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. 16 .......... X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 14 ......................... 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 November 28, 1996 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 15, 1996; 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:
Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, D.C. 20037
CROSS REFERENCE SHEET
This Amendment to the Registration Statement of TOWER MUTAL FUNDS,
which consists of six portfolios, (1) Tower Capital Appreciation Fund,
(a)Class A Shares and (b) Class B Shares; (2) Tower Louisiana Municipal
Income Fund; (3) Tower Total Return Bond Fund; (4) Tower U.S. Government
Income Fund; (5) Tower Cash Reserve Fund; and (6) Tower U.S. Treasury Money
Market Fund, relates only to Tower Capital Appeciation Fund Class B Shares
and is comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page...............(1-6) Cover Page.
Item 2. Synopsis.................(1-4) Summary of Fund Expenses - Equity
and Income Funds; (5-6) Summary of Fund
Expenses - Money Market Funds; 1
(b)Summary of Fund Expenses Tower
Capital Appreciation Fund Class B
Shares; (1-6) Financial Highlights
Item 3. Condensed Financial
Information.............(1-6) Performance Information.
Item 4. General Description of
Registrant..............(1-6) Synopsis; (1-6) Objective and
Policies of Each Fund; (1-6) Portfolio
Investments and Strategies; 1(b) General
Information; 1(b)Investment Objective;
1(b) Portfolio Investments, Strategies,
and Limitations;.
Item 5. Management of the Fund...(1-6) Tower Mutual Funds Information;
(1-6) Management of Tower Mutual Funds;
(1-6) Distribution of Fund Shares; (1-6)
Fund Administration; (1-6) Brokerage
Transactions; 1(b) Shareholder Servicing
Arrangements;
Item 6. Capital Stock and Other
Securities..............(1-6) Dividends; (1-6) Capital Gains;
(1-6) Shareholder Information; (1-6)
Voting Rights; (1-6) Effect of Banking
Laws; (1-6) Tax Information; (1-6)
Federal Income Tax; (2) Louisiana
Municipal Income Fund - Additional Tax
Information.
Item 7. Purchase of Securities
Being Offered...........(1-6) Net Asset Value; (1-6) Investing
in the Funds; (1-6) Share Purchases; (1-
6) Minimum Investment Required; (1-6)
What Shares Cost; (1-6) Systematic
Investment Program; (1-6) Certificates
and Confirmations; (1-6) Reducing the
Sales Charge; (1-6) Exchanging
Securities for Fund Shares; (1) Other
Classes of Shares.
Item 8. Redemption or Repurchase.(1-6) Redeeming Shares; (1-6) Systematic
Withdrawal Program; (1-6) Accounts With
Low Balances; (1-6) Exchange Privilege.
Item 9. Pending Legal Proceedings None.
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page...............(1-6) Cover Page.
Item 11. Table of Contents........(1-6) Table of Contents.
Item 12. General Information and
History.................(1-6) General Information About the
Funds.
Item 13. Investment Objectives and
Policies................(1-6) Investment Objective and Policies
of the Funds.
Item 14. Management of the Fund...(1-6) Tower Mutual Funds Management; (1-
6) Trustees' Compensation.
Item 15. Control Persons and Principal
Holders of Securities...Not applicable.
Item 16. Investment Advisory and Other
Services................(1-6) Investment Advisory Service; (1-6)
Other Services; (1-6) Custodian; (1-6)
Transfer Agent and Dividend Disbursing
Agent and Portfolio Accounting Services;
(1-6) Independent Auditors.
Item 17. Brokerage Allocation.....(1-6) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities..............Not applicable.
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered.................(1-6) Purchasing Shares; (1-6)
Determining Net Asset Value; (1-6)
Redeeming Shares; (1-6) Exchange
Privilege.
Item 20. Tax Status...............(1-6) Tax Status.
Item 21. Underwriters.............(1-6) Distribution Plan 1(b) Shareholder
Services..
Item 22. Performance Data.........(1-6) Performance Comparisons.
Item 23. Financial Statements.....(1-6) Financial Statements.(Incorporated
by reference to Annual Report of
Registrant dated August 31, 1996; File
Nos.811-5536 and 33-21321)
TOWER CAPITAL APPRECIATION FUND
(A PORTFOLIO OF TOWER MUTUAL FUNDS)
CLASS B SHARES
PROSPECTUS
The shares of Tower Capital Appreciation Fund (the `Fund'') represent
interests in a diversified investment portfolio of Tower Mutual Funds (the
`Trust''), an open-end management investment company (a mutual fund). The
Fund invests primarily in a diversified portfolio of common stocks.
THE SHARES OFFERED BY THIS 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 FUND INVOLVES INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
This prospectus contains the information you should read and know before
you invest in Class B Shares (`Shares'') of the Fund. Keep this
prospectus for future reference.
Additional information about the Fund is contained in the Trust's
Statement of Additional Information dated November 30, 1996, which has
also been filed with the Securities and Exchange Commission (`SEC''). The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Statement of Additional Information free of charge, obtain other
information, or make inquiries about the Fund by writing to the Fund or
calling toll-free 1-800-999-0124. The Statement of Additional Information,
material incorporated by reference into this document, and other
information regarding the Fund is maintained electronically with the SEC at
Internet Web site (http://www.sec.gov).
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 November 30, 1996
SUMMARY OF FUND EXPENSES
TOWER CAPITAL APPRECIATION FUND
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price)..................................None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of
offering price)....................None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or
redemption proceeds, as applicable) (1)..........
.............................................................. 5.50%
Redemption Fee (as a percentage of amount redeemed, if applicable)
........................................None
Exchange Fee........................................ None
ANNUAL CLASS B SHARES OPERATING EXPENSES *
(As a percentage of projected average net assets)
Management Fee...................................... 0.75%
12b-1 Fee........................................... 0.75%
Other Expenses...................................... 0.51%
Shareholder Services Fee ............0.25%
Total Class B Shares Operating Expenses .......
