TOWER MUTUAL FUNDS, 485BPOS, 1995-10-30

TOWER MUTUAL FUNDS
485BPOS, 1995-10-30

Previous: RBB FUND INC, NSAR-B, 1995-10-30

Next: TOWER MUTUAL FUNDS, NSAR-B, 1995-10-30

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. 13 .......... X

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 12 ......................... 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 October 31, 1995 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 16, 1995; 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 Louisiana
Municipal Income Fund; Tower Total Return Bond Fund; Tower U.S. Government
Income Fund; Tower Cash Reserve 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 and Policies of Each
Fund; Portfolio Investments 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.....Financial Statements.(Incorporated by
reference to Annual Report of Registrant
dated August 31, 1995; File Nos.811-5536
and 33-21321)

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 October 31, 1995, 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 October 31, 1995

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 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 and Policies of Each Fund" and "Portfolio Investments and
Strategies."

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

<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
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...................................... 0.25% 0.40% 0.35% 0.43%
Total Operating Expenses (3).......................... 1.25% 0.77% 1.30% 0.82%
</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 were 0.85% and 0.88%, respectively, absent the
voluntary waivers described above in note (1).

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 $68 $97 $177
Louisiana Municipal Income Fund...................................... $38 $54 $72 $123
Total Return Bond Fund............................................... $43 $70 $99 $182
U.S. Government Income Fund.......................................... $38 $55 $74 $128
</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
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
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.................................................................. 0.21% 0.28%
Total Operating Expenses (3)...................................................... 0.86% 0.46%
</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 were 0.68%
absent the voluntary waiver described above in note (1).

<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 $27 $48 $106
U.S. Treasury Money Market Fund..................................... $5 $15 $26 $ 58
</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 Octo-
ber 6, 1995 on the Fund's financial statements is incorporated by reference to
the Annual Report dated August 31, 1995.

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,
1995 1994 1993 1992 1991 1990 1989(A)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.81 $ 14.60 $ 14.02 $ 14.35 $ 11.93 $ 12.94 $ 10.17
- ---------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------
Net investment income 0.22 0.23 0.30 0.29 0.33 0.38 0.33
- ---------------------------------------
Net realized and unrealized gain
(loss) on investments 2.54 0.36 2.00 0.11 2.45 (0.76) 2.68
- --------------------------------------- --------- --------- --------- --------- --------- --------- -----------
Total from investment operations 2.76 0.59 2.30 0.40 2.78 (0.38) 3.01
- --------------------------------------- --------- --------- --------- --------- --------- --------- -----------
LESS DISTRIBUTIONS
- ---------------------------------------
Distributions from net investment
income (0.21) (0.25) (0.30) (0.27) (0.36) (0.39) (0.24)
- ---------------------------------------
Distributions in excess of net
investment income -- -- -- -- -- (0.02 (b) --
- ---------------------------------------
Distributions from net realized
gain on investment transactions (0.27) (1.13) (1.42) (0.46) -- (0.22) --
- --------------------------------------- --------- --------- --------- --------- --------- --------- -----------
Total distributions (0.48) (1.38) (1.72) (0.73) (0.36) (0.63) (0.24)
- --------------------------------------- --------- --------- --------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 16.09 $ 13.81 $ 14.60 $ 14.02 $ 14.35 $ 11.93 $ 12.94
- --------------------------------------- --------- --------- --------- --------- --------- --------- -----------
TOTAL RETURN (C) 20.71% 4.27% 17.89% 2.93% 23.77% (3.11%) 32.29%
- ---------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------
Expenses 1.25% 1.09% 0.85% 0.83% 0.74% 0.42% 0.56%*
- ---------------------------------------
Net investment income 1.46% 1.67% 2.10% 1.99% 2.58% 3.06% 4.00%*
- ---------------------------------------
Expense waiver/reimbursement (d) -- -- 0.18% 0.25% 0.29% 0.75% 0.83%*
- ---------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------
Net assets, end of period (000
omitted) $144,476 $139,081 $140,808 $73,653 $87,927 $60,448 $48,093
- ---------------------------------------
Portfolio turnover 69% 118% 127% 163% 124% 123% 70%
- ---------------------------------------
</TABLE>

* Computed on an annualized basis.

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

(b) 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.

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

TOWER TOTAL RETURN BOND 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, 1995 on the Fund's financial
statements is incorporated by reference to the Annual Report dated August 31,
1995.

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,
---------------------------------
1995 1994 1993(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.64 $ 10.49 $ 10.00
- -----------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------
Net investment income 0.56 0.57 0.56
- -----------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.39 (0.83) 0.48
- ----------------------------------------------------------------------------- --------- --------- -----------
Total from investment operations 0.95 (0.26) 1.04
- ----------------------------------------------------------------------------- --------- --------- -----------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------
Distributions from net investment income (0.54) (0.57) (0.55)
- -----------------------------------------------------------------------------
Distributions from net realized gain on investment transactions -- (0.02) --
- ----------------------------------------------------------------------------- --------- --------- -----------
Total distributions (0.54) (0.59) (0.55)
- ----------------------------------------------------------------------------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 10.05 $ 9.64 $ 10.49
- ----------------------------------------------------------------------------- --------- --------- -----------
TOTAL RETURN (B) 10.19% (2.46%) 10.39%
- -----------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------
Expenses 1.30% 1.21% 0.77%*
- -----------------------------------------------------------------------------
Net investment income 5.71% 5.62% 6.56%*
- -----------------------------------------------------------------------------
Expense waiver/reimbursement (c) -- -- 0.22%*
- -----------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------
Net assets, end of period (000 omitted) $69,455 $72,088 $63,608
- -----------------------------------------------------------------------------
Portfolio turnover 91% 96% 78%
- -----------------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

