, and are adjusted for purchases and sales of municipal securities during
the month. Depending upon the characteristics of the municipal security held by
the Fund, the annual premium for the Policies are estimated to range from 0.1%
to 0.25% of the value of the municipal securities covered under the Policies,
with an average annual premium rate of approximately 0.175%.

The Fund may purchase Policies from MBIA Corp. ("MBIA"), AMBAC Indemnity
Corporation ("AMBAC"), Financial Guaranty Insurance Company ("FGIC"), Bond
Investors Guaranty Insurance Company ("BIG"), or any other municipal bond
insurer which is rated AAA by S&P or Aaa by Moody's. A more detailed description
of these insurers may be found in the Combined Statement of Additional
Information. Each Policy guarantees the payment of principal and interest on the
municipal securities it insures. The Policies will have the same general
characteristics and features. A municipal security will be eligible for coverage
if it meets certain requirements set forth in a Policy. In the event interest or
principal on an insured municipal security is not paid when due, the insurer
covering the security will be obligated under its Policy to make such payment
not later than 30 days after it has been notified by the Fund that such
non-payment has occurred. The insurance feature reduces financial risk, but the
cost thereof and the restrictions on investments imposed by the guidelines in
the insurance policies reduce the yield to shareholders.

MBIA, AMBAC, FGIC, and BIG will not have the right to withdraw coverage on
securities insured by their Policies so long as such securities remain in the
Fund's portfolio, nor may MBIA, AMBAC, FGIC, and BIG cancel their Policies for
any reason except failure to pay premiums when due. MBIA, AMBAC, FGIC, and BIG
will reserve the right at any time upon 90 days' written notice to the Fund to
refuse to insure any additional municipal securities purchased by the Fund after
the effective date of such notice. The Trustees will reserve the right to
terminate any policy if it determines that the benefits to the Fund of having
its portfolio insured under such policy are not justified by the expense
involved.

Under the Policies, municipal bond insurers unconditionally guarantee to the
Fund the timely payment of principal and interest on the insured municipal
securities when and as such payments shall become due but shall not be paid by
the issuer, except that in the event of any acceleration of the due date of the
principal by reason of mandatory or optional redemption (other than acceleration
by reason of mandatory sinking fund payment), default or otherwise, the payments
guaranteed will be made in such amounts and at such times as payments of
principal would have been due had there not been such acceleration. The
municipal bond insurers will be responsible for such payments less any amounts
received by the Fund from any trustee for the municipal bond issuers or from any
other source. The Policies do not guarantee payment on an accelerated basis, the
payment of any redemption premium, the value of the shares of the Fund, or
payments of any tender purchase price upon the tender of the municipal
securities. The Policies also do not insure against nonpayment of principal of
or interest on the securities resulting from the insolvency, negligence or any
other act or omission of the trustee or other paying agent for the securities.
However, with respect to small issue industrial development municipal bonds and
pollution control revenue municipal bonds covered by the Policies, the municipal
bond insurers guarantee the full and complete payments required to be made by or
on behalf of an issuer of such municipal securities, if there occurs any change
in the tax-exempt status of interest on such municipal securities, including
principal, interest or premium payments, if any, as and when required to be made
by or on behalf of the issuer pursuant to the terms of such municipal
securities. A "when-issued" municipal security will be covered under the
Policies upon the settlement date of the issuer of such "when-issued" municipal
security. In determining to insure municipal securities held by the Fund, each
municipal bond insurer has applied its own standards, which correspond generally
to the standards established for determining the insurability of new issues of
municipal securities. This insurance is intended to reduce financial risk, but
the cost thereof and compliance with investment restrictions imposed under the
Policies will reduce the yield to shareholders of the Fund.

If a Policy terminates as to municipal securities sold by the Fund on the date
of sale, in which event municipal bond insurers will be liable only for those
payments of principal and interest that are then due and owing, the provision
for insurance will not enhance the marketability of securities held by the Fund,
whether or not the securities are in default or subject to significant risk of
default, unless the option to obtain permanent insurance is exercised. On the
other hand, since Issuer-Obtained Insurance will remain in effect as long as the
insured municipal securities are outstanding, such insurance may enhance the
marketability of municipal securities covered thereby, but the exact effect, if
any, on marketability cannot be estimated. The Fund generally intends to retain
any securities that are in default or subject to significant risk of default and
to place a value on the insurance, which ordinarily will be the difference
between the market value of the defaulted security and the market value of
similar securities of minimum investment grade (i.e., rated "BBB") that are not
in default. To the extent that the Fund holds defaulted securities, it may be
limited in its ability to manage its investments and to purchase other municipal
securities. Except as described above with respect to securities that are in
default or subject to significant risk of default, the Fund will not place any
value on the insurance in valuing the municipal securities that it holds.

INVESTMENT RISKS. The value of the Fund's shares will fluctuate. The amount of
this fluctuation is dependent upon the quality and maturity of the municipal
securities in the Fund's portfolio, as well as on market conditions. Municipal
security prices are interest rate sensitive, which means that their value varies
inversely with market interest rates. Thus, if market interest rates have
increased from the time a security was purchased, the security, if sold, might
be sold at a price less than its cost. Similarly, if market interest rates have
declined from the time a security was purchased, the security, if sold, might be
sold at a price greater than its cost. (In either instance, if the security was
held to maturity, no loss or gain normally would be realized as a result of
interim market fluctuations.)

Yields on Louisiana municipal securities depend on a variety of factors,
including: the general conditions of the money market and the taxable and
municipal security markets; the size of the particular offering; the maturity of
the obligations; and the credit quality of the issue. The ability of the Fund to
achieve its investment objective also depends on the continuing ability of the
issuers of Louisiana municipal securities to meet their obligations for the
payment of interest and principal when due.

Further, any adverse economic conditions or developments affecting the state of
Louisiana or its municipalities could impact the Fund's portfolio. Investing in
Louisiana municipal securities which meet the Fund's quality standards may not
be possible if the state of Louisiana and its municipalities do not maintain
their current credit ratings.

NON-DIVERSIFICATION. The Fund is a non-diversified investment company. An
investment in the Fund, therefore, may entail greater risk than would exist in a
diversified investment company because the higher percentage of investments
across fewer issuers could result in greater fluctuation in the total market
value of the Fund's portfolio. Any economic, political, or regulatory
developments affecting the value of the securities in the Fund's portfolio could
have a greater impact on the total value of the portfolio than would be the case
if the portfolio were diversified among more issuers.

The Fund will attempt to minimize the risks associated with a non-diversified
portfolio by limiting, with respect to 75% of the Fund's total assets,
investments in one issuer to not more than 10% of the value of its total assets.
The total amount of the remaining 25% of the value of the Fund's total assets
could be invested in a single issuer, but only if the investment adviser
believes such a strategy to be prudent. In addition, the Fund intends to comply
with Subchapter M of the Internal Revenue Code. This undertaking requires that
at the end of each quarter of the taxable year, the aggregate value of all
investments in any one issuer (except U.S. government obligations, cash, and
money market instruments) which exceed 5% of the Fund's total assets not exceed
50% of the value of the Fund's total assets.

TOTAL RETURN BOND FUND

The investment objective of the Total Return Bond Fund is to maximize total
return. The Fund manages its portfolio to achieve both income and capital
appreciation.

ACCEPTABLE INVESTMENTS. The Fund pursues its investment objective by primarily
investing in U.S. government securities, mortgage-backed securities,
asset-backed securities and corporate bonds and other securities, as well as
collateralized mortgage obligations. Under normal market conditions, the Fund
will attempt to invest at least 65% of its assets in bonds. The securities in
which the Fund may invest are as follows:

domestic issues of corporate debt obligations (rated Baa or better by
Moody's; BBB or better by S&P; or BBB or better by Fitch Investors
Service, Inc. ("Fitch")). Bonds rated BBB by S&P or Fitch or Baa by
Moody's have speculative characteristics. Changes in economic conditions
or other circumstances are more likely to lead to weakened capacity to
make principal and interest payments than higher rated bonds. A
description of the rating categories is contained in the Appendix to the
Combined Statement of Additional Information;

obligations of the United States;

notes, bonds, and discount notes of the following U.S. government
agencies or instrumentalities: Federal Home Loan Banks, Federal National
Mortgage Association, Government National Mortgage Association, Bank for
Cooperatives (including Central Bank for Cooperatives), Federal Land
Banks, Federal Intermediate Credit Banks, Tennessee Valley Authority,
Export-Import Bank of the United States, Commodity Credit Corporation,
Federal Financing Bank, The Student Loan Marketing Association, Federal
Home Loan Mortgage Corporation, or National Credit Union Administration;

commercial paper which matures in 270 days or less so long as at least
two ratings are high quality ratings by nationally recognized statistical
rating organizations ("NRSROs"). Such ratings would include: A-1 or A-2
by S&P, Prime-1 or Prime-2 by Moody's, or F-1 or F-2 by Fitch;

time and savings deposits (including certificates of deposit) in
commercial or savings banks whose accounts are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC"), or in institutions whose accounts are
insured by the Savings Association Insurance Fund ("SAIF"), which is also
administered by the FDIC, including certificates of deposit issued by and
other time deposits in foreign branches of BIF-insured banks;

bankers' acceptances;

securities of other investment companies;

repurchase agreements collateralized by eligible investments; and

municipal securities.

If a security invested in by the Fund loses its rating or has its rating reduced
after the Fund has purchased it, the Fund is not required to sell or otherwise
dispose of the security, but may consider doing so.

The Fund may also purchase and sell put and call options on its portfolio
securities (including over-the-counter options), purchase and sell financial
futures contracts, and purchase and sell put and call options on financial
futures contracts.

In addition, the Fund may engage in when-issued and delayed delivery
transactions and invest in foreign securities, temporary investments, and
repurchase agreements. See "Portfolio Investments and Strategies."

MORTGAGE-BACKED SECURITIES. Some of the U.S. government securities in which the
Fund will invest can represent an undivided interest in a pool of residential
mortgages or may be collateralized by a pool of residential mortgages
("mortgage-backed securities"). Mortgage-backed securities have yield and
maturity characteristics corresponding to the underlying mortgages.
Distributions to holders of mortgage-backed securities include both interest and
principal payments. Principal payments represent the amortization of the
principal of the underlying mortgages and any prepayments of principal due to
prepayment, refinancing, or foreclosure of the underlying mortgages. Although
maturities of the underlying mortgage loans may range up to 30 years,
amortization and prepayments substantially shorten the effective maturities of
mortgage-backed securities. Due to these features, mortgage-backed securities
are less effective as a means of "locking-in" attractive long-term interest
rates than fixed-income securities which pay only a stated amount of interest
until maturity, when the entire principal amount is returned. This is caused by
the need to reinvest at lower interest rates both distributions of principal
generally and significant prepayments which become more likely as mortgage
interest rates decline. Since comparatively high interest rates cannot be
effectively "locked in," mortgage-backed securities may have less potential for
capital appreciation during periods of declining interest rates than other
non-callable fixed-income government securities of comparable stated maturities.
However, mortgage-backed securities may experience less pronounced declines in
value during periods of rising interest rates.

ASSET-BACKED SECURITIES. Asset-backed securities are obligations of trusts or
special purpose corporations that directly or indirectly represent a
participation in, or are secured by and payable from various types of assets. At
the present time, automobile and credit card receivables are the most common
collateral supporting asset-backed securities. In general, the collateral
supporting asset-backed securities is of shorter maturity than mortgage loans
and is less likely to experience substantial prepayments. As with
mortgage-backed securities, asset-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties and use
similar credit enhancement techniques.

Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same security interest in the related collateral. Credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most issuers of asset-backed securities backed by
automobile receivables permit the servicers of such receivables to retain
possession of the underlying obligations. If the servicer were to sell these
obligations to another party, there is a risk that the purchaser would acquire
an interest superior to that of the holders of the related asset-backed
securities. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of asset-backed securities backed by automobile receivables may not
have a proper security interest in all of the obligations backing such
receivables. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities.

In general, issues of asset-backed securities are structured to include
additional collateral and/or additional credit support to protect against the
risk that a portion of the collateral supporting the asset-backed securities may
default and/or may suffer from these defects. In evaluating the strength of
particular issues of asset-backed securities, the adviser considers the
financial strength of the guarantor or other provider of credit support, the
type and extent of credit enhancement provided as well as the documentation and
structure of the issue itself and the credit support.

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs are bonds issued by
single-purpose stand-alone finance subsidiaries or trusts of financial
institutions, government agencies, investment bankers, or companies related to
the construction industry. Most of the CMOs in which the Fund would invest use
the same basic structure:

Several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four classes of
securities: the first three (A, B, and C bonds) pay interest at their
stated rates beginning with the issue date; the final class (or Z bond)
typically receives the residual income from the underlying investment
after payments are made to the other classes.

The cash flows from the underlying mortgages are applied first to pay
interest and then to retire securities.

The classes of securities are retired sequentially. All principal
payments are directed first to the shortest-maturity class (or A bonds).
When those securities are completely retired, all principal payments are
then directed to the next-shortest-maturity security (or B bond). This
process continues until all of the classes have been paid off.

Because the cash flow is distributed sequentially instead of pro rata as with
pass-through securities, the cash flows and average lives of CMOs are more
predictable, and there is a period of time during which the investors in the
longer-maturity classes receive no principal paydowns. The interest portion of
these payments is distributed by the Fund as income, and the capital portion is
reinvested.

The Fund will invest only in CMOs which are rated AAA by an NRSRO and which may
be:
(a) collateralized by pools of mortgages in which each mortgage is guaranteed as
to payment of principal and interest by an agency or instrumentality of the U.S.
government; (b) collateralized by pools of mortgages in which payment of
principal and interest is guaranteed by the issuer and such guarantee is
collateralized by U.S. government securities; or (c) securities in which the
proceeds of the issuance are invested in mortgage securities and payment of the
principal and interest are supported by the credit of an agency or
instrumentality of the U.S. government.

U.S. GOVERNMENT INCOME FUND

The investment objective of the U.S. Government Income Fund is to provide
current income. Current income includes, in general, discount earned on U.S.
Treasury bills and agency discount notes, interest earned on all other U.S.
government securities and mortgage-related securities, and short-term capital
gains.

ACCEPTABLE INVESTMENTS. The Fund invests primarily in securities which are
guaranteed as to payment of principal and interest by the U.S. government or
U.S. government agencies or instrumentalities. The Fund may also invest in
certain privately issued mortgage-related securities, as defined below.

The Fund will invest, under normal circumstances, at least 65% of the value of
its total assets in U.S. government securities. The U.S. government securities
in which the Fund invests include:

direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and

obligations of U.S. government agencies or instrumentalities, such as
Federal Home Loan Banks, Farmers Home Administration, Federal Farm Credit
Banks, Federal National Mortgage Association, Government National
Mortgage Association, and Federal Home Loan Mortgage Corporation.

The Fund may also invest in mortgage-related securities which are issued by
private entities such as investment banking firms and companies related to the
construction industry. The mortgage-related securities in which the Fund may
invest may be: (i) privately issued securities which are collateralized by pools
of mortgages in which each mortgage is guaranteed as to payment of principal and
interest by an agency or instrumentality of the U.S. government; (ii) privately
issued securities which are collateralized by pools of mortgages in which
payment of principal and interest are guaranteed by the issuer and such
guarantee is collateralized by U.S. government securities; and (iii) other
privately issued securities in which the proceeds of the issuance are invested
in mortgage-backed securities and payment of the principal and interest are
supported by the credit of any agency or instrumentality of the U.S. government.
The mortgage-related securities provide for a periodic payment consisting of
both interest and principal. The interest portion of these payments will be
distributed by the Fund as income, and the capital portion will be reinvested.

CASH RESERVE FUND

The investment objective of the Cash Reserve Fund is current income consistent
with stability of principal. The investment objective and the policies and
limitations described below cannot be changed without approval of shareholders.
The Fund pursues its investment objective by investing in a portfolio of money
market instruments maturing in one year or less. The average maturity of the
Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less.

ACCEPTABLE INVESTMENTS. The Fund invests in high quality money market
instruments that are either rated in the highest short-term rating category by
one or more NRSRO or of comparable quality to securities having such ratings.
Examples of these instruments include, but are not limited to:

domestic issues of corporate debt obligations, including variable rate
demand notes;

commercial paper (including Canadian Commercial Paper and Europaper);

certificates of deposit, demand and time deposits, bankers' acceptances
and other instruments of domestic and foreign banks and other deposit
institutions ("Bank Instruments");

short-term credit facilities, such as demand notes;

asset-backed securities;

obligations issued or guaranteed as to payment of principal and interest
by the U.S. government or one of its agencies or instrumentalities; and

other money market instruments.

The Fund invests only in instruments denominated and payable in U.S. dollars.

In addition, the Fund may concentrate certain of its investments, engage in
when-issued and delayed delivery transactions, and invest in repurchase
agreements. See "Portfolio Investments and Strategies."

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

BANK INSTRUMENTS. The Fund only invests in Bank Instruments either issued
by an institution having capital, surplus and undivided profits over $100
million or insured by BIF or SAIF. Bank Instruments may include Eurodollar
Certificates of Deposit ("ECDs"), Yankee
Certificates of Deposit ("Yankee CDs"), and Eurodollar Time Deposits
("ETDs"). The Fund will treat securities credit enhanced with a bank's
letter of credit as Bank Instruments.

SHORT-TERM CREDIT FACILITIES. Demand notes are short-term borrowing
arrangements between a corporation and an institutional lender (such as the
Fund) payable upon demand by either party. The notice period for demand
typically ranges from one to seven days, and the party may demand full or
partial payment. The Fund may also enter into, or acquire participations
in, short-term revolving credit facilities with corporate borrowers. Demand
notes and other short-term credit arrangements usually provide for floating
or variable rates of interest.

ASSET-BACKED SECURITIES. Asset-backed securities are securities issued by
special purpose entities whose primary assets consist of a pool of loans or
accounts receivable. The securities may take the form of beneficial
interest in a special purpose trust, limited partnership interests or
commercial paper or other debt securities issued by a special purpose
corporation. Although the securities often have some form of credit or
liquidity enhancement, payments on the securities depend predominately upon
collections of the loans and receivables held by the issuer.

RATINGS. An NRSRO's highest rating category is determined without regard for
sub-categories and gradations. For example, securities rated A-1 or A-1+ by S&P,
Prime-1 by Moody's, or F-1
(+ or -) by Fitch are all considered rated in the highest short-term rating
category. The Fund will follow applicable regulations in determining whether a
security rated by more than one NRSRO can be treated as being in the highest
short-term rating category; currently, such securities must be rated by two
NRSROs in their highest rating category. See "Regulatory Compliance."

CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been
credit enhanced by a guaranty, letter of credit or insurance. The Fund typically
evaluates the credit quality and ratings of credit-enhanced securities based
upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. Generally, the Fund
will not treat credit-enhanced securities as having been issued by the credit
enhancer for diversification purposes. However, under certain circumstances,
applicable regulations may require the Fund to treat the securities as having
been issued by both the issuer and the credit enhancer. The bankruptcy,
receivership or default of the credit enhancer will adversely affect the quality
and marketability of the underlying security.

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

CONCENTRATION OF INVESTMENTS

Generally, in excess of 50% of the total assets of the Cash Reserve Fund will be
invested in commercial paper and variable rate demand notes. Commercial paper
issued by finance companies will comprise more than 25% of the Fund's total
assets, unless the Fund is in a temporary defensive position as a result of
economic conditions. Concentration of the Fund's portfolio in such obligations
may entail additional risks which are not encountered by funds with more
diversified portfolios.

INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Investing in Securities of Other Investment
Companies," and "Restricted and Illiquid Securities."'

U.S. TREASURY MONEY MARKET FUND

The investment objective of the U.S. Treasury Money Market Fund is current
income consistent with stability of principal and liquidity. The Fund pursues
its investment objective by investing in a portfolio of short-term U.S. Treasury
obligations which are issued by the U.S. government and are fully guaranteed as
to payment of principal and interest by the United States.

ACCEPTABLE INVESTMENTS. The Fund invests only in short-term U.S. Treasury
obligations maturing in 397 days or less. The average maturity of the U.S.
Treasury obligations in the Fund's portfolio, computed on a dollar-weighted
basis, will be 90 days or less.

In addition, the Fund may engage in when-issued and delayed delivery
transactions and invest in repurchase agreements. See "Portfolio Investments and
Strategies."

PORTFOLIO INVESTMENTS AND STRATEGIES
- --------------------------------------------------------------------------------

BORROWING MONEY

The Funds will not borrow money directly or through reverse repurchase
agreements (arrangements in which a Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set date) or
pledge securities except, under certain circumstances, a Fund may borrow up to
one-third of the value of its total assets. (The U.S. Treasury Money Market Fund
will not borrow through the use of reverse repurchase agreements.) The Money
Market Funds cannot pledge securities; however, the Capital Appreciation Fund,
Louisiana Municipal Income Fund, and U.S. Government Income Fund may each pledge
up to 15%, and the Total Return Bond Fund may pledge up to 10%, of the value of
their respective assets to secure such borrowings. This policy cannot be changed
without the approval of holders of a majority of a Fund's shares.

FOREIGN SECURITIES

The Capital Appreciation Fund and the Total Return Bond Fund may invest in
foreign securities which are traded publicly in the United States. Investments
in foreign securities, particularly those of non-governmental issuers, involve
considerations which are not ordinarily associated with investments in domestic
issuers. These considerations include the possibility of expropriation, the
unavailability of financial information or the difficulty of interpreting
financial information prepared under foreign accounting standards, less
liquidity and more volatility in foreign securities markets, the impact of
political, social or diplomatic developments, and the difficulty of assessing
economic trends in foreign countries, the difficulty of obtaining or enforcing
court judgments abroad, restrictions on foreign investments in other
jurisdictions, difficulties in repatriation of capital invested abroad, and
difficulties in transaction settlements and the effect of delay on shareholder
equity. It may also be more difficult to enforce contractual obligations abroad
than would be the case in the United States because of differences in the legal
systems. Transaction costs in foreign securities may be higher.

The Funds' investment adviser will consider these and other factors before
investing in foreign securities and will not make such investments unless, in
its opinion, such investments will meet the Funds' standards and objectives. The
Funds will only purchase securities issued in U.S. dollar denominations and will
not invest more than 15% of its total assets in foreign securities.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Funds may invest in the securities of other open-end investment companies,
as well as closed-end investment companies. TheFunds, however, will not own more
than 3% of the total outstanding voting stock of any investment company, invest
more than 5% of their respective total assets in any one investment company, or
invest more than 10% of their respective total assets in investment companies in
general.

The Funds will purchase securities of investment companies only in open-market
transactions involving only customary broker's commissions. However, these
limitations are not applicable if the securities are acquired in a merger,
consolidation, or acquisition of assets.

It should be noted that investment companies incur certain expenses, such as
management fees, and, therefore, any investment by a Fund in shares of another
investment company would be subject to such duplicate expenses. The Funds will
invest in other investment companies primarily for the purposes of investing
their short-term cash on a temporary basis. The Funds' adviser will waive its
investment advisory fee on assets invested in securities of other investment
companies.

LENDING OF PORTFOLIO SECURITIES

In order to generate income, each of the Funds (except the Money Market Funds)
may lend portfolio securities on a short-term or long-term basis, or both, up to
one-third of the value of their respective total assets to broker/dealers,
banks, or other institutional borrowers of securities. The Funds will only enter
into loan arrangements with broker/dealers, banks, or other institutions which
the investment adviser has determined are creditworthy under guidelines
established by the Trustees and will receive collateral in the form of cash or
U.S. government securities equal to
at least 100% of the value of the securities loaned at all times. This policy
cannot be changed with respect to any Fund without the approval of holders of a
majority of such Fund's shares.

PUT AND CALL OPTIONS

The Funds (except the Money Market Funds) may engage in or reserve the right to
engage in put and call options as discussed for those Funds under "Objective of
Each Fund." The Funds may purchase put and call options on their portfolio
securities. These options will be used as a hedge to attempt to protect
securities which the Funds hold or will be purchasing against decreases or
increases in value. The Capital Appreciation Fund will only purchase puts on
portfolio securities and financial futures contracts which are traded on a
national exchange. Additionally, the Capital Appreciation Fund will only write
call options which are listed on a national options exchange. The Funds (except
the Capital Appreciation Fund) may also write (sell) put and call options on all
or any portion of their portfolio to generate income for the Funds. The Funds
will write call options on securities either held in their portfolio or which
they have the right to obtain without payment of further consideration or for
which they have segregated cash (or U.S. government securities with respect to
the Capital Appreciation Fund) in the amount of any additional consideration. In
the case of put options, the Funds will segregate cash or U.S. Treasury
obligations with a value equal to or greater than the exercise price of the
underlying securities. Each Fund will limit its purchase of options so that not
more than 20% of its net assets will be invested in option premiums. Each Fund
will limit its option writing activities so that the assets underlying such
options will not exceed 25% of its total net assets. (These limits apply to both
options on securities and options on futures contracts.)

The Funds will generally purchase and write over-the-counter options on
portfolio securities in negotiated transactions with the buyers or writers of
the options when options on the portfolio securities held by a Fund are not
traded on an exchange. The Funds purchase and write options only with investment
dealers and other financial institutions (such as commercial banks or savings
and loan associations) deemed creditworthy by each Fund's adviser.

Over-the-counter options are two-party contracts with price and terms negotiated
between buyer and seller. In contrast, exchange-traded options are third-party
contracts with standardized strike prices and expiration dates and are purchased
from a clearing corporation. Exchange-traded options generally have a continuous
liquid market while over-the-counter options may not.

FINANCIAL FUTURES AND OPTIONS ON FUTURES

The Funds (except the Money Market Funds) may engage in or reserve the right to
engage in financial futures and options on futures as discussed for those Funds
under "Objective of Each Fund." The Funds may purchase and sell financial
futures contracts to hedge all or a portion of their portfolio of securities
against changes in interest rates or as a hedge to attempt to protect securities
which the Funds hold against decreases in value. (For the immediate future, the
Capital Appreciation Fund will enter into futures contracts directly only when
it desires to exercise a financial futures put option in its portfolio rather
than either closing out the option or allowing it to expire.) Financial futures
contracts call for the delivery of particular debt instruments issued or
guaranteed by the U.S. Treasury or by specified agencies or instrumentalities of
the U.S. government at a certain time in the future. The seller of the contract
agrees to make delivery of the type
of instrument called for in the contract, and the buyer agrees to take delivery
of the instrument at the specified future time.

The Funds may write call options and purchase put options on financial futures
contracts as a hedge to attempt to protect securities in their portfolio against
decreases in value resulting from anticipated increases in market interest
rates. When a Fund writes a call option on a futures contract, it is undertaking
the obligation of selling the futures contract at a fixed price at any time
during a specified period if the option is exercised. Conversely, as purchaser
of a put option on a futures contract, a Fund is entitled (but not obligated) to
sell a futures contract at the fixed price during the life of the option.

The Funds (except the Capital Appreciation Fund) may also write put options and
purchase call options on financial futures contracts as a hedge against rising
purchase prices of portfolio securities resulting from anticipated decreases in
market interest rates. The Funds will use these transactions to attempt to
protect their ability to purchase portfolio securities in the future at price
levels existing at the time it enters into the transactions. When a Fund writes
a put option on a futures contract, it is undertaking to buy a particular
futures contract at a fixed price at any time during a specified period if the
option is exercised. If the anticipated rise in purchase prices of portfolio
securities occurs, a Fund may use the premiums it receives from writing put
options to offset such increased prices. As a purchaser of a call option on a
futures contract, a Fund is entitled (but not obligated) to purchase a futures
contract at a fixed price at any time during the life of the option.

The Funds may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on a Fund's
existing futures position and premiums paid for related options would exceed 5%
of the market value of such Fund's total assets. When a Fund purchases futures
contracts or writes put options on futures contracts, an amount of cash and cash
equivalents equal to the underlying commodity value of the futures contracts
(less any related margin deposits) or equal to the exercise price of the put
options will be deposited in a segregated account with the Fund's custodian (or
the broker, if legally permitted) to collateralize the position and thereby
insure that the use of such futures contracts is unleveraged.

RISKS. When a Fund uses financial futures and options on futures as
hedging devices, there is a risk that the prices of the securities subject
to the futures contracts may not correlate perfectly with the prices of the
securities in the Fund's portfolio. This may cause the futures contracts
and any related options to react differently than the portfolio securities
to market changes. In addition, the Fund's investment adviser could be
incorrect in its expectations about the direction or extent of market
factors, such as interest rate movements. In these events, the Fund may
lose money on the futures contracts or options. When a Fund writes a call
option, it retains the risk of a market decline in the price of the
underlying security, but gives up the right to capital appreciation of that
security above the "strike price" of the option.

It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although a Fund's
investment adviser will consider liquidity before entering into options
transactions, there is no assurance that a liquid secondary market on an
exchange will exist for any particular futures contract or option at any
particular time. The Funds' ability to establish and close out futures and
options positions depends on this secondary market.