2.01%
(1) The contingent deferred sales charge is 5.50% in the first year
declining to 1.00% in the sixth year and 0.00% thereafter.
* The Total Class B Shares Operating Expenses in the table above are based
on expenses expected to be incurred during the fiscal year ending August
31, 1997.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Class B Shares 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 Fund.'' Wire-transferred redemptions of less than
$5,000 may be subject to additional fees.
Long-term shareholders invested in the Class B Shares may pay more than
the economic equivalent of the maximum front-end sales charges permitted
under the rules of the National Association of Securities Dealers, Inc.
EXAMPLE 1 year 3 years
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and (2) redemption
at the end of each time period:.....$ 77 $ 107
1 year 3 years
You would pay the following on the same investment,
assuming no redemptions:............$ 20$ 63
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THIS EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING
AUGUST 31, 1997.
SUMMARY OF FUND EXPENSES
TOWER CAPITAL APPRECIATION FUND
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) (1)..............................4.50%
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of
offering price)....................None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or
redemption proceeds, as applicable)..........
.............................................................. None
Redemption Fee (as a percentage of amount redeemed, if applicable)
........................................None
Exchange Fee........................................ None
ANNUAL CLASS A SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee...................................... 0.75%
12b-1 Fee........................................... 0.25%
Other Expenses...................................... 0.24%
Total Class A Shares Operating Expenses .......
1.24%
(1) Programs are available for reducing the front-end sales charge on
purchases of Class A Shares.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Class A Shares 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 Fund.'' Wire-transferred redemptions of less than
$5,000 may be subject to additional fees.
EXAMPLE 1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return; (2) redemption
at the end of each time period; and (3) payment of the
maximum sales charge of 4.50%: ....$ 57 $ 83 $ 110 $ 188
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
CLASS A SHARES
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 10, 1996 on the Fund's financial statements is incorporated by
reference to the Annual Report dated
August 31, 1996.
This table should be read in conjunction with the Fund's financial
statements and notes thereto, which may be obtained
from the Fund.
YEAR ENDED AUGUST 31,
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991 1990 1989(A)
NET ASSET
VALUE, $ 16.09 $ 13.81 $ 14.60 $14.02$14.35 $1.93 $2.94 $0.17
BEGINNING OF
PERIOD
INCOME FROM
INVESTMENT
OPERATIONS
Net investment 0.19 0.22 0.23 0.30 0.29 0.33 0.38 0.33
income
Net realized
and
unrealized gain2.62 2.54 0.36 2.00 0.11 2.45 (0.76) 2.68
(loss) on
investments
Total from
investment 2.81 2.76 0.59 2.30 0.40 2.78 (0.38) 3.01
operations
LESS
DISTRIBUTIONS
Distributions
from net (0.19) (0.21) (0.25) (0.30) (0.27) (0.36) (0.39) (0.24)
investment
income
Distributions
in excess of ---- ---- ---- ---- ---- ---- (0.02)(e ----
net investment )
income
Distributions
from net
realized gain (0.84) (0.27) (1.13) (1.42) (0.46) ----- (0.22) -----
on
investments
Total (1.03) (0.48) (1.38) (1.72) (0.73) (0.36) (0.63) (0.24)
distributions
NET ASSET VALUE,
END OF PERIOD $7.87 $ 16.09 $ 13.81 $14.60 $14.02 $4.35 $1.93 $2.94
TOTAL RETURN (B)18.03% 20.71% 4.27% 17.89% 2.93% 23.77% (3.11%) 32.29%
RATIOS TO
AVERAGE NET
ASSETS
Expenses 1.24% 1.25% 1.09% 0.85% 0.83% 0.74% 0.42% 0.56%(d)
Net investment 1.08% 1.46% 1.67% 2.10% 1.99% 2.58% 3.06% 4.00%(d)
income
Expense waiver ---- ---- ---- 0.18% 0.25% 0.29% 0.75% 0.83%(d)
(c)
SUPPLEMENTAL
DATA
Net assets, end
of period $69,648 $ 144,47 $ 139,08$140,808 $73,653 87,927 $0,448 $8,093
(000 omitted) 6 1
Average
commission $.0632 ---- ---- ---- ---- ---- ---- ----
rate paid
Portfolio 69% 69% 118% 127% 163% 124% 123% 70%
turnover
</TABLE>
(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 charge 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.
(d) Computed on an annualized basis.
(e) These distributions in excess of net investment income were a result
of certain book and tax timing differences. These
distributions do not represent a return of capital for federal tax
purposes.
GENERAL INFORMATION
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. With respect to this
Fund, as of the date of this prospectus, the Board of Trustees (the
`Trustees'') has established two classes of shares, known as Class A
Shares and Class B Shares. This prospectus relates only to Class B Shares
of the Fund. The Fund is designed for institutions and individuals as a
convenient means of accumulating an interest in a professionally managed,
diversified portfolio primarily consisting of common stocks.
For information on how to purchase Shares of the Fund, please refer to
"Investing in the Fund." The minimum initial investment for Class B Shares
of the Fund is $1,000. See "Minimum Investment Required."
Class B Shares are sold at net asset value. However, a contingent deferred
sales charge is imposed on certain Shares which are redeemed within six
full years of purchase. See `How to Redeem Shares.''
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the 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.
The investment objective of the Fund cannot be changed without the
approval of holders of a majority of the Fund's shares. While there is no
assurance that the Fund will achieve its investment objective, it endeavors
to do so by following the investment policies described in this prospectus.
Unless indicated otherwise, the investment policies of the Fund may be
changed by the Trustees without approval of shareholders. Shareholders
will be notified before any material change in these policies becomes
effective.