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

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

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

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,
1995 1994 1993 1992 1991 1990 1989(A)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 10.82 $ 11.60 $ 10.91 $ 10.46 $ 9.98 $ 10.14 $ 10.00
- ----------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------
Net investment income 0.59 0.59 0.62 0.64 0.64 0.64 0.43
- ----------------------------------
Net realized and unrealized gain
(loss) on investments 0.24 (0.68) 0.73 0.48 0.48 (0.16) 0.14
- ---------------------------------- --------- --------- --------- --------- --------- --------- ---------
Total from investment operations 0.83 (0.09) 1.35 1.12 1.12 0.48 0.57
- ---------------------------------- --------- --------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
- ----------------------------------
Distributions from net
investment income (0.58) (0.59) (0.62) (0.64) (0.64) (0.64) (0.43)
- ----------------------------------
Distributions from net realized
gain on investment transactions (0.08) (0.10) (0.04) (0.03) -- -- --
- ---------------------------------- --------- --------- --------- --------- --------- --------- ---------
Total distributions (0.66) (0.69) (0.66) (0.67) (0.64) (0.64) (0.43)
- ---------------------------------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 10.99 $ 10.82 $ 11.60 $ 10.91 $ 10.46 $ 9.98 $ 10.14
- ---------------------------------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN (B) 8.20% (0.76%) 12.75% 11.02% 11.59% 4.89% 5.82%
- ----------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------
Expenses 0.77% 0.71% 0.66% 0.65% 0.74% 0.81% 0.62%*
- ----------------------------------
Net investment income 5.54% 5.24% 5.59% 6.04% 6.29% 6.35% 6.57%*
- ----------------------------------
Expense waiver/
reimbursement (c) 0.08% 0.08% 0.14% 0.16% 0.20% 0.41% 0.61%*
- ----------------------------------
SUPPLEMENTAL DATA
- ----------------------------------
Net assets, end of period
(000 omitted) $ 67,600 $ 79,698 $ 85,914 $ 57,547 $ 42,210 $ 31,380 $ 12,285
- ----------------------------------
Portfolio turnover rate 22% 33% 32% 19% 26% 32% 28%
- ----------------------------------
</TABLE>

* Computed on an annualized basis.

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

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

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

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

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,
1995 1994 1993 1992 1991 1990 1989(A)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.92 $ 10.85 $ 10.75 $ 10.49 $ 10.07 $ 10.20 $ 10.17
- ------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------
Net investment income 0.71 0.69 0.74 0.79 0.85 0.86 0.69
- ------------------------------------------
Net realized and unrealized gain (loss)
on investments 0.20 (0.89) 0.12 0.30 0.43 (0.11) 0.03
- ------------------------------------------ --------- --------- --------- --------- --------- --------- ---------
Total from investment operations 0.91 (0.20) 0.86 1.09 1.28 0.75 0.72
- ------------------------------------------ --------- --------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
- ------------------------------------------
Distributions from net
investment income (0.69) (0.69) (0.74) (0.79) (0.85) (0.86) (0.69)
- ------------------------------------------
Distributions 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)(c) -- -- -- --
- ------------------------------------------ --------- --------- --------- --------- --------- --------- ---------
Total distributions (0.69) (0.73) (0.76) (0.83) (0.86) (0.88) (0.69)
- ------------------------------------------ --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 10.14 $ 9.92 $ 10.85 $ 10.75 $ 10.49 $ 10.07 $ 10.20
- ------------------------------------------ --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN (B) 9.60% (1.67%) 8.11% 10.72% 13.27% 7.48% 9.20%
- ------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------
Expenses 0.82% 0.74% 0.68% 0.69% 0.68% 0.69% 0.59%*
- ------------------------------------------
Net investment income 7.02% 6.68% 7.03% 7.51% 8.30% 8.50% 8.64%*
- ------------------------------------------
Expense waiver/reimbursement (d) 0.06% 0.06% 0.11% 0.11% 0.17% 0.45% 0.52%*
- ------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------
Net assets, end of period (000 omitted) $ 42,593 $ 67,051 $ 86,597 $ 61,646 $ 48,482 $ 32,596 $ 15,753
- ------------------------------------------
Portfolio turnover rate 5% 26% 61% 36% 20% 32% 42%
- ------------------------------------------
</TABLE>

* Computed on an annualized basis.

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

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

(c) Distributions in excess of net investment 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.