REGULATORY COMPLIANCE

The Money Market Funds may follow non-fundamental operational policies that are
more restrictive than their fundamental investment limitations, as set forth in
this prospectus and the Combined Statement of Additional Information, in order
to comply with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940, as amended. In particular,
the Funds will comply with the various requirements of Rule 2a-7, which
regulates money market mutual funds. For example, with limited exceptions, Rule
2a-7 prohibits the investment of more than 5% of a Fund's total assets in the
securities of any one issuer, although a Fund's investment limitations only
requires such 5% diversification with respect to 75% of its assets. The Funds
will invest more than 5% of their respective assets in any one issuer only under
circumstances permitted by Rule 2a-7. The Funds will also determine the
effective maturity of their investments, as well as their ability to consider a
security as having received the requisite short-term ratings by NRSROs,
according to Rule 2a-7. The Funds may change these operational policies to
reflect changes in the laws and regulations without the approval of its
shareholders.

REPURCHASE AGREEMENTS

Each of the Funds may invest in repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers and other recognized financial
institutions sell U.S. government securities or certificates of deposit or other
securities to a Fund and agree at the time of sale to repurchase them at a
mutually agreed upon time and price within one year from the date of
acquisition. The Funds or their custodian will take possession of the securities
subject to repurchase agreements and these securities will be marked to market
daily.

To the extent that the original seller does not repurchase the securities from a
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by a Fund might be delayed
pending court action. The Funds believe that under the regular procedures
normally in effect for custody of the Funds' portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Funds and allow retention or disposition of such securities. The Funds will
only enter into repurchase agreements with banks and other recognized financial
institutions such as broker/dealers which are deemed by each Fund's adviser to
be creditworthy pursuant to guidelines established by the Trustees.

RESTRICTED AND ILLIQUID SECURITIES

The Capital Appreciation Fund, Louisiana Municipal Income Fund, Total Return
Bond Fund, and U.S. Government Income Fund may invest up to 10% of their
respective total assets in restricted securities. Certain restricted securities
which the Trustees deem to be liquid will be excluded from this limitation. The
restriction is not applicable to commercial paper issued under Section 4(2) of
the Securities Act of 1933. Restricted securities are any securities in which a
Fund may otherwise
invest pursuant to its investment objective and policies but which are subject
to restriction on resale under federal securities law.

The Capital Appreciation Fund, Louisiana Municipal Income Fund, Total Return
Bond Fund, and U.S. Government Income Fund will limit investments in illiquid
securities (including, as applicable, certain restricted securities not
determined by the Trustees to be liquid, non-negotiable time deposits,
repurchase agreements providing for settlement in more than seven days after
notice, and over-the-counter options) to 15% of their respective net assets. The
Money Market Funds will limit investments in illiquid securities to 10% of their
respective net assets.

TEMPORARY INVESTMENTS

During times of unusual market conditions for defensive purposes and to maintain
liquidity, the Capital Appreciation Fund, the Total Return Bond Fund, and the
U.S. Government Income Fund may invest in cash and money market instruments,
such as the following:

prime commercial paper (rated A-2 or above by S&P, Prime-2 or above by
Moody's, or F-2 or above by Fitch) and Europaper (rated A-2 or above or
Prime-2 or above). In the case where commercial paper or Europaper has
received different ratings from different NRSROs, such commercial paper
or Europaper is an acceptable temporary investment so long as at least
one rating is one of the preceding high-quality ratings and provided the
investment adviser has determined that such investment presents minimal
credit risks;

instruments of domestic and foreign banks and savings and loans having
capital, surplus, and undivided profits of over $100 million or if the
principal amount of the instrument is insured by the FDIC or the Federal
Savings and Loan Insurance Corporation. These instruments include
certificates of deposit, demand and time deposits, savings shares, ECDs,
ETDs, Canadian Time Deposits, and bankers' acceptances;

securities issued and/or guaranteed as to payment of principal and
interest by the U.S. government, its agencies or instrumentalities;

repurchase agreements; and

other short-term money market instruments which are not rated but are
determined by the investment adviser to be of comparable quality to the
other temporary obligations in which the Fund may invest.

The Louisiana Municipal Income Fund may, from time to time, on a temporary
basis, or when the investment adviser determines that market conditions call for
a temporary defensive posture, invest in short-term tax-exempt or taxable
temporary investments. These temporary investments include: notes issued by or
on behalf of municipal or corporate issuers; obligations issued or guaranteed by
the U.S. government, its agencies or instrumentalities; other debt securities;
commercial paper; certificates of deposit of banks; and repurchase agreements.
The Louisiana Municipal Income Fund has no rating requirements applicable to
temporary investments. However, the investment adviser will limit temporary
investments to those it considers to be of high quality. Although the Fund is
permitted to make taxable, temporary investments, there is no current intention
of generating income subject to federal regular income tax.

For defensive purposes only, the Total Return Bond Fund may also invest in
acceptable investments of the Fund with short-term maturities.

U.S. GOVERNMENT SECURITIES

The types of U.S. government securities in which the Funds may invest generally
include direct obligations of the U.S. Treasury (such as U.S. Treasury bills,
notes, and bonds) and obligations issued or guaranteed by U.S. government
agencies or instrumentalities. These securities are backed in a variety of ways
by the U.S. government or its agencies or instrumentalities. Some of these
obligations, such as Government National Mortgage Association mortgage-backed
securities and obligations of the Farmers Home Administration, are backed by the
full faith and credit of the U.S. Treasury. Obligations of the Farmers Home
Administration are also backed by the issuer's right to borrow from the U.S.
Treasury. Obligations of Federal Home Loan Banks and the Farmers Home
Administration are backed by the discretionary authority of the U.S. government
to purchase certain obligations of agencies or instrumentalities. Obligations of
Federal Home Loan Banks, Farmers Home Administration, Federal Farm Credit Banks,
Federal National Mortgage Association, and Federal Home Loan Mortgage
Corporation are backed by the credit of the agency or instrumentality issuing
the obligations.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

The Funds may purchase securities on a when-issued or delayed delivery basis.
(The Cash Reserve Fund will limit the securities purchased on a when-issued and
delayed delivery basis to short-term U.S. government obligations.) These
transactions are arrangements in which a Fund purchases securities with payment
and delivery scheduled for a future time. The Funds engage in when-issued and
delayed delivery transactions only for the purpose of acquiring portfolio
securities consistent with each Fund's investment objective and policies, not
for investment leverage. The seller's failure to complete these transactions may
cause a Fund to miss a price or yield considered to be advantageous. Settlement
dates may be a month or more after entering into these transactions, and the
market values of the securities purchased may vary from the purchase prices.
Accordingly, a Fund may pay more/less than the market value of the securities on
the settlement date.

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

As a matter of operating policy, which may be changed without shareholder
approval, each Fund will limit its purchase of securities on a when-issued or
delayed delivery basis to no more than 20% of the value of its total assets.

Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment a later increase or decrease in percentage resulting
from any change in value of a Fund's net assets will not result in a violation
of any of the above restrictions.

TOWER MUTUAL FUNDS INFORMATION
- --------------------------------------------------------------------------------

MANAGEMENT OF TOWER MUTUAL FUNDS

BOARD OF TRUSTEES. Tower Mutual Funds is managed by a Board of Trustees. The
Trustees are responsible for managing Tower Mutual Funds' business affairs and
for exercising all Tower Mutual Funds' powers except those reserved for the
shareholders. The Executive Committee of the Board of Trustees handles the
Board's responsibilities between meetings of the Board.

INVESTMENT ADVISER. Pursuant to an investment advisory contract with Tower
Mutual Funds, investment decisions for the Funds are made by Hibernia National
Bank, the Funds' investment adviser (the "Adviser"), subject to direction by the
Trustees. The Adviser continually conducts investment research and supervision
for the Funds and is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the assets of each Fund.

ADVISORY FEES. The Adviser receives an annual investment advisory fee at
annual rates equal to percentages of the relevant Fund's average net
assets, as follows: Capital Appreciation Fund--0.75%; Louisiana Municipal
Income Fund--0.45%; Total Return Bond Fund-- 0.70%; U.S. Government Income
Fund--0.45%; and Cash Reserve Fund and U.S. Treasury Money Market
Fund--0.40%. The Adviser may voluntarily choose to waive a portion of its
fee or reimburse a Fund for certain operating expenses. The Adviser may
modify or terminate this voluntary waiver of its advisory fee or
reimbursement of expenses at any time with respect to a Fund at its sole
discretion. The Adviser has also undertaken to reimburse the Funds for
operating expenses in excess of limitations established by certain states.

ADVISER'S BACKGROUND. Hibernia National Bank, a national bank organized in
1933, is a wholly owned subsidiary of Hibernia Corporation ("Hibernia").
Hibernia National Bank has acted as investment adviser to the Trust since
its inception in 1988. Through its subsidiaries and affiliates, Hibernia
offers a full range of financial services to the public, including
commercial lending, depository services, cash management, retail banking,
credit card services, mortgage banking, discount brokerage, investment
counseling, international banking, and trust services.

Hibernia National Bank has been ranked by the American Banker newspaper as
the 107th largest U.S. Bank according to June 30, 1994, deposits. The 1993
Money Market Directory of Pension Funds ranked Hibernia National Bank among
the top 25% of the largest of nearly 300 bank and trust company managers of
tax-exempt funds in the United States. As of September 30, 1994, the Trust
Group had $5.2 billion under administration of which it had investment
discretion over $1.4 billion. The Trust Group has managed pools of
commingled funds since 1966; as of September 30, 1994, the Trust Group
managed seven such investment pools, well as the six Tower Mutual Funds,
with total assets of $739.2 million.

As part of their regular banking operations, Hibernia National Bank may
make loans to public companies. Thus, it may be possible, from time to
time, for a Fund to hold or acquire the securities of issuers which are
also lending clients of Hibernia National Bank. The lending relationship
will not be a factor in the selection of securities.

Paul J. Mangus has been the Capital Appreciation Fund's portfolio manager
since 1991. Mr. Mangus joined Hibernia in 1989 and is currently Senior Vice
President and Manager of the Trust Investment Division of Hibernia and
Chief Investment Officer for Hibernia's Trust Group. Mr. Mangus was a Vice
President of Mellon Bank, N.A, Pittsburgh, Pennsylvania, from 1982 to 1989;
director of research for Equibank, N.A, Pittsburgh, Pennsylvania from 1980
to 1982; and a trust portfolio manager with McDowell National Bank, Sharon,
Pennsylvania, from 1978 to 1980. Mr. Mangus received a Bachelor degree from
Pennsylvania State University and is a Chartered Financial Analyst.

Jeffrey R. Tanguis has been the Louisiana Municipal Income Fund's and the
U.S. Government Income Fund's portfolio manager since 1988 and 1992,
respectively. Mr. Tanguis joined Hibernia in 1984 and is currently a Vice
President and Trust Investment Officer of Hibernia. During the period 1982
to 1984, Mr. Tanguis worked for a major Wall Street brokerage firm. Mr.
Tanguis received a B.S. degree from Louisiana State University.

John S. Hall has been the Total Return Bond Fund's portfolio manager since
November 1992. Mr. Hall joined Hibernia in 1992 as Vice President and Trust
Investment Officer. During the period from 1982 to 1992, Mr. Hall was Vice
President and Chief Investment Officer of a multiline insurance company.
Mr. Hall received a B.S. degree in applied mathematics from the University
of Kentucky.

DISTRIBUTION OF FUND SHARES

Federated Securities Corp. is the principal distributor for shares of the Funds.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.

DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan of Tower
Mutual Funds, the distributor may select brokers and dealers to provide
distribution and administrative services. The distributor may also select
administrators (including depository institutions such as commercial banks and
savings and loan associations) to provide administrative services. Fees paid by
the distributor for these services with respect to a Fund will be reimbursed by
the relevant Fund up to 0.25 of 1% of average daily net assets of the Fund.
These services may include, but are not limited to, providing office space,
equipment, telephone facilities, and various personnel, including clerical,
supervisory, and computer, as necessary or beneficial to establish and maintain
shareholder accounts and records, processing purchase and redemption
transactions, and performing other services. Brokers, dealers, and
administrators will receive fees based upon shares owned by their clients or
customers. The formula for calculating the fees will be determined from time to
time by the Trustees. The fees are calculated as a percentage of the average
aggregate net asset value of shares added to shareholder accounts and held in
the accounts during the period for which the brokers, dealers, and
administrators provide services. Although fees paid by a Fund relate directly to
the net asset value of a Fund's shares, it is possible that fees paid by a Fund
may be used to provide similar services for other of the Trust's funds. In
addition, a Fund may reimburse the distributor for writing, printing and
distributing prospectuses, statements of additional information, and sales
literature. Payments made to the distributor under the distribution plan will be
limited to reimbursement of actual expenses.

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

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

ADMINISTRATION OF THE FUNDS

ADMINISTRATIVE SERVICES. Federated Administrative Services ("FAS"), Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, provides the Funds with
certain administrative personnel and services necessary to operate each Fund,
such as legal and accounting services. FAS provides these at an annual rate as
specified below:

<TABLE>
<CAPTION>
MAXIMUM
ADMINISTRATIVE AVERAGE AGGREGATE DAILY
FEE NET ASSETS OF THE TRUST
<C> <S>
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>

The administrative fee received during any fiscal year shall be at least $50,000
per Fund. FAS may voluntarily choose to waive a portion of its fee.

CUSTODIAN. Hibernia National Bank, New Orleans, Louisiana, is custodian for the
securities and cash of the Funds.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the shares of the Funds and
dividend disbursing agent for the Funds.

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

INDEPENDENT AUDITORS. The independent auditors for the Funds are Ernst & Young
LLP, Pittsburgh, Pennsylvania.

NET ASSET VALUE
- --------------------------------------------------------------------------------

With respect to the Capital Appreciation Fund, Louisiana Municipal Income Fund,
Total Return Bond Fund, and U.S. Government Income Fund, net asset value per
share fluctuates and is determined by dividing the sum of the market value of
all securities and other assets, less liabilities, by the number of shares
outstanding.

With respect to the Money Market Funds, each Fund attempts to stabilize the net
asset value of its shares at $1.00 by valuing its portfolio securities using the
amortized cost method. The net asset value per share is determined by
subtracting total liabilities from total assets and dividing the remainder by
the number of shares outstanding. Of course, the Money Market Funds cannot
guarantee that their net asset value will always remain at $1.00 per share.

INVESTING IN THE FUNDS
- --------------------------------------------------------------------------------

SHARE PURCHASES

Shares of the Funds are sold on days on which the New York Stock Exchange is
open for business. With respect to the Capital Appreciation Fund, Louisiana
Municipal Income Fund, Total Return Bond Fund, and U.S. Government Income Fund,
shares may be purchased through Hibernia National Bank or through brokers or
dealers which have a sales agreement with the distributor. Shares of the Money
Market Funds may be purchased through Hibernia National Bank or directly from
the distributor. In connection with the sale of shares of the Funds, the
distributor may from time to time offer certain items of nominal value to any
shareholder or investor. The Funds reserve the right to reject any purchase
request.

THROUGH HIBERNIA NATIONAL BANK. An investor may call Hibernia National Bank to
place an order to purchase shares of the Funds. (Call toll-free 1-800-999-0124.)
Texas residents must purchase shares through Hibernia Investment Securities,
Inc., at 1-800-999-0426. For the Capital Appreciation Fund, Louisiana Municipal
Income Fund, Total Return Bond Fund, and U.S. Government Income Fund, orders
purchased through Hibernia National Bank are considered received when the
appropriate Fund is notified of the purchase order. Purchase orders must be
received by Hibernia National Bank before 3:00 p.m. (Central Standard Time) and
must be transmitted by Hibernia National Bank to the appropriate Fund before
3:00 p.m. (Central Standard Time) in order for shares to be purchased at that
day's public offering price. It is the responsibility of Hibernia National Bank
to transmit orders promptly.

Payment for shares of the Money Market Funds may be made either by check or
federal funds. Payment by check must be included with the order. Orders are
considered received after payment by check is converted by Hibernia National
Bank into federal funds. When payment is made with federal funds, the order is
considered received immediately. Payment by federal funds must be received
before 11:00 a.m. (Central Standard Time) on the same day as the order to earn
dividends for that day. Federal funds should be wired as follows: Hibernia
National Bank, New Orleans, Lousiana; for Credit to: (include name of Fund);
Title or name of account; and Wire Order
Number. Shares cannot be purchased by wire on Columbus Day, Veterans Day, or
Martin Luther King Day.

THROUGH AUTHORIZED BROKER/DEALERS. An investor may place an order through
authorized brokers and dealers to purchase shares of the Funds (except the Money
Market Funds). Shares will be purchased at the public offering price next
determined after the Fund receives the purchase request from Hibernia National
Bank, which forwards the request to the transfer agent. Purchase requests
through registered broker/dealers must be received by Hibernia National Bank and
transmitted to the Fund before 3:00 p.m. (Central Standard Time) in order for
shares to be purchased at that day's public offering price.

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in each Fund by an investor is $1,000. With
respect to the Money Market Funds, if the investment is in a retirement plan,
the minimum initial investment is $250. Subsequent investments must be in
amounts of at least $100. The Funds may choose to waive these minimum investment
requirements for directors and employees of Hibernia National Bank.

WHAT SHARES COST

Shares of the Funds are sold at their net asset value next determined after an
order is received.

There is no sales charge imposed by the Money Market Funds.

Shares of the Capital Appreciation Fund, Louisiana Municipal Income Fund, Total
Return Bond Fund, and U.S. Government Income Fund are sold with a sales charge
as follows:

<TABLE>
<CAPTION>
SALES CHARGE AS A SALES CHARGE AS A
PERCENTAGE OF PUBLIC PERCENTAGE OF NET
AMOUNT OF TRANSACTION INVESTED OFFERING PRICE AMOUNT INVESTED
<S> <C> <C>
Less than $100,000 3.00% 3.09%
$100,000 but less than $250,000 2.75% 2.83%
$250,000 but less than $500,000 2.00% 2.04%
$500,000 but less than $750,000 1.00% 1.01%
$750,000 but less than $1 million 0.75% 0.76%
$1 million but less than $2 million 0.50% 0.50%
$2 million or more 0.25% 0.25%
</TABLE>

On Monday through Friday, the Money Market Funds calculate net asset value at
11:00 a.m. (Central Standard Time) and 3:00 p.m. (Central Standard Time), while
Capital Appreciation Fund, Louisiana Municipal Income Fund, Total Return Bond
Fund, and U.S. Government Income Fund determine net asset value at the close of
the New York Stock Exchange, normally 3:00 p.m. (Central Standard Time), except
on: (i) days on which there are not sufficient changes in the value of the
Fund's portfolio securities that its net asset value might be materially
affected; (ii) days during which no shares are tendered for redemption and no
orders to purchase shares are received; and (iii) the following holidays: New
Year's Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.

PURCHASES AT NET ASSET VALUE. With respect to the Capital Appreciation Fund,
Louisiana Municipal Income Fund, Total Return Bond Fund, and U.S. Government
Income Fund, shares may be purchased at net asset value, without a sales charge,
by the Trust Division of Hibernia National Bank or other affiliates of Hibernia
for funds which are held in a fiduciary, agency, custodial, or similar capacity.
Trustees and employees of the Trust, Hibernia National Bank, or Federated
Securities Corp. or their affiliates, or any bank or investment dealer who has a
sales agreement with Federated Securities Corp. with regard to the Funds, and
their spouses and children under 21 may also buy shares at net asset value,
without a sales charge.

SALES CHARGE REALLOWANCE. For sales of shares of the Capital Appreciation Fund,
Louisiana Municipal Income Fund, Total Return Bond Fund, and U.S. Government
Income Fund, Hibernia National Bank and any authorized dealer will normally
receive up to 100% of the applicable sales charge. Any portion of the sales
charge which is not paid to Hibernia National Bank or a dealer will be retained
by the distributor. However, the distributor, in its sole discretion, may
uniformly offer to pay to Hibernia National Bank or a dealer selling shares of
the Funds, all or a portion of the sales charge it normally retains. If accepted
by Hibernia National Bank or a dealer, such additional payments will be
predicated upon the amount of Fund shares sold. Such payments may take the form
of cash or promotional incentives, such as payment of certain expenses of
qualified employees and their spouses to attend informational meetings about the
Funds or other special events at recreational facilities, or items of material
value. In some instances, these incentives will be made available only to
dealers whose employees have sold or may sell significant amounts of shares.

OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor, Hibernia National
Bank, or their affiliates may also offer to pay a fee from their own assets to
financial institutions as financial assistance for providing substantial
marketing and sales support. The support may include initiating customer
accounts, providing sales literature, or participating in sales, educational and
training seminars (including those held at recreational facilities). Such
assistance will be predicated upon the amount of shares the financial
institution sells or may sell and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by Hibernia National Bank or its affiliates.

REDUCING THE SALES CHARGE

The sales charge can be reduced through:

quantity discounts and accumulated purchases;

signing a 13-month letter of intent;

using the reinvestment privilege; or

concurrent purchases.

QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table on the
previous page, larger purchases of the Capital Appreciation Fund, Louisiana
Municipal Income Fund, Total Return Bond Fund, or U.S. Government Income Fund
reduce the sales charge paid. The distributor will combine purchases made on the
same day by the investor, his spouse, and his children under age 21 when it
calculates the sales charge.

If an additional purchase of shares in the Capital Appreciation Fund, Louisiana
Municipal Income Fund, Total Return Bond Fund, or U.S. Government Income Fund is
made, the distributor will consider the previous purchases still invested in the
Capital Appreciation Fund, Louisiana Municipal Income Fund, Total Return Bond
Fund, or U.S. Government Income Fund. For example, if the shareholder already
owns shares having a current value at the public offering price of $90,000 and
he purchases $10,000 more at the current public offering price, the sales charge
on the additional purchase according to the schedule now in effect would be
2.75%, not 3.00%.

To receive the sales charge reduction, Hibernia National Bank or the distributor
must be notified by the shareholder in writing at the time the purchase is made
that shares of the Capital Appreciation Fund, Louisiana Municipal Income Fund,
Total Return Bond Fund, or U.S. Government Income Fund are already owned or that
purchases are being combined. The distributor will reduce the sales charge after
it confirms the purchases.

LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of
shares in the Capital Appreciation Fund, Louisiana Municipal Income Fund, Total
Return Bond Fund, or U.S. Government Income Fund over the next 13 months, the
sales charge may be reduced by signing a letter of intent to that effect. This
letter of intent includes a provision for a sales charge adjustment depending on
the amount actually purchased within the 13-month period and a provision for the
Fund's custodian to hold 3.00% of the total amount intended to be purchased in
escrow (in shares of that Fund) until such purchase is completed.

The 3.00% held in escrow will be applied to the shareholder's account at the end
of the 13-month period unless the amount specified in the letter of intent is
not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales charge.

This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. This letter may
be dated as of a prior date to include any purchases made within the past 90
days; however, these previous purchases will not receive the reduced sales
charge.

REINVESTMENT PRIVILEGE. If shares in the Capital Appreciation Fund, Louisiana
Municipal Income Fund, Total Return Bond Fund, or U.S. Government Income Fund
have been redeemed, the shareholder has a one-time right, within 30 days (within
120 days for IRA accounts), to reinvest the redemption proceeds at the
next-determined net asset value without any sales charge. Hibernia National Bank
or the distributor must be notified by the shareholder in writing or by his
financial institution of the reinvestment in order to eliminate a sales charge.
If the shareholder redeems his shares in a Fund, there may be tax consequences.

CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction,
a shareholder has the privilege of combining concurrent purchases of two or more
funds in Tower Mutual Funds, the purchase price of which includes a sales
charge. For example, if a shareholder concurrently invested $30,000 in one of
the Tower Mutual Funds with a sales charge and $70,000 in another Tower Mutual
Fund with a sales charge, the sales charge would be reduced.

To receive this sales charge reduction, the distributor must be notified by the
shareholder in writing or by Hibernia National Bank at the time the concurrent
purchases are made. The sales charge will be reduced after the purchase is
confirmed.

SYSTEMATIC INVESTMENT PROGRAM

Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Fund shares at the net asset value next determined after an order is
received, plus the applicable sales charge, if any. A shareholder may apply for
participation in this program through Hibernia National Bank.

EXCHANGING SECURITIES FOR FUND SHARES

The Funds may accept securities in exchange for Fund shares. A Fund will allow
such exchanges only upon the prior approval of the Fund and a determination by
the Fund and the Adviser that the securities to be exchanged are acceptable.

Any securities exchanged must meet the investment objective and policies of the
Fund, must have a readily ascertainable market value, must be liquid, and must
not be subject to restrictions on resale. The market value of any securities
exchanged in an initial investment, plus any cash, must be at least $25,000.
Shares purchased by exchange of securities cannot be redeemed by telephone for
five business days to allow time for the transfer to settle.

Securities accepted by the Fund will be valued in the same manner as the Fund
values its assets. The basis of the exchange will depend upon the net asset
value of Fund shares on the day the securities are valued. One share of the Fund
will be issued for each equivalent amount of securities accepted.

Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription or other rights
attached to the securities become the property of the Fund, along with the
securities.

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder of record. Share certificates are not issued unless
requested by contacting Hibernia National Bank in writing.

With respect to the Capital Appreciation Fund, Louisiana Municipal Income Fund,
Total Return Bond Fund, and U.S. Government Income Fund, detailed confirmations
of each purchase or redemption are sent to each shareholder. Monthly
confirmations are sent to report dividends paid during that month. With respect
to the Money Market Funds, monthly confirmations are sent to report transactions
such as purchases and redemptions as well as dividends paid during the month.

DIVIDENDS

With respect to the Money Market Funds, dividends are declared daily and paid
monthly. Dividends are automatically reinvested on payment dates in additional
shares of the respective Fund unless cash payments are requested by writing to
one of these Funds or Hibernia National Bank. Share purchase orders received by
one of these Funds or Hibernia National Bank before 11:00 a.m. (Central Standard
Time) earn dividends that day.

Dividends are declared and paid monthly to all shareholders invested in the
Louisiana Municipal Income Fund, Total Return Bond Fund, and U.S. Government
Income Fund and are declared and paid quarterly to all shareholders in the
Capital Appreciation Fund on the record date. Dividends are automatically
reinvested in additional shares of the respective Fund on payment dates at the
ex-dividend date net asset value without a sales charge, unless cash payments
are requested by writing to one of these Funds or Hibernia National Bank.

CAPITAL GAINS

Capital gains realized by a Fund, if any, will be distributed at least once
every 12 months.

EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------

TOWER MUTUAL FUNDS

Shareholders of any of the Funds are shareholders of Tower Mutual Funds.
Shareholders in a Fund have easy access to each of the portfolios of Tower
Mutual Funds through a telephone exchange program.

EXCHANGING SHARES. Shares of those Funds with a sales charge may be exchanged
at net asset value for shares of any of the other Funds in the Trust with an
equal sales charge or no sales charge. Shares of Funds with no sales charge
acquired by direct purchase or reinvestment of dividends on such shares may be
exchanged for shares of any of the other Funds in the Trust with a sales charge
at net asset value plus the applicable sales charge. Shareholders who exercise
this exchange privilege must exchange shares having a net asset value of at
least $1,000.

When an exchange is made from a Fund with a sales charge to a Fund with no sales
charge, the shares exchanged and additional shares which have been purchased by
reinvesting dividends on such shares retain the character of the exchanged
shares for purposes of exercising further exchange privileges; thus, an exchange
of such shares for shares of a Fund with a sales charge would be at net asset
value.

The exchange privilege is available to shareholders residing in any state in
which the Fund shares being acquired may legally be sold. Upon receipt of proper
instructions and all necessary supporting documents, shares submitted for
exchange will be redeemed at the next-determined net asset value. Written
exchange instructions may require a signature guarantee. Exercise of this
privilege is treated as a sale for federal income tax purposes and, depending on
the circumstances, a short or long-term capital gain or loss may be realized.
The exchange privilege may be terminated at any time. Prior to such termination,
shareholders will be notified of the termination of the exchange privilege at
least 60 days before the date of termination. A shareholder may obtain further
information on the exchange privilege by calling Hibernia National Bank.

EXCHANGE-BY-TELEPHONE. Instructions for exchanges between Funds which are part
of Tower Mutual Funds may be given by telephone to Hibernia National Bank at
1-800-999-0124 or to the distributor. Shares may be exchanged by telephone only
between fund accounts having identical shareholder registrations. Exchange
instructions given by telephone may be electronically recorded.

Any shares held in certificate form cannot be exchanged by telephone but must be
forwarded to the transfer agent by Hibernia National Bank and deposited to the
shareholder's mutual fund account before being exchanged.

Telephone exchange instructions must be received before 3:00 p.m. (Central
Standard Time) for shares to be exchanged the same day. The telephone exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of such modification or termination at least 60 days prior to the date
of modification or termination. Shareholders may have difficulty in making
exchanges by telephone through banks, brokers, and other financial institutions
during times of drastic economic or market changes. If a shareholder cannot
contact his bank, broker, or financial institution by telephone, it is
recommended that an exchange request be made in writing and sent by overnight
mail. If reasonable procedures are not followed by a Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.