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:
o 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;
o preferred stocks, corporate bonds, notes, warrants, rights, and
convertible securities of these companies; and
o 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, Strategies, and
Limitations."
PORTFOLIO INVESTMENTS, STRATEGIES, AND LIMITATIONS
BORROWING MONEY
The Fund will not borrow money directly or through reverse repurchase
agreements (arrangements in which the 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, the Fund
may borrow up to one-third of the value of its total assets. The Fund may
pledge up to 15% of the value of its assets to secure such borrowings. This
policy cannot be changed without the approval of holders of a majority of
the Fund's shares.
FOREIGN SECURITIES
The 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 Fund's 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 Fund's standards and
objective. The Fund 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 Fund may invest in the securities of other open-end investment
companies, as well as closed-end investment companies. The Fund, however,
will not own more than 3% of the total outstanding voting stock of any
investment company, invest more than 5% of its total assets in any one
investment company, or invest more than 10% of its total assets in
investment companies in general.
The Fund 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 the Fund in shares of
another investment company would be subject to such duplicate expenses. The
Fund will invest in other investment companies primarily for the purposes
of investing its short-term cash on a temporary basis. The Fund's
investment 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, the Fund may lend portfolio securities on a
short-term or long-term basis, or both, up to one-third of the value of its
total assets to broker/dealers, banks, or other institutional borrowers of
securities. The Fund 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 without the approval of holders of
a majority of the Fund's shares.
There is the risk that when lending portfolio securities, the securities
may not be available to the 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 Fund may engage in or reserve the right to engage in put and call
options. The Fund may purchase put and call options on its portfolio
securities. These options will be used as a hedge to attempt to protect
securities which the Fund holds or will be purchasing against decreases or
increases in value. The Fund may also write (sell) put and call options on
all or any portion of its portfolio to generate income for the Fund. The
Fund will write call options on securities either held in its portfolio or
which it has 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
Fund will segregate cash or U.S. Treasury obligations with a value equal to
or greater than the exercise price of the underlying securities. The Fund
will limit its purchase of options so that not more than 20% of its net
assets will be invested in option premiums. The 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 Fund 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 the Fund
are not traded on an exchange. The Fund purchases and writes options only
with investment dealers and other financial institutions (such as
commercial banks or savings associations) deemed creditworthy by the Fund's
investment 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 Fund may engage in or reserve the right to engage in financial futures
and options on futures. The Fund may purchase and sell financial futures
contracts to hedge all or a portion of its portfolio of securities against
changes in interest rates or as a hedge to attempt to protect securities
which the Fund holds against decreases in value. For the immediate future,
the 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 Fund may write call options and purchase put options on financial
futures contracts as a hedge to attempt to protect securities in its
portfolio against decreases in value resulting from anticipated increases
in market interest rates. When the 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,
the Fund is entitled (but not obligated) to sell a futures contract at the
fixed price during the life of the option.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the
Fund's existing futures position and premiums paid for related options
would exceed 5% of the market value of the Fund's total assets. When the
Fund purchases futures contracts an amount of cash and cash equivalents
equal to the underlying commodity value of the futures contracts (less any
related margin deposits) 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 the 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 the 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 the 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 Fund's ability to establish and close out futures and
options positions depends on this secondary market.
REPURCHASE AGREEMENTS
The Fund 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 the Fund and agree at the time of sale to repurchase
them at a mutually agreed upon time and price within one year from the date
of acquisition. The Fund or its custodian will take possession of the
securities subject to repurchase agreements and these securities will be
marked to market daily.
To the extent that the original seller does not repurchase the securities
from the Fund, the Fund could receive less than the repurchase price on any
sale of such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under
the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The Fund will only enter into repurchase
agreements with banks and other recognized financial institutions such as
broker/dealers which are deemed by the Fund's investment adviser to be
creditworthy pursuant to guidelines established by the Trustees.
RESTRICTED AND ILLIQUID SECURITIES
The 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.
Restricted securities are any securities in which the Fund may otherwise
invest pursuant to its investment objective and policies but which are
subject to restriction on resale under federal securities law.
The 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 its net assets.
TEMPORARY INVESTMENTS
During times of unusual market conditions, for defensive purposes and to
maintain liquidity, the Fund may invest in cash and money market
instruments, such as the following:
o prime commercial paper (rated A-2 or above by Standard & Poor's
Ratings Group, Prime-2 or above by Moody's Investors Service,
Inc., or F-2 or above by Fitch Investors Service, Inc.) 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 nationally recognized statistical rating
organizations, 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;
o instruments of domestic and foreign banks and savings associations
having capital, surplus, and undivided profits of over $100
million or if the principal amount of the instrument is insured by
the Federal Deposit Insurance Corporation (``FDIC'') or the
Savings Association Insurance Fund (``SAIF''). These instruments
include certificates of deposit, demand and time deposits, savings
shares, Eurodollar Certificates of Deposit, Eurodollar Time
Deposits, Canadian Time Deposits, and bankers' acceptances;
o securities issued and/or guaranteed as to payment of principal and
interest by the U.S. government, its agencies or
instrumentalities;
o repurchase agreements; and
o 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.
U.S. GOVERNMENT SECURITIES
The types of U.S. government securities in which the Fund 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 are backed by the full
faith and credit of the U.S. Treasury. Obligations of Federal Home Loan
Banks 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, Federal Farm Credit System, including the
National Bank for Cooperatives and Banks for Cooperatives, Tennessee Valley
Authority, Export-Import Bank of the United States, Commodity Credit
Corporation, Federal Financing Bank, Federal National Mortgage
Association, 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 Fund may purchase securities on a when-issued or delayed delivery
basis. These transactions are arrangements in which the Fund purchases
securities with payment and delivery scheduled for a future time. The Fund
engages in when-issued and delayed delivery transactions only for the
purpose of acquiring portfolio securities consistent with the Fund's
investment objective and policies, not for investment leverage. The
seller's failure to complete these transactions may cause the Fund to miss
a price or yield considered to be advantageous. Settlement dates may be a
month or more after entering into these transactions, and the market values
of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more/less than the market value of the
securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the investment
adviser deems it appropriate to do so. In addition, the Fund may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits
or losses upon the sale of such commitments.