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

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

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,
1995 1994 1993 1992 1991 1990 1989(A)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------
INCOME FROM INVESTMENT
OPERATIONS
- ------------------------------
Net investment income 0.05 0.03 0.02 0.04 0.06 0.08 0.07
- ------------------------------
LESS DISTRIBUTIONS
- ------------------------------
Distributions from net
investment income (0.05) (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 $ 1.00
- ------------------------------ --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN (B) 4.97% 2.73% 2.49% 3.75% 6.45% 8.02% 6.86%
- ------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------
Expenses 0.86% 0.91% 0.89% 0.89% 0.80% 0.77% 0.75%*
- ------------------------------
Net investment income 4.87% 2.71% 2.48% 3.79% 6.30% 7.71% 8.68%*
- ------------------------------
Expense waiver/
reimbursement (c) -- -- -- 0.03% -- 0.01% --
- ------------------------------
SUPPLEMENTAL DATA
- ------------------------------
Net assets, end of period
(000 omitted) $191,242 $183,922 $154,052 $162,038 $249,822 $300,668 $169,303
- ------------------------------
</TABLE>

* Computed on an annualized basis.

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

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

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

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,
1995 1994 1993(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------
Net investment income 0.05 0.03 0.002
- ----------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------
Distributions from net investment income (0.05) (0.03) (0.002)
- ---------------------------------------------------------------------------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------- --------- --------- ---------
TOTAL RETURN (B) 5.15% 2.85% 0.34%
- ----------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------
Expenses 0.46% 0.66% 0.50%*
- ----------------------------------------------------------------------------
Net investment income 5.15% 2.85% 2.80%*
- ----------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.22% 0.23% 0.32%*
- ----------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------
Net assets, end of period (000 omitted) $116,489 $45,022 $33,995
- ----------------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

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

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

OBJECTIVE AND POLICIES 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 put
and call options and 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 U.S. government agencies or
instrumentalities discussed below under "Portfolio Investments and
Strategies."

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 the U.S. government agencies or instrumentalities
discussed below under "Portfolio Investments and Strategies."

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 Fund pursues its investment objective by investing in a portfolio of money
market instruments maturing in one year or less. As a matter of fundamental
policy, the average maturity of the

securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
120 days or less. As a matter of operating policy, which may be changed without
shareholder approval, the Fund will limit the average maturity of its portfolio
to 90 days or less, in order to meet regulatory requirements.

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 NRSROs or of comparable quality to securities having such ratings.

Except as otherwise noted, the investment objective and the policies and
limitations described above cannot be changed without approval of shareholders.

Examples of acceptable investments 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 to be 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. These policies may not be changed without shareholder
approval. 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. The Funds, 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.

There is the risk that when lending portfolio securities, the securities may not
be available to a Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.

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 and
Policies 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 Funds 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 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 and Policies 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
System, including the National Bank for Cooperatives and Banks for Cooperatives,
Tennesse Valley Authority, Export-Import Bank of the United States, Commodity
Credit Corporation, Federal Financing Bank, Federal National Mortgage
Association, and Federal Home Loan Mortgage Corporation, National Credit Union
Administration, and Student Loan Marketing Association 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,
mortgage banking, discount brokerage, investment counseling, international
banking, and trust services.

Hibernia National Bank has been ranked by the American Banker newspaper as the
88th largest U.S. Bank according to December 31, 1994,, deposits. As of October
16, 1995, with pending mergers, which are subject to shareholder and regulatory
approval, Hibernia National Bank would have approximately $7.1 billion in assets
and 161 banking locations serving 25 parishes and 60 cities, representing more
than 70% of the State's population. As of September 30, 1995, the Trust Group
had $4.8 billion under administration of which it had investment discretion over
$1.5 billion. The Trust Group has managed pools of commingled funds since 1966;
as of September 30, 1995, the Trust Group managed seven such investment pools,
as well as the six Tower Mutual Funds, with total assets of $866.7 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.

John A. Cain became the Tower Capital Appreciation Fund's portfolio manager in
March, 1995. Mr. Cain is a Vice President and Trust Investment Officer
specializing in equity and balanced account management. Mr. Cain is the
investment manager of Hibernia Trust's Growth Stock Fund. He has 36 years of
investment management experience both in the brokerage and trust industries. He
earned his B.B.A. from the University of Mississippi.

Jeffrey R. Tanguis has been the Louisiana Municipal Income Bond Fund's and the
U.S. Government Income Fund's portfolio manager since 1988 and 1992,
respectively. Mr. Tanguis began to manage the Total Return Bond Fund in 1995.
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. from
Louisiana State University.

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,
Boston, Massachusetts, is transfer agent for the shares of the Funds and
dividend disbursing agent for the Funds.

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 October 6, 1995,
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 P.O. Box 8600
Boston, Massachusetts 02266-8600
- -----------------------------------------------------------------------------------------------------------------------

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

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 October 31,
-----------

1995. 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 October 31, 1995
----------------

. THE SHARES OF THE TOWER MUTUAL FUNDS 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 OF THE TOWER MUTUAL FUNDS 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.

FEDERATED SECURITIES
CORP.