WRITTEN EXCHANGE. A shareholder wishing to make an exchange by written request
may do so by sending a mail request to Hibernia National Bank, 313 Carondelet
Street, New Orleans, Louisiana 70130. In addition, an investor may exchange
shares by sending a written request to his or her authorized broker directly.
REDEEMING SHARES
- --------------------------------------------------------------------------------

The Funds redeem shares at their net asset value next determined after the
relevant Fund receives the redemption request. Redemptions may be made on days
on which the Fund computes its net asset value. Telephone or written requests
for redemption must be received in proper form and can be made through Hibernia
National Bank or directly to the respective Fund.

BY TELEPHONE. A shareholder may redeem shares of a Fund by calling Hibernia
National Bank at 1-800-999-0124 to request the redemption. Shares will be
redeemed at the net asset value next determined after the Fund receives the
redemption request from Hibernia National Bank. Redemption instructions given by
telephone may be electronically recorded.

With respect to the Capital Appreciation Fund, Louisiana Municipal Income Fund,
Total Return Bond Fund, and U.S. Government Income Fund, redemption requests
through Hibernia National Bank must be received by Hibernia National Bank before
3:00 p.m. (Central Standard Time) and must be transmitted by Hibernia National
Bank to the appropriate Fund before 3:00 p.m. (Central Standard Time) in order
for shares to be redeemed at that day's net asset value. Redemption requests
through registered broker/dealers must be received by Hibernia National Bank and
transmitted to the appropriate Fund before 3:00 p.m. (Central Standard Time) in
order for shares to be redeemed at that day's net asset value. Hibernia National
Bank is responsible for promptly submitting redemption requests and providing
proper written redemption instructions to a Fund. Other registered
broker/dealers may charge customary fees and commissions for this service. With
respect to the Money Market Funds, for calls received before 10:00 a.m. (Central
Standard Time), proceeds will normally be wired the same day to the
shareholder's account at a domestic commercial bank that is a member of the
Federal Reserve Wire System or a check will be sent to the address of record.
For calls received after 10:00 a.m. (Central Standard Time), proceeds will
normally be wired the following business day. In no event will proceeds be wired
more than five days after a proper request for redemption has been received.

A daily dividend will be paid on shares of the Money Market Funds redeemed if
the redemption request is received after 10:00 a.m. (Central Standard Time).
However, the proceeds are normally not wired until the following business day.
Redemption requests received before 10:00 a.m. (Central Standard Time) will
normally be paid the same day but will not be entitled to that day's dividend.
If at any time, the Money Market Funds shall determine it necessary to terminate
or modify this method of redemption, shareholders would be promptly notified.

An authorization form permitting the Funds to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Hibernia National Bank or the distributor.

In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "By Mail," should be considered. If reasonable
procedures are not followed by the Funds, they may be liable for losses due to
unauthorized or fraudulent telephone instructions.

BY MAIL. Shareholders may redeem shares of a Fund by sending a written request
to Hibernia National Bank. The written request should include the shareholder's
name, the Fund name, the account number, and the share or dollar amount
requested. If share certificates have been issued, they must be properly
endorsed and should be sent by registered or certified mail with the written
request to Hibernia National Bank. Shareholders should call Hibernia National
Bank for assistance in redeeming by mail.

Shareholders requesting a redemption of $50,000 or more, a redemption of any
amount to be sent to an address other than that on record with a Fund, or a
redemption payable other than to the shareholder of record must have signatures
on written redemption requests guaranteed by:

a trust company or commercial bank whose deposits are insured by BIF,
which is administered by the FDIC;

a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchange;

a savings bank or savings and loan association whose deposits are insured
by SAIF, which is administered by the FDIC; or

any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.

The Funds do not accept signatures guaranteed by a notary public.

The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.

Normally, a check for the proceeds is mailed to the shareholder within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.

SYSTEMATIC WITHDRAWAL PROGRAM

Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, shares of a
Fund are redeemed to provide for periodic withdrawal payments in an amount
directed by the shareholder. Depending upon the amount of the withdrawal
payments, the amount of dividends paid and capital gains distributions with
respect to Fund shares, and the fluctuation of the net asset value of Fund
shares redeemed under this program, redemptions may reduce, and eventually
deplete, the shareholder's investment in a Fund. For this reason, payments under
this program should not be considered as yield or income on the shareholder's
investment in a Fund. To be eligible to participate in this program, a
shareholder must have an account value of at least $10,000. A shareholder may
apply for participation in this program through Hibernia National Bank. Due to
the fact that shares of the Capital Appreciation Fund, Louisiana Municipal
Income Fund, Total Return Bond Fund, and U.S. Government Income Fund are sold
with a sales charge, it is not advisable for shareholders to be purchasing
shares of those Funds while participating in this program.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the Funds may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum of $1,000 due to shareholder
redemptions. This requirement does not apply, however, if the balance falls
below $1,000 because of changes in a Fund's net asset value. Before shares are
redeemed to close an account, the shareholder is notified in writing and allowed
30 days to purchase additional shares to meet the minimum requirement.

SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------

VOTING RIGHTS

Each share of a Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of each Fund in
Tower Mutual Funds have equal voting rights, except that in matters affecting
only a particular Fund, only shareholders of that Fund are entitled to vote. As
a Massachusetts business trust, Tower Mutual Funds is not required to hold
annual shareholder meetings. Shareholder approval will be sought only for
certain changes in Tower Mutual Funds' or a Fund's operation and for the
election of Trustees under certain circumstances. As of December 12, 1994,
Hibernia National Bank may for certain purposes be deemed to control the Funds
because it is owner of record of certain shares of the Funds.

Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of Tower Mutual Funds'
outstanding shares.

MASSACHUSETTS PARTNERSHIP LAW

Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of Tower Mutual Funds.
To protect shareholders, Tower Mutual Funds has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders for such
acts or obligations of Tower Mutual Funds. These documents require notice of
this disclaimer to be given in each agreement, obligation, or instrument Tower
Mutual Funds or its Trustees enter into or sign.

In the unlikely event a shareholder is held personally liable for obligations of
Tower Mutual Funds, Tower Mutual Funds is required to use its property to
protect or to compensate the shareholder. On request, Tower Mutual Funds will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of Tower Mutual Funds. Therefore, financial loss resulting from
liability as a shareholder will occur only if Tower Mutual Funds cannot meet its
obligations to indemnify shareholders and to pay judgments against them from its
assets.

EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------

Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities. However, such
banking laws and regulations do not prohibit such a holding company affiliate or
banks generally from acting as investment adviser, transfer agent or custodian
to such an investment company or from purchasing shares of such a company as
agent for and upon the order of such a customer. Hibernia National Bank is
subject to such banking laws and regulations.

Hibernia National Bank believes, based on the advice of its counsel, that
Hibernia National Bank may perform the services for any Fund contemplated by its
advisory agreement with Tower Mutual Funds without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. Changes in
either federal or state statutes and regulations relating to the permissible
activities of banks and their subsidiaries or affiliates, as well as further
judicial or administrative decisions or interpretations of such or future
statutes and regulations, could prevent Hibernia National Bank from continuing
to perform all or a part of the above services for its customers and/ or a Fund.
If it were prohibited from engaging in these customer-related activities, the
Trustees would consider alternative advisers and means of continuing available
investment services. In such event, changes in the operation of a Fund may
occur, including possible termination of any automatic or other Fund share
investment and redemption services then being provided by Hibernia National
Bank. It is not expected that existing shareholders would suffer any adverse
financial consequences (if another adviser with equivalent abilities to Hibernia
National Bank is found) as a result of any of these occurrences.

TAX INFORMATION
- --------------------------------------------------------------------------------

FEDERAL INCOME TAX

The Funds will pay no federal income tax because each Fund expects to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.

Each Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by a Fund
will not be combined for tax purposes with those realized by any of the other
Funds.

Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.

LOUISIANA MUNICIPAL INCOME FUND--ADDITIONAL TAX INFORMATION

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

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

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

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

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

These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.

LOUISIANA TAXES. Under existing Louisiana laws, distributions made by the Fund
are not subject to Louisiana income taxes provided that such distributions
qualify as exempt-interest dividends, and represent interest from obligations
which are issued by the State of Louisiana or any of its political subdivisions,
which interest is exempt from federal income tax. Conversely, to the extent that
distributions made by the Fund are attributable to other types of obligations,
such distributions will be subject to Louisiana income taxes.

OTHER STATE AND LOCAL TAXES

Income from the Louisiana Municipal Income Fund is not necessarily free from
state income taxes in states other than Louisiana or from personal property
taxes. With respect to all the Funds, shareholders are urged to consult their
own tax advisers regarding the status of their accounts under state and local
tax laws.

PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------

From time to time each Fund may advertise its total return and yield.
Additionally, the Louisiana Municipal Income Fund may advertise its
tax-equivalent yield, and each Money Market Fund may also advertise its
effective yield.

Total return represents the change, over a specified period of time, in the
value of an investment in a Fund after reinvesting all income and capital gains
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.

The yield for each Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by such Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This number is then annualized using semi-annual
compounding. With respect to the Louisiana Municipal Income Fund, the
tax-equivalent yield is calculated similarly to the yield, but is adjusted to
reflect the taxable yield that that Fund would have had to earn to equal its
actual yield, assuming a specific tax rate. Yield and tax-equivalent yield do
not necessarily reflect income actually earned by a Fund and, therefore, may not
correlate to the dividends or other distributions paid to shareholders.

With respect to the Money Market Funds, the effective yield is calculated
similarly to the yield, but, when annualized, the income earned by an investment
in a Money Market Fund is assumed to be reinvested daily. The effective yield
will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment. For those Funds sold with a
sales charge, the performance information normally reflects the effect of the
maximum sales charge which, if excluded, would increase the total return, yield,
and tax-equivalent yield. Occasionally, performance information which does not
reflect the effect of the sales charge may be quoted in advertising.

From time to time, the Funds may advertise their performance using certain
financial publications and/or compare their performance to certain indices.

ADDRESSES
- ----------------------------------------------------------------------------
<TABLE>
<S> <C> <C>

Tower Capital Appreciation Fund
Tower Louisiana Municipal Income Fund
Tower Total Return Bond Fund
Tower U.S. Government Income Fund
Tower Cash Reserve Fund
Tower U.S. Treasury Money Market Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -----------------------------------------------------------------------------------------------------------------------

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

Investment Adviser
Hibernia National Bank Attention: Tower Mutual Funds
P.O. Box 61540
New Orleans, Louisiana 70161
- -----------------------------------------------------------------------------------------------------------------------

Custodian
Hibernia National Bank Attention: Tower Mutual Funds
P.O. Box 61540
New Orleans, Louisiana 70161
- -----------------------------------------------------------------------------------------------------------------------

Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -----------------------------------------------------------------------------------------------------------------------

Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- -----------------------------------------------------------------------------------------------------------------------

Legal Counsel
Dickstein, Shapiro & Morin, L.L.P. 2101 L Street, N.W.
Washington, D.C. 20037
- -----------------------------------------------------------------------------------------------------------------------

Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>

006584 (12/94)

Tower Mutual Funds
Combined Statement of Additional Information

This Combined Statement of Additional Information should
be read with the combined prospectus of Tower Mutual
Funds (the "Trust") dated December 31, 1994. This
Statement is not a prospectus itself. To receive a copy
of the prospectus, write the Trust or call toll-free 1-
800-999-0124.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated December 31, 1994