As a matter of operating policy, which may be changed without shareholder
approval, the 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 the Fund's net assets will
not result in a violation of any of the above restrictions.
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.
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 the Trust's business affairs and
for exercising all the Trust's 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 Fund are made by Hibernia
National Bank, the Fund's investment adviser (the "Adviser"), subject to
direction by the Trustees. The Adviser continually conducts investment
research and supervision for the Fund and is responsible for the purchase
or sale of portfolio instruments, for which it receives an annual fee from
the assets of the Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory
fee at an annual rate equal to 0.75 of 1% of the Fund's average
net assets. The Adviser may voluntarily choose to waive a portion of
its fee or reimburse the 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 at its sole
discretion. The Adviser has also undertaken to reimburse the Fund
for operating expenses in excess of limitations established by
certain states.
ADVISER'S BACKGROUND. Hibernia National Bank, a national bank
organized in 1890, is a wholly owned subsidiary of Hibernia
Corporation ("Hibernia"). Hibernia National Bank has acted as
investment adviser to the Trust since its inception in 1988. Through
its subsidiaries and affiliates, Hibernia offers a full range of
financial services to the public, including commercial lending,
depository services, cash management, retail banking, credit card
services, mortgage banking, discount brokerage, investment
counseling, international banking, and trust services.
Hibernia National Bank has been ranked by the American Banker
newspaper as the 81st largest U.S. Bank according to December 31,
1995, total deposits. The 1995 Money Market Directory of Pension
Funds ranked Hibernia National Bank among the top 25% of the largest
of nearly 200 bank and trust company managers of tax-exempt funds in
the United States. As of March 31, 1996, the Trust Group had $4.97
billion under administration of which it had investment discretion
over $1.7 billion. The Trust Group has managed pools of commingled
funds since 1966; as of March 31, 1996, the Trust Group managed
seven such investment pools, as well as the six Tower Mutual Funds.
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 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.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for shares of the
Fund. It is a Pennsylvania corporation organized on November 14, 1969, and
is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
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 associations) to provide administrative services. Fees
paid by the distributor for these services with respect to Class B Shares
will be reimbursed by the Fund up to 0.75 of 1% of average daily net assets
of Class B Shares.
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 Class B 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 Class B 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 the Fund relate directly to the net asset value of the Shares,
it is possible that fees paid by the Fund may be used to provide similar
services for other of the Trust's funds. In addition, the 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 distributor may sell, assign or pledge its right to receive Rule 12b-1
fees and contingent deferred sales charges to finance payments made to
brokers in connection with the sale of Class B Shares. Actual distribution
expenses for Class B Shares at any given time may exceed the Rule 12b-1
fees and payments received pursuant to contingent deferred sales charges.
These unrecovered amounts, plus interest thereon, will be carried forward
and paid from future Rule 12b-1 fees and payments received through
contingent deferred sales charges. If a distribution plan were terminated
or not continued, the Fund would not be contractually obligated to pay for
any expenses not previously reimbursed by the Fund or recovered through
contingent deferred sales charges.
The Glass-Steagall Act limits the ability of a depository institution (such
as a commercial bank or a savings 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.
SHAREHOLDER SERVICING ARRANGEMENTS
Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of
Federated Investors, is shareholder servicing agent (the "Shareholder
Servicing Agent") for Shares of the Fund. The Fund may pay the Shareholder
Servicing Agent a fee based on the average daily net asset value of Shares
for which it provides shareholder services. These shareholder services
include, but are not limited to, distributing prospectuses and other
information, providing shareholder assistance and communicating or
facilitating purchases and redemptions of Shares. This fee will be computed
at an annual rate equal to 0.25 of 1% of Class B Shares' average daily net
assets; however, the Shareholder Servicing Agent may choose voluntarily to
waive all or a portion of its fee at any time or pay all or some of its
fees to financial institutions or other financial service providers.
FUND ADMINISTRATION
Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of
Federated Investors, provides the Fund with certain administrative
personnel and services necessary to operate the Fund, such as legal and
accounting services. Federated Services Company provides these at an annual
rate as specified below:
MAXIMUM
ADMINISTRATIVE AVERAGE AGGREGATE DAILY
FEE NET ASSETS OF THE TRUST
.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
The administrative fee received during any fiscal year shall be at least
$50,000 per Fund. Federated Services Company may voluntarily choose to
waive a portion of its fee.
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. In selecting among firms believed to meet
these criteria, the Adviser may give consideration to those firms
which have sold or are selling shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions
on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
EXPENSES OF THE FUND AND CLASS B SHARES
Holders of Class B Shares pay their allocable portion of Trust and
Fund expenses.
The Trust expenses for which holders of Shares pay their allocable
portion include, but are not limited to the cost of: organizing the
Trust and continuing its existence; registering the Trust; Trustees'
fees; auditors' fees; meetings of Trustees; legal fees of the Trust;
association membership dues and such non-recurring and extraordinary
items as may arise.
Fund expenses for which holders of Class B Shares pay their allocable
portion based on average daily net assets include, but are not limited
to: registering a Fund and shares of the Fund; investment advisory
services; taxes and commissions; custodian fees; insurance premiums;
auditors' fees; and such non-recurring and extraordinary items as may
arise.