Distributor

TABLE OF CONTENTS Adviser to the Trust 13
Advisory Fees 13
GENERAL INFORMATION ABOUT THE FUND
ADMINISTRATIVE SERVICES 14
1
TRANSFER AGENT, DIVIDEND DISBURSING
INVESTMENT OBJECTIVE AND
AGENT, AND PORTFOLIO ACCOUNTING
POLICIES OF THE FUNDS 1
SERVICES 14
When-Issued and Delayed Delivery
Transactions 1
Lending of Portfolio Securities 1
Reverse Repurchase Agreements 1
Futures and Options Transactions1
Restricted Securities 4
Warrants 4
Louisiana Municipal Bond Isuers 4
AMBAC Indemnity Corporation 5
Financial Guaranty Insurance
Company 5
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 13
INVESTMENT ADVISORY SERVICE13

CUSTODIAN 14

BROKERAGE TRANSACTIONS 14

PURCHASING SHARES 15

Distribution Plan 15
Conversion To Federal Funds 15
DETERMINING NET ASSET VALUE15

Determining Market Value of
Securities 15
EXCHANGE PRIVILEGE 17

Requirement for Exchange 17
Making an Exchnage 17
REDEEMING SHARES 17

Redemption in Kind 17
TAX STATUS 18

The Funds' Tax Status 18
Shareholders' Tax Status 18
TOTAL RETURN 18

YIELD 18

TAX-EQUIVALENT YIELD 19

PERFORMANCE INFORMATION 20

APPENDIX 22

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" and
----

together with the Cash Reserve Fund, the "Money Market Funds").
- ----------------------------------------- ------------------

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. The Fund will not invest more than 5%
of its net assets in warrants. No more than 2% of the Fund's net assets, to be
included within the overall 5% limit on investments in warrants, may be warrants
which are not listed on the New York Stock Exchange or the American Stock
Exchange.

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, 1995 and 1994, the portfolio
- -

turnover rates were 22% and 33%, respectively.
-------- -

The Total Return Bond Fund may trade or dispose of portfolio securities as
considered necessary to meet its investment objective. For the fiscal years
-

ended August 31, 1995 and August 31, 1994, the portfolio turnover rates were 91%
- ----------------- --------------

and 96%, 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,
1995 and 1994, the portfolio turnover rates were 5% and 26%, respectively.
- - ------- -

The Capital Appreciation Fund's portfolio turnover rates for the fiscal years
ended August 31, 1995, and 1994 were
- -------------------------------------------

69% and 118%, 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 October 6, 1995: Hibernia National Bank, acting in various
---------------

capacities for numerous accounts owned, of record: approximately 6,957,861
shares (77.67%) of Capital Appreciation Fund; approximately 1,767,241 shares
(29.45%) of Louisiana Municipal Bond Fund; approximately 6,472,558 shares

(95.76%) of Total Return Bond Fund; approximately 1,753,575 shares (42.12%) of
U.S. Government Income Fund; approximately 166,866,502 shares (85.87%) shares of
Cash Reserve Fund; and approximately 61,087,914 shares (57.24%) of U.S.
Treasury Money Market Fund. Orthodontic Center of America, Metairie, Louisiana,
owned approximately 10,825,920 shares (10.14%) of U.S. Treasury Money Market
Fund and Curatorship of Chad A. Chamberlain/Wilmer J. Chamberlain - Provisional
Curat, Houma, Louisiana, owned approximately 5,779,401 shares (5.41%) of U.S.
Treasury Money Market Fund.
TRUSTEES COMPENSATION
- ---------------------

AGGREGATE
- -----------------------------------------------

NAME , COMPENSATION
- ----------------------------------------------

POSITION WITH FROM
- ----------------------------------------------

TRUST CORPORATION*+
- ----------------------------------------------

Edward C. Gonzales $0
- ------------------------------

President, Trustee, Treasurer
- -----------------------------

Robert L. di Benedetto, $14,580
- -----------------------------------

Trustee
- ---------------------------

James A. Gayle, Sr., $14,580
- -----------------------------------

Trustee
- ---------------------------

J. Gordon Reische, $14,580
- -----------------------------------

Trustee
- ---------------------------

*Information is furnished for the fiscal year ended August 31, 1995. The Trust
- -------------------------------------------------------------------------------

is the only investment company in the complex.
- ----------------------------------------------

+The aggregate compensation is provided for the Trust which is comprised of 6
- -----------------------------------------------------------------------------

portfolios.
- -----------

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. The following shows all investment
advisory fees incurred by the Funds and the amounts of those fees that were
voluntarily waived by the Adviser:
Year Ended Amount Year Ended Amount Year Ended
Amount
Fund Name Aug 31, 1995 Waived-1995 Aug 31, 1994 Waived-
1994 Aug 31, 1993 Waived-1993

Capital Appreciation Fund $1,018,267 $0 $1,048,592 $0 $939,741
$223,255
Louisiana Municipal
Income Fund $314,904$55,983 $ 384,286 $68,318 $ 309,076
$98,029
Total Return Bond Fund $491,566 $0 $451,203 $0 $358,745*
$394,139
U.S. Government
Income Fund $223,677$29,824 $354,418 $47,256 $336,772 $81,877
Cash Reserve Fund $814,726$0 $681,321 $0 $664,827 $0
U.S. Treasury Money
Market Fund $341,980$188,089 $164,112 $91,001 $13,624** $10,423

* For the period from November 2, 1992 (date of inital public investment) to
August 31, 1993.
** For the period from July 19, 1993 (date of initial public offering) to August
31, 1993.
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. The following shows all fees earned by Federated
Administrative Services and the amounts of those fees that were volintarily
waived:

Year Ended Amount Year Ended Amount Year Ended
Amount
Fund Name Aug 31, 1995 Waived-1995 Aug 31, 1994 Waived-1994
Aug 31, 1993 Waived-1993
Capital Appreciation Fund $177,184$0 $184,784 $0 $171,550
$0
Louisiana Municipal
Income Fund $91,349 $0 $112,857 $0 $94,164 $0
Total Return Bond Fund $91,672 $0 $85,233$0 $69,676* $0
U.S. Government
Income Fund $64,915 $0 $104,100 $0 $102,555 $0
Cash Reserve Fund $265,774 $0 $225,124 $0 $228,135 $0
U.S. Treasury Money
Market Fund $111,430 $0 $54,326 $1,781 $4,632** $4,632
* For the period from November 2, 1992 (date of initial public investment) to
August 31, 1993.
** For the period from July 19,1993 (date of initial public offering) to
August 31, 1993.
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:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the Adviser 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, 1995, 1994, and 1993, Capital Appreciation
- - -

Fund paid $304,546, $839,421, and $551,214, 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 $509,203, $175,534, and $339,422 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:
o for equity securities, according to the last sale price on a national
securities exchange, if applicable;

o in the absence of recorded sales for listed equity securities, according to
the mean between the last closing bid and asked prices;
o for unlisted equity securities, the latest bid prices;
o for bonds and other fixed income securities, as determined by an
independent pricing service;
o for 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
o for 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, 1995 and for the period from October 14, 1988 (effective date
-

of the Trust's registration statement) to August 31, 1995 were 17.07% and
- ------

13.23%, respectively.
- ------

Louisiana Municipal Income Fund's average annual total returns for the one-year
period ended August 31, 1995, and, for the period from October 14, 1988
-

(effective date of the Trust's registration statement) to August 31, 1995, were
-

5.00% and 7.21%, respectively.
- ----- -----

Total Return Bond Fund's average annual total returns for the one-year period
ended August 31, 1995 and for the period from November 2, 1992 (date of initial
-

public investment) to August 31, 1995, were 6.86% and 5.16%, respectively.
- ----- -----

U.S. Government Income Fund's average annual total returns for the one-year
period ended August 31, 1995 and for the period from October 14, 1988 (effective
-

date of the Trust's registration statement) to August 31, 1995 were 6.28% and
- ----

7.71%, 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,
1995 was 1.06%.
- ----

Louisiana Municipal Income Fund's yield for the thirty-day period ended August
31, 1995 was 5.06%.
- ----

Total Return Bond Fund's yield for the thirty-day period ended August 31, 1995
-

was 5.58%.
----

U.S. Government Income Fund's yield for the thirty-day period ended August 31,
1995 was 6.36%.
- ----

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, 1995 was
-

5.01%.
- ----

U.S. Treasury Money Market Fund's yield for the seven-day period ended August
31, 1995 was 5.26%.
- ----

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, 1995
-

was 9.30%.
--

TAXABLE YIELD EQUIVALENT FOR 1995
---------------------------------

STATE OF LOUISIANA
------------------

COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
----------------------------------------------

19.00% 32.00% 37.00% 42.00% 45.60%
==========================================================

JOINT $1- $39,001- $94,251- $143,601- OVER
---------------------------------------------------------

RETURN 39,000 94,250 143,600 256,500 256,500
==========================================================

Tax-Exempt
- ----------

Yield Taxable Yield Equivalent
- -------------------------------------------------

1.50% 1.85% 2.21% 2.38% 2.59% 2.76%
----------------------------------------------------------

2.00% 2.47% 2.94% 3.17% 3.45% 3.68%
----------------------------------------------------------

2.50% 3.09% 3.68% 3.97% 4.31% 4.60%
----------------------------------------------------------

3.00% 3.70% 4.41% 4.76% 5.17% 5.51%
----------------------------------------------------------

3.50% 4.32% 5.15% 5.56% 6.03% 6.43%
----------------------------------------------------------

4.00% 4.94% 5.88% 6.35% 6.90% 7.35%
----------------------------------------------------------

4.50% 5.56% 6.62% 7.14% 7.76% 8.27%
----------------------------------------------------------

5.00% 6.17% 7.35% 7.94% 8.62% 9.19%
----------------------------------------------------------

5.50% 6.79% 8.09% 8.73% 9.48% 10.11%
----------------------------------------------------------

6.00% 7.41% 8.82% 9.52% 10.34% 11.03%
----------------------------------------------------------

6.50% 8.02% 9.56% 10.32% 11.21% 11.95%
----------------------------------------------------------

7.00% 8.64% 10.29% 11.11% 12.07% 12.87%
----------------------------------------------------------

7.50% 9.26% 11.03% 11.90% 12.93% 13.79%
----------------------------------------------------------

8.00% 9.88% 11.76% 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. The chart above is for illustrative purposes
--------------------------------------------------------------------------

only. It is not an indicator of past or future performance of Fund shares.
---------------------------------------------------------------------------

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, 1995, are
-

incorporated herein by reference to the Funds' Combined Annual Report dated
August 31, 1995 . A copy of the Annual Report may be obtained without charge by
-

contacting the Funds at the address located on the back cover of the combined
prospectus or by calling the Funds 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.

PART C. OTHER INFORMATION.

Item 24. Financial Statements and Exhibits:
(a) Financial Statements (Incorporated by reference to the Annual
Report of the Registrant dated August 31, 1995;mFile Nos. 811-
5536 and 33-21321).
(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

891836108
891836306
891836504
891836405
891936207
891836603
006897(10/95)

Registrant (6);
(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 to Federated Administrative Services (5.);
(9) Conformed copy of Agreement for Fund Accounting, Shareholder
Recordkeeping, and Custody Services Procurement (6);
(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;+

+ 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)
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 filed December 28, 1994. (File Nos. 33-21321 and 811-5536)

(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
(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 Power of Attorney (5.);

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

None.