FEDERATED SECURITIES
CORP.
Distributor
006897 (12/94)
General Information About the Funds 1
Investment Objective and Policies of the Funds 1
When-Issued and Delayed Delivery Transactions 1
Lending of Portfolio Securities1
Reverse Repurchase Agreements 1
Futures and Options Transactions1
Restricted Securities 4
Warrants 4
Louisiana Municipal Bond Insurers 4
Municipal Bond Investors Assurance Corp. 4
AMBAC Indemnity Corporation 5
Financial Guaranty Insurance Company5
Financial Security Assurance Inc. 5
Zero-Coupon Securities 5
Portfolio Turnover 6
Investment Limitations 6
Tower Mutual Funds Management 11
Officers and Trustees 11
Fund Ownership 12
Trustee Liability 12
Investment Advisory Service 12
Adviser to the Trust 12
Advisory Fees 13
Administrative Services 13
Transfer Agent, Dividend Disbursing Agent,
and Portfolio Accounting Services14
Custodian 14
Brokerage Transactions 14
Purchasing Shares 14
Distribution Plan 15
Conversion To Federal Funds 15
Determining Net Asset Value 15
Determining Market Value of Securities 15
Exchange Privilege 16
Requirements for Exchange 16
Making an Exchange 17
Redeeming Shares 17
Redemption in Kind 17
Tax Status 17
The Funds' Tax Status 17
Shareholders' Tax Status 17
Total Return 18
Yield 18
Tax-Equivalent Yield 18
Performance Information 19
Appendix 21
General Information About the Funds
The Trust was established as a Massachusetts business trust
under a Declaration of Trust dated April 8, 1988. As of the
date of this Statement, the Trust consists of six separate
portfolios of securities (the "Funds") which are as follows:
Tower Capital Appreciation Fund ("Capital Appreciation Fund"),
Tower Louisiana Municipal Income Fund ("Louisiana Municipal
Income Fund"), Tower Total Return Bond Fund ("Total Return
Bond Fund"), Tower U.S. Government Income Fund ("U.S.
Government Income Fund"), Tower Cash Reserve Fund ("Cash
Reserve Fund"), and Tower U.S. Treasury Money Market Fund
("U.S. Treasury Money Market Fund").
Investment Objective and Policies of the Funds
The Prospectus discusses the objective of each Fund and the
policies it employs to achieve those objectives. The
following discussion supplements the description of the Funds'
investment policies in the Prospectus.
The Funds' respective investment objectives cannot be changed
without approval of shareholders. The investment policies
described below may be changed by the Board of Trustees (the
"Trustees") without shareholder approval. Shareholders will
be notified before any material change in these policies
becomes effective.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be
an advantageous price or yield for a Fund. Settlement dates
may be a month or more after entering into these
transactions, and the market values of the securities
purchased may vary from the purchase prices. No fees or other
expenses, other than normal transaction costs, are incurred.
However, liquid assets of a Fund sufficient to make payment
for the securities to be purchased are segregated on the
Fund's records at the trade date. These assets are marked to
market daily and are maintained until the transaction has been
settled.
Lending of Portfolio Securities
The Funds (except the Money Market Funds) may lend portfolio
securities. The collateral received when a Fund lends
portfolio securities must be valued daily and, should the
market value of the loaned securities increase, the borrower
must furnish additional collateral to the Fund. During the
time portfolio securities are on loan, the borrower pays the
Fund or the borrower. A Fund may pay reasonable
administrative and custodial fees in connection with a loan
and may pay a negotiated portion of the interest earned on the
cash or equivalent collateral to the borrower or placing
broker. The Fund does not have the right to vote securities
on loan, but would terminate the loan and regain the right to
vote if that were considered important with respect to the
investment.
Reverse Repurchase Agreements
The Funds (except U.S. Treasury Money Market Fund) may invest
in reverse repurchase agreements. These transactions are
similar to borrowing cash. In a reverse repurchase agreement,
a Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or
dealer, in return for a percentage of the instrument's market
value in cash, and agrees that on a stipulated date in the
future such Fund will repurchase the portfolio instrument by
remitting the original consideration plus interest at an
agreed upon rate. The use of reverse repurchase agreements
may enable a Fund to avoid selling portfolio instruments at a
time when a sale may be deemed to be disadvantageous, but the
ability to enter into reverse repurchase agreements does not
ensure that a Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of
a Fund, in a dollar amount sufficient to make payment for the
obligations to be purchased, are segregated at the trade date.
These securities are marked to market daily and maintained
until the transaction is settled.
Futures and Options Transactions
The Funds (except the Money Market Funds) may engage in or
reserve the right to engage in put and call options,
financial futures, and options of futures as discussed for
those Funds in the prospectus. For purpose of the Capital
Appreciation Fund, financial futures may include stock index
futures.
The Funds will maintain positions in securities, option
rights, and segregated cash subject to puts and calls until
the options are exercised, closed, or have expired. An
option position may be closed out only on an exchange which
provides a secondary market for an option of the same series.
Financial Futures Contracts
A futures contract is a firm commitment by two parties:
the seller who agrees to make delivery of the specific
type of security called for in the contract ("going
short") and the buyer who agrees to take delivery of the
security ("going long") at a certain time in the future.
Financial futures contracts call for the delivery of
particular debt securities issued or guaranteed by the
U.S. Treasury or by specified agencies or
instrumentalities of the U.S. government.
In the fixed income securities market, price moves
inversely to interest rates. A rise in rates means a
drop in price. Conversely, a drop in rates means a rise
in price. In order to hedge their holdings of
securities, the Funds could enter into contracts to
deliver securities at a predetermined price (i.e., "go
short") to protect themselves against the possibility
that the prices of their securities may decline during
the Funds' anticipated holding period. The Funds would
"go long" (agree to purchase securities in the future at
a predetermined price) to hedge against a decline in
market interest rates.
Purchasing Put Options on Financial Futures Contracts
Unlike entering directly into a futures contract, which
requires the purchaser to buy a financial instrument on a
set date at a specified price, the purchase of a put
option on a futures contract entitles (but does not
obligate) its purchaser to decide on or before a future
date whether to assume a short position at the specified
price.
A Fund could purchase put options on futures to protect
portfolio securities against decreases in value resulting
from an anticipated increase in market interest rates or
as a means of reducing fluctuations in the net asset
value of shares of the Fund. Generally, if the hedged
portfolio securities decrease in value during the term of
an option, the related futures contracts will also
decrease in value and the option will increase in value.
In such an event, a Fund will normally close out its
option by selling an identical option. If the hedge is
successful, the proceeds received by a Fund upon the sale
of the second option will be large enough to offset both
the premium paid by such Fund for the original option
plus the realized decrease in value of the hedged
securities.
Alternately, a Fund may exercise its put to close out the
position. To do so, it would simultaneously enter into a
futures contract of the type underlying the option (for a
price less than the strike price of the option) and
exercise the option. The Fund would then deliver the
futures contract in return for payment of the strike
price. If a Fund neither closes out nor exercises an
option, the option will expire on the date provided in
the option contract, and only the premium paid for the
contract will be lost.
Writing Call Options on Financial Futures Contracts
In addition to purchasing put options on futures, a Fund
may write listed call options on futures contracts for
U.S. government securities to hedge its portfolio against
an increase in market interest rates. When a Fund writes
a call option on a futures contract, it is undertaking
the obligation of assuming a short futures position
(selling a futures contract) at the fixed strike price at
any time during the life of the option if the option is
exercised. As market interest rates rise, causing the
prices of futures to go down, a Fund's obligation under a
call option on a future (to sell a futures contact) costs
less to fulfill, causing the value of such Fund's call
option position to increase.
In other words, as the underlying futures price goes down
below the strike price, the buyer of the option has no
reason to exercise the call, so that Fund keeps the
premium received for the option. This premium can offset
the drop in value of such Fund's fixed income securities
which is occurring as interest rates rise.
Prior to the expiration of a call written by a Fund, or
exercise of it by the buyer, such Fund may close out the
option by buying an identical option. If the hedge is
successful, the cost of the second option will be less
than the premium received by the Fund for the initial
option. The new premium income of the Fund will then
offset the decrease in value of the hedged securities.
Writing Put Options on Financial Futures Contracts
The Funds may write listed put options on financial
futures contracts for U.S. government securities to hedge
its portfolio against a decrease in market interest
rates. When a Fund writes a put option on a futures
contract, it receives a premium for undertaking the
obligation to assume a long futures position (buying a
futures contract) at a fixed price at any time during the
life of the option. As market interest rates decrease,
the market price of the underlying futures contract
increases.
As the market value of the underlying futures contract
increases, the buyer of the put option has less reason to
exercise the put because the buyer can sell the same
futures contract at a higher price in the market. The
premium received by the Fund can then be used to offset
the higher prices of portfolio securities to be purchased
in the future due to the decrease in market interest
rates.
Prior to the expiration of the put option, or its
exercise by the buyer, a Fund may close out the option by
buying an identical option. If the hedge is successful,
the cost of buying the second option will be less than
the premium received by such Fund for the initial option.
Purchasing Call Options on Financial Futures Contracts
When a Fund purchases a call option on a futures
contract, it is purchasing the right (not the obligation)
to assume a long futures position (buy a futures
contract) at a fixed price at any time during the life of
the option. As market interest rates fall, the value of
the underlying futures contract will normally increase,
resulting in an increase in value of such Fund's option
position. When the market price of the underlying
futures contract increases above the strike price plus
premium paid, a Fund could exercise its option and buy
the futures contract below market price.
Limitation on Open Futures Position
A Fund will not maintain open positions in futures
contracts it has sold or call options it has written on
futures contracts if, in the aggregate, the value of the
open positions (marked to market) exceeds the current
market value of its portfolio plus or minus the
unrealized gain or loss on those open positions, adjusted
for the correlation of volatility between the hedged
securities and the futures contracts. If this limitation
is exceeded at any time, a Fund will take prompt action
to close out a sufficient number of open contracts to
bring its open futures and options positions within this
limitation.
Margin in Futures Transactions
Unlike the purchase or sale of a security, a Fund does
not pay or receive money upon the purchase or sale of a
futures contract. Rather, the Fund is required to
deposit an amount of "initial margin" in cash or U.S.
Treasury bills with its custodian (or the broker, if
legally permitted). The nature of initial margin in
futures transactions is different from that of margin in
securities transactions in that futures contract initial
margin does not involve the borrowing of funds by the
Fund to finance the transactions. Initial margin is in
the nature of a performance bond or good-faith deposit on
the contract which is returned to the Fund upon
termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by a Fund is valued daily at the
official settlement price of the exchange on which it is
traded. Each day the Fund pays or receives cash, called
"variation margin," equal to the daily change in value of
the futures contract. This process is know as "marking
to market." Variation margin does not represent a
borrowing or loan by the Fund but is instead settlement
between the Fund and the broker of the amount one would
owe the other if the futures contract expires. In
computing its daily net asset value, a Fund will mark-to-
market its open futures positions.
The Funds are also required to deposit and maintain
margin when they write call options on futures contracts.
Purchasing Put and Call Options on Portfolio Securities
The Funds may purchase put and call options on portfolio
securities to protect against price movements in
particular securities. A put option gives a Fund, in
return for a premium, the right to sell the underlying
security to the writer (seller) at a specified price
during the term of the option. A call option gives a
Fund, in return for a premium, the right to buy the
underlying security from the seller.
The Capital Appreciation Fund may only buy put options
which are listed on a recognized options exchange.
Writing Covered Put and Call Options on Portfolio Securities
As writer of a call option, a Fund has the obligation,
upon exercise of the option during the option period, to
deliver the underlying security upon payment of the
exercise price. As a writer of a put option, a Fund has
the obligation to purchase a security from the purchaser
of the option upon the exercise of the option.
A Fund may only write call options either on securities
held in it portfolio or on securities which it has the
right to obtain without payment of further consideration
(or has segregated cash in the amount of any additional
consideration). In the case of put options, a Fund will
segregate cash or U.S. Treasury obligations with a value
equal to or greater than the exercise price of the
underlying securities.
Restricted Securities
The Capital Appreciation Fund, Louisiana Municipal Income
Fund, and Total Return Bond Fund may invest in restricted
securities. Restricted securities are any securities in which
a Fund may otherwise invest pursuant to its investment
objective and policies but which are subject to restriction on
resale under federal securities law. The Funds will not
invest more than 10% of the value of its total assets in
restricted securities.
The ability of the Trustees to determine the liquidity of
certain restricted securities is permitted under an SEC Staff
position set forth in the adopting release for Rule 144A under
the Securities Act of 1933 (the "Rule"). The Rule is a non-
exclusive, safe-harbor for certain secondary market
transactions involving securities subject to restrictions on
resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise
restricted securities to qualified institutional buyers. The
Rule was expected to further enhance the liquidity of the
secondary market for securities eligible for resale under Rule
144A. The Fund believes that the Staff of the SEC has left
the question of determining the liquidity of all restricted
securities to the Trustees. The Trustees consider the
following criteria in determining the liquidity of certain
restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the
security and the number of potential buyers;
o dealer undertakings to make a market in the security;and
o the nature of the security and the nature of the
marketplace trades.
The Funds may invest in commercial paper issued in reliance on
an exemption from registration afforded by Section 4(2) of the
Securities Act of 1933. Section 4(2) paper is restricted as
to disposition under federal securities law, and is generally
sold to institutional investors, such as a Fund, who agree
that they are purchasing the paper for investment purposes and
not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2)
paper is normally resold to other institutional investors,
like the Funds, through or with the assistance of the issuer
or investment dealers who make a market in Section 4(2), thus
providing liquidity.
Warrants
The Capital Appreciation Fund may invest in warrants.
Warrants are basically options to purchase common stock at a
specific price (usually at a premium above the market value of
the optioned common stock at issuance) valid for a specific
period of time. Warrants may have a life ranging from less
than a year to twenty years or may be perpetual. However,
most warrants have expiration dates after which they are
worthless. In addition, if the market price of the common
stock does not exceed the warrant's exercise price during the
life of the warrant, the warrant will expire worthless.
Warrants have no voting rights, pay no dividends, and have no
rights with respect to the assets of the corporation issuing
them. The percentage increase or decrease in the market price
of the warrant may tend to be greater than the percentage
increase or decrease in the market price of the optioned
common stock.
Louisiana Municipal Bond Insurers
If a high-rated security loses its rating or has its rating
reduced after the Louisiana Municipal Income Fund has
purchased it, the Fund is not required to drop the security
from its portfolio, but may consider doing so. If ratings
made by Moody's Investors Services, Inc. ("Moody's") or
Standard & Poor's Ratings Group ("S&P") change because of
changes in those organizations or in their rating systems, the
Fund will try to use comparable ratings as standards in
accordance with the investment policies described in the
Fund's prospectus.
Municipal bond insurance may be provided by one or more of the
following insurers or any other municipal bond insurer which
is rated Aaa by Moody's or AAA by S&P.
Municipal Bond Investors Assurance Corp.
Municipal Bond Investors Assurance Corp. ("MBIA") is a
wholly-owned subsidiary of MBIA, Inc., a Connecticut
insurance company, which is owned by The Aetna Life and
Casualty, Credit Local DeFrance CAECL, S.A., The Fund
American Companies, and the public. The investors of
MBIA, Inc., are not obligated to pay the obligations of
MBIA. MBIA, domiciled in New York, is regulated by the
New York State Insurance Department and licensed to do
business in various states. The address of MBIA is 113
King Street, Armonk, New York 10504, and its telephone
number is (914) 273-4345. S&P has rated the claims-
paying ability of MBIA "AAA."
AMBAC Indemnity Corporation
AMBAC Indemnity Corporation ("AMBAC") is a Wisconsin-
domiciled stock insurance company, regulated by the
Insurance Department of Wisconsin, and licensed to do
business in various states. AMBAC is a wholly-owned
subsidiary of AMBAC, Inc., a financial holding company
which is owned by the public. Copies of certain
statutorily required filings of AMBAC can be obtained
from AMBAC. The address of AMBAC's administrative
offices is One State Street Plaza, 17th Floor, New York,
New York 10004, and its telephone number is (212)668-
0340. S&P has rated the claims-paying ability of AMBAC
"AAA."
Financial Guaranty Insurance Company
Financial Guaranty Insurance Company ("Financial
Guaranty") is a wholly-owned subsidiary of FGIC
Corporation, a Delaware holding company. FGIC
Corporation is wholly-owned by General Electric Capital
Corporation. The investors of FGIC Corporation are not
obligated to pay the debts of or the claims against
Financial Guaranty. Financial Guaranty is subject to
regulation by the state of New York Insurance Department
and is licensed to do business in various states. The
address of Financial Guaranty is 115 Broadway, New York,
New York 10006, and its telephone number is (212) 312-
3000. S&P has rated the claims-paying ability of
Financial Guaranty "AAA."
Financial Security Assurance Inc.
Financial Security Assurance Inc. (FSA) insures
municipal, asset-backed and residential mortgage-backed
obligations. FSA is a majority-owned subsidiary of US
West Capital Corp. US West is attempting to find a buyer
for FSA. The address of FSA is 350 Park Avenue, New
York, New York 10022, and its telephone number is (212)
826-0100. The claims-paying ability for FSA holds the
highest available ratings from Moody's (Aaa) and S&P
(AAA).
Zero-Coupon Securities
The Funds may invest in Zero-Coupon Securities. Zero-coupon
securities are debt obligations which are generally issued at
a discount and payable in full at maturity, and which do not
provide for current payments of interest prior to maturity.
Zero-coupon securities usually trade at a deep discount from
their face or par value and are subject to greater market
value fluctuations from changing interest rates than debt
obligations of comparable maturities which make current
distributions of interest. As a result, the net asset value
of shares of a Fund investing in zero-coupon securities may
fluctuate over a greater range than shares of other Funds and
other mutual funds investing in securities making current
distributions of interest and having similar maturities.
Zero-coupon securities may include U.S. Treasury bills issued
directly by the U.S. Treasury or other short-term debt
obligations, and longer-term bonds or notes and their
unmatured interest coupons which have been separated by their
holder, typically a custodian bank or investment brokerage
firm. A number of securities firms and banks have stripped
the interest coupons from the underlying principal (the
"corpus") of U.S. Treasury securities and resold them in
custodial receipt programs with a number of different names,
including Treasury Income Growth Receipts ("TIGRS") and
Certificates of Accrual on Treasuries ("CATS"). The
underlying U.S. Treasury bonds and notes themselves are held
in book-entry form at the Federal Reserve Bank or, in the case
of bearer securities (i.e., unregistered securities which are
owned ostensibly by the bearer of holder thereof), in trust on
behalf of the owners thereof.
In addition, the Treasury has facilitated transfers of
ownership of zero-coupon securities by accounting separately
for the beneficial ownership of particular interest coupons
and corpus payments on Treasury securities through the Federal
Reserve book-entry record-keeping system. The Federal Reserve
program as established by the Treasury Department is known as
"STRIPS" or "Separate Trading of Registered Interest and
Principal of Securities." Under the STRIPS program, a Fund
will be able to have its beneficial ownership of U.S. Treasury
zero-coupon securities recorded directly in the book-entry
record-keeping system in lieu of having to hold certificated
or other evidence of ownership of the underlying U.S. Treasury
securities.
When debt obligations have been stripped of their unmatured
interest coupons by the holder, the stripped coupons are sold
separately. The principal or corpus is sold at a deep
discount because the buyer receives only the right to receive
a future fixed payment on the security and does not receive
any rights to periodic cash interest payments. Once stripped
or separated, the corpus and coupons may be sold separately.
Typically, the coupons are sold separately or grouped with
other coupons with like maturity dates and sold in such
bundled form. Purchasers of stripped obligations acquire, in
effect, discount obligations that are economically identical
to the zero-coupon securities issued directly by the obligor.
Portfolio Turnover
The Louisiana Municipal Income Fund conducts portfolio
transactions to accomplish its investment objective as
interest rates change, to invest new money obtained from
selling its shares, and to meet redemption requests. The Fund
may trade or dispose of portfolio securities at any time if it
appears that trading or selling the securities will help the
Fund achieve its investment objective. For fiscal years ended
August 31, 1994 and 1993, the portfolio turnover rates were
33% and 32%, respectively.
The Total Return Bond Fund may trade or dispose of portfolio
securities as considered necessary to meet its investment
objective. For the fiscal year ended August 31, 1994 and for
the period from November 2, 1992 (date of initial public
investment) to August 31, 1993, the portfolio turnover was 96%
and 78%, respectively.
Although the U.S. Government Income Fund does not intend to
invest for the purpose of seeking short-term profits,
securities in its portfolio will be sold whenever the Fund's
investment adviser believes it is appropriate to do so in
light of the Fund's investment objective, without regard to
the length of time a particular security may have been held.
For the fiscal years ended August 31, 1994 and 1993, the
portfolio turnover rates were 26% and 61%, respectively.
The Capital Appreciation Fund's portfolio turnover rates for
the fiscal years ended August 31, 1994, and 1993 were 118% and
127%, respectively.
Investment Limitations
Diversification of Investments
With respect to 75% of the value of its total assets, the
Capital Appreciation Fund will not purchase securities of any
one issuer, except cash and cash items and securities issued
or guaranteed by the government of the United States or its
agencies or instrumentalities, if as a result more than 5% of
the value of its total assets would be invested in the
securities of that issuer. To comply with certain state
restrictions, the Fund will not purchase securities of any
issuer, except for securities issued or guaranteed by the
government of the United States or its agencies or
instrumentalities, if as a result more than 5% of its total
assets would be invested in securities of that issuer. (If
state restrictions change, this latter restriction may be
revised without shareholder approval or notification.)
The Capital Appreciation Fund will not acquire more than 10%
of the outstanding voting securities of any one issuer.
With respect to 75% of the value of the Total Return Bond
Fund's total assets the Fund will not invest more than 5% of
the value of its total assets in any one issuer (except cash
and cash items, repurchase agreements, and U.S. government
obligations). The Fund will not acquire more than 10% of the
outstanding voting securities of any one issuer.
The Cash Reserve Fund will not purchase securities issued by
any one issuer having a value of more than 5% of the value of
its total assets except cash or cash items, repurchase
agreements, and U.S. government obligations.
The Capital Appreciation Fund will not purchase or sell
commodities, commodity contracts, or commodity futures
contracts.
With respect to securities comprising 75% of the value of its
total assets, the U.S. Treasury Money Market Fund will not
purchase securities of any one issuer (other than cash, cash
items or securities issued or guaranteed by the government of
the United States or its agencies or instrumentalities and
repurchase agreements collateralized by U.S. Treasury
securities) if as a result more than 5% of the value of its
total assets would be invested in the securities of that
issuer.
(For purposes of the foregoing limitations, the Funds consider
instruments issued by a domestic or foreign bank having
capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment to be "cash items.")
Concentration of Investments
The Capital Appreciation Fund will not invest 25% or more of
its total assets in securities of issuers having their
principal business activities in the same industry. The Total
Bond Fund will not invest 25% or more of the value of its
total assets in any one industry. However, investing in U.S.
government obligations shall not be considered investments in
any one industry. The Cash Reserve Fund will not invest more
than 25% of the value of its total assets in any one industry
except commercial paper of finance companies. However,
investing in bank instruments (such as time and demand
deposits and certificates of deposit), U.S. government
obligations or instruments secured by these money market
instruments, such as repurchase agreements, shall not be
considered investments in any one industry.
Acquiring Securities
The Cash Reserve Fund will not acquire the voting securities
of any issuer. It will not invest in securities issued by any
other investment company. It will not invest in securities of
a company for the purpose of exercising control or management.
Investing in Commodities
The Capital Appreciation Fund will not purchase or sell
commodities, commodity contracts, or commodity futures
contracts. However, the Fund may purchase put options on
portfolio securities and on financial futures contracts as a
hedging strategy and not for speculative purposes. In
addition, the Fund reserves the right to hedge the portfolio
by entering into financial futures contracts and to sell calls
on financial futures contracts. The Fund will notify
shareholders before such a change in its operating policies is
implemented.
The Louisiana Municipal Income Fund will not purchase or sell
commodities, commodity contracts, or commodity futures
contracts. The Fund may, however, enter into future contracts
on financial instruments or financial indexes and may purchase
or sell options on such futures contracts. Such investments
will be used as a hedging strategy only and not for
speculative purposes and will not exceed 5% of the Fund's
total net assets.
The Total Return Bond Fund will not purchase or sell
commodities or commodities futures contracts. However, the
Fund may purchase put and call options on portfolio securities
and on financial futures contracts. In addition, the Fund
reserves the right to hedge the portfolio by entering into
financial futures contracts and to sell puts and calls on
financial futures contracts.
The U.S. Government Income Fund will not purchase or sell
commodities, except that the Fund may purchase or sell
financial futures contracts and related options.
The Cash Reserve Fund will not invest in commodities or
commodity contracts.
The U.S. Treasury Money Market Fund will not buy or sell
commodities, commodity contracts, or commodities futures
contracts.
Issuing Senior Securities and Borrowing
The Capital Appreciation Fund, Louisiana Municipal Income
Fund, U.S. Government Income Fund, and Cash Reserve Fund will
not issue senior securities except that each Fund may borrow
money and engage in reverse repurchase agreements in amounts
up to one-third of the value of its total assets (net assets
in the case of the U.S. Government Income Fund) including the
amount borrowed. A Fund will not borrow money or engage in
reverse repurchase agreements for investment leverage, but
rather as temporary, extraordinary, or emergency measure or to
facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolios
securities is deemed to be inconvenient or disadvantageous. A
Fund will not purchase any securities while any borrowings in
excess of 5% of its total assets are outstanding. During the
period any reverse repurchase agreements are outstanding, a
Fund will restrict the purchase of portfolio securities to
money market instruments maturing on or before the expiration
date of the reverse repurchase agreements, but only to the
extent necessary to assure completion of the reverse
repurchase agreements.
The Total Return Bond Fund will not issue senior securities
except that the Fund may borrow money and engage in reverse
repurchase agreements in amounts up to one-third of the value
of its net assets, including the amounts borrowed. The Fund
will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate
management of the portfolio by enabling the Fund to meet
redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous.
The Fund will not purchase any securities while borrowings in
excess of 5% of its total assets are outstanding.
The U.S. Treasury Money Market Fund will not issue senior
securities except that the Fund may borrow money in amounts up
to one-third of the value of its total assets, including the
amount borrowed. The Fund will not borrow money except as a
temporary, extraordinary, or emergency measure or to
facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous.
Pledging Assets
The Capital Appreciation Fund, Louisiana Municipal Income
Fund, U.S. Government Income Fund, and Cash Reserve Fund will
not mortgage, pledge, or hypothecate securities, except to
secure permissible borrowings. In those cases, a Fund may
pledge assets having a value of 15% of its assets taken at
cost.
The Total Return Bond Fund will not mortgage, pledge, or
hypothecate any assets except to secure permitted borrowings.
In those cases, it may pledge assets having a market value not
exceeding the lesser of the dollar amounts borrowed or 10% of
the value of total assets at the time of the borrowing.
The U.S. Government Income Fund will not mortgage, pledge, or
hypothecate any assets except to secure permitted borrowings.
In these cases, it may pledge assets having a market value not
exceeding the lesser of the dollar amounts borrowed or 15% of
the value of total assets as the time of the borrowing.
Neither the deposit of underlying securities and other assets
in escrow in connection with the writing of put or call
options on U.S. government securities nor margin deposits for
the purchase and sale of financial futures contracts and
related options are deemed to be a pledge.
To comply with certain state restrictions, the Funds will
limit these pledge of assets to 10% of its net assets at
market. (If state restrictions change, this latter
restriction may be revised without shareholder approval or
notification.)
Selling Short and Buying on Margin
The Funds will not sell securities short or purchase any
securities on margin but may obtain such short-term credits as
may be necessary for the clearance of purchases and sales of
securities. The deposit or payment by the Fund of initial or
variation margin in connection with financial futures
contracts or related options transactions is not considered
the purchase of a security on margin.
Underwriting
The Capital Appreciation Fund and Louisiana Municipal Income
Fund will not underwrite any issue of securities, except as it
may be deemed to be an underwriter under the Securities Act of
1933 in connection with the disposition of its portfolio
securities.
The Total Return Bond Fund, U.S. Government Income Fund, and
U.S. Treasury Money Market Fund will not underwrite any issue
of securities, except as it may be deemed to be an underwriter
under the Securities Act of 1933 in connection with the sale
of securities in accordance with its investment objectives,
policies, and limitations.
The Cash Reserve Fund will not engage in underwriting of
securities issued by others.
Investing in Real Estate
The Capital Appreciation Fund and Louisiana Municipal Income
Fund will not purchase or sell real estate including limited
partnership interests, although a Fund may invest in
securities secured by real estate or interest in real estate
or issued by companies, including real estate investment
trusts, which invest in real estate or interests therein.
The Total Return Bond and U.S. Government Income Fund will not
buy or sell real estate, although a Fund may invest in the
securities of companies whose business involves the purchase
or sale of real estate or in securities which are secured by
real estate or interests in real estate.
The Cash Reserve Fund will not invest in real estate, except
that it may purchase money market instruments issued by
companies that invest in real estate or sponsor such
interests. In order to comply with registration requirements
of a particular state, the Cash Reserve Fund will not invest
in real estate limited partnerships. (If state requirements
change, this limitation may be revised without notice to
shareholders.)
The U.S. Treasury Money Market Fund will not purchase or sell
real estate, including limited partnership interests.
Lending Cash or Securities
The Capital Appreciation Fund will not lend any of its assets,
except portfolio securities . It may purchase or hold bonds,
debentures, notes, certificates of indebtedness, or other debt
securities of an issuer, repurchase agreements or other
transactions which are permitted by its investment objective
and policies.
The Louisiana Municipal Income will not lend any assets except
portfolio securities up to one-third of the value of its total
assets. The Fund may acquire publicly or non-publicly issued
municipal bonds or temporary investments or enter into
repurchase agreements in accordance with its investment
objective, policies, and limitations.
The Total Return Bond Fund will not lend any of its assets
except portfolio securities. This shall not prevent the
purchase or holding of corporate bonds, debentures, notes,
certificates of indebtedness or other debt securities of an
issuer, repurchase agreements or other transactions which are
permitted by the Fund's investment objective and policies.
The U.S. Government Income Fund will not lend any of its
assets except portfolio securities up to one-third of the
value of its total assets.
The Cash Reserve Fund will not lend any of its assets, except
that it may purchase or hold money market instruments,
including repurchase agreements and variable amount demand
master notes, permitted by its investment objective and
policies.
The U.S. Treasury Money Market Fund will not lend any of its
assets, except that it may purchase or hold U.S. Treasury
obligations, permitted by its investment objective, policies
and limitations or Declaration of Trust.
Investing in Minerals
The Capital Appreciation Fund and Louisiana Municipal Income
Fund will not invest in interests in oil, gas, or other
mineral exploration or development programs or leases, other
than debentures or equity stock interests.
The U.S. Government Income Fund will not purchase or sell oil,
gas, or other mineral exploration or development programs.
Except as noted, the above investment limitations cannot be
changed without shareholder approval. The following
limitations, however, may be changed by the Trustees without
shareholder approval. Except as noted, shareholders will be
notified before any material change in these limitations
becomes effective.
Purchasing Securities to Exercise Control
The Funds will not purchase securities of a company for the
purpose of exercising control or management.
Investing in Warrants
The Capital Appreciation Fund will not invest more than 5% of
its assets in warrants, including those acquired in units or
attached to other securities. To comply with certain state
restrictions, the Fund will limit its investment in such
warrants not listed on New York or American Stock Exchanges to
2% of its total assets. (If state restrictions change, this
latter restriction may be revised without notice to
shareholders.) For purposes of this investment restriction,
warrants will be valued at the lower of cost or market, except
that warrants acquired by the Fund in units with or attached
to securities may be deemed to be without value.
Investing in Securities of Other Investment Companies
The Funds will limit their investment in other investment
companies to no more than 3% of the total outstanding voting
stock of any investment company, invest no more than 5% of its
total assets in any investment company, or invest no more than
10% of its total assets in investment companies in general.
The Funds will purchase securities of investment companies
only in open-market transactions involving only customary
broker's commissions. However, these limitations are not
applicable if the securities are acquired in a merger,
consolidation, or acquisition of assets. It should be noted
that investment companies incur certain expenses, such as
management fees, and, therefore, any investment by a Fund in
shares of another investment company would be subject to such
duplicate expenses. The Funds will invest in other investment
companies primarily for the purposes of investing its short-
term cash on a temporary basis. The adviser will waive its
investment advisory fee on assets invested in securities of
open-end investment companies.
Investing in New Issuers
The Funds will not invest more than 5% of the value of their
total assets in securities of issuers which have records of
less than three years of continuous operations, including the
operation of any predecessor.
The Louisiana Municipal Income Fund will not invest more than
5% of the value of its total assets in industrial development
bonds where the payment of principal and interest is the
responsibility of companies (or, guarantors, where applicable)
with less than three years of continuous operations, including
the operation of any predecessor.
Investing in Issuers Whose Securities are Owned by Officers
and Trustees of the Trust
The Funds will not purchase or retain the securities of any
issuer if the officers and Trustees of the Funds or their
adviser owning individually more than 1/2 of 1% of the
issuer's securities together own more than 5% of the issuer's
securities.
Arbitrage Transactions
To comply with certain state restrictions, the Funds will not
enter into transactions for the purpose of engaging in
arbitrage. If state requirements change, this restriction may
be revised without shareholder notification.
Writing Covered Call Options and Purchasing Put Options
The Capital Appreciation Fund will not write call options on
securities unless the securities are held in the Fund's
portfolio or unless the Fund is entitled to them in
deliverable form without further payment or after segregating
cash in the amount of any further payment. The Fund will not
purchase put options on securities, other than put options on
stock indices, unless the securities are held in the Fund's
portfolio and not more than 5% of the value of the Fund's net
assets would be invested in premiums on open put option
positions.
The Total Return Bond Fund will not purchase put options on
securities unless the securities are held in the Fund's
portfolio. The Fund will not write put or call options or
purchase put or call options in excess of 5% of the value of
its total assets.
The U.S. Government Income Fund will not write covered put and
call options on securities unless the securities are held in
the Fund's portfolio or unless the Fund is entitled to them in
deliverable form without further payment or after segregating
cash or U.S. Treasury obligations with a value equal to or
greater than the exercise price of the underlying securities.
The Fund will not purchase put options on securities unless
the securities are held in the Fund's portfolio.
Investing in Restricted Securities
The Capital Appreciation Fund will not purchase restricted
securities if immediately thereafter more than 10% of the
total assets of the Fund, taken at market value, would be
invested in such securities (except for commercial paper
issued under Section 4(2) of the Securities Act of 1933). To
comply with certain state restrictions, the Fund will limit
these transactions to 5% of its net assets. (If state
restrictions change, this latter restriction may be revised
without shareholder approval or notification.)
The Total Return Bond Fund may invest up to 10% of its total
assets in restricted securities. Certain restricted
securities which the Trustees deem to be liquid will be
excluded from this limitation. The restriction is not
applicable to commercial paper issued under Section 4(2) of
the Securities Act of 1933.
The Louisiana Municipal Income Fund will not invest more than
10% of its total assets in securities subject to restrictions
on resale under the Securities Act of 1933.
Investing in Minerals
The Total Return Bond Fund will not purchase in oil, gas, or
other mineral exploration or development programs or leases,
although it may purchase the securities of issuers which
invest in or sponsor such programs.
The U.S. Treasury Money Market Fund will not purchase oil,
gas, or other mineral exploration or development programs or
leases.
In order to comply with registration requirements of a
particular state, the Cash Reserve Fund will not invest in
oil, gas, or other mineral leases. (If state requirements
change, these limitations may be revised without notice to
shareholders.)
The Capital Appreciation Fund did not borrow money, pledge
securities or invest in illiquid securities in excess of 5% of
the value of its net assets in the last fiscal year and has no
present intent to do so during the coming fiscal year. To
comply with registration requirements in certain states, the
Fund (1) will limit the aggregate value of the assets
underlying covered call options or put options written by the
Fund to not more than 25% of its net assets, (2) will limit
the premiums paid for options purchased by the Fund to 20% of
its net assets, and (3) limit the margin deposits on futures
contracts entered into by the Fund to 5% of its net assets.
(If state requirements change, these restrictions may be
revised without shareholder notification.)
The Louisiana Municipal Income Fund did not borrow money or
pledge securities in excess of 5% of the value of its net
assets during the last fiscal year and has no present intent
to do so during the coming fiscal year.
The U.S. Government Income Fund did not engage in reverse
repurchase agreements, borrow money, or invest in illiquid
securities in excess of 5% of the value of its net assets in
the last fiscal year and has no present intent to do so during
the coming year.
The Cash Reserve Fund did not borrow money or engage in when-
issued and delayed delivery transactions in excess of 5% of
the value of its net assets during the last fiscal year and
has no present intent to do so during the coming year.
The U.S. Treasury Money Market Fund does not expect to borrow
money in excess of 5% of the value of its net assets during
the coming fiscal year.
Except with respect to borrowing money, if a percentage
limitation is adhered to at the time of investment a later
increase or decrease in percentage resulting from any change
in value of a Fund's net assets will not result in a violation
of any of the above restrictions.
Tower Mutual Funds Management
Officers and Trustees
Officers and Trustees are listed with their addresses,
principal occupations, and present positions, including any
affiliation with Hibernia National Bank, Hibernia Corporation,
Federated Investors, Federated Securities Corp., and Federated
Administrative Services.
Edward C. Gonzales*+
Federated Investors Tower
Pittsburgh, PA
President, Trustee and Treasurer
Vice President, Treasurer and Trustee, Federated Investors;
Vice President and Treasurer, Federated Advisers, Federated
Management, and Federated Research; Executive Vice President,
Treasurer, and Director, Federated Securities Corp.; CEO,
Chairman, Treasurer, and Trustee, Federated Administrative
Services; Trustee, Federated Services Company and Federated
Shareholder Services; Vice President and Treasurer Passport
Research Limited; Vice President and Treasurer of certain
investment companies advised or distributed by affiliates of
Federated Investors.
Robert L. diBenedetto, M.D.
781 Colonial Drive
Baton Rouge, LA
Trustee
Gynecologist; Medical Director, Woman's Hospital; Vice
President, Investment and Audit; President, Louisiana Medical
Mutual Insurance Company; Medical Director, Women's Hospital
Physician Hospital Organization.

James A. Gayle, Sr.
613 Turtle Creek Drive
Shreveport, LA
Trustee
Vice President of Government Affairs and Community Development
and Director, Shreveport Chamber of Commerce; Director,
Louisiana Forestry Association; Director, Anthony Forest
Products Company, Inc.; Retired from International Paper
Company in August 1985.