At present, the only expenses allocated to Class B Shares are expenses
under the Distribution Plan and the Shareholder Services Plan. The Trustees
reserve the right to allocate certain expenses to holders of Shares as they
deem appropriate (`Class Expenses''). In any case, Class Expenses would be
limited to: transfer agent fees as identified by the transfer agent as
attributable to holders of Class B Shares; printing and postage expenses
related to preparing and distributing materials such as shareholder
reports, prospectuses and proxies to current shareholders; registration
fees paid to the Securities and Exchange Commission and to state securities
commissions; expenses related to administrative personnel and services as
required to support holders of Class B Shares; legal fees relating solely
to Class B Shares; and Trustees fees incurred as a result of issues
relating solely to Class B Shares.
NET ASSET VALUE
On Monday through Friday, the Fund determines 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.
Net asset value per share fluctuates. The net asset value per share of each
class is determined by dividing the sum of the interest of a class of
shares in the market value of all securities and other assets of the Fund,
less liabilities atttributable to that class of shares, by the number of
shares outstanding within that class. The net asset value of Class A
Shares and Class B Shares of the Fund may differ slightly due to the
variability in daily net income resulting from different distribution
charges.
INVESTING IN THE FUND
SHARE PURCHASES
Shares of the Fund are sold on days on which the New York Stock Exchange is
open for business. Class B Shares may be purchased through Hibernia
Investment Securities, Inc. (`HISI'') or through brokers or dealers that
have a sales agreement with the distributor. In connection with the sale of
Shares, the distributor may from time to time offer certain items of
nominal value to any shareholder or investor. The Fund reserves the right
to reject any purchase request.
THROUGH HISI AND AUTHORIZED BROKER/DEALERS. An investor may place an order
through HISI and authorized broker/dealers to purchase Shares. Shares will
be purchased at the public offering price next determined after the Fund
receives the purchase request from HISI, which, in most cases, forwards the
request to the transfer agent. Purchase requests through registered
broker/dealers must be received by HISI 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. It is the responsibility of HISI or
broker/dealers to transmit orders to the Fund in a timely manner.
Federal funds should be wired as follows: Hibernia Investment Securities,
Inc., New Orleans, Louisiana; for Credit to: include Fund name and class
designation, Title or name of account; and Wire Order Number. Shares
cannot be purchased by wire on holidays when wire transfers are restricted.
Questions on wire purchases should be directed to your shareholder services
representative at the telephone number listed on your account statement.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund by an investor is $1,000.
Subsequent investments must be in amounts of at least $100. The Fund may
choose to waive the minimum investment requirements for Hibernia National
Bank or its affiliates and for directors and employees of Hibernia National
Bank.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received.
Shares are sold without an initial sales charge, but are subject to a
contingent deferred sales charge of up to 5.50% if redeemed within six full
years following the purchase date. Shares also bear a Rule 12b-1 fee.
Class B Shares will automatically convert into Class A Shares, based on
relative net asset value, on or around the fifteenth of the month, eight
full years after the purchase date. Shares provide an investor the benefit
of putting all of the investor's dollars to work from the time the
investment is made, but, until conversion, will have a higher expense ratio
and pay lower dividends than Class A Shares due to a higher Rule 12b-1 fee
and shareholder services fee.
Shares redeemed within six years of their purchase will be subject
to a contingent deferred sales charge according to the following
schedule:
Year of Redemption Contingent
Deferred
After Purchase Sales Charge
First......................... 5.5%
Second........................ 4.5%
Third..........................4%
Fourth.........................3%
Fifth..........................2%
Sixth..........................1%
Seventh and thereafter.........0%
No contingent deferred sales charge will be imposed on: (1) the
portion of redemption proceeds attributable to increases in the value
of the account due to increases in the net asset value per Share, (2)
Shares acquired through reinvestment of dividends and capital gains,
(3) Shares held for more than six years after the end of the calendar
month of acquisition, (4) accounts following the death or disability
of a shareholder, or (5) minimum required distributions to a
shareholder over the age of 70 1/2 from an IRA or other
retirement plan.
CONVERSION FEATURE
Class B Shares include all Shares purchased pursuant to the contingent
deferred sales charge alternative which have been outstanding for less
than the period ending eight years after the end of the month in which
the shareholder's order to purchase Class B Shares was accepted. At
the end of this eight year period, Class B Shares may automatically
convert to Class A Shares, in which case the Shares will be subject to
a lower Rule 12b-1 distribution fee which is assessed on Class A
Shares. Such conversion will be on the basis of the relative net asset
values of the two classes, without the imposition of any sales charge,
fee or other charge. The purpose of the conversion feature is to
relieve the holders of the Class B Shares that have been outstanding
for a period of time sufficient for the distributor to have been
compensated for distribution expenses related to the Class B Shares
from most of the burden of such distribution-related expenses.
For purposes of conversion to Class A Shares, Class B Shares purchased
through the reinvestment of dividends and distributions paid on Class B
Shares in a shareholder's Fund account will be considered to be held in a
separate sub-account. Each time any Class B Shares in the shareholder's
Fund account (other than those in the sub-account) convert to Class A
Shares, an equal pro rata portion of the Class B Shares in the sub-account
will also convert to Class A Shares.
SALES CHARGE REALLOWANCE. For sales of Class B Shares, HISI and any
authorized dealer will normally receive up to 100% of the contingent
deferred sales charge. Any portion of the contingent deferred sales charge
which is not paid to HISI or a dealer will be retained by the distributor.
However, the distributor, in its sole discretion, may uniformly offer to
pay to HISI or a dealer selling Shares, all or a portion of the contingent
deferred sales charge it normally retains. If accepted by HISI or a dealer,
such additional payments will be predicated upon the amount of 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 Fund 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, HISI, 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.
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 Shares at the net asset
value next determined after an order is received. A shareholder may apply
for participation in this program through HISI.