+ 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 26. Number of Holders of Securities:

Number of Record Holders
Title of Class as of October 6, 1995

Shares of beneficial interest

Tower Capital Appreciation Fund 1,216
Tower U.S. Government Income
Fund 1,939
Tower Louisiana Municipal Income
Fund 2,399
Tower Total Return Bond Fund 55
Tower Cash Reserve Fund 1,627

Tower U.S. Treasury Money Market
Fund 738

Item 27. Indemnification: (1)

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 and consumer lending
and depository services, cash management, retail banking, mortgage
banking, brokerage, investment counseling, international banking, and
trust services. Hibernia National Bank has been ranked by the American
Banker newspaper as the 88th largest U.S. Bank according to December 31,
1994 deposits. As of September 30, 1994, the Trust Group had $4.8 billion
under administration of which it had investment discretion over $1.5
billion. The Trust Group has managed pools of commingled funds since
1966; as of September 30, 1995, the Trust Group manages seven such
investment pools along with the six Tower Mutual Funds all totalling
$866.7 million in assets. As of October 16, 1995, with pending mergers,
which are subject to shareholder and regulatory approval, Hibernia
National Bank would have approximately $7.1 billion in assets and 161
banking locations serving 25 parishes and 60 cities, representing more
than 70% of the State's population. The executive 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, Employment

Robert H. Boh Chairman and DirectorChairman, Boh
Brothers Construction Co. L.L.C.

Hugh J. Kelly Vice Chairman and Director

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

Donald J. Nalty Vice Chairman and Director

Robert W. Close Senior Executive Vice President/

Treasurer and Chief Financial Officer

K. Kirk Domingos III Senior Executive Vice President

J. Herbert Boydstun Regional Chairman - Northeast / South Central
Louisiana and Director

E.R. Campbell Regional Chairman - Northwest Louisiana

Marsha M. Gassan Executive Vice President
and General Auditor

Russell S. Hoadley Executive Vice President

Scott P. Howard Executive Vice President

Patricia C. Meringer Vice President, Associate
Counsel and Secretary

James E. O'Brien Executive Vice President

Gerald F. Pavlas Executive Vice President

Kenneth A. Rains Executive Vice President

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

John E. Smith Executive Vice President

Richard G. Wright Executive Vice President

Directors

W. James Amoss, Jr. Dick H. Hearin Robert T. Ratcliff
Robert H. Bob Robert T. Holleman H. Duke Shackelford
J. Herbert Boydstun Hugh J. Kelly James H. Stone
J. Terrell Brown Elton R. King Janee M. Tucker
E.R. Campbell Sidney W. Lassen Virginia E. Weinmann
Richard W. Freeman, Jr. Donald J. Natly E.L. Williamson
Robert L. Goodwin William C. O'Malley Robert E. Zetzmann

H. Duke Shackelford

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
Government Money Trust; BayFunds; The Biltmore Funds; The Biltmore
Municipal Funds; Blanchard Funds; Blanchard Precious Metals, Inc.;
Cash Trust Series, Inc.; Cash Trust Series II; DG Investor Series;
Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund;
Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated GNMA
Trust; Federated Government Trust; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Institutional Trust; Federated Master Trust;
Federated Municipal Trust; Federated Short-Term Municipal Trust;
Federated Short-Term U.S. Government Trust; Federated Stock Trust;
Federated Tax-Free Trust; Federated Total Return Series, Inc.;
Federated U.S. Government Bond Fund; Federated U.S. Government
Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund:
3-5 Years;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; 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.; Money Market
Obligations Trust; Money Market Trust; The Monitor Funds; Municipal
Securities Income Trust; Newpoint Funds; 111 Corcoran Funds; Peachtree
Funds; The Planters Funds; RIMCO Monument Funds; The Shawmut Funds;
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; The Virtus Funds; 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 Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Federated Investors Tower Secretary, and Asst.
Treasurer, Federated
Securities Corp.

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

John W. McGonigle Director, Federated
Federated Investors Tower Securities Corp.
Pittsburgh, PA 15222-3779

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

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

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

Richard W. Boyd 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

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

Solon A. Person, IV 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

Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp

Pittsburgh, PA 15222-3779

John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Byron F. Bowman Vice President, Secretary, --
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

Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securites Corp.
Pittsburgh, PA 15222-3779

Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

Craig S. Gonzales 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

H. Joeseph Kenedy 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

Steven A. La Versa 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

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

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

John C. Shelar, Jr. 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

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

Paul A. Uhlman 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

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

Charlene H. Jennings Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

J. Timothy Radcliff Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas R. Donahue Asstistant Secretary, --
Federated Investors Tower Assistant Treasurer,
Pittsburgh, PA 15222-3779 Federated Securities Corp.

Joseph M. Huber Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

David M. Taylor Assistant Secretary,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

(c)Not applicable.

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.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, TOWER MUTUAL FUNDS, certifies
that it meets all of the requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of
Pittsburgh and Commonwealth of Pennsylvania, on the 27th day of October, 1995.