J. Gordon Reische +
5245 Cleveland Place
Metairie, LA
Trustee
Retired Managing Partner, New Orleans office, KPMG - Peat
Marwick. (1971-1987).
Jeffrey W. Sterling
Federated Investors Tower
Pittsburgh, PA
Vice President and Assistant Treasurer
Vice President and Director, Private Label Management,
Federated Administrative Services.
Peter J. Germain
Federated Investors Tower
Pittsburgh, PA
Secretary
Corporate Counsel, Federated Investors.
*This Trustee is deemed to be an "interested person" of the
Fund or Tower Mutual Funds as defined in the Investment
Company Act of 1940.
+Members of Tower Mutual Funds' Executive Committee. The
Executive Committee of the Board of Trustees handles the
responsibilities of the Board of Trustees between meetings of
the Board.
Fund Ownership
Officers and Trustees of the Trust own less than 1% of each
Fund's outstanding shares.
The following list indicates the beneficial ownership of
shareholders who are the beneficial owners of more than 5% of
the outstanding shares of the following Funds as of December
12, 1994,: Hibernia National Bank, acting in various
capacities for numerous accounts owned, of record:
approximately 8,898,390 shares (89.28%) of Capital
Appreciation Fund; approximately 1,465,853 shares (22.32%) of
Louisiana Municipal Bond Fund; approximately 7,077,655 shares
(91.81%) of Total Return Bond Fund; approximately 1,877,333
shares (35.88%) of U.S. Government Income Fund; approximately
169,864.128 shares (86.10%) shares of Cash Reserve Fund; and
approximately 70,726,023 shares (90.07%) of U.S. Treasury
Money Market Fund.
Trustee Liability
Tower Mutual Funds' Declaration of Trust provides that the
Trustees are not liable for errors of judgment or mistakes of
fact or law. However, they are not protected against any
liability to which they would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of
their office.
Investment Advisory Service
Adviser to the Trust
The Trust's investment adviser is Hibernia National Bank (the
"Adviser"). It provides investment advisory services through
its Trust Division. Hibernia National Bank is a wholly-owned
subsidiary of Hibernia Corporation.
The Adviser shall not be liable to the Tower Mutual Funds, a
Fund, or any shareholder of any Fund for any losses that may
be sustained in the purchase, holding, or sale of any security
or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties imposed upon
it by its contract with Tower Mutual Funds.
Because of the internal controls maintained by Hibernia
National Bank to restrict the flow of non-public information,
Fund investments are typically made without any knowledge of
Hibernia National Bank's or its affiliates' lending
relationships with an issuer.
Advisory Fees
For its advisory services, Hibernia National Bank receives an
annual investment advisory fee as described in the prospectus.
For the fiscal years ended August 31, 1994, 1993, and 1992,
Capital Appreciation Fund incurred advisory fees of
$1,048,592, $939,741, and $586,934, respectively, of which $0,
$223,255, and $195,645, respectively, were voluntarily waived.
For the fiscal years ended August 31, 1994, 1993, and 1992,
Louisiana Municipal Income Fund incurred advisory fees of
$384,286, and $309,076, and $214,186, respectively, of which,
$68,318, $98,029, and $78,333, respectively, were voluntarily
waived.
For the fiscal years ended August 31, 1994, and for the period
from November 2, 1992 (date of initial public investment) to
August 31, 1993, the Total Return Bond Fund incurred advisory
fees of $451,203, and $358,745, respectively, of which, $0 and
$394,139, respectively, were voluntarily waived.
For the fiscal years ended August 31, 1994, 1993, and 1992,
U.S. Government Income Fund incurred advisory fees of
$354,418, $336,772, and $249,606, respectively, of which,
$47,256, $81,877, and $62,877 respectively, were voluntarily
waived.
For the fiscal years ended August 31, 1994, 1993, and 1992,
Cash Reserve Fund incurred advisory fees of $681,321,
$664,827, and $733,131, respectively, of which, $0, $0, and
$51,378 respectively were voluntarily waived.
For the fiscal years ended August 31, 1994, and for the period
from July 19, 1993 (date of initial public offering) to August
31, 1993, the U.S. Treasury Money Market Fund incurred
advisory fees of $164,112, and $13,624, respectively, of
which, $91,001 and $10,423, respectively, were voluntarily
waived.
State Expense Limitation
The Adviser has undertaken to comply with the expense
limitations established by certain states for investment
companies whose shares are registered for sale in those
states. If a Fund's normal operating expenses (including
the investment advisory fee, but not including brokerage
commissions, interest, taxes, and extraordinary expenses)
exceed 2 1/2% per year of the first $30 million of
average net assets, 2% per year of the next $70 million
of average net assets, and 1 1/2% per year of the
remaining average net assets, the Adviser will reimburse
a Fund for its expenses over the limitation.
If a Fund's monthly projected operating expenses exceed
this expense limitation, the investment advisory fee paid
will be reduced by the amount of the excess, subject to
an annual adjustment. If the expense limitation is
exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of
the investment advisory fee.
This arrangement is not part of the advisory contract and
may be amended or rescinded in the future.
Administrative Services
Federated Administrative Services, which is a subsidiary of
Federated Investors, provides administrative personnel and
services to the Funds for a fee described in the prospectus.
For the fiscal years ended August 31, 1994, 1993, and 1992,
Capital Appreciation Fund incurred costs for administrative
services of $ 184,784, $171,550, and $111,292, respectively.
For the fiscal years ended August 31, 1994, 1993, and 1992,
Louisiana Municipal Income Fund incurred costs for
administrative services of $112,857, $94,164, and $67,752
respectively.
For the fiscal year ended August 31, 1994, and for the period
from November 2, 1992 (date of initial public investment) to
August 31, 1993, the Total Return Bond Fund incurred costs for
administrative services of $85,233, and $69,676, respectively.
For the fiscal years ended August 31, 1994, 1993, and 1992,
U.S. Government Income Fund incurred costs for administrative
services of $104,100, $102,555 and $78,969, respectively.
For the fiscal years ended August 31, 1994, 1993, and 1992,
Cash Reserve Fund incurred costs for administrative services
of $225,124, $228,135, and $260,249 respectively.
For the fiscal year ended August 31, 1994 and for the period
from July 19, 1993 (date of initial public offering) to August
31, 1993, U.S. Treasury Money Market Fund incurred costs for
administrative services of $54,326 and $4,632 respectively,
of which $1,781 and $4,632, respectively, were voluntarily
waived.
Transfer Agent, Dividend Disbursing Agent, and Portfolio
Accounting Services
Federated Services Company, Pittsburgh, Pennsylvania, a
subsidiary of Federated Investors, is transfer agent for the
shares of the Funds and dividend disbursing agent for the
Funds. It also provides certain accounting and recordkeeping
services with respect to the Funds' portfolios of investments.
Federated Services Company receives a fee based on the size,
type, and number of accounts and transactions made by
shareholders. Federated Services Company also maintains the
Funds' accounting records. The fee is based on the level of a
Fund's average net assets for the period plus out-of-pocket
expenses.
Custodian
For its services as custodian, Hibernia National Bank may
receive an annual fee, payable monthly based on a percentage
of each Fund's average aggregate daily net assets, plus out-of-
pocket expenses.
Brokerage Transactions
When selecting brokers and dealers to handle the purchase and
sale of portfolio instruments, the Adviser looks for prompt
execution of the order at a favorable price. In working with
dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except
when a better price and execution of the order can be obtained
elsewhere. The Adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to review
by the Trustees.
The Adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished
directly to the Fund or to the adviser and may include:
oadvice as to the advisability of investing in securities;
osecurity analysis and reports;
oeconomic studies;
oindustry studies;
oreceipt of quotations for portfolio evaluations; and
osimilar services.
The Adviser and its affiliates exercise reasonable business
judgment in selecting brokers who offer brokerage and research
services to execute securities transactions. They determine
in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the
Adviser in advising the Fund and other accounts. To the
extent that receipt of these services may supplant services
for which the Adviser or its affiliates might otherwise have
paid, it would tend to reduce their expenses.
For the fiscal years ended August 31, 1994, 1993, and 1992,
Capital Appreciation Fund paid $839,421, $551,214, and
$413,172, respectively, in brokerage commissions on brokerage
transactions.
Purchasing Shares
Shares of the Capital Appreciation Fund, Louisiana Municipal
Income Fund, Total Return Bond Fund, and U.S. Government
Income Fund are sold at their net asset value with a sales
charge. The Money Market Funds are sold at net asset value
without a sales charge. Shares of the Funds are sold on days
the New York Stock Exchange is open for business. The
procedure for purchasing shares is explained in the prospectus
under "Investing in the Funds."
Distribution Plan
Tower Mutual Funds has adopted a Plan pursuant to Rule 12b-1
which was promulgated by the Securities and Exchange
Commission pursuant to the Investment Company Act of 1940.
The Plan permits the payment of fees to brokers for
distribution and administrative services and to administrators
for administrative services. The Plan is designed to (i)
stimulate brokers to provide distribution and administrative
support services to shareholders and (ii) stimulate
administrators to render administrative support services to
shareholders. The administrative services are provided by a
representative who has knowledge of the shareholder's
particular circumstances and goals. By adopting the Plan, the
Trustees expect that the Funds will be able to achieve a more
predictable flow of cash for investment purposes and to meet
redemptions. This will facilitate more efficient portfolio
management and assist the Funds in seeking to achieve their
investment objectives. By identifying potential investors
whose needs are served by a Fund's objective, and properly
servicing these accounts, a Fund may be able to curb sharp
fluctuations in rates of redemptions and sales. Other
benefits may include: (1) an efficient and effective
administrative system; (2) a more efficient use of shareholder
assets by having them rapidly invested with a minimum of delay
and administrative detail; and (3) an efficient and reliable
shareholder records system and prompt responses to shareholder
requests and inquiries concerning their accounts. Payments in
the amount of $425,826, $60,445 and, $113,224 were made
pursuant to the Cash Reserve, Total Return Bond, and Capital
Appreciation Funds' respective distribution plans, all of
which were paid to financial institutions.
Conversion To Federal Funds
It is the Funds' policy to be as fully invested as possible so
that maximum interest may be earned. To this end, all
payments from shareholders must be in federal funds or be
converted into federal funds. Hibernia National Bank acts as
the shareholder's agent in depositing checks and converting
them to federal funds.
Determining Net Asset Value
Net asset value of the Funds (except the Money Market Funds)
generally changes each day. The Money Market Funds attempt to
stabilize the value of a share at $1.00. The days on which
the net asset value is calculated by a Fund are described in
the prospectus.
Determining Market Value of Securities
Market values of the Equity and Income Funds' portfolio
securities are determined as follows:
ofor equity securities, according to the last sale price on a
national securities exchange, if applicable;
oin the absence of recorded sales for listed equity
securities, according to the mean between the last closing
bid and asked prices;
ofor unlisted equity securities, the latest bid prices;
ofor bonds and other fixed income securities, as determined
by an independent pricing service;
ofor short-term obligations, according to the mean between
bid and asked prices as furnished by an independent pricing
service or for short-term obligations with remaining
maturities of less than 60 days, at the time of purchase, at
amortized cost; or
ofor all other securities, at fair value as determined in
good faith by the Board of Trustees.
Prices provided by independent pricing services may be
determined without relying exclusively on quoted prices and
may reflect: institutional trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
The Funds will value futures contracts, options, and put
options on futures and at their market values established by
the exchanges at the close of option trading on such exchanges
unless the Board of Trustees determine in good faith that
another method of valuing option positions is necessary to
appraise their fair value.
Use of the Amortized Cost Method
With respect to the Money Market Funds, the Trustees have
decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method,
portfolio instruments are valued at the acquisition cost as
adjusted for amortization of premium or accumulation of
discount rather than at current market value.
The Funds' use of the amortized cost method of calling
portfolio instruments depends on its compliance with Rule 2a-7
(the "Rule") promulgated by the Securities and Exchange
Commission under the Investment Company Act of 1940. Under
the Rule, the Trustees must establish procedures reasonably
designed to stabilize the net asset value per share, as
computed for purposes of distribution and redemption, at $1.00
per share, taking into account current market conditions and a
Fund's investment objective.
Under the Rule, a Fund is permitted to purchase instruments
which are subject to demand features or standby commitments.
As defined by the Rule, a demand feature entitles the Fund to
receive the principal amount of the instrument from the issuer
or a third party on (1) no more than 30 days' notice or (2) at
specified intervals not exceeding 397 days on no more than 30
days' notice. A standby commitment entitles the Fund to
achieve same day settlement and to receive an exercise price
equal to the amortized cost of the underlying instrument plus
accrued interest at the time of exercise.
The Fund acquires instruments subject to demand features and
standby commitments to enhance the instrument's liquidity.
The Fund treats demand features and standby commitments as a
part of the underlying instruments, because the Fund does not
acquire then for speculative purposes and cannot transfer them
separately from the underlying instruments. Therefore,
although the Rule defines demand features and standby
commitments as "puts," the Fund does not consider them to be
separate investments for the purposes of its investment
policies.
Monitoring Procedures
The Trustees' procedures include monitoring the
relationship between the amortized cost value per share
and the net asset value per share based upon available
indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a
difference of more than .5 of 1% between the two values.
The Trustees will take any steps they consider
appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material
dilution or other unfair results arising from differences
between the two methods of determining net asset value.
Investment Restrictions
The Rule requires that a Fund limit its investments to
instruments that, in the opinion of the Trustees, present
minimal credit risks and have received the requisite
rating from one or more nationally recognized statistical
rating organizations. The Rule also requires a Fund to
maintain a dollar weighted average portfolio maturity
(not more than 90 days) appropriate to the objective of
maintaining a stable net asset value of $1.00 per share.
In addition, no instruments with a remaining maturity of
more than 397 days can be purchased by the Fund.
Should the disposition of a portfolio security result in
a dollar weighted average portfolio maturity of more than
90 days, a Fund will invest its available cash to reduce
the average maturity to 90 days or less as soon as
possible. Shares of investment companies purchased by a
Fund will meet the same criteria and will have investment
policies consistent with Rule 2a-7.
A Fund may attempt to increase yield by trading portfolio
securities to take advantage of short-term market
variations. This policy may, from time to time, result
in high portfolio turnover. Under the amortized cost
method of valuation, neither the amount of daily income
nor the net asset value is affected by normal unrealized
appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated
daily yield on shares of a Fund computed by dividing the
annualized daily income on the Fund's portfolio by the
net asset value computed as above may tend to be higher
than a similar computation made by using a method of
valuation based upon market prices and estimates.
In periods of rising interest rates, the indicated daily
yield on shares of a Fund computed the same way may tend
to be lower than a similar computation made by using a
method of calculation based upon market prices and
estimates.
Exchange Privilege
Requirements for Exchange
Shareholders using the exchange privilege must exchange shares
having a net asset value of at least $1,000. Before the
exchange, the shareholder must receive a prospectus of the
fund for which the exchange is being made.
This privilege is available to shareholders residing in any
state in which the fund shares being acquired may be sold.
Upon receipt of proper instructions and required supporting
documents, shares submitted for exchange are redeemed and the
proceeds invested in shares of the other fund.
Further information on the exchange privilege and prospectuses
may be obtained by calling Hibernia National Bank at the
numbers on the cover of this Statement.
Making an Exchange
Instructions for exchanges may be given in writing. Written
instructions may require a signature guarantee. Shares may
also be exchanged by telephone, but only between fund accounts
that have identical shareholder registrations.
Redeeming Shares
A Fund redeems shares at the next computed net asset value
after Hibernia National Bank receives the redemption request.
Redemption procedures are explained in the prospectus under
"Redeeming Shares." Although Hibernia National Bank does not
charge for telephone redemptions, it reserves the right to
charge a fee for the cost of wire-transferred redemptions of
less than $5,000.
Redemption in Kind
A Fund is obligated to redeem shares solely in cash up to
$250,000, or 1% of the Fund's net asset value, whichever is
less, for any one shareholder within a 90-day period.
Any redemption beyond this amount will also be in cash unless
the Trustees determine that payments should be in kind. In
such a case, the Trust will pay all or a portion of the
remainder of the redemption in portfolio instruments, valued
in the same way as net asset value is determined. The
portfolio instruments will be selected in a manner that the
Trustees deem fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If
redemption is made in kind, shareholders receiving their
securities and selling them before their maturity could
receive less than the redemption value of their securities and
could incur transaction costs.
Redemption in kind will be made in conformity with applicable
Securities and Exchange Commission rules, taking such
securities at the same value employed in determining net asset
value and selecting the securities in a manner the Trustees
determine to be fair and equitable.
Tax Status
The Funds' Tax Status
The Funds will pay no federal income tax because they expect
to meet the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies and
to receive the special tax treatment afforded to such
companies. To qualify for this treatment, a Fund must, among
other requirements:
o derive at least 90% of its gross income from dividends,
interest, and gain from the sale of securities;
o derive less than 30% of its gross income from the sale of
securities held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net
income earned during the year.
Shareholders' Tax Status
Shareholders are subject to federal income tax on dividends
and capital gains reviewed as cash or additional shares. No
portion of any income dividend paid by the Fund is eligible
for the dividends received deduction available to
corporations. These dividends, and any short-term capital
gains, are taxable as ordinary income.
Capital Gains
Long -term capital gains distributed to Fund shareholders
(except the Money Market Funds) will be treated as long-term
capital gains regardless of how long shareholders have held
Fund shares.
Capital gains experienced by a Money Market Fund could result
in an increase in dividends. Capital losses could result in a
decrease in dividends. If, for some extraordinary reason, a
Fund realized net long-term capital gains, it will distribute
them at least once every 12 months.
Total Return
Average annual total return is the average compounded rate of
return for a given period that would equate a $1,000 initial
investment to the ending redeemable value of that investment.
The ending redeemable value is compounded by multiplying the
number of shares owned at the end of the period by the maximum
offering price per share at the end of the period. The number
of shares owned at the end of the period is based on the
number of shares purchased at the beginning of the period with
$1,000, adjusted over the period by any additional shares,
assuming the monthly reinvestment of all dividends and
distributions.
Capital Appreciation Fund's average annual total returns for
the one-year period ended August 31, 1994 and for the period
from October 14, 1988 (effective date of the Trust's
registration statement) to August 31, 1994 were 1.15% and
12.01%, respectively.
Louisiana Municipal Income Fund's average annual total returns
for the one-year period ended August 31, 1994, and, for the
period from October 14, 1988 (effective date of the Trust's
registration statement) to August 31, 1994, were -3.75% and
7.05%, respectively.
Total Return Bond Fund's average annual total returns for the
one-year period ended August 31, 1994 and for the period from
November 2, 1992 (date of initial public investment) to August
31, 1994, were -5.35% and 2.51%, respectively.
U.S. Government Income Fund's average annual total returns for
the one-year period ended August 31, 1994 and for the period
from October 14, 1988 (effective date of the Trust's
registration statement) to August 31, 1994 were -4.58% and
7.39%, respectively.
Yield
The yield for a Fund (except the Money Market Funds) is
determined by dividing the net investment income per share (as
defined by the Securities and Exchange Commission) earned by a
Fund over a thirty-day period by the maximum offering price
per share of the Fund on the last day of the period. This
value is then annualized using semi-annual compounding. This
means that the amount of income generated during the thirty-
day period is assumed to be generated each month over a twelve
month period and is reinvested every six months. The yield
does not necessarily reflect income actually earned by the
Fund because of certain adjustments required by the Securities
and Exchange Commission and therefore, may not correlate to
the dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers
charge fees in connection with services provided in
conjunction with an investment in a Fund, the performance will
be reduced for those shareholders paying those fees.
Capital Appreciation Fund's yield for the thirty-day period
ended August 31, 1994 was 1.46%.
Louisiana Municipal Income Fund's yield for the thirty-day
period ended August 31, 1994 was 5.10%.
Total Return Bond Fund's yield for the thirty-day period ended
August 31, 1994 was 4.52%.
U.S. Government Income Fund's yield for the thirty-day period
ended August 31, 1994 was 6.34%.
The Money Market Funds calculate yield based upon the seven
days ending on the day of the calculation, called the "base
period." This yield is computed by: determining the net change
in the value of a hypothetical account with a balance of one
share at the beginning of the base period, with the net change
excluding capital changes but including the value of any
additional shares purchased with dividends earned from the
original one share and all dividends declared on the original
and any purchased shares; dividing the net change in the
account's value by the value of the account at the beginning
of the base period to determine the base period return; and
multiplying the base period return by 365/7.
Cash Reserve Fund's yield for the seven-day period ended
August 31, 1994 was 3.76%.
U.S. Treasury Money Market Fund's yield for the seven-day
period ended August 31, 1994 was 3.94%.
Tax-Equivalent Yield
Louisiana Municipal Income Fund's tax-equivalent yield is
calculated similarly to the yield, but is adjusted to reflect
the taxable yield that the Fund would have had to earn to
equal its actual yield, assuming a combined federal and state
marginal tax rate of 45.60% and assuming that the income is
100% tax-exempt.
The Fund's tax-equivalent yield for the thirty-day period
ended August 31, 1994 was 9.38%.
TAXABLE YIELD EQUIVALENT FOR 1994
STATE OF LOUISIANA
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
19.00% 34.00% 37.00% 42.00% 45.60%
SINGLE $1 - $22,751 - $55,101 - $115,001 - OVER
RETURN: 22,750 55,100 115,000 250,000 $250,000
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.85% 2.27% 2.38% 2.59% 2.76%
2.00% 2.47% 3.03% 3.17% 3.45% 3.68%
2.50% 3.09% 3.79% 3.97% 4.31% 4.60%
3.00% 3.70% 4.55% 4.76% 5.17% 5.51%
3.50% 4.32% 5.30% 5.56% 6.03% 6.43%
4.00% 4.94% 6.06% 6.35% 6.90% 7.35%
4.50% 5.56% 6.82% 7.14% 7.76% 8.27%
5.00% 6.17% 7.58% 7.94% 8.62% 9.19%
5.50% 6.79% 8.33% 8.73% 9.48% 10.11%
6.00% 7.41% 9.09% 9.52% 10.34% 11.03%
6.50% 8.02% 9.85% 10.32% 11.21% 11.95%
7.00% 8.64% 10.61% 11.11% 12.07% 12.87%
7.50% 9.26% 11.36% 11.90% 12.93% 13.79%
8.00% 9.88% 12.12% 12.70% 13.79% 14.71%
NOTE: THE MAXIMUM MARGINAL TAX RATE FOR EACH BRACKET WAS USED
IN CALCULATING THE TAXABLE YIELD EQUIVALENT. FURTHERMORE,
ADDITIONAL STATE AND LOCAL TAXES PAID ON COMPARABLE TAXABLE
INVESTMENTS WERE NOT USED TO INCREASE FEDERAL DEDUCTIONS.
Performance Information
Performance depends upon such variables as: portfolio quality;
average portfolio maturity; type of instruments in which the
portfolio is invested; changes in interest rates and market
value of portfolio securities; changes in expenses; and the
relative amount of cash flow.
The Funds' (except the Money Market Funds) performance
fluctuates on a daily basis largely because net earnings and
offering price per share fluctuate daily. Both net earnings
and offering price per share are factors in the computation of
yield and total return.
Investors may use financial publications and/or indices to
obtain a more complete view of the Funds' performance. When
comparing performance, investors should consider all relevant
factors such as the composition of any index used, prevailing
market conditions, portfolio compositions of other funds, and
methods used to value portfolio securities and compute
offering price. The financial publications and/or indices
which the Funds use in advertising may include:
o Lipper Analytical Services, Inc., ranks funds in various
fund categories by making comparative calculations using
total return. Total return assumes the reinvestment of all
income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking in
the "money market instruments funds" category in advertising
and sales literature.
o Bank Rate Monitor National Index, Miami Beach, Florida, is a
financial reporting service which publishes weekly average
rates of 50 leading bank and thrift institution money market
deposit accounts. The rates published in the index are
averages of the personal account rates offered on the
Wednesday prior to the date of publication by ten of the
largest banks and thrifts in each of the five largest
Standard Metropolitan Statistical Areas. Account minimums
range upward from $2,500 in each institution, and
compounding methods vary. If more than one rate is offered,
the lowest rate is used. Rates are subject to change at any
time specified by the institution.
o Dow Jones Industrial Average ("DJIA") represents share
prices of selected blue-chip industrial corporations as well
as public utility and transportation companies. The DJIA
indicates daily changes in the average price of stocks in
any of its categories. It also reports total sales for each
group of industries. Because it represents the top
corporations of America, the DJIA index is a leading
economic indicator for the stock market as a whole.
o Standards & Poor's Daily Stock Price Index of 500 Common
Stocks, a composite index of common stocks in industry,
transportation, and financial and public utility companies,
compares total returns of funds whose portfolios are
invested primarily in common stocks. In addition, the
Standard & Poor's index assumes reinvestment of all
dividends paid by stock listed on the index. Taxes due on
any of these distributions are not included, nor are
brokerage or other fees calculated in the Standard & Poor's
figures.
o Lehman Brothers Government/Corporate Total Index is
compromised of approximately 5,000 issues which include:
non-convertible bonds publicly issued by the U.S. government
or its agencies; corporate bonds guaranteed by the U.S.
government and quasi-federal corporations; and publicly
issued, fixed rate, non-convertible domestic bonds of
companies in industry, public utilities, and finance. The
average maturity of these bonds approximates nine years.
Tracked by Shearson Lehman Hutton, Inc., the index
calculates total returns for one-month, three-months, twelve
months, and ten-year periods and year-to-date.
o Salomon Brothers AAA-AA Corporate Index calculates total
returns of approximately 775 issues which include long-term,
high grade domestic corporate taxable bonds, rated AAA-AA
with maturities of twelve years or more and companies in
industry, public utilities, and finance.
o Merrill Lynch Corporate & Government Master Index is an
unmanaged index comprised of approximately 4,821 issues
which include corporate debt obligations rated BBB or better
and publicly issued, non-convertible domestic debt of the
U.S. government or any agency thereof. These quality
parameters are based on composite of rating assigned by
Standard and Poor's Ratings Group and Moody's Investors
Service, Inc. Only notes and bonds with a minimum maturity
of one year are included.
o Merrill Lynch Corporate Master Index is an unmanaged index
comprised of approximately 4,356 corporate debt obligations
rated BBB or better. These quality parameters are based on
composites of ratings assigned by Standard and Poor's
Ratings Group and Moody's Investors Service, Inc. Only
bonds with a minimum maturity of one year are included.
o Salomon Brothers Broad Investment-Grade ("Big") Bond Index
is designed to provide the investment-grade bond manager
with an all-inclusive universe of institutionally traded
U.S. Treasury, agency, mortgage and corporate securities
which can be used as a benchmark. The BIG Index is market
capitalization-weighted and includes all fixed rate bonds
with a maturity of one year or longer and a minimum of $50-
million amount outstanding at entry ($200 million for
mortgage coupons) and remain in the index until their amount
falls below $25 million.
o Morningstar, Inc., an independent rating service , is the
publisher of the bi-weekly Mutual Funds Values. Mutual
Funds Values rates more than 1,000 NASDAQ-listed mutual
funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are
effective for two weeks.
Financial Statements
The financial statements for the fiscal year ended August 31,
1994, are incorporated herein by reference from the Funds'
Annual Reports dated August 31, 1994 . A copy of the Annual
Report for a Fund may be obtained without charge by contacting
the Fund at the address located on the back cover of the
combined prospectus or by calling the Fund toll-free 1-800-999-
0124.
Appendix
Standard and Poor's Ratings Group Municipal Bond Rating
Definitions
AAA - Debt rated AAA has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from the higher rated issues
only in small degree.
A - Debt rated A has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to
the adverse effect of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely
to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated
categories.
BB, B, CCC, CC - Debt rated BB, B, CCC and CC is regarded, on
balance, as predominantly speculative with respect to capacity
to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties
of major risk exposures to adverse conditions.
C - The rating C is reserved for income bonds on which no
interest is being paid.
D - Debt rated D is in default, and payments of interest
and/or repayment of principal is in arrears.
Moody's Investors Service, Inc., Municipal Bond Rating
Definitions
Aaa - Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt edge." Interest
payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group, they
compromise what are generally known as high grade bonds. They
are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude
or there may be other elements present which make the long
term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and
interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the
future.
Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba - Bonds which are Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in
default of have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of
bonds and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.

Fitch Investors Service, Inc., Bond Rating Definitions
AAA bonds (highest quality) - the obligator has an
extraordinary ability to pay interest and repay principal
which is unlikely to be affected by reasonably foreseeable
events.
AA bonds (high quality) - the obligor's ability to pay
interest and repay principal, while very strong, is some-what
less than for AAA rated securities or more subject to possible
change over the term of the issue.
MOODY'S INVESTORS SERVICE, INC. SHORT-TERM DEBT RATING
DEFINITIONS
Prime-1 - Issuers rated Prime-1 (or related supporting
institutions) have a superior capacity for repayment of short-
term promissory obligations. Prime-1 repayment capacity will
normally be evidenced by the following characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate
reliance on debt and ample asset protection.
- Broad margins in earning coverage of fixed financial
charges and high internal cash generation.
- Well-established access to a range of financial markets
and assured sources of alternate liquidity
Prime-2 - Issuers rated Prime-2 (or related supporting
institutions) have a strong capacity for repayment of short-
term promissory obligations. This will normally be evidenced
by many of the characteristics cited above, but to a lesser
degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics,
while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
Prime-3 - Issuers rated Prime-3 (or related supporting
institutions) have an acceptable ability for repayment of
senior short-term obligations. The effect of industry
characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may
result in changes in the level of debt protection measurements
and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Not Prime- Issuers rated Not Prime do not fall within any of
the Prime rating categories.
FITCH INVESTORS SERVICE, INC. SHORT-TERM DEBT RATING
DEFINITIONS
F-1+- Exceptionally Strong Credit Quality. Issues assigned
this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1- Very Strong Credit Quality. Issues assigned this rating
reflect an assurance for timely payment only slightly less in
degree than issues rated F-1+.
F-2- Good Credit Quality. Issues carrying this rating have a
satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as for issues assigned F-
1+ and F-1 ratings.
F-3- Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for
timely payment is adequate, however, near-term adverse changes
could cause these securities to be rated below investment
grade.
F-S- Weak Credit Quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for
timely payment and are vulnerable to near-term adverse changes
in financial and economic conditions.
D- Default. Issues assigned this rating are in actual or
imminent payment default.
LOC- The symbol LOC indicates that the rating is based on a
letter of credit issued by a commercial bank.
891836108
891836306
891836504
891836405
891936207
891836603
006897 (12/94)
PART C. OTHER INFORMATION.

Item 24. Financial Statements and Exhibits:
(a) Financial Statements (Filed in Part A for each
fund)
(b) Exhibits:
(1) Conformed copy of Declaration of Trust of the
Registrant (5.);
(2) Copy of By-Laws of the Registrant (1.);
(3) Not applicable;
(4) (i) Copy of Specimen Certificate for
Shares of Beneficial Interest of the
Registrant (3.);
(ii) Copy of Specimen Certificates for Shares
of Beneficial Interest of the
Registrant;(5.)
(5) Conformed copy of Investment Advisory Contract
of the Registrant (5.);
(6) Conformed copy of Administrative Support and
Distributor's Contract of the Registrant;(5.)
(7) Not applicable;
(8) (i) Conformed copy of Custodian
Agreement of the Registrant;+
(ii) Conformed copy of Transfer Agency and
Service Agreement of the Registrant (5.);
(iii) Conformed copy of
Administrative Services Agreement of the
Registrant (5.);
(iv) Assignment of Administrative Services
Agreement of the Registrant Federated
Administrative Services (5.);
(9) Conformed copy of Agreement for Fund
Accounting, Shareholder Recordkeeping, and
Custody Services Procurement;+
(10) Paper copy of Opinion and Consent of
Counsel as to legality of shares being
registered (2.);
(11) (i) Conformed copy of Consent of
Independent Auditors;+
(ii) Paper copy of Opinion and Consent of
Special Counsel (2.);
(12) Not applicable;
(13) Paper copy of Initial Capital
Understanding (2.);
(14) Not applicable;
(15) (i) Conformed copy of Distribution Plan
(5.);
(ii) Copy of Sales Agreement with Federated
Securities Corp. (3.);
(16) (i) Schedule for Computation of
Performance Data for Tower Capital
Appreciation Fund (3.);

+ All exhibits have been filed electronically.

1. Response is incorporated by reference to Registrant's
Registration Statement on Form N-1A filed April 15, 1988.
(File Nos. 33-21321 and 811-5536)
2. Response is incorporated by reference to Registrant's Pre-
Effective Amendment No. 1 on Form N-1A filed September 23,
1988. (File Nos. 33-21321 and 811-5536)
3. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 1 on Form N-1A filed April 27, 1989.
(File Nos. 33-21321 and 811-5536)
5. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 11 filed October 28, 1993. (File Nos.
33-21321 and 811-5536)
(ii) Schedule for Computation of Performance
Data for Tower Cash Reserve Fund (3.);
(iii) Paper copy of schedule for
Computation of Performance Data for Tower
Louisiana Municipal Income Fund (3.);
(iv) Paper copy of schedule for Computation of
Performance Data for Tower U.S.
Government Income Fund (3.);
(v) Paper copy of schedule for Computation of
Performance Data for Tower Total Return
Bond Fund (4.);
(vi) Schedule for Computation of Performance
Data for Tower U.S. Treasury Money Market
Fund;(5.)
(17) Financial Data Schedules.+
(18) Conformed copy of Opinion and Consent of
Counsel as to availability of
Rule 485(b).+
(19) Conformed copy of Power of Attorney (5.);

Item 25. Persons Controlled by or Under Common Control with
Registrant:

None.

Item 26. Number of Holders of Securities:

Number of Record Holders
Title of Class as of December 12, 1994

Shares of beneficial interest

Tower Capital Appreciation Fund 814
Tower Cash Reserve Fund 532
Tower U.S. Government Income
Fund 976
Tower Louisiana Municipal Income
Fund 1217
Tower Total Return Bond Fund 33
Tower U.S. Treasury Money Market
Fund 139

Item 27. Indemnification: (1)

+ All exhibits have been filed electronically.

1. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 9 on Form N-1A file April 2, 1993.
(File No. 33-21321 and 811-5536)
2. Response is incorporated by reference to Registrant's Pre-
Effective Amendment No. 1 on Form N-1A filed September 23,
1988. (File Nos. 33-21321 and 811-5536)
3. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 1 on Form N-1A filed April 27, 1989.
(File Nos. 33-21321 and 811-5536)
4. Response is incorporated by reference to Regestrant's Post-
Effective Amendment No. 10 on form N-1A filed April 23, 1993.
(File Nos. 33-21321 and 811-5536)
5. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 11 filed October 28, 1994. (File Nos.
33-21321 and 811-5536)
Item 28. Business and Other Connections of Investment Adviser:

A. Investment Adviser

Hibernia National Bank is a national bank with its
principal place of business at 313 Carondelet Street,
New Orleans, Louisiana 70130. Hibernia National Bank, a
national bank organized in 1933, is a wholly - owned
subsidiary of Hibernia Corporation ("Hibernia"), a
Louisiana Corporation. Through its subsidiaries and
affiliates, Hibernia offers a full range of financial
services to the public including commercial lending,
depository services, cash management, retail banking,
credit card services, mortgage banking, brokerage,
investment counseling, international banking, and trust
services. Hibernia National Bank has been ranked by the
American Banker newspaper as the 107th largest U.S. Bank
according to June 30, 1994 deposits. The 1993 Money
Market Directory of Pension Funds ranked Hibernia
National Bank among the top 25% of the largest of nearly
300 Bank and Trust Company Managers of tax-exempt funds
in the United States. As of September 30, 1994, the
Trust Group had $5.2 billion under administration of
which it had investment discretion over $1.4 billion.
The Trust Group has managed pools of commingled funds
since 1966; as of September 30, 1994 the Trust Group
manages seven such investment pools along with the six
Tower Mutual Funds all totalling $739.2 million in
assets. The officers and directors of the Adviser and
any other business, profession, vocation or employment
of a substantial nature in which each such officer and
director is or has been engaged during the past two
years is set forth below. Unless otherwise noted, the
position listed under Other Business, Profession,
Vocation or Employment is with Hibernia National Bank.