EXCHANGING SECURITIES FOR FUND SHARES
The Fund may accept securities in exchange for Shares. The Fund will allow
such exchanges only upon the prior approval of the Fund and a determination
by the Fund and the Adviser that the securities to be exchanged are
acceptable.
Any securities exchanged must meet the investment objective and policies of
the Fund, must have a readily ascertainable market value, 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, through its
subsidiary Federated Shareholder Services Company, maintains a share
account for each shareholder of record. Share certificates are not issued
unless requested by contacting HISI in writing.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during
that month.
DIVIDENDS
Dividends are declared and paid quarterly to all shareholders in the Fund
on the record date. Dividends are automatically reinvested in additional
shares of the Fund on payment dates at the ex-dividend date net asset
value , unless cash payments are requested by writing to the Fund or HISI.
CAPITAL GAINS
Capital gains realized by the Fund, if any, will be distributed at least
once every 12 months.
REDEEMING SHARES
The Fund redeems Class B Shares at their net asset value, less any
applicable contingent deferred sales charge, next determined after the
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
HISI, an authorized broker/dealer or directly to the Fund.
BY TELEPHONE. A shareholder may redeem Shares by calling HISI 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 HISI. Redemption instructions given by telephone may be electronically
recorded.
Redemption requests through HISI or a broker/dealer must be received by the
Fund before 3:00 p.m. (Central Standard Time) in order for Shares to be
redeemed at that day's net asset value. HISI or the broker/dealer is
responsible for promptly submitting redemption requests and providing
proper written redemption instructions to the Fund. Registered
broker/dealers may charge customary fees and commissions for this service.
Proceeds be wired within five days after a proper request for redemption
has been received. Proceeds from redemption requests received on holidays
when wire transfers are restricted will be wired the following business
day. Questions about telephone redemptions on days when wire transfers are
restricted should be directed to your shareholder services representative
at the telephone number listed on your account statement.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from HISI or the distributor. If reasonable procedures are not
followed by the Funds, they may be liable for losses due to unauthorized or
fraudulent telephone instructions.
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.
BY MAIL. Shareholders may redeem Shares by sending a written request to
HISI. The written request should include the shareholder's name, the Fund
name and Class designation, 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 HISI. Shareholders should call HISI for assistance
in redeeming by mail.
Shareholders requesting a redemption of any amount to be sent to an
address other than that on record with the Fund, or a redemption payable
other than to the shareholder of record must have signatures on written
redemption requests guaranteed by:
o a trust company or commercial bank whose deposits are insured by
the Bank Insurance Fund, which is administered by the FDIC;
o a member firm of the New York, American, Boston, Midwest, or
Pacific Stock Exchange;
o a savings bank or savings association whose deposits are insured
by the SAIF, which is administered by the FDIC; or
o any other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934.
The Fund does 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 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 Shares, and the fluctuation of the net asset
value of Shares redeemed under this program, redemptions may reduce, and
eventually deplete, the shareholder's investment in the Fund. For this
reason, payments under this program should not be considered as yield or
income on the shareholder's investment in the 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 HISI. A contingent deferred sales charge may be imposed on Class B
Shares.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund
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 the net asset value of
the Fund. 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 the Fund gives the shareholder one vote in Trustee elections
and other matters submitted to shareholders for vote. All shares of each
class of the Fund have equal voting rights, except that in matters
affecting only a particular class, only shareholders of that class 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.
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.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit a bank holding company registered under the Bank Holding Company
Act of 1956 or any affiliate thereof from sponsoring, organizing or
controlling a registered, open-end investment company continuously engaged
in the issuance of its shares, and from issuing, underwriting, selling or
distributing securities in general. Such laws and regulations do not
prohibit such a holding company or affiliate 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
their customers.
Some entities providing services to the Trust are subject to such banking
laws and regulations. They believe, based on the advice of their counsel,
that they may perform those services for the Trust contemplated by any
agreement entered into with the Trust without violating those 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 present or future statutes and regulations, could
prevent these entities from continuing to perform all or a part of the
above services. If this happens, the Trustees would consider alternative
means of continuing available services. It is not expected that
shareholders would suffer any adverse financial consequences as a result of
any of these occurrences.
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.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because the 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.
The Fund will be treated as a single, separate entity for federal income
tax purposes so that income (including capital gains) and losses realized
by the 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.
OTHER STATE AND LOCAL TAXES
Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
OTHER CLASSES OF SHARES
The Tower Capital Appreciation Fund also offers Class A Shares. Class A
Shares are sold at net asset value plus a sales charge primarily to
institutions and individuals and are subject to a minimum initial
investment of $1,000. Programs are available for reducing the front-end
sales charge on purchases of Class A Shares.
Both classes are subject to certain of the same expenses.
Class A Shares are distributed under a 12b-1 Plan adopted by the Trust.
Expenses differences between classes may affect the performance of each
class.
To obtain more information and a prospectus for Class A Shares, investors
may call 1-800-999-0124.
PERFORMANCE INFORMATION
From time to time the Fund may advertise its total return and yield for
each class of shares.
Total return represents the change, over a specified period of time, in the
value of an investment in the 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 the Fund is calculated by dividing the net investment income
per Share (as defined by the Securities and Exchange Commission) earned by
the 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.
Total return and yield will be calculated separately for Class A Shares and
Class B Shares. Expense differences between Class A Shares and Class B
Shares may affect the performance of each class.
The performance information reflects the effect of non-recurring charges,
such as the contingent deferred sales charge which, if excluded, would
increase the total return and yield. Occasionally, performance information
which does not reflect the effect of the contingent deferred sales charge
may be quoted in advertising. From time to time, advertisements for the
Fund may refer to ratings, rankings, and other information in certain
financial publications and/or compare the Fund's performance to certain
indices.