TOWER MUTUAL FUNDS

BY: /s/Gail Cagney
Gail Cagney, Assistant Secretary
Attorney in Fact for Edward C. Gonzales
October 27, 1995

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:

NAME TITLE DATE

By:/s/Gail Cagney
Gail Cagney Attorney In Fact October 27, 1995
ASSISTANT SECRETARY For the Persons
Listed Below

NAME TITLE

Edward C. Gonzales* President, Treasurer
and Trustee
(Chief Executive Officer,
Principal Financial and
Accounting Officer)

Robert L. diBenedetto, M.D.* Trustee

James A. Gayle, Sr.* Trustee

J. Gordon Reische* Trustee

* By Power of Attorney

Exhibit 23 under Form N1-A
Exhibit 23 under Item 601/Reg. S-K

CONSENT OF ERNST & YOUNG, LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors" in Post-Effective Amendment Number 13 to
the Registration Statement (Form N-1A No. 33-21321) and the related Combined
Prospectus 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 Fund) dated October 31, 1995 and to the incorporation by
reference therein of our report dated October 6, 1995 on the financial
statements and financial highlights of Tower Mutual Funds included in its
Combined Annual Report to Shareholders for the year ended August 31, 1995.

/s/ Ernst & Young, LLP
Pittsburgh, Pennsylvania

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> Tower Mutual Funds
Tower Cash Reserve Fund

<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Aug-31-1995
<PERIOD-END> Aug-31-1995
<INVESTMENTS-AT-COST> 192,028,772
<INVESTMENTS-AT-VALUE> 192,028,772
<RECEIVABLES> 2,083
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 192,030,855
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 788,493
<TOTAL-LIABILITIES> 788,493
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 191,242,362
<SHARES-COMMON-STOCK> 191,242,362
<SHARES-COMMON-PRIOR> 183,921,983
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 191,242,362
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,673,867
<OTHER-INCOME> 0
<EXPENSES-NET> 1,760,402
<NET-INVESTMENT-INCOME> 9,913,465
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 9,913,465
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9,913,465
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 372,472,324
<NUMBER-OF-SHARES-REDEEMED> 366,494,602
<SHARES-REINVESTED> 1,342,657
<NET-CHANGE-IN-ASSETS> 7,320,379
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 814,726
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,760,402
<AVERAGE-NET-ASSETS> 203,186,305
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.050
<PER-SHARE-DISTRIBUTIONS> 0.050
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.86
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> Tower Mutual Funds
Tower Louisiana Municipal Income Fund

<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Aug-31-1995
<PERIOD-END> Aug-31-1995
<INVESTMENTS-AT-COST> 66,213,049
<INVESTMENTS-AT-VALUE> 68,986,693
<RECEIVABLES> 978,131
<ASSETS-OTHER> 4,651
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 69,969,439
<PAYABLE-FOR-SECURITIES> 1,885,510
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 483,718
<TOTAL-LIABILITIES> 2,369,228
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 65,404,573
<SHARES-COMMON-STOCK> 6,150,962
<SHARES-COMMON-PRIOR> 7,363,286
<ACCUMULATED-NII-CURRENT> 74,742
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (652,748)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,773,644
<NET-ASSETS> 67,600,211
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,413,947
<OTHER-INCOME> 0
<EXPENSES-NET> 538,256
<NET-INVESTMENT-INCOME> 3,875,691
<REALIZED-GAINS-CURRENT> (644,227)
<APPREC-INCREASE-CURRENT> 1,707,708
<NET-CHANGE-FROM-OPS> 4,939,172
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,801,921
<DISTRIBUTIONS-OF-GAINS> 563,576
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 672,074
<NUMBER-OF-SHARES-REDEEMED> 2,118,527
<SHARES-REINVESTED> 234,129
<NET-CHANGE-IN-ASSETS> 12,097,691
<ACCUMULATED-NII-PRIOR> 1,143
<ACCUMULATED-GAINS-PRIOR> 554,884
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 314,904
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 594,239
<AVERAGE-NET-ASSETS> 70,303,328
<PER-SHARE-NAV-BEGIN> 10.820
<PER-SHARE-NII> 0.590
<PER-SHARE-GAIN-APPREC> 0.240
<PER-SHARE-DIVIDEND> 0.580
<PER-SHARE-DISTRIBUTIONS> 0.080
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.990
<EXPENSE-RATIO> 0.77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 05
<NAME> Tower Mutual Funds
Tower Total Return Bond Fund

<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Aug-31-1995
<PERIOD-END> Aug-31-1995
<INVESTMENTS-AT-COST> 66,974,611
<INVESTMENTS-AT-VALUE> 68,963,487
<RECEIVABLES> 551,942
<ASSETS-OTHER> 11,129
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 69,526,558
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 71,916
<TOTAL-LIABILITIES> 71,916
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 68,704,364
<SHARES-COMMON-STOCK> 6,910,624
<SHARES-COMMON-PRIOR> 7,481,164
<ACCUMULATED-NII-CURRENT> 142,921
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,381,519)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,988,876
<NET-ASSETS> 69,454,642
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,918,845
<OTHER-INCOME> 0
<EXPENSES-NET> 912,550
<NET-INVESTMENT-INCOME> 4,006,295
<REALIZED-GAINS-CURRENT> 27,032
<APPREC-INCREASE-CURRENT> 2,863,184
<NET-CHANGE-FROM-OPS> 6,896,511
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,888,156
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,340,601
<NUMBER-OF-SHARES-REDEEMED> 2,275,944
<SHARES-REINVESTED> 364,803
<NET-CHANGE-IN-ASSETS> 5,641,900
<ACCUMULATED-NII-PRIOR> 24,782
<ACCUMULATED-GAINS-PRIOR> (1,408,551)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 491,566
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 912,550
<AVERAGE-NET-ASSETS> 70,113,084
<PER-SHARE-NAV-BEGIN> 9.640
<PER-SHARE-NII> 0.560
<PER-SHARE-GAIN-APPREC> 0.390
<PER-SHARE-DIVIDEND> 0.540
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.050
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> Tower Mutual Funds
Tower U.S. Government Income Fund