Other Substantial
Position with Business, Profession,
Name the Adviser Vocation or
Employment

Robert H. Boh Chairman

Hugh J. Kelly Vice Chairman

Stephen A. Hansel President, Chief
Executive Officer,
and Director

Donald J. Nalty Vice Chairman

C. Geron Hargon Regional Chairman Southeast Louisiana

Robert W. Close Senior Executive Vice President/
Treasurer and Chief Financial Officer

Scott P. Howard Executive Vice President

Gerald F. Pavlas Executive Vice President

K. Kirk Domingo III Senior Executive Vice President

Kenneth A. Rains Executive Vice President

J. Herbert Boydstun Regional Chairman - Northeast Louisiana
and Director

Richard G. Wright Executive Vice President

Ron E. Samford, Jr. Executive Vice President
and Controller

John E. Smith Executive Vice President

Patricia C. Meringer Vice President, Associate
Counsel and Secretary

James E. O'Brien Executive Vice President

Marsha M. Gassen Executive Vice President
and General Auditor

Russell S. Hoadley Executive Vice President

Directors

W. James Amoss, Jr. Stephen A. Hansel Donald J. Nalty
Robert H. Boh Dick H. Hearin H. Duke Shackelford
T. Herbert Boydstun J. Terrell Brown Robert T. Holleman
James H. Stone Brooke H. Duncan Hugh J. Kelly
E.L. Williamson Richard W. Freeman, Jr. John P. Laborde
Robert E. Zetzmann Robert L. Goodwin Sidney W. Lassen

Item 29. Principal Underwriters:

(a) Federated Securities Corp., the Distributor
for shares of the Registrant, also acts as principal
underwriter for the following open-end investment
companies: Alexander Hamilton Funds; American
Leaders Fund, Inc.; Annuity Management Series; Arrow
Funds; Automated Cash Management Trust; Automated
Government Money Trust; BayFunds; The Biltmore
Funds; The Biltmore Municipal Funds; California
Municipal Cash Trust; Cash Trust Series, Inc.; Cash
Trust Series II; DG Investor Series; Edward D. Jones
& Co. Daily Passport Cash Trust; Federated ARMs Fund;
Federated Exchange Fund, Ltd.; Federated GNMA Trust;
Federated Government Trust; Federated Growth Trust;
Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Institutional Trust; Federated
Intermediate Government Trust; Federated Master
Trust; Federated Municipal Trust; Federated Short-
Intermediate Government Trust; Federated Short-Term
U.S. Government Trust; Federated Stock Trust;
Federated Tax-Free Trust; Federated U.S. Government
Bond Fund; First Priority Funds; First Union Funds;
Fixed Income Securities, Inc.; Fortress Adjustable
Rate U.S. Government Fund, Inc.; Fortress Municipal
Income Fund, Inc.; Fortress Utility Fund, Inc.;
Fountain Square Funds; Fund for U.S. Government
Securities, Inc.; Government Income Securities, Inc.;
High Yield Cash Trust; Independence One Mutual Funds;
Insight Institutional Series, Inc.; Insurance
Management Series; Intermediate Municipal Trust;
International Series Inc.; Investment Series Funds,
Inc.; Investment Series Trust; Liberty Equity Income
Fund, Inc.; Liberty High Income Bond Fund, Inc.;
Liberty Municipal Securities Fund, Inc.; Liberty U.S.
Government Money Market Trust; Liberty Utility Fund,
Inc.; Liquid Cash Trust; Managed Series Trust;
Marshall Funds, Inc.; Money Market Management, Inc.;
The Medalist Funds; Money Market Obligations Trust;
Money Market Trust; The Monitor Funds; Municipal
Securities Income Trust; New York Municipal Cash
Trust; 111 Corcoran Funds; Peachtree Funds; The
Planters Funds; Portage Funds; RIMCO Monument Funds;
The Shawmut Funds; Short-Term Municipal Trust;
SouthTrust Vulcan Funds; Star Funds; The Starburst
Funds; The Starburst Funds II; Stock and Bond Fund,
Inc.; Sunburst Funds; Targeted Duration Trust; Tax-
Free Instruments Trust; Trademark Funds; Trust for
Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations;
Vision Fiduciary Funds, Inc.; Vision Group of Funds,
Inc.; and World Investment Series, Inc.

Federated Securities Corp. also acts as principal
underwriter for the following closed-end investment
company: Liberty Term Trust, Inc.- 1999.

(b)

(1) (2) (3)
Name and Principal Positions and Offices Positions and
Offices
Business Address With Underwriter With
Registrant

Richard B. Fisher Director, Chairman, Chief
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, and
Asst. Treasurer, Federated
Securities Corp.

Edward C. Gonzales Director, Executive Vice President and
Federated Investors Tower President, and Treasurer, Treasurer
Pittsburgh, PA 15222-3779 Federated Securities
Corp.

John W. McGonigle Director, Executive Vice
Federated Investors Tower President, and Assistant
Pittsburgh, PA 15222-3779 Secretary, Federated
Securities Corp.

John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and
Offices
Business Address With Underwriter With
Registrant

Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust
Pittsburgh, PA 15222-3779 Federated Securities Corp.

Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

H. Joseph Kennedy Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard W. Boyd Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mary J. Combs Vice President, --
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779

R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Laura M. Deger Vice President, --
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and
Offices
Business Address With Underwriter With
Registrant

Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Michael D. Fitzgerald Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

David C. Glabicki Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

William J. Kerns Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Dennis M. Laffey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Francis J. Matten, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard C. Mihm Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

R. Jeffrey Niss Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and
Offices
Business Address With Underwriter With
Registrant

Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Robert D. Oehlschlager Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Solon A. Person, IV Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Robert F. Phillips Vice President, --
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779

Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Charles A. Robison Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas E. Territ Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jamie M. Teschner Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Philip C. Hetzel Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and
Offices
Business Address With Underwriter With
Registrant

Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

S. Elliott Cohan Secretary, Federated Assistant
Federated Investors Tower Securities Corp. Secretary
Pittsburgh, PA 15222-3779

Item 30. Location of Accounts and Records:

All accounts and records required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and
Rules 31a-1 through 31a-3 promulgated thereunder are
maintained at one of the following locations:

Registrant Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Services Company Federated Investors Tower
("Transfer Agent, Dividend Pittsburgh, PA 15222-3779
Disbursing Agent and Portfolio
Recordkeeper")

Federated Administrative Federated Investors Tower
Services Pittsburgh, PA 15222-3779
("Administrator")

Hibernia National Bank 313 Carondelet Street
("Adviser") New Orleans, LA 70130

Hibernia National Bank 313 Carondelet Street
("Custodian") New Orleans, LA 70130

Item 31. Management Services: Not applicable.

Item 32. Undertakings:

Registrant hereby undertakes to comply with the
provisions of Section 16(c) of the 1940 Act with respect
to the removal of Trustees and the calling of special
shareholder meetings by shareholders.

Registrant hereby undertakes to furnish each person to
whom a prospectus for Tower Mutual Funds is delivered a
copy of the Registrant's latest annual report to
shareholders, upon request and without charge.

Exhibit (11) under N-1A
Exhibit 23 under Item
601/Reg SK

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions
"Financial Highlights" and "Independent Auditors" and to the
use of our reports dated October 6, 1994, in Post-Effective
Amendment Number 12 to the Registration Statement (Form N-1A
Number 33-21321) and related Prospectuses of the individual
funds of Tower Mutual Funds (comprising respectively, Tower
Cash Reserve Fund, Tower Capital Appreciation Fund, Tower
Louisiana Municipal Income Fund, Tower Total Return Bond Fund,
Tower U.S. Government Income Fund, and Tower U.S. Treasury
Money Market Fund) dated December 31, 1994.

By: ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
December 27, 1994

Exhibit 18 under Form N-1A
Exhibit 99 under Item 601/Reg.S-K
HOUSTON, HOUSTON & DONNELLY
ATTORNEYS AT LAW
2510 CENTRE CITY TOWER
WILLIAM McC. HOUSTONPITTSBURGH, PA. 15222
FRED CHALMERS HOUSTON, JR.__________
THOMAS J. DONNELLY
JOHN F. MECK (412) 471-5828 FRED CHALMERS HOUSTON
FAX (412) 471-0736 (1914 - 1971)

MARIO SANTILLI, JR.
THEODORE M. HAMMER

December 19, 1994

Tower Mutual Funds
Federated Investors Tower
Pittsburgh, PA 15222-3779

Gentlemen:

As counsel to Tower Mutual Funds ("Trust") we have reviewed
Post-effective Amendment No. 12 to the Trust's Registration
Statement to be filed with the Securities and Exchange Commission
under the Securities Act of 1933 (File No. 33-21321). The
subject Post-effective Amendment will be filed pursuant to
Paragraph (b) of Rule 485 and become effective pursuant to said
Rule on December 31, 1994.

Our review also included an examination of other relevant
portions of the amended 1933 Act Registration Statement of the
Trust and such other documents and records deemed appropriate.
On the basis of this review we are of the opinion that Post-
effective Amendment No. 12 does not contain disclosures which
would render it ineligible to become effective pursuant to
Paragraph (b) of Rule 485.

We hereby consent to the filing of this representation
letter as a part of the Trust's Registration Statement filed with
the Securities and Exchange Commission under the Securities Act
of 1933 and as part of any application or registration statement
filed under the Securities Laws of the States of the United
States.

Very truly yours,

Houston, Houston & Donnelly

By: /s/ Thomas J. Donnelly

TJD:heh

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> TOWER CAPITAL APPRECIATION FUND
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-END> AUG-31-1994
<INVESTMENTS-AT-COST> 125,926,892
<INVESTMENTS-AT-VALUE> 138,768,663
<RECEIVABLES> 435,189
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 139,203,852
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 123,062
<TOTAL-LIABILITIES> 123,062
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 124,846,774
<SHARES-COMMON-STOCK> 10,068,611
<SHARES-COMMON-PRIOR> 9,642,355
<ACCUMULATED-NII-CURRENT> 157,750
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,234,495
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,841,771
<NET-ASSETS> 139,080,790
<DIVIDEND-INCOME> 3,756,293
<INTEREST-INCOME> 92,459
<OTHER-INCOME> 0
<EXPENSES-NET> 1,517,807
<NET-INVESTMENT-INCOME> 2,330,945
<REALIZED-GAINS-CURRENT> 5,052,026
<APPREC-INCREASE-CURRENT> (1,535,597)
<NET-CHANGE-FROM-OPS> 5,847,374
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,486,403
<DISTRIBUTIONS-OF-GAINS> 10,874,905
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,813,334
<NUMBER-OF-SHARES-REDEEMED> 2,161,249
<SHARES-REINVESTED> 774,171
<NET-CHANGE-IN-ASSETS> (1,726,881)
<ACCUMULATED-NII-PRIOR> 313,208
<ACCUMULATED-GAINS-PRIOR> 7,057,374
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,048,592
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,517,807
<AVERAGE-NET-ASSETS> 139,384,195
<PER-SHARE-NAV-BEGIN> 14.600
<PER-SHARE-NII> .230
<PER-SHARE-GAIN-APPREC> .360
<PER-SHARE-DIVIDEND> .250
<PER-SHARE-DISTRIBUTIONS> 1.130
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 13.810
<EXPENSE-RATIO> 109
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> TOWER CASH RESERVE FUND
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-END> AUG-31-1994
<INVESTMENTS-AT-COST> 184,476,545
<INVESTMENTS-AT-VALUE> 184,476,545
<RECEIVABLES> 26,131
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 184,502,676
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 580,693
<TOTAL-LIABILITIES> 580,693
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 183,921,983
<SHARES-COMMON-STOCK> 183,921,983
<SHARES-COMMON-PRIOR> 154,051,676
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 183,921,983
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,166,995
<OTHER-INCOME> 0
<EXPENSES-NET> 1,543,777
<NET-INVESTMENT-INCOME> 4,623,218
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,623,218
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,623,218
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 356,956,748
<NUMBER-OF-SHARES-REDEEMED> 327,702,458
<SHARES-REINVESTED> 616,017
<NET-CHANGE-IN-ASSETS> 29,870,307
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 681,321
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,543,777
<AVERAGE-NET-ASSETS> 170,330,263
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .030
<PER-SHARE-GAIN-APPREC> .000
<PER-SHARE-DIVIDEND> .030
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> TOWER LOUISIANA MUNICIPAL INCOME FUND
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-END> AUG-31-1994
<INVESTMENTS-AT-COST> 76,558,042
<INVESTMENTS-AT-VALUE> 77,623,978
<RECEIVABLES> 1,541,883
<ASSETS-OTHER> 802,578
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 79,968,439
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 270,537
<TOTAL-LIABILITIES> 270,537
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 78,075,939
<SHARES-COMMON-STOCK> 7,363,286
<SHARES-COMMON-PRIOR> 7,404,215
<ACCUMULATED-NII-CURRENT> 1,143
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 554,884
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,065,936
<NET-ASSETS> 79,697,902
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,085,444
<OTHER-INCOME> 0
<EXPENSES-NET> 608,881
<NET-INVESTMENT-INCOME> 4,476,563
<REALIZED-GAINS-CURRENT> 563,347
<APPREC-INCREASE-CURRENT> (5,870,977)
<NET-CHANGE-FROM-OPS> (831,067)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,509,430
<DISTRIBUTIONS-OF-GAINS> 789,175
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,535,457
<NUMBER-OF-SHARES-REDEEMED> 1,823,703
<SHARES-REINVESTED> 247,317
<NET-CHANGE-IN-ASSETS> (6,216,189)
<ACCUMULATED-NII-PRIOR> 34,010
<ACCUMULATED-GAINS-PRIOR> 780,712
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 384,286
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 677,199
<AVERAGE-NET-ASSETS> 85,078,380
<PER-SHARE-NAV-BEGIN> 11.600
<PER-SHARE-NII> .590
<PER-SHARE-GAIN-APPREC> (.680)
<PER-SHARE-DIVIDEND> .590
<PER-SHARE-DISTRIBUTIONS> .100
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 10.820
<EXPENSE-RATIO> 71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> TOWER TOTAL RETURN BOND FUND
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-END> AUG-31-1994
<INVESTMENTS-AT-COST> 72,563,316
<INVESTMENTS-AT-VALUE> 71,689,008
<RECEIVABLES> 469,185
<ASSETS-OTHER> 3,610
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 72,161,803
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 73,616
<TOTAL-LIABILITIES> 73,616
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 74,346,264
<SHARES-COMMON-STOCK> 7,481,164
<SHARES-COMMON-PRIOR> 6,064,841
<ACCUMULATED-NII-CURRENT> 24,782
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,408,551)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (874,308)
<NET-ASSETS> 72,088,187
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,400,306
<OTHER-INCOME> 0
<EXPENSES-NET> 779,577
<NET-INVESTMENT-INCOME> 3,620,729
<REALIZED-GAINS-CURRENT> (1,407,891)
<APPREC-INCREASE-CURRENT> (3,658,165)
<NET-CHANGE-FROM-OPS> (1,445,327)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,662,582
<DISTRIBUTIONS-OF-GAINS> (136,345)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,648,699
<NUMBER-OF-SHARES-REDEEMED> 1,587,686
<SHARES-REINVESTED> 355,310
<NET-CHANGE-IN-ASSETS> 8,480,597
<ACCUMULATED-NII-PRIOR> 66,636
<ACCUMULATED-GAINS-PRIOR> 135,685
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 451,203
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 779,577
<AVERAGE-NET-ASSETS> 65,146,341
<PER-SHARE-NAV-BEGIN> 10.490
<PER-SHARE-NII> .570
<PER-SHARE-GAIN-APPREC> (.830)
<PER-SHARE-DIVIDEND> .570
<PER-SHARE-DISTRIBUTIONS> .020
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 9.640
<EXPENSE-RATIO> 121
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> TOWER U.S. GOVERNMENT INCOME FUND
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-END> AUG-31-1994
<INVESTMENTS-AT-COST> 69,436,869
<INVESTMENTS-AT-VALUE> 66,733,931
<RECEIVABLES> 606,268
<ASSETS-OTHER> 366
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 67,340,565
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 289,550
<TOTAL-LIABILITIES> 289,550
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 70,485,284
<SHARES-COMMON-STOCK> 6,761,870
<SHARES-COMMON-PRIOR> 7,983,219
<ACCUMULATED-NII-CURRENT> 26,633
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (757,964)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,702,938)
<NET-ASSETS> 67,051,015
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,841,443
<OTHER-INCOME> 0
<EXPENSES-NET> 583,679
<NET-INVESTMENT-INCOME> 5,257,764
<REALIZED-GAINS-CURRENT> (639,236)
<APPREC-INCREASE-CURRENT> (6,333,912)
<NET-CHANGE-FROM-OPS> (1,715,384)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,207,830
<DISTRIBUTIONS-OF-GAINS> 286,051
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,291,084
<NUMBER-OF-SHARES-REDEEMED> 2,640,253
<SHARES-REINVESTED> 127,820
<NET-CHANGE-IN-ASSETS> (19,546,092)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 167,323
<OVERDISTRIB-NII-PRIOR> (23,301)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 354,418
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 630,935
<AVERAGE-NET-ASSETS> 78,593,037
<PER-SHARE-NAV-BEGIN> 10.850
<PER-SHARE-NII> .690
<PER-SHARE-GAIN-APPREC> (.890)
<PER-SHARE-DIVIDEND> .690
<PER-SHARE-DISTRIBUTIONS> .040
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 9.920
<EXPENSE-RATIO> 74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> TOWER U.S. TREASURY MONEY MARKET FUND
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-END> AUG-31-1994
<INVESTMENTS-AT-COST> 45,172,512
<INVESTMENTS-AT-VALUE> 45,172,512
<RECEIVABLES> 11,567
<ASSETS-OTHER> 2,225
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 45,186,304
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 163,963
<TOTAL-LIABILITIES> 163,963
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 45,022,341
<SHARES-COMMON-STOCK> 45,022,341
<SHARES-COMMON-PRIOR> 33,995,152
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 45,022,341
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,443,637
<OTHER-INCOME> 0
<EXPENSES-NET> 272,434
<NET-INVESTMENT-INCOME> 1,171,203
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,171,203
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,171,203
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 140,396,462
<NUMBER-OF-SHARES-REDEEMED> 129,435,476
<SHARES-REINVESTED> 66,203
<NET-CHANGE-IN-ASSETS> 11,027,189
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 164,112
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 365,216
<AVERAGE-NET-ASSETS> 41,028,057
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .030
<PER-SHARE-GAIN-APPREC> .000
<PER-SHARE-DIVIDEND> .030
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

Exhibit 8 under Form N-1A
Exhibit 10 under Item
601/Reg.S/K

CUSTODIAN CONTRACT
Between
TOWER MUTUAL FUNDS
and
HIBERNIA NATIONAL BANK

TABLE OF CONTENTS

Page
1. Employment of Custodian and Property to be Held by It 1

2. Duties of the Custodian With Respect to Property
of the Funds Held by the Custodian 1
2.1 Holding Securities
2.2 Delivery of Securities 2
2.3 Registration of Securities 4
2.4 Bank Accounts 4
2.5 Payments for Shares 4
2.6 Availability of Federal Funds 4
2.7 Collection of Income 5
2.8 Payment of Fund Moneys 5
2.9 Liability for Payment in Advance of
Receipt of Securities Purchased 6
2.10 Payments for Repurchases or Redemptions
of Shares of a Fund 6
2.11 Appointment of Agents 6
2.12 Deposit of Fund Assets in Securities System 7
2.13 Segregated Account 8
2.14 Joint Repurchase Agreements 8
2.15 Ownership Certificates for Tax Purposes 8
2.16 Proxies 9
2.17 Communications Relating to Fund Portfolio Securities
9
2.18 Proper Instructions 9
2.19 Actions Permitted Without Express Authority 9
2.20 Evidence of Authority 10

3. Duties of Custodian With Respect to the Books of Account
and
Regulatory Reporting 10

4. Records 10

5. Opinion of Funds' Independent Accountants 11

6. Reports to Trust by Independent Public Accountants 11

7. Compensation of Custodian 11

8. Responsibility of Custodian 11

9. Effective Period, Termination and Amendment 13

10. Successor Custodian 13

11. Interpretive and Additional Provisions 14

12. Pennsylvania Law to Apply 14

13. Notices 14

14. Counterparts 14

15. Limitations of Liability 15
CUSTODIAN CONTRACT

This Contract between Tower Mutual Funds (the "Trust"), a
Massachusetts business trust, on behalf of the portfolios (the
"Funds") of the Trust, organized and existing under the laws
of the Commonwealth of Massachusetts, having its principal
place of business at Federated Investors Tower, Pittsburgh,
Pennsylvania, 15222-3779, and Hibernia National Bank, a
national banking association having its principal place of
business at P.O. Box 61540, New Orleans, Louisiana, 70161, and
which is a wholly owned subsidiary of Hibernia Corporation, a
Louisiana corporation, hereinafter called the "Custodian",

WITNESSETH: That in consideration of the mutual
covenants and agreements hereinafter contained, the parties
hereto agree as follows:

1. Employment of Custodian and Property to be Held by It

The Trust hereby employs the Custodian as the custodian
of the assets of each of its portfolios (hereinafter
collectively called the "Funds" and individually referred to
as a "Fund") of the Trust. Except as otherwise expressly
provided herein, the securities and other assets of each of
the Funds shall be segregated from the assets of each of the
other Funds and from all other persons and entities. The
Trust will deliver to the Custodian all securities and cash
owned by the Funds and all payments of income, payments of
principal or capital distributions received by them with
respect to all securities owned by the Funds from time to
time, and the cash consideration received by them for shares
("Shares") of beneficial interest of the Funds as may be
issued or sold from time to time. The Custodian shall not be
responsible for any property of the Funds held or received by
the Funds and not delivered to the Custodian.

Upon receipt of "Proper Instructions" (within the meaning
of Section 2.18), the Custodian shall from time to time employ
one or more sub-custodians upon the terms specified in the
Proper Instructions, provided that the Custodian shall have no
more or less responsibility or liability to the Trust or any
of the Funds on account of any actions or omissions of any sub-
custodian so employed than any such sub-custodian has to the
Custodian.

2. Duties of the Custodian With Respect to Property of the
Funds Held by the Custodian

2.1 Holding Securities. The Custodian shall hold and
physically segregate for the account of each Fund all non-
cash property, including all securities owned by each
Fund, other than securities which are maintained pursuant
to Section 2.12 in a clearing agency which acts as a
securities depository or in a book-entry system
authorized by the U.S. Department of the Treasury,
collectively referred to herein as "Securities System",
or securities which are subject to a joint repurchase
agreement with affiliated funds pursuant to Section 2.14.
The Custodian shall maintain records of all receipts,
deliveries and locations of such securities, together
with a current inventory thereof, and shall conduct
periodic physical inspections of certificates
representing stocks, bonds and other securities held by
it under this Contract in such manner as the Custodian
shall determine from time to time to be advisable in
order to verify the accuracy of such inventory. With
respect to securities held by any agent appointed
pursuant to Section 2.11 hereof, and with respect to
securities held by any sub-custodian appointed pursuant
to Section 1 hereof, the Custodian may rely upon
certificates from such agent as to the holdings of such
agent and from such sub-custodian as to the holdings of
such sub-custodian, it being understood that such
reliance in no way relieves the Custodian of its
responsibilities under this Contract. The Custodian will
promptly report to the Trust the results of such
inspections, indicating any shortages or discrepancies
uncovered thereby, and take appropriate action to remedy
any such shortages or discrepancies.

2.2 Delivery of Securities. The Custodian shall release and
deliver securities owned by a Fund held by the Custodian
or in a Securities System account of the Custodian only
upon receipt of Proper Instructions, which may be
continuing instructions when deemed appropriate by the
parties, and only in the following cases:

(1) Upon sale of such securities for the account of a
Fund and receipt of payment therefor;

(2) Upon the receipt of payment in connection with any
repurchase agreement related to such securities
entered into by the Trust;

(3) In the case of a sale effected through a Securities
System, in accordance with the provisions of Section
2.12 hereof;

(4) To the depository agent in connection with tender or
other similar offers for portfolio securities of a
Fund, in accordance with the provisions of Section
2.17 hereof;

(5) To the issuer thereof or its agent when such
securities are called, redeemed, retired or
otherwise become payable; provided that, in any such
case, the cash or other consideration is to be
delivered to the Custodian;

(6) To the issuer thereof, or its agent, for transfer
into the name of a Fund or into the name of any
nominee or nominees of the Custodian or into the name
or nominee name of any agent appointed pursuant to
Section 2.11 or into the name or nominee name of any
sub-custodian appointed pursuant to Section 1; or for
exchange for a different number of bonds,
certificates or other evidence representing the same
aggregate face amount or number of units; provided
that, in any such case, the new securities are to be
delivered to the Custodian;

(7) Upon the sale of such securities for the account of
a Fund, to the broker or its clearing agent, against
a receipt, for examination in accordance with "street
delivery custom"; provided that in any such case, the
Custodian shall have no responsibility or liability
for any loss arising from the delivery of such
securities prior to receiving payment for such
securities except as may arise from the Custodian's
own failure to act in accordance with the standard of
reasonable care or any higher standard of care
imposed upon the Custodian by any applicable law or
regulation if such above-stated standard of
reasonable care were not part of this Contract;

(8) For exchange or conversion pursuant to any plan of
merger, consolidation, recapitalization,
reorganization or readjustment of the securities of
the issuer of such securities, or pursuant to
provisions for conversion contained in such
securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities
and cash, if any, are to be delivered to the
Custodian;

(9) In the case of warrants, rights or similar
securities, the surrender thereof in the exercise of
such warrants, rights or similar securities or the
surrender of interim receipts or temporary securities
for definitive securities; provided that, in any such
case, the new securities and cash, if any, are to be
delivered to the Custodian;

(10) For delivery in connection with any loans of
portfolio securities of a Fund, but only against
receipt of adequate collateral in the form of (a)
cash, in an amount specified by the Trust, (b)
certificated securities of a description specified by
the Trust, registered in the name of the Fund or in
the name of a nominee of the Custodian referred to in
Section 2.3 hereof or in proper form for transfer, or
(c) securities of a description specified by the
Trust, transferred through a Securities System in
accordance with Section 2.12 hereof;

(11) For delivery as security in connection with any
borrowings requiring a pledge of assets by a Fund,
but only against receipt of amounts borrowed, except
that in cases where additional collateral is required
to secure a borrowing already made, further
securities may be released for the purpose;

(12) For delivery in accordance with the provisions of
any agreement among the Trust, the Custodian and a
broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a
member of The National Association of Securities
Dealers, Inc. ("NASD"), relating to compliance with
the rules of The Options Clearing Corporation and of
any registered national securities exchange, or of
any similar organization or organizations, regarding
escrow or other arrangements in connection with
transactions for a Fund;

(13) For delivery in accordance with the provisions of
any agreement among the Trust, the Custodian, and a
Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with
the rules of the Commodity Futures Trading Commission
and/or any Contract Market, or any similar
organization or organizations, regarding account
deposits in connection with transaction for a Fund;

(14) Upon receipt of instructions from the transfer
agent ("Transfer Agent") for a Fund, for delivery to
such Transfer Agent or to the holders of shares in
connection with distributions in kind, in
satisfaction of requests by holders of Shares for
repurchase or redemption; and

(15) For any other proper corporate purpose, but only
upon receipt of, in addition to Proper Instructions,
a certified copy of a resolution of the Executive
Committee of the Trust on behalf of a Fund signed by
an officer of the Trust and certified by its
Secretary or an Assistant Secretary, specifying the
securities
to be delivered, setting forth the purpose for which such
delivery is to be made, declaring such purpose to be
a proper corporate purpose, and naming the person or
persons to whom delivery of such securities shall be
made.

2.3 Registration of Securities. Securities held by the
Custodian (other than bearer securities) shall be
registered in the name of a particular Fund or in the
name of any nominee of the Fund or of any nominee of the
Custodian which nominee shall be assigned exclusively to
the Fund, unless the Trust has authorized in writing the
appointment of a nominee to be used in common with other
registered investment companies affiliated with the Fund,
or in the name or nominee name of any agent appointed
pursuant to Section 2.11 or in the name or nominee name
of any sub-custodian appointed pursuant to Section 1.
All securities accepted by the Custodian on behalf of a
Fund under the terms of this Contract shall be in "street
name" or other good delivery form.

2.4 Bank Accounts. The Custodian shall open and maintain a
separate bank account or accounts in the name of each
Fund, subject only to draft or order by the Custodian
acting pursuant to the terms of this Contract, and shall
hold in such account or accounts, subject to the
provisions hereof, all cash received by it from or for
the account of each Fund, other than cash maintained in a
joint repurchase account with other affiliated funds
pursuant to Section 2.14 of this Contract or by a
particular Fund in a bank account established and used in
accordance with Rule 17f-3 under the Investment Company
Act of 1940. Funds held by the Custodian for a Fund may
be deposited by it to its credit as Custodian in the
Banking Department of the Custodian or in such other
banks or trust companies as it may in its discretion deem
necessary or desirable; provided, however, that every
such bank or trust company shall be qualified to act as a
custodian under the Investment Company Act of 1940 and
that each such bank or trust company and the funds to be
deposited with each such bank or trust company shall be
approved by vote of a majority of the Board of Trustees
of the Trust. Such funds shall be deposited by the
Custodian in its capacity as Custodian for the Fund and
shall be withdrawable by the Custodian only in that
capacity. If requested by the Trust, the Custodian shall
furnish the Trust, not later than twenty (20) days after
the last business day of each month, an internal
reconciliation of the closing balance as of that day in
all accounts described in this section to the balance
shown on the daily cash report for that day rendered to
the Trust.