ADDRESSES
Tower Capital Appreciation Fund
Class B Shares
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 Shareholder Services Company
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
G00858-01-B (11/96)
Federated Securities Corp.
Distributor
TOWER MUTUAL FUNDS
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the following six
portfolios (individually or collectively referred to as the `Fund'' or
`Funds'') of Tower Mutual Funds (the ``Trust''):
Tower Capital Appreciation Fund;
Class A Shares
Class B Shares
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.
This Statement should be read with the prospectuses of the Funds dated
October 31, 1996 and November 30, 1996. This Statement is not a
prospectus. You may request a copy of a prospectus, free of charge by
calling 1-800-999-0124.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated November 30, 1996
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.
TOWER CASH RESERVE FUND AND 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 INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the Funds
and is a subsidiary of Federated Investors.
Cusip 891836108
Cusip 891836306
Cusip 891836504
Cusip 891836405
Cusip 891836207
Cusip 891836603
006897 (11/96)
TABLE OF CONTENTS
GENERAL INFORMATION ABOUT THE FUNDS 1
INVESTMENT OBJECTIVE AND POLICIES OF THE FUNDS 1
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS 1
LENDING OF PORTFOLIO SECURITIES 1
REVERSE REPURCHASE AGREEMENTS 1
FUTURES AND OPTIONS TRANSACTIONS 1
RESTRICTED SECURITIES 4
WARRANTS 4
LOUISIANA MUNICIPAL BOND INSURERS 4
ZERO COUPON SECURITIES 5
RATINGS 5
CREDIT ENHANCEMENT 5
PORTFOLIO TURNOVER 6
INVESTMENT LIMITATIONS 6
REGULATORY COMPLIANCE 11
TOWER MUTUAL FUNDS MANAGEMENT 12
OFFICERS AND TRUSTEES 12
FUND OWNERSHIP 13
TRUSTEES COMPENSATION 13
TRUSTEE LIABILITY 13
INVESTMENT ADVISORY SERVICE 14
ADVISER TO THE TRUST 14
ADVISORY FEES 14
BROKERAGE TRANSACTIONS 14
OTHER SERVICES 15
TRUST ADMINISTRATION 15
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO
ACCOUNTING SERVICES 15
CUSTODIAN 15
INDEPENDENT AUDITORS 15
PURCHASING SHARES 15
DISTRIBUTION PLAN 16
SHAREHOLDER SERVICES (CAPTIAL APPRECIATION
FUND-CLASS B SHARES) 16
CONVERSION TO FEDERAL FUNDS 16
DETERMINING NET ASSET VALUE 16
DETERMINING MARKET VALUE OF SECURITIES 17
USE OF THE AMORTIZED COST METHOD 17
MONITORING PROCEDURES 17
INVESTMENT RESTRICTIONS 17
EXCHANGE PRIVILEGE 18
REQUIREMENTS FOR EXCHANGE 18
MAKING AN EXCHANGE 18
REDEEMING SHARES 18
REDEMPTION IN KIND 18
MASSACHUSETTS PARTNERSHIP LAW 18
TAX STATUS 19
THE FUNDS' TAX STATUS 19
SHAREHOLDERS' TAX STATUS 19
CAPITAL GAINS 19
TOTAL RETURN 19
YIELD 20
TAX-EQUIVALENT YIELD 21
PERFORMANCE INFORMATION 21
ECONOMIC AND MARKET INFORMATION 23
FINANCIAL STATEMENTS 23
APPENDIX 24
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 Cash Reserve Fund, the ``Money Market Funds'').
Capital Appreciation Fund currently offers two classes of shares,which are
designated as Class A Shares and Class B Shares .
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. 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 on
futures as discussed for those Funds in the prospectus. For purposes of
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.
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 Funds 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
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
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.
RATINGS
A nationally recognized statistical rating organization's ("NRSROs")
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 Investors Service (`Fitch'') are all
considered to be rated in the highest short-term rating category. Cash
Reserve 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
Cash Reserve 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. However, the credit-enhanced securities will not be
treated as having been issued by the credit enhancer for diversification
purposes unless the Fund has invested more than 10% of its assets in
securities issued, guaranteed or otherwise credit enhanced by the credit
enhancer, in which case the securities will be treated as having been
issued by both the issuer and the credit enhancer. The Fund may have more
than 25% of its total assets invested in securities credit enhanced by
banks.
PORTFOLIO TURNOVER
Capital Appreciation Fund's portfolio turnover rate for the fiscal years
ended August 31, 1996, and 1995 were 69% and 69%, respectively.
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, 1996 and 1995,
the portfolio turnover rates were 17% and 22%, respectively.
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, 1996 and 1995, the portfolio turnover rates were 38%
and 91%, respectively.
Although 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, 1996 and 1995, the portfolio turnover rates were 27%
and 5%, respectively.
INVESTMENT LIMITATIONS
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the value of its total assets, 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.)
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 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.
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.
With respect to securities comprising 75% of the value of its total
assets, 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 U.S. branch of a domestic 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
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. 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. 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
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
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.
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.
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.
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.
Cash Reserve Fund will not invest in commodities or commodity
contracts.
U.S. Treasury Money Market Fund will not buy or sell commodities,
commodity contracts, or commodities futures contracts.
ISSUING SENIOR SECURITIES AND BORROWING
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 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. With respect to Cash
Reserve Fund, if a percentage limit is adhered to at the time of
investment, a later increase or decrease in percentage resulting from
any change in value of net assets will not result in a violation of
such restriction.
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.
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
Capital Appreciation Fund, Louisiana Municipal 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.
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.
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
pledges 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
Capital Appreciation Fund will not 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.
Louisiana Municipal Income Fund 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.
Total Return Bond Fund and U.S. Government Income Fund 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 a 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.