<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Aug-31-1995
<PERIOD-END> Aug-31-1995
<INVESTMENTS-AT-COST> 42,399,311
<INVESTMENTS-AT-VALUE> 42,456,802
<RECEIVABLES> 334,198
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 42,791,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 197,870
<TOTAL-LIABILITIES> 197,870
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 45,464,583
<SHARES-COMMON-STOCK> 4,199,561
<SHARES-COMMON-PRIOR> 6,761,870
<ACCUMULATED-NII-CURRENT> 119,210
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,048,154)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 57,491
<NET-ASSETS> 42,593,130
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,896,792
<OTHER-INCOME> 0
<EXPENSES-NET> 408,755
<NET-INVESTMENT-INCOME> 3,488,037
<REALIZED-GAINS-CURRENT> (2,290,190)
<APPREC-INCREASE-CURRENT> 2,760,429
<NET-CHANGE-FROM-OPS> 3,958,276
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,395,460
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 265,325
<NUMBER-OF-SHARES-REDEEMED> 2,944,932
<SHARES-REINVESTED> 117,298
<NET-CHANGE-IN-ASSETS> (24,457,885)
<ACCUMULATED-NII-PRIOR> 26,633
<ACCUMULATED-GAINS-PRIOR> (757,964)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 223,677
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 438,579
<AVERAGE-NET-ASSETS> 49,876,589
<PER-SHARE-NAV-BEGIN> 9.920
<PER-SHARE-NII> 0.710
<PER-SHARE-GAIN-APPREC> 0.200
<PER-SHARE-DIVIDEND> 0.690
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.140
<EXPENSE-RATIO> 0.82
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 06
<NAME> Tower Mutual Funds
Tower U.S. Treasury Money Market Fund

<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Aug-31-1995
<PERIOD-END> Aug-31-1995
<INVESTMENTS-AT-COST> 116,792,610
<INVESTMENTS-AT-VALUE> 116,792,610
<RECEIVABLES> 8,542
<ASSETS-OTHER> 945
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 116,802,097
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 313,025
<TOTAL-LIABILITIES> 313,025
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 116,489,072
<SHARES-COMMON-STOCK> 116,489,072
<SHARES-COMMON-PRIOR> 45,022,341
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 116,489,072
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,791,506
<OTHER-INCOME> 0
<EXPENSES-NET> 392,948
<NET-INVESTMENT-INCOME> 4,398,558
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,398,558
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,398,558
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 307,600,098
<NUMBER-OF-SHARES-REDEEMED> 237,126,184
<SHARES-REINVESTED> 992,817
<NET-CHANGE-IN-ASSETS> 71,466,731
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 341,980
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 581,037
<AVERAGE-NET-ASSETS> 85,495,032
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.050
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.46
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> Tower Mutual Funds
Tower Capital Appreciation Fund

<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Aug-31-1995
<PERIOD-END> Aug-31-1995
<INVESTMENTS-AT-COST> 113,619,540
<INVESTMENTS-AT-VALUE> 144,350,012
<RECEIVABLES> 384,224
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 144,734,236
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 258,547
<TOTAL-LIABILITIES> 258,547
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 109,266,630
<SHARES-COMMON-STOCK> 8,977,933
<SHARES-COMMON-PRIOR> 10,068,611
<ACCUMULATED-NII-CURRENT> 104,739
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,373,848
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 30,730,472
<NET-ASSETS> 144,475,689
<DIVIDEND-INCOME> 3,558,372
<INTEREST-INCOME> 117,338
<OTHER-INCOME> 0
<EXPENSES-NET> 1,698,876
<NET-INVESTMENT-INCOME> 1,976,834
<REALIZED-GAINS-CURRENT> 5,776,399
<APPREC-INCREASE-CURRENT> 17,920,887
<NET-CHANGE-FROM-OPS> 25,674,120
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,029,845
<DISTRIBUTIONS-OF-GAINS> 2,669,232
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,095,340
<NUMBER-OF-SHARES-REDEEMED> 2,437,091
<SHARES-REINVESTED> 251,073
<NET-CHANGE-IN-ASSETS> 5,394,899
<ACCUMULATED-NII-PRIOR> 157,750
<ACCUMULATED-GAINS-PRIOR> 1,234,495
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,018,267
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,698,876
<AVERAGE-NET-ASSETS> 136,181,477
<PER-SHARE-NAV-BEGIN> 13.810
<PER-SHARE-NII> 0.220
<PER-SHARE-GAIN-APPREC> 2.540
<PER-SHARE-DIVIDEND> 0.210
<PER-SHARE-DISTRIBUTIONS> 0.270
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 16.090
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>