2.5 Payments for Shares. The Custodian shall make such
arrangements with the Transfer Agent of each Fund, as
will enable the Custodian to receive the cash
consideration due to each Fund and will deposit into each
Fund's account such payments as are received from the
Transfer Agent. The Custodian will provide timely
notification to the Trust and the Transfer Agent of any
receipt by it of payments for Shares of the respective
Fund.

2.6 Availability of Federal Funds. Upon mutual agreement
between the Trust and the Custodian, the Custodian shall
make federal funds available to the Funds as of specified
times agreed upon from time to time by the Trust and the
Custodian in the amount of checks, clearing house funds,
and other non-federal funds received in payment for
Shares of the Funds which are deposited into the Funds'
accounts.

2.7 Collection of Income.

(1) The Custodian shall collect on a timely basis all
income and other payments with respect to registered
securities held hereunder to which each Fund shall
be entitled either by law or pursuant to custom in
the securities business, and shall collect on a
timely basis all income and other payments with
respect to bearer securities if, on the date of
payment by the issuer, such securities are held by
the Custodian or its agent thereof and shall credit
such income, as collected, to each Fund's custodian
account. Without limiting the generality of the
foregoing, the Custodian shall detach and present
for payment all coupons and other income items
requiring presentation as and when they become due
and shall collect interest when due on securities
held hereunder. The collection of income due the
Funds on securities loaned pursuant to the
provisions of Section 2.2 (10) shall be the
responsibility of the Trust. The Custodian will
have no duty or responsibility in connection
therewith, other than to provide the Trust with such
information or data as may be necessary to assist
the Trust in arranging for the timely delivery to
the Custodian of the income to which each Fund is
properly entitled.

(2) The Custodian shall promptly notify the Trust
whenever income due on securities is not collected
in due course and will provide the Trust with
monthly reports of the status of past due income.

2.8 Payment of Fund Moneys. Upon receipt of Proper
Instructions, which may be continuing instructions when
deemed appropriate by the parties, the Custodian shall
pay out moneys of each Fund in the following cases only:

(1) Upon the purchase of securities, futures contracts
or options on futures contracts for the account of a
Fund but only (a) against the delivery of such
securities, or evidence of title to futures
contracts, to the Custodian (or any bank, banking
firm or trust company doing business in the United
States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act
as a custodian and has been designated by the
Custodian as its agent for this purpose) registered
in the name of the Fund or in the name of a nominee
of the Custodian referred to in Section 2.3 hereof
or in proper form for transfer, (b) in the case of a
purchase effected through a Securities System, in
accordance with the conditions set forth in Section
2.12 hereof or (c) in the case of repurchase
agreements entered into between the Trust and any
other party, (i) against delivery of the securities
either in certificate form or through an entry
crediting the Custodian's account at the Federal
Reserve Bank with such securities or (ii) against
delivery of the receipt evidencing purchase for the
account of the Fund of securities owned by the
Custodian along with written evidence of the
agreement by the Custodian to repurchase such
securities from the Fund;

(2) In connection with conversion, exchange or
surrender of securities owned by a Fund as set forth
in Section 2.2 hereof;

(3) For the redemption or repurchase of Shares of a
Fund issued by the Trust as set forth in Section
2.10 hereof;

(4) For the payment of any expense or liability
incurred by a Fund, including but not limited to the
following payments for the account of the Fund:
interest; taxes; management, accounting, transfer
agent and legal fees; and operating expenses of the
Fund, whether or not such expenses are to be in
whole or part capitalized or treated as deferred
expenses;

(5) For the payment of any dividends on Shares of a
Fund declared pursuant to the governing documents of
the Trust;

(6) For payment of the amount of dividends received in
respect of securities sold short;

(7) For any other proper purpose, but only upon
receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Executive
Committee of the Trust on behalf of a Fund signed
by an officer of the Trust and certified by its
Secretary or an Assistant Secretary, specifying the
amount of such payment, setting forth the purpose
for which such payment is to be made, declaring such
purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be
made.

2.9 Liability for Payment in Advance of Receipt of Securities
Purchased. In any and every case where payment for
purchase of securities for the account of a Fund is made
by the Custodian in advance of receipt of the securities
purchased, in the absence of specific written
instructions from the Trust to so pay in advance, the
Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had
been received by the Custodian.

2.10 Payments for Repurchases or Redemptions of Shares of a
Fund. From such funds as may be available for the
purpose of repurchasing or redeeming Shares of a Fund,
but subject to the limitations of the Declaration of
Trust and any applicable votes of the Board of Trustees
of the Trust pursuant thereto, the Custodian shall, upon
receipt of instructions from the Transfer Agent, make
funds available for payment to holders of shares of such
Fund who have delivered to the Transfer Agent a request
for redemption or repurchase of their shares including
without limitation through bank drafts, automated
clearinghouse facilities, or by other means. In
connection with the redemption or repurchase of Shares of
the Funds, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or
through a commercial bank designated by the redeeming
shareholders.

2.11 Appointment of Agents. The Custodian may at any time or
times in its discretion appoint (and may at any time
remove) any other bank or trust company which is itself
qualified under the Investment Company Act of 1940, as
amended, and any applicable state law or regulation, to
act as a custodian, as its agent to carry out such of the
provisions of this Section 2 as the Custodian may from
time to time direct; provided, however, that the
appointment of any agent shall not relieve the Custodian
of its responsibilities or liabilities hereunder.

2.12 Deposit of Fund Assets in Securities System. The
Custodian may deposit and/or maintain securities owned by
the Funds in a clearing agency registered with the
Securities and Exchange Commission under Section 17A of
the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system
authorized by the U.S. Department of the Treasury and
certain federal agencies, collectively referred to herein
as "Securities System" in accordance with applicable
Federal Reserve Board and Securities and Exchange
Commission rules and regulations, if any, and subject to
the following provisions:

(1) The Custodian may keep securities of each Fund in
a Securities System provided that such securities
are represented in an account ("Account") of the
Custodian in the Securities System which shall not
include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise
for customers;

(2) The records of the Custodian with respect to
securities of the Funds which are maintained in a
Securities System shall identify by book-entry those
securities belonging to each Fund;

(3) The Custodian shall pay for securities purchased
for the account of each Fund upon (i) receipt of
advice from the Securities System that such
securities have been transferred to the Account, and
(ii) the making of an entry on the records of the
Custodian to reflect such payment and transfer for
the account of the Fund. The Custodian shall
transfer securities sold for the account of a Fund
upon (i) receipt of advice from the Securities
System that payment for such securities has been
transferred to the Account, and (ii) the making of
an entry on the records of the Custodian to reflect
such transfer and payment for the account of the
Fund. Copies of all advices from the Securities
System of transfers of securities for the account of
a Fund shall identify the Fund, be maintained for
the Fund by the Custodian and be provided to the
Trust at its request. Upon request, the Custodian
shall furnish the Trust confirmation of each
transfer to or from the account of a Fund in the
form of a written advice or notice and shall furnish
to the Trust copies of daily transaction sheets
reflecting each day's transactions in the Securities
System for the account of a Fund.

(4) The Custodian shall provide the Trust with any
report obtained by the Custodian on the Securities
System's accounting system, internal accounting
control and procedures for safeguarding securities
deposited in the Securities System;

(5) The Custodian shall have received the initial
certificate, required by Section 9 hereof;

(6) Anything to the contrary in this Contract
notwithstanding, the Custodian shall be liable to
the Trust for any loss or damage to a Fund resulting
from use of the Securities System by reason of any
negligence, misfeasance or misconduct of the
Custodian or any of its agents or of any of its or
their employees or from failure of the Custodian or
any such agent to enforce effectively such rights as
it may have against the Securities System; at the
election of the Trust, it shall be entitled to be
subrogated to the rights of the Custodian with
respect to any claim against the Securities System
or any other person which the Custodian may have as
a consequence of any such loss or damage if and to
the extent that a Fund has not been made whole for
any such loss or damage.

(7) The authorization contained in this Section 2.12
shall not relieve the Custodian from using
reasonable care and diligence in making use of any
Securities System.

2.13 Segregated Account. The Custodian shall upon receipt of
Proper Instructions establish and maintain a segregated
account or accounts for and on behalf of each Fund, into
which account or accounts may be transferred cash and/or
securities, including securities maintained in an account
by the Custodian pursuant to Section 2.12 hereof, (i) in
accordance with the provisions of any agreement among the
Trust, the Custodian and a broker-dealer registered under
the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity
Exchange Act), relating to compliance with the rules of
The Options Clearing Corporation and of any registered
national securities exchange (or the Commodity Futures
Trading Commission or any registered contract market), or
of any similar organization or organizations, regarding
escrow or other arrangements in connection with
transactions for a Fund, (ii) for purpose of segregating
cash or government securities in connection with options
purchased, sold or written for a Fund or commodity
futures contracts or options thereon purchased or sold
for a Fund, (iii) for the purpose of compliance by the
Trust or a Fund with the procedures required by any
release or releases of the Securities and Exchange
Commission relating to the maintenance of segregated
accounts by registered investment companies and (iv) for
other proper corporate purposes, but only, in the case of
clause (iv), upon receipt of, in addition to Proper
Instructions, a certified copy of a resolution of the
Board of Trustees or of the Executive Committee signed by
an officer of the Trust and certified by the Secretary or
an Assistant Secretary, setting forth the purpose or
purposes of such segregated account and declaring such
purposes to be proper corporate purposes.

2.14 Joint Repurchase Agreements. Upon the receipt of Proper
Instructions, the Custodian shall deposit and/or maintain
any assets of a Fund and any affiliated funds which are
subject to joint repurchase transactions in an account
established solely for such transactions for the Fund and
its affiliated funds. For purposes of this Section 2.14,
"affiliated funds" shall include all investment companies
and their portfolios for which subsidiaries or affiliates
of Federated Investors, Inc. serve as investment
advisers. The requirements of segregation set forth in
Section 2.1 shall be deemed to be waived with respect to
such assets.

2.15 Ownership Certificates for Tax Purposes. The Custodian
shall execute ownership and other certificates and
affidavits for all federal and state tax purposes in
connection with receipt of income or other payments with
respect to securities of a Fund held by it and in
connection with transfers of securities.

2.16 Proxies. The Custodian shall, with respect to the
securities held hereunder, cause to be promptly executed
by the registered holder of such securities, if the
securities are registered otherwise than in the name of a
Fund or a nominee of a Fund, all proxies, without
indication of the manner in which such proxies are to be
voted, and shall promptly deliver to the Trust such
proxies, all proxy soliciting materials and all notices
relating to such securities.

2.17 Communications Relating to Fund Portfolio Securities.
The Custodian shall transmit promptly to the Trust all
written information (including, without limitation,
pendency of calls and maturities of securities and
expirations of rights in connection therewith and notices
of exercise of call and put options written by the Fund
and the maturity of futures contracts purchased or sold
by the Fund) received by the Custodian from issuers of
the securities being held for the Fund. With respect to
tender or exchange offers, the Custodian shall transmit
promptly to the Trust all written information received by
the Custodian from issuers of the securities whose tender
or exchange is sought and from the party (or his agents)
making the tender or exchange offer. If the Trust
desires to take action with respect to any tender offer,
exchange offer or any other similar transaction, the
Trust shall notify the Custodian at least three business
days prior to the date on which the Custodian is to take
such action. However, the Custodian shall nevertheless
exercise its best efforts to take such action in the
event that notification is received three business days
or less prior to the date on which action is required.

2.18 Proper Instructions. Proper Instructions as used
throughout this Section 2 means a writing signed or
initialled by one or more person or persons as the Board
of Trustees shall have from time to time authorized.
Each such writing shall set forth the specific
transaction or type of transaction involved. Oral
instructions will be considered Proper Instructions if
the Custodian reasonably believes them to have been given
by a person previously authorized in Proper Instructions
to give such instructions with respect to the transaction
involved. The Trust shall cause all oral instructions to
be confirmed in writing. Upon receipt of a certificate
of the Secretary or an Assistant Secretary as to the
authorization by the Board of Trustees of the Trust
accompanied by a detailed description of procedures
approved by the Board of Trustees, Proper Instructions
may include communications effected directly between
electro-mechanical or electronic devices provided that
the Board of Trustees and the Custodian are satisfied
that such procedures afford adequate safeguards for a
Fund's assets.

2.19 Actions Permitted Without Express Authority. The
Custodian may in its discretion, without express
authority from the Trust:

(1) make payments to itself or others for minor
expenses of handling securities or other similar
items relating to its duties under this Contract,
provided that all such payments shall be accounted
for to the Trust in such form that it may be
allocated to the affected Fund;

(2) surrender securities in temporary form for
securities in definitive form;

(3) endorse for collection, in the name of a Fund,
checks, drafts and other negotiable instruments; and

(4) in general, attend to all non-discretionary
details in connection with the sale, exchange,
substitution, purchase, transfer and other dealings
with the securities and property of each Fund except
as otherwise directed by the Trust.

2.20 Evidence of Authority. The Custodian shall be protected
in acting upon any instructions, notice, request,
consent, certificate or other instrument or paper
reasonably believed by it to be genuine and to have been
properly executed on behalf of a Fund. The Custodian may
receive and accept a certified copy of a vote of the
Board of Trustees of the Trust as conclusive evidence (a)
of the authority of any person to act in accordance with
such vote or (b) of any determination of or any action by
the Board of Trustees pursuant to the Declaration of
Trust as described in such vote, and such vote may be
considered as in full force and effect until receipt by
the Custodian of written notice to the contrary.

3 Duties of Custodian With Respect to the Books of Account
and
Regulatory Reporting

The Custodian shall cooperate with and supply necessary
information to the entity or entities appointed by the Board
of Trustees of the Trust to keep the books of account of each
Fund and appointed to report on behalf of each Fund to the
Board, the SEC and other regulatory bodies.

4. Records

The Custodian shall create and maintain all records
relating to its activities and obligations under this Contract
in such manner as will meet the obligations of the Trust and
the Funds under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder, and specifically including identified cost
records used for tax purposes. All such records shall be the
property of the Trust and shall at all times during the
regular business hours of the Custodian be open for inspection
by duly authorized officers, employees or agents of the Trust
and employees and agents of the Securities and Exchange
Commission. In the event of termination of this Contract, the
Custodian will deliver all such records to the Trust, to a
successor Custodian, or to such other person as the Trust may
direct. The Custodian shall, at the Trust's request, supply
the Trust with a tabulation of securities owned by a Fund and
held by the Custodian and shall, when requested to do so by
the Trust and for such compensation as shall be agreed upon
between the Trust and the Custodian, include certificate
numbers in such tabulations.

5. Opinion of Funds' Independent Accountants

The Custodian shall take all reasonable action, as the
Trust may from time to time request, to obtain from year to
year favorable opinions from each Fund's independent
accountants with respect to its activities hereunder in
connection with the preparation of the Fund's registration
statement, periodic reports, or any other reports to the
Securities and Exchange Commission and with respect to any
other requirements of such Commission.

6. Reports to Trust by Independent Public Accountants

The Custodian shall provide the Trust, at such times as
the Trust may reasonably require, with reports by independent
public accountants for each Fund on the accounting system,
internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures
contracts, including securities deposited and/or maintained in
a Securities System, relating to the services provided by the
Custodian for the Fund under this Contract; such reports,
shall be of sufficient scope and in sufficient detail, as may
reasonably be required by the Trust, to provide reasonable
assurance that any material inadequacies would be disclosed by
such examination, and, if there are no such inadequacies, the
reports shall so state.

7. Compensation of Custodian

The Funds shall compensate the Custodian for its services
rendered hereunder and for its expenses incurred in rendering
such services, in accordance with the schedule set forth in
Schedule A annexed hereto and incorporated herein. Any
compensation agreed to hereunder may be adjusted from time to
time by attaching to this Contract a revised Schedule A dated
and signed by a duly authorized officer of the Trust and a
duly authorized officer of the Custodian.

8. Responsibility of Custodian

The Custodian shall be held to a standard of reasonable
care in carrying out the provisions of this Contract;
provided, however, that the Custodian shall be held to any
higher standard of care which would be imposed upon the
Custodian by any applicable law or regulation if such above
stated standard of reasonable care was not part of this
Contract. The Custodian shall be entitled to rely on and may
act upon advice of counsel (who may be counsel for the Trust)
on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice, provided
that such action is not in violation of applicable federal or
state laws or regulations, and is in good faith and without
negligence. Subject to the limitations set forth in
Section 15 hereof, the Custodian shall be kept indemnified by
the Trust but only from the assets of the Fund involved in the
issue at hand and be without liability for any action taken or
thing done by it in carrying out the terms and provisions of
this Contract in accordance with the above standards.

In order that the indemnification provisions contained in
this Section 8 shall apply, however, it is understood that if
in any case the Trust may be asked to indemnify or save the
Custodian harmless, the Trust shall be fully and promptly
advised of all pertinent facts concerning the situation in
question, and it is further understood that the Custodian will
use all reasonable care to identify and notify the Trust
promptly concerning any situation which presents or appears
likely to present the probability of such a claim for
indemnification. The Trust shall have the option to defend
the Custodian against any claim which may be the subject of
this indemnification, and in the event that the Trust so
elects it will so notify the Custodian and thereupon the Trust
shall take over complete defense of the claim, and the
Custodian shall in such situation initiate no further legal or
other expenses for which it shall seek indemnification under
this Section. The Custodian shall in no case confess any
claim or make any compromise in any case in which the Trust
will be asked to indemnify the Custodian except with the
Trust's prior written consent.

Notwithstanding the foregoing, the responsibility of the
Custodian with respect to redemptions effected by check shall
be in accordance with a separate Agreement entered into
between the Custodian and the Trust.

If the Trust requires the Custodian to take any action
with respect to securities, which action involves the payment
of money or which action may, in the reasonable opinion of the
Custodian, result in the Custodian or its nominee assigned to
a Fund being liable for the payment of money or incurring
liability of some other form, the Custodian may request the
Trust, as a prerequisite to requiring the Custodian to take
such action, to provide indemnity to the Custodian in an
amount and form satisfactory to the Custodian.

Subject to the limitations set forth in Section 15
hereof, the Trust agrees to indemnify and hold harmless the
Custodian and its nominee from and against all taxes, charges,
expenses, assessments, claims and liabilities (including
counsel fees) (referred to herein as authorized charges)
incurred or assessed against it or its nominee in connection
with the performance of this Contract, except such as may
arise from it or its nominee's own failure to act in
accordance with the standard of reasonable care or any higher
standard of care which would be imposed upon the Custodian by
any applicable law or regulation if such above-stated standard
of reasonable care were not part of this Contract. To secure
any authorized charges and any advances of cash or securities
made by the Custodian to or for the benefit of a Fund for any
purpose which results in the Fund incurring an overdraft at
the end of any business day or for extraordinary or emergency
purposes during any business day, the Trust hereby grants to
the Custodian a security interest in and pledges to the
Custodian securities held for the Fund by the Custodian, in an
amount not to exceed 10 percent of the Fund's gross assets,
the specific securities to be designated in writing from time
to time by the Trust or the Fund's investment adviser.
Should the Trust fail to make such designation, or should it
instruct the Custodian to make advances exceeding the
percentage amount set forth above and should the Custodian do
so, the Trust hereby agrees that the Custodian shall have a
security interest in all securities or other property
purchased for a Fund with the advances by the Custodian, which
securities or property shall be deemed to be pledged to the
Custodian, and the written instructions of the Trust
instructing their purchase shall be considered the requisite
description and designation of the property so pledged for
purposes of the requirements of the Uniform Commercial Code.
Should the Trust fail to cause a Fund to repay promptly any
authorized charges or advances of cash or securities, subject
to the provision of the second paragraph of this Section 8
regarding indemnification, the Custodian shall be entitled to
use available cash and to dispose of pledged securities and
property as is necessary to repay any such advances.

9. Effective Period, Termination and Amendment

This Contract shall become effective as of its execution,
shall continue in full force and effect until terminated as
hereinafter provided, may be amended at any time by mutual
agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take
effect not sooner than sixty (60) days after the date of such
delivery or mailing; provided, however that the Custodian
shall not act under Section 2.12 hereof in the absence of
receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Trustees of the Trust
has approved the initial use of a particular Securities System
as required in each case by Rule 17f-4 under the Investment
Company Act of 1940, as amended; provided further, however,
that the Trust shall not amend or terminate this Contract in
contravention of any applicable federal or state regulations,
or any provision of the Declaration of Trust, and further
provided, that the Trust may at any time by action of its
Board of Trustees (i) substitute another bank or trust company
for the Custodian by giving notice as described above to the
Custodian, or (ii) immediately terminate this Contract in the
event of the appointment of a conservator or receiver for the
Custodian by the Comptroller of the Currency or upon the
happening of a like event at the direction of an appropriate
regulatory agency or court of competent jurisdiction.

Upon termination of the Contract, the Trust shall pay to
the Custodian such compensation as may be due as of the date
of such termination and shall likewise reimburse the Custodian
for its costs, expenses and disbursements.

10. Successor Custodian

If a successor custodian shall be appointed by the Board
of Trustees of the Trust, the Custodian shall, upon
termination, deliver to such successor custodian at the office
of the Custodian, duly endorsed and in the form for transfer,
all securities then held by it hereunder for each Fund and
shall transfer to separate accounts of the successor custodian
all of each Fund's securities held in a Securities System.

If no such successor custodian shall be appointed, the
Custodian shall, in like manner, upon receipt of a certified
copy of a vote of the Board of Trustees of the Trust, deliver
at the office of the Custodian and transfer such securities,
funds and other properties in accordance with such vote.

In the event that no written order designating a
successor custodian or certified copy of a vote of the Board
of Trustees shall have been delivered to the Custodian on or
before the date when such termination shall become effective,
then the Custodian shall have the right to deliver to a bank
or trust company, which is a "bank" as defined in the
Investment Company Act of 1940, of its own selection, having
an aggregate capital, surplus, and undivided profits, as shown
by its last published report, of not less than $100,000,000,
all securities, funds and other properties held by the
Custodian and all instruments held by the Custodian relative
thereto and all other property held by it under this Contract
for each Fund and to transfer to separate accounts of such
successor custodian all of each Fund's securities held in any
Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Contract.

In the event that securities, funds and other properties
remain in the possession of the Custodian after the date of
termination hereof owing to failure of the Trust to procure
the certified copy of the vote referred to or of the Board of
Trustees to appoint a successor custodian, the Custodian shall
be entitled to fair compensation for its services during such
period as the Custodian retains possession of such securities,
funds and other properties and the provisions of this Contract
relating to the duties and obligations of the Custodian shall
remain in full force and effect.

11. Interpretive and Additional Provisions

In connection with the operation of this Contract, the
Custodian and the Trust may from time to time agree on such
provisions interpretive of or in addition to the provisions of
this Contract as may in their joint opinion be consistent with
the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both
parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any
applicable federal or state regulations or any provision of
the Declaration of Trust. No interpretive or additional
provisions made as provided in the preceding sentence shall be
deemed to be an amendment of this Contract.

12. Louisiana Law to Apply

This Contract shall be construed and the provisions
thereof interpreted under and in accordance with laws of the
State of Louisiana.

13. Notices

Except as otherwise specifically provided herein, Notices
and other writings delivered or mailed postage prepaid to the
Trust at Federated Investors Tower, Pittsburgh, Pennsylvania,
15222-3779, or to the Custodian at P.O. Box 61540, New
Orleans, Louisiana, 70161, or to such other address as the
Trust or the Custodian may hereafter specify, shall be deemed
to have been properly delivered or given hereunder to the
respective address.

14. Counterparts

This Contract may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original.

15. Limitations of Liability

The Custodian is expressly put on notice of the
limitation of liability as set forth in Article XI of the
Declaration of Trust and agrees that the obligations and
liabilities assumed by the Trust and any Fund pursuant to this
Contract, including, without limitation, any obligation or
liability to indemnify the Custodian pursuant to Section 8
hereof, shall be limited in any case to the relevant Fund and
its assets and that the Custodian shall not seek satisfaction
of any such obligation from the shareholders of the relevant
Fund, from any other Fund or its shareholders or from the
Trustees, Officers, employees or agents of the Trust, or any
of them. In addition, in connection with the discharge and
satisfaction of any claim made by the Custodian against the
Trust, for whatever reasons, involving more than one Fund, the
Trust shall have the exclusive right to determine the
appropriate allocations of liability for any such claim
between or among the Funds.

IN WITNESS WHEREOF, each of the parties has caused this
instrument to be executed in its name and behalf by its duly
authorized representative and its seal to be hereunder affixed
as of the 1st day of March, 1994.

ATTEST: TOWER MUTUAL FUNDS

/s/ C. Grant Anderson By /s/ E. C. Gonzales
Secretary President

ATTEST HIBERNIA NATIONAL BANK

/s/ Patricia C. Meringer By /s/ Kenneth A. Rains
Secretary Executive Vice
President

Exhibit 9 (i)under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
AGREEMENT
for
FUND ACCOUNTING,
SHAREHOLDER RECORDKEEPING,
and
CUSTODY SERVICES PROCUREMENT

AGREEMENT made as of the 1st day of December, 1993, by
and between those investment companies listed on Exhibit 1
as may be amended from time to time, having their
principal office and place of business at Federated
Investors Tower, Pittsburgh, PA 15222-3779 (the "Trust"),
on behalf of the portfolios (individually referred to
herein as a "Fund" and collectively as "Funds") of the
Trust, and FEDERATED SERVICES COMPANY, a Delaware business
trust, having its principal office and place of business
at Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779 (the "Company").
WHEREAS, the Trust is registered as an open-end
management investment company under the Investment Company
Act of 1940, as amended (the "1940 Act"), with authorized
and issued shares of capital stock or beneficial interest
("Shares"); and
WHEREAS, the Trust wishes to retain the Company to
provide certain pricing, accounting and recordkeeping
services for each of the Funds, including any classes of
shares issued by any Fund ("Classes"), and the Company is
willing to furnish such services; and
WHEREAS, the Trust desires to appoint the Company as
its transfer agent, dividend disbursing agent, and agent
in connection with certain other activities, and the
Company desires to accept such appointment; and
WHEREAS, the Trust desires to appoint the Company as
its agent to select, negotiate and subcontract for
custodian services from an approved list of qualified
banks and the Company desires to accept such appointment;
and
WHEREAS, from time to time the Trust may desire and may
instruct the Company to subcontract for the performance of
certain of its duties and responsibilities hereunder to
State Street Bank and Trust Company or another agent (the
"Agent"); and
WHEREAS, the words Trust and Fund may be used
interchangeably for those investment companies consisting
of only one portfolio;
NOW THEREFORE, in consideration of the premises and
mutual covenants herein contained, and intending to be
legally bound hereby, the parties hereto agree as follows:
SECTION ONE: Fund Accounting.
Article 1. Appointment.
The Trust hereby appoints the Company to provide
certain pricing and accounting services to the Funds,
and/or the Classes, for the period and on the terms set
forth in this Agreement. The Company accepts such
appointment and agrees to furnish the services herein set
forth in return for the compensation as provided in
Article 3 of this Section.
Article 2. The Company and Duties.
Subject to the supervision and control of the Trust's
Board of Trustees or Directors ("Board"), the Company will
assist the Trust with regard to fund accounting for the
Trust, and/or the Funds, and/or the Classes, and in
connection therewith undertakes to perform the following
specific services;
A. Value the assets of the Funds and determine the net
asset value per share of each Fund and/or Class, at
the time and in the manner from time to time
determined by the Board and as set forth in the
Prospectus and Statement of Additional Information
("Prospectus") of each Fund;
B. Calculate the net income of each of the Funds, if
any;
C. Calculate capital gains or losses of each of the
Funds resulting from sale or disposition of assets,
if any;
D. Maintain the general ledger and other accounts,
books and financial records of the Trust, including
for each Fund, and/or Class, as required under
Section 31(a) of the 1940 Act and the Rules
thereunder in connection with the services provided
by the Company;
E. Preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records to be maintained by
Rule 31a-1 under the 1940 Act in connection with the
services provided by the Company. The Company
further agrees that all such records it maintains
for the Trust are the property of the Trust and
further agrees to surrender promptly to the Trust
such records upon the Trust's request;
F. At the request of the Trust, prepare various reports
or other financial documents required by federal,
state and other applicable laws and regulations; and
G. Such other similar services as may be reasonably
requested by the Trust.
Article 3. Compensation and Allocation of Expenses.
A. The Funds will compensate the Company for its
services rendered pursuant to Section One of this
Agreement in accordance with the fees set forth on
Fee Schedules A ("A1, A2, A3 etc..."), annexed
hereto and incorporated herein, as may be added or
amended from time to time. Such fees do not include
out-of-pocket disbursements of the Company for which
the Funds shall reimburse the Company upon receipt
of a separate invoice. Out-of-pocket disbursements
shall include, but shall not be limited to, the
items specified in Schedules B ("B1, B2, B3,
etc..."), annexed hereto and incorporated herein, as
may be added or amended from time to time.
Schedules B may be modified by the Company upon not
less than thirty days' prior written notice to the
Trust.
B. The Fund and/or the Class, and not the Company,
shall bear the cost of: custodial expenses;
membership dues in the Investment Company Institute
or any similar organization; transfer agency
expenses; investment advisory expenses; costs of
printing and mailing stock certificates,
Prospectuses, reports and notices; administrative
expenses; interest on borrowed money; brokerage
commissions; taxes and fees payable to federal,
state and other governmental agencies; fees of
Trustees or Directors of the Trust; independent
auditors expenses; Federated Administrative Services
and/or Federated Administrative Services, Inc. legal
and audit department expenses billed to Federated
Services Company for work performed related to the
Trust, the Funds, or the Classes; law firm expenses;
or other expenses not specified in this Article 3
which may be properly payable by the Funds and/or
classes.
C. The Company will send an invoice to each of the
Funds as soon as practicable after the end of each
month. Each invoice will provide detailed
information about the compensation and out-of-pocket
expenses in accordance with Schedules A and
Schedules B. The Funds and or the Classes will pay
to the Company the amount of such invoice within 30
days of receipt of the invoices.
D. Any compensation agreed to hereunder may be adjusted
from time to time by attaching to Schedules A
revised Schedules dated and signed by a duly
authorized officer of the Trust and/or the Funds and
a duly authorized officer of the Company.
E. The fee for the period from the effective date of
this Agreement with respect to a Fund or a Class to
the end of the initial month shall be prorated
according to the proportion that such period bears
to the full month period. Upon any termination of
this Agreement before the end of any month, the fee
for such period shall be prorated according to the
proportion which such period bears to the full month
period. For purposes of determining fees payable to
the Company, the value of the Fund's net assets
shall be computed at the time and in the manner
specified in the Fund's Prospectus.
F. The Company, in its sole discretion, may from time
to time subcontract to, employ or associate with
itself such person or persons as the Company may
believe to be particularly suited to assist it in
performing services under this Section One. Such
person or persons may be third-party service
providers, or they may be officers and employees who
are employed by both the Company and the Funds. The
compensation of such person or persons shall be paid
by the Company and no obligation shall be incurred
on behalf of the Trust, the Funds, or the Classes in
such respect.
SECTION TWO: Shareholder Recordkeeping.
Article 4. Terms of Appointment.
Subject to the terms and conditions set forth in this
Agreement, the Trust hereby appoints the Company to act
as, and the Company agrees to act as, transfer agent and
dividend disbursing agent for each Fund's Shares, and
agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of any Fund
("Shareholder(s)"), including without limitation any
periodic investment plan or periodic withdrawal program.
As used throughout this Agreement, a "Proper
Instruction" means a writing signed or initialed by one or
more person or persons as the Board shall have from time
to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved.
Oral instructions will be deemed to be Proper Instructions
if (a) the Company reasonably believes them to have been
given by a person previously authorized in Proper
Instructions to give such instructions with respect to the
transaction involved, and (b) the Trust, or the Fund, and
the Company promptly cause such oral instructions to be
confirmed in writing. Proper Instructions may include
communications effected directly between electro-
mechanical or electronic devices provided that the Trust,
or the Fund, and the Company are satisfied that such
procedures afford adequate safeguards for the Fund's
assets. Proper Instructions may only be amended in
writing.
Article 5. Duties of the Company.
The Company shall perform the following services in
accordance with Proper Instructions as may be provided
from time to time by the Trust as to any Fund:
A. Purchases
(1) The Company shall receive orders and payment
for the purchase of shares and promptly deliver
payment and appropriate documentation therefore
to the custodian of the relevant Fund, (the
"Custodian"). The Company shall notify the
Fund and the Custodian on a daily basis of the
total amount of orders and payments so
delivered.
(2) Pursuant to purchase orders and in accordance
with the Fund's current Prospectus, the Company
shall compute and issue the appropriate number
of Shares of each Fund and/or Class and hold
such Shares in the appropriate Shareholder
accounts.
(3) For certificated Funds and/or Classes, if a
Shareholder or its agent requests a
certificate, the Company, as Transfer Agent,
shall countersign and mail by first class mail,
a certificate to the Shareholder at its address
as set forth on the transfer books of the
Funds, and/or Classes, subject to any Proper
Instructions regarding the delivery of
certificates.
(4) In the event that any check or other order for
the purchase of Shares of the Fund and/or Class
is returned unpaid for any reason, the Company
shall debit the Share account of the
Shareholder by the number of Shares that had
been credited to its account upon receipt of
the check or other order, promptly mail a debit
advice to the Shareholder, and notify the Fund
and/or Class of its action. In the event that
the amount paid for such Shares exceeds
proceeds of the redemption of such Shares plus
the amount of any dividends paid with respect
to such Shares, the Fund and/the Class or its
distributor will reimburse the Company on the
amount of such excess.
B. Distribution
(1) Upon notification by the Funds of the
declaration of any distribution to
Shareholders, the Company shall act as Dividend
Disbursing Agent for the Funds in accordance
with the provisions of its governing document
and the then-current Prospectus of the Fund.
The Company shall prepare and mail or credit
income, capital gain, or any other payments to
Shareholders. As the Dividend Disbursing
Agent, the Company shall, on or before the
payment date of any such distribution, notify
the Custodian of the estimated amount required
to pay any portion of said distribution which
is payable in cash and request the Custodian to
make available sufficient funds for the cash
amount to be paid out. The Company shall
reconcile the amounts so requested and the
amounts actually received with the Custodian on
a daily basis. If a Shareholder is entitled to
receive additional Shares by virtue of any such
distribution or dividend, appropriate credits
shall be made to the Shareholder's account, for
certificated Funds and/or Classes, delivered
where requested; and
(2) The Company shall maintain records of account
for each Fund and Class and advise the Trust,
each Fund and Class and its Shareholders as to
the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests
and redemption directions and, if such
redemption requests comply with the procedures
as may be described in the Fund Prospectus or
set forth in Proper Instructions, deliver the
appropriate instructions therefor to the
Custodian. The Company shall notify the Funds
on a daily basis of the total amount of
redemption requests processed and monies paid
to the Company by the Custodian for
redemptions.
(2) At the appropriate time upon receiving
redemption proceeds from the Custodian with
respect to any redemption, the Company shall
pay or cause to be paid the redemption proceeds
in the manner instructed by the redeeming
Shareholders, pursuant to procedures described
in the then-current Prospectus of the Fund.
(3) If any certificate returned for redemption or
other request for redemption does not comply
with the procedures for redemption approved by
the Fund, the Company shall promptly notify the
Shareholder of such fact, together with the
reason therefor, and shall effect such
redemption at the price applicable to the date
and time of receipt of documents complying with
said procedures.
(4) The Company shall effect transfers of Shares by
the registered owners thereof.
(5) The Company shall identify and process
abandoned accounts and uncashed checks for
state escheat requirements on an annual basis
and report such actions to the Fund.
D. Recordkeeping
(1) The Company shall record the issuance of Shares
of each Fund, and/or Class, and maintain
pursuant to applicable rules of the Securities
and Exchange Commission ("SEC") a record of the
total number of Shares of the Fund and/or Class
which are authorized, based upon data provided
to it by the Fund, and issued and outstanding.
The Company shall also provide the Fund on a
regular basis or upon reasonable request with
the total number of Shares which are authorized
and issued and outstanding, but shall have no
obligation when recording the issuance of
Shares, except as otherwise set forth herein,
to monitor the issuance of such Shares or to
take cognizance of any laws relating to the
issue or sale of such Shares, which functions
shall be the sole responsibility of the Funds.
(2) The Company shall establish and maintain
records pursuant to applicable rules of the SEC
relating to the services to be performed
hereunder in the form and manner as agreed to
by the Trust or the Fund to include a record
for each Shareholder's account of the
following:
(a) Name, address and tax identification
number (and whether such number has been
certified);
(b) Number of Shares held;
(c) Historical information regarding the
account, including dividends paid and date
and price for all transactions;
(d) Any stop or restraining order placed
against the account;
(e) Information with respect to withholding in
the case of a foreign account or an
account for which withholding is required
by the Internal Revenue Code;
(f) Any dividend reinvestment order, plan
application, dividend address and
correspondence relating to the current
maintenance of the account;
(g) Certificate numbers and denominations for
any Shareholder holding certificates;
(h) Any information required in order for the
Company to perform the calculations
contemplated or required by this
Agreement.
(3) The Company shall preserve any such records
required to be maintained pursuant to the rules
of the SEC for the periods prescribed in said
rules as specifically noted below. Such record
retention shall be at the expense of the
Company, and such records may be inspected by
the Fund at reasonable times. The Company may,
at its option at any time, and shall forthwith
upon the Fund's demand, turn over to the Fund
and cease to retain in the Company's files,
records and documents created and maintained by
the Company pursuant to this Agreement, which
are no longer needed by the Company in
performance of its services or for its
protection. If not so turned over to the Fund,
such records and documents will be retained by
the Company for six years from the year of
creation, during the first two of which such
documents will be in readily accessible form.
At the end of the six year period, such records
and documents will either be turned over to the
Fund or destroyed in accordance with Proper
Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Fund
periodically the following information:
(a) A copy of the transaction register;
(b) Dividend and reinvestment blotters;
(c) The total number of Shares issued and
outstanding in each state for "blue sky"
purposes as determined according to Proper
Instructions delivered from time to time
by the Fund to the Company;
(d) Shareholder lists and statistical
information;
(e) Payments to third parties relating to
distribution agreements, allocations of
sales loads, redemption fees, or other
transaction- or sales-related payments;
(f) Such other information as may be agreed
upon from time to time.
(2) The Company shall prepare in the appropriate
form, file with the Internal Revenue Service
and appropriate state agencies, and, if
required, mail to Shareholders, such notices
for reporting dividends and distributions paid
as are required to be so filed and mailed and
shall withhold such sums as are required to be
withheld under applicable federal and state
income tax laws, rules and regulations.
(3) In addition to and not in lieu of the services
set forth above, the Company shall:
(a) Perform all of the customary services of a
transfer agent, dividend disbursing agent
and, as relevant, agent in connection with
accumulation, open-account or similar
plans (including without limitation any
periodic investment plan or periodic
withdrawal program), including but not
limited to: maintaining all Shareholder
accounts, mailing Shareholder reports and
Prospectuses to current Shareholders,
withholding taxes on accounts subject to
back-up or other withholding (including
non-resident alien accounts), preparing
and filing reports on U.S. Treasury
Department Form 1099 and other appropriate
forms required with respect to dividends
and distributions by federal authorities
for all Shareholders, preparing and
mailing confirmation forms and statements
of account to Shareholders for all
purchases and redemptions of Shares and
other confirmable transactions in
Shareholder accounts, preparing and
mailing activity statements for
Shareholders, and providing Shareholder
account information; and
(b) provide a system which will enable the
Fund to monitor the total number of Shares
of each Fund and/or Class sold in each
state ("blue sky reporting"). The Fund
shall by Proper Instructions (i) identify
to the Company those transactions and
assets to be treated as exempt from the
blue sky reporting for each state and
(ii) verify the classification of
transactions for each state on the system
prior to activation and thereafter monitor
the daily activity for each state. The
responsibility of the Company for each
Fund's and/or Class's state blue sky
registration status is limited solely to
the recording of the initial
classification of transactions or accounts
with regard to blue sky compliance and the
reporting of such transactions and
accounts to the Fund as provided above.
F. Other Duties
(1) The Company shall answer correspondence from
Shareholders relating to their Share accounts
and such other correspondence as may from time
to time be addressed to the Company;
(2) The Company shall prepare Shareholder meeting
lists, mail proxy cards and other material
supplied to it by the Fund in connection with
Shareholder Meetings of each Fund; receive,
examine and tabulate returned proxies, and
certify the vote of the Shareholders;
(3) The Company shall establish and maintain
facilities and procedures for safekeeping of
stock certificates, check forms and facsimile
signature imprinting devices, if any; and for
the preparation or use, and for keeping account
of, such certificates, forms and devices.
Article 6. Duties of the Trust.
A. Compliance
The Trust or Fund assume full responsibility for the
preparation, contents and distribution of their own
and/or their classes' Prospectus and for complying
with all applicable requirements of the Securities
Act of 1933, as amended (the "1933 Act"), the 1940
Act and any laws, rules and regulations of
government authorities having jurisdiction.
B. Share Certificates
The Trust shall supply the Company with a sufficient
supply of blank Share certificates and from time to
time shall renew such supply upon request of the
Company. Such blank Share certificates shall be
properly signed, manually or by facsimile, if
authorized by the Trust and shall bear the seal of
the Trust or facsimile thereof; and notwithstanding
the death, resignation or removal of any officer of
the Trust authorized to sign certificates, the
Company may continue to countersign certificates
which bear the manual or facsimile signature of such
officer until otherwise directed by the Trust.
C. Distributions
The Fund shall promptly inform the Company of the
declaration of any dividend or distribution on
account of any Fund's shares.
Article 7. Compensation and Expenses.
A. Annual Fee
For performance by the Company pursuant to Section
Two of this Agreement, the Trust and/or the Fund
agree to pay the Company an annual maintenance fee
for each Shareholder account as set out in Schedules
C ("C1, C2, C3 etc..."), attached hereto, as may be
added or amended from time to time. Such fees may
be changed from time to time subject to written
agreement between the Trust and the Company.
Pursuant to information in the Fund Prospectus or
other information or instructions from the Fund, the
Company may sub-divide any Fund into Classes or
other sub-components for recordkeeping purposes.
The Company will charge the Fund the fees set forth
on Schedule C for each such Class or sub-component
the same as if each were a Fund.
B. Reimbursements
In addition to the fee paid under Article 7A above,
the Trust and/or Fund agree to reimburse the Company
for out-of-pocket expenses or advances incurred by
the Company for the items set out in Schedules D
("D1, D2, D3 etc..."), attached hereto, as may be
added or amended from time to time. In addition,
any other expenses incurred by the Company at the
request or with the consent of the Trust and/or the
Fund, will be reimbursed by the appropriate Fund.
C. Payment
The Company shall send an invoice with respect to
fees and reimbursable expenses to the Trust or each
of the Funds as soon as practicable at the end of
each month. Each invoice will provide detailed
information about the Compensation and out-of-pocket
expenses in accordance with Schedules C and
Schedules D. The Trust or the Funds will pay to the
Company the amount of such invoice within 30 days
following the receipt of the invoices.
Article 8. Assignment of Shareholder Recordkeeping.
Except as provided below, no right or obligation
under this Section Two may be assigned by either
party without the written consent of the other
party.
(1) This Agreement shall inure to the benefit of
and be binding upon the parties and their
respective permitted successors and assigns.
(2) The Company may without further consent on the
part of the Trust subcontract for the
performance hereof with (A) State Street Bank
and its subsidiary, Boston Financial Data
Services, Inc., a Massachusetts Trust ("BFDS"),
which is duly registered as a transfer agent
pursuant to Section 17A(c)(1) of the Securities
Exchange Act of 1934, as amended, or any
succeeding statute ("Section 17A(c)(1)"), or
(B) a BFDS subsidiary duly registered as a
transfer agent pursuant to Section 17A(c)(1),
or (C) a BFDS affiliate, or (D) such other
provider of services duly registered as a
transfer agent under Section 17A(c)(1) as
Company shall select; provided, however, that
the Company shall be as fully responsible to
the Trust for the acts and omissions of any
subcontractor as it is for its own acts and
omissions; or
(3) The Company shall upon instruction from the
Trust subcontract for the performance hereof
with an Agent selected by the Trust, other than
BFDS or a provider of services selected by
Company, as described in (2) above; provided,
however, that the Company shall in no way be
responsible to the Trust for the acts and
omissions of the Agent.
SECTION THREE: Custody Services Procurement
Article 9. Appointment.
The Trust hereby appoints Company as its agent to
evaluate and obtain custody services from a
financial institution that (i) meets the criteria
established in Section 17(f) of the 1940 Act and
(ii) has been approved by the Board as eligible for
selection by the Company as a custodian (the
"Eligible Custodian"). The Company accepts such
appointment.
Article 10. The Company and Its Duties.
Subject to the review, supervision and control of
the Board, the Company shall:
(1) evaluate the nature and the quality of the
custodial services provided by the Eligible
Custodian;
(2) employ the Eligible Custodian to serve on
behalf of the Trust as Custodian of the Trust's
assets substantially on the terms set forth as
the form of agreement in Exhibit 2;
(3) negotiate and enter into agreements with the
Custodians for the benefit of the Trust, with
the Trust as a party to each such agreement.
The Company shall not be a party to any
agreement with any such Custodian;
(4) establish procedures to monitor the nature and
the quality of the services provided by the
Custodians;
(5) continuously monitor the nature and the quality
of services provided by the Custodians; and
(6) periodically provide to the Trust (i) written
reports on the activities and services of the
Custodians; (ii) the nature and amount of
disbursement made on account of the Trust with
respect to each custodial agreement; and (iii)
such other information as the Board shall
reasonably request to enable it to fulfill its
duties and obligations under Sections 17(f) and
36(b) of the 1940 Act and other duties and
obligations thereof.
Article 11. Fees and Expenses.
A. Annual Fee
For the performance by the Company pursuant to
Section Three of this Agreement, the Trust and/or
the Fund agree to pay the Company an annual fee as
set forth in Schedule E, attached hereto.
B. Payment
The Company shall send an invoice with respect to
fees and reimbursable expenses to each of the
Trust/or Fund as soon as practicable at the end of
each month. Each invoice will provide detailed
information about the Compensation and out-of-pocket
expenses in occurrence with Schedule E. The Trust
and/or Fund will pay to the Company the amount of
such invoice within 30 days following the receipt of
the invoice.
Article 12. Representations.
The Company represents and warrants that it has
obtained all required approvals from all government
or regulatory authorities necessary to enter into
this arrangement and to provide the services
contemplated in Section Three of this Agreement.
SECTION FOUR: General Provisions.
Article 13. Documents.
A. In connection with the appointment of the Company
under this Agreement, the Trust shall file with the
Company the following documents:
(1) A copy of the Charter and By-Laws of the Trust
and all amendments thereto;
(2) A copy of the resolution of the Board of the
Trust authorizing this Agreement;
(3) Specimens of all forms of outstanding Share
certificates of the Trust or the Funds in the
forms approved by the Board of the Trust with a
certificate of the Secretary of the Trust as to
such approval;
(4) All account application forms and other
documents relating to Shareholders accounts;
and
(5) A copy of the current Prospectus for each Fund.
B. The Fund will also furnish from time to time the
following documents:
(1) Each resolution of the Board of the Trust
authorizing the original issuance of each
Fund's, and/or Class's Shares;
(2) Each Registration Statement filed with the SEC
and amendments thereof and orders relating
thereto in effect with respect to the sale of
Shares of any Fund, and/or Class;
(3) A certified copy of each amendment to the
governing document and the By-Laws of the
Trust;
(4) Certified copies of each vote of the Board
authorizing officers to give Proper
Instructions to the Custodian and agents for
fund accountant, custody services procurement,
and shareholder recordkeeping or transfer
agency services;
(5) Specimens of all new Share certificates
representing Shares of any Fund, accompanied by
Board resolutions approving such forms;
(6) Such other certificates, documents or opinions
which the Company may, in its discretion, deem
necessary or appropriate in the proper
performance of its duties; and
(7) Revisions to the Prospectus of each Fund.
Article 14. Representations and Warranties.
A. Representations and Warranties of the Company
The Company represents and warrants to the Trust
that:
(1) It is a business trust duly organized and
existing and in good standing under the laws of
the State of Delaware.
(2) It is duly qualified to carry on its business
in the State of Delaware.
(3) It is empowered under applicable laws and by
its charter and by-laws to enter into and
perform this Agreement.
(4) All requisite corporate proceedings have been
taken to authorize it to enter into and perform
its obligations under this Agreement.
(5) It has and will continue to have access to the
necessary facilities, equipment and personnel
to perform its duties and obligations under
this Agreement.
(6) It is in compliance with federal securities law
requirements and in good standing as a transfer
agent.
B. Representations and Warranties of the Trust
The Trust represents and warrants to the Company
that:
(1) It is an investment company duly organized and
existing and in good standing under the laws of
its state of organization;
(2) It is empowered under applicable laws and by
its Charter and By-Laws to enter into and
perform its obligations under this Agreement;
(3) All corporate proceedings required by said
Charter and By-Laws have been taken to
authorize it to enter into and perform its
obligations under this Agreement;
(4) The Trust is an open-end investment company
registered under the 1940 Act; and
(5) A registration statement under the 1933 Act
will be effective, and appropriate state
securities law filings have been made and will
continue to be made, with respect to all Shares
of each Fund being offered for sale.
Article 15. Indemnification.
A. Indemnification by Trust
The Company shall not be responsible for and the
Trust or Fund shall indemnify and hold the Company,
including its officers, directors, shareholders and
their agents employees and affiliates, harmless
against any and all losses, damages, costs, charges,
counsel fees, payments, expenses and liabilities
arising out of or attributable to:
(1) The acts or omissions of any Custodian,
(2) The Trust's or Fund's refusal or failure to
comply with the terms of this Agreement, or
which arise out of the Trust's or The Fund's
lack of good faith, negligence or willful
misconduct or which arise out of the breach of
any representation or warranty of the Trust or
Fund hereunder or otherwise.
(3) The reliance on or use by the Company or its
agents or subcontractors of information,
records and documents in proper form which
(a) are received by the Company or its agents
or subcontractors and furnished to it by
or on behalf of the Fund, its Shareholders
or investors regarding the purchase,
redemption or transfer of Shares and
Shareholder account information; or
(b) have been prepared and/or maintained by
the Fund or its affiliates or any other
person or firm on behalf of the Trust.
(4) The reliance on, or the carrying out by the
Company or its agents or subcontractors of
Proper Instructions of the Trust or the Fund.
(5) The offer or sale of Shares in violation of any
requirement under the federal securities laws
or regulations or the securities laws or
regulations of any state that such Shares be
registered in such state or in violation of any
stop order or other determination or ruling by
any federal agency or any state with respect to
the offer or sale of such Shares in such state.
Provided, however, that the Company shall not
be protected by this Article 15.A. from
liability for any act or omission resulting
from the Company's willful misfeasance, bad
faith, gross negligence or reckless disregard
of its duties.
B. Indemnification by the Company
The Company shall indemnify and hold the Trust or
each Fund harmless from and against any and all
losses, damages, costs, charges, counsel fees,
payments, expenses and liabilities arising out of or
attributable to any action or failure or omission to
act by the Company as a result of the Company's
willful misfeasance, bad faith, gross negligence or
reckless disregard of its duties.
C. Reliance
At any time the Company may apply to any officer of
the Trust or Fund for instructions, and may consult
with legal counsel with respect to any matter
arising in connection with the services to be
performed by the Company under this Agreement, and
the Company and its agents or subcontractors shall
not be liable and shall be indemnified by the Trust
or the appropriate Fund for any action reasonably
taken or omitted by it in reliance upon such
instructions or upon the opinion of such counsel
provided such action is not in violation of
applicable federal or state laws or regulations.
The Company, its agents and subcontractors shall be
protected and indemnified in recognizing stock
certificates which are reasonably believed to bear
the proper manual or facsimile signatures of the
officers of the Trust or the Fund, and the proper
countersignature of any former transfer agent or
registrar, or of a co-transfer agent or co-
registrar.
D. Notification
In order that the indemnification provisions
contained in this Article 15 shall apply, upon the
assertion of a claim for which either party may be
required to indemnify the other, the party seeking
indemnification shall promptly notify the other
party of such assertion, and shall keep the other
party advised with respect to all developments
concerning such claim. The party who may be
required to indemnify shall have the option to
participate with the party seeking indemnification
in the defense of such claim. The party seeking
indemnification shall in no case confess any claim
or make any compromise in any case in which the
other party may be required to indemnify it except
with the other party's prior written consent.
Article 16. Termination of Agreement.
This Agreement may be terminated by either party
upon one hundred twenty (120) days written notice to
the other. Should the Trust exercise its rights to
terminate, all out-of-pocket expenses associated
with the movement of records and materials will be
borne by the Trust or the appropriate Fund.
Additionally, the Company reserves the right to
charge for any other reasonable expenses associated
with such termination. The provisions of Article 15
shall survive the termination of this Agreement.
Article 17. Amendment.
This Agreement may be amended or modified by a
written agreement executed by both parties.
Article 18. Interpretive and Additional Provisions.
In connection with the operation of this Agreement,
the Company and the Trust may from time to time
agree on such provisions interpretive of or in
addition to the provisions of this Agreement as may
in their joint opinion be consistent with the
general tenor of this Agreement. Any such
interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed
hereto, provided that no such interpretive or
additional provisions shall contravene any
applicable federal or state regulations or any
provision of the Charter. No interpretive or
additional provisions made as provided in the
preceding sentence shall be deemed to be an
amendment of this Agreement.
Article 19. Governing Law.
This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the
laws of the Commonwealth of Massachusetts
Article 20. Notices.
Except as otherwise specifically provided herein,
Notices and other writings delivered or mailed
postage prepaid to the Trust at Federated Investors
Tower, Pittsburgh, Pennsylvania, 15222-3779, or to
the Company at Federated Investors Tower,
Pittsburgh, Pennsylvania, 15222-3779, or to such
other address as the Trust or the Company may
hereafter specify, shall be deemed to have been
properly delivered or given hereunder to the
respective address.
Article 21. Counterparts.
This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed
an original.
Article 22. Limitations of Liability of Trustees and
Shareholders of the Trust.
The execution and delivery of this Agreement have
been authorized by the Trustees of the Trust and
signed by an authorized officer of the Trust, acting
as such, and neither such authorization by such
Trustees nor such execution and delivery by such
officer shall be deemed to have been made by any of
them individually or to impose any liability on any
of them personally, and the obligations of this
Agreement are not binding upon any of the Trustees
or Shareholders of the Trust, but bind only the
appropriate property of the Fund, or Class, as
provided in the Declaration of Trust.
Article 23. Limitations of Liability of Trustees and
Shareholders of the Company.
The execution and delivery of this Agreement have
been authorized by the Trustees of the Company and
signed by an authorized officer of the Company,
acting as such, and neither such authorization by
such Trustees nor such execution and delivery by
such officer shall be deemed to have been made by
any of them individually or to impose any liability
on any of them personally, and the obligations of
this Agreement are not binding upon any of the
Trustees or Shareholders of the Company, but bind
only the property of the Company as provided in the
Declaration of Trust.
Article 24. Assignment.
This Agreement and the rights and duties hereunder
shall not be assignable with respect to the Trust or
the Funds by either of the parties hereto except by
the specific written consent of the other party.
Article 25. Merger of Agreement.
This Agreement constitutes the entire agreement
between the parties hereto and supersedes any prior
agreement with respect to the subject hereof whether
oral or written.
Article 26. Successor Agent.
If a successor agent for the Trust shall be
appointed by the Trust, the Company shall upon
termination of this Agreement deliver to such
successor agent at the office of the Company all
properties of the Trust held by it hereunder. If no
such successor agent shall be appointed, the Company
shall at its office upon receipt of Proper
Instructions deliver such properties in accordance
with such instructions.
In the event that no written order designating a
successor agent or Proper Instructions shall have
been delivered to the Company on or before the date
when such termination shall become effective, then
the Company shall have the right to deliver to a
bank or trust company, which is a "bank" as defined
in the 1940 Act, of its own selection, having an
aggregate capital, surplus, and undivided profits,
as shown by its last published report, of not less
than $2,000,000, all properties held by the Company
under this Agreement. Thereafter, such bank or
trust company shall be the successor of the Company
under this Agreement.
Article 27. Force Majeure.
The Company shall have no liability for cessation of
services hereunder or any damages resulting
therefrom to the Fund as a result of work stoppage,
power or other mechanical failure, natural disaster,
governmental action, communication disruption or
other impossibility of performance.
Article 28. Assignment; Successors.
This Agreement shall not be assigned by either party
without the prior written consent of the other
party, except that either party may assign to a
successor all of or a substantial portion of its
business, or to a party controlling, controlled by,
or under common control with such party. Nothing in
this Article 28 shall prevent the Company from
delegating its responsibilities to another entity to
the extent provided herein.
Article 29. Severability.
In the event any provision of this Agreement is held
illegal, void or unenforceable, the balance shall
remain in effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in their names and on their
behalf under their seals by and through their duly
authorized officers, as of the day and year first above
written.

ATTEST: INVESTMENT COMPANIES (listed on
Exhibit 1)

/s/ John W. McGonigle_______ By:__/s/ John F. Donahue___
John W. McGonigle John F. Donahue
Secretary Chairman

ATTEST: FEDERATED SERVICES COMPANY

/s/ Jeannette Fisher-Garber By:_/s/ James J. Dolan_____
Jeannette Fisher-Garber James J. Dolan
Secretary President

Exhibit 1

Tower Mutual Funds