Cash Reserve Fund will not sell any money market instruments short or
purchase any money market instruments on margin but may obtain such
short-term credits as may be necessary for clearance of purchases and
sales of money market instruments.
UNDERWRITING
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.
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.
Cash Reserve Fund will not engage in underwriting of securities issued
by others.
INVESTING IN REAL ESTATE
Capital Appreciation Fund and Louisiana Municipal Income Fund will not
purchase or sell real estate 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.
Total Return Bond and U.S. Government Income Fund will not buy or sell
real estate, including limited partnership interests, 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.
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, Cash Reserve Fund
will not invest in real estate limited partnerships. (If state
requirements change, this limitation may be revised without notice to
shareholders.)
U.S. Treasury Money Market Fund will not purchase or sell real estate,
including limited partnership interests.
LENDING CASH OR SECURITIES
Capital Appreciation Fund will not lend any of its assets, except
portfolio securities . This shall not prevent the purchase or holding
of 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 or the declaration of trust.
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.
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.
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.
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.
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 the
declaration of trust.
INVESTING IN MINERALS
Capital Appreciation Fund and Louisiana Municipal Income Fund will not
invest in interests in oil, gas, or other mineral exploration or
development programs, other than debentures or equity stock interests.
U.S. Government Income Fund will not purchase or sell oil, gas, or
other mineral exploration or development programs.
INVESTING IN RESTRICTED SECURITIES
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.
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
Capital Appreciation Fund will not invest more than 5% of its 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. (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
investment 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.
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
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.
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.
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
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.)
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.
INVESTING IN MINERALS
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.
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, 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.)
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.)
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.
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.
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.
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.
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 the prospectus and this 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. 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. Except as otherwise noted, the
Funds may change these operational policies to reflect changes in the laws
and regulations without the approval of their shareholders.
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
Birthdate: October 22, 1930
President, Trustee and Treasurer
Vice Chairman, Treasurer and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research, and Passport Research Ltd.;
Executive Vice President and Director, Federated Securities Corp.;
Chairman, Federated Services Company; Trustee, Federated Shareholder
Services; Chairman, Treasurer and Trustee, Federated Administrative
Services; Executive Vice President and Treasurer and/or Trustee or Director
of certain investment companies advised or distributed by affiliates of
Federated Investors.
Robert L. diBenedetto, M.D.
781 Colonial Drive
Baton Rouge, LA
Birthdate:
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
Birthdate:
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 +
20 Dogwood Drive
Covington, LA
Birthdate: September 11, 1931
Trustee
Retired Managing Partner, New Orleans office, KPMG - Peat Marwick.
Jeffrey W. Sterling
Federated Investors Tower
Pittsburgh, PA
Birthdate: February 5, 1947
Vice President and Assistant Treasurer
Vice President and Director, Private Label Management, Federated
Administrative Services.
Peter J. Germain
Federated Investors Tower
Pittsburgh, PA
Birthdate: September 3, 1959
Secretary
Senior 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 18, 1996: Hibernia National Bank, New
Orleans, LA, acting in various capacities for numerous accounts, was the
owner of record of 1,885,839 shares (19.62%) of Class A Shares of Capital
Appreciation Fund, 387,329 shares (5.28%) of Total Return Bond Fund,
9,925,710 shares (5.67%) of Cash Reserve Fund and 7,481,970 shares (5.38%)
of U.S. Treasury Money Market Fund; Bost & Co., Pittsburgh, PA, for the
benefit of Hibernia National Bank, was the owner of record of 51,565,127
shares (29.45%) of Cash Reserve Fund and 26,226,315 shares (18.88%) of U.S.
Treasury Money Market Fund; and Bost & Co., c/o Mellon Bank N.A., was the
owner of record of 88,996,516 shares (50.82%) of Cash Reserve Fund and
46,295,431 shares (33.32%) 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, $10,200
Trustee
James A. Gayle, Sr., $12,000
Trustee
J. Gordon Reische, $12,000
Trustee
*Information is furnished for the fiscal year ended August 31, 1996. 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 prospectuses. 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, 1996 Waived-1996 Aug 31, 1995
Waived-1995 Aug 31, 1994 Waived-1994
Capital Appreciation Fund $1,204,309 $0 $1,018,267 $0
$1,048,592 $0
Louisiana Municipal
Income Fund $298,550$53,076 $314,904 $55,983 $ 384,286 $68,318
Total Return Bond Fund $501,491 $0 $491,566 $0 $
451,203 $0
U.S. Government
Income Fund $183,788 $24,505 $223,677 $29,824 $354,418 $47,256
Cash Reserve Fund $778,592 $0 $814,726 $0 $681,321 $0
U.S. Treasury Money
Market Fund $500,504$275,277 $341,980 $188,089 $ 164,112 $91,001
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.
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 guidelines established by the
Trustees. The Adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the
Funds or to the Adviser and may include; advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers may be used by the
Adviser or its affiliates in advising the Funds and other accounts. To the
extent that receipt of these services may supplant services for which the
Adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses. 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. For the fiscal
years ended August 31, 1996, 1995, and 1994, Capital Appreciation Fund paid
$238,669, $304,546, and $839,421, respectively, in brokerage commissions on
brokerage transactions.
Although investment decisions for the Funds are made independently from
those of other accounts managed by the Adviser, investments of the type the
Funds may make may also be made by those other accounts. When the Funds and
one or more other accounts managed by the Adviser are prepared to invest
in, or desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by the
Adviser to be equitable to each. In some cases, this procedure may
adversely affect the price paid or received by the Funds or the size of the
position obtained or disposed of by the Funds. In some cases, however, it
is believed that coordination and the ability to participate in volume
transactions will be to the benefit of the Funds.
OTHER SERVICES
TRUST ADMINISTRATION
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
voluntarily waived:
Year Ended Amount Year Ended Amount Year
Ended Amount
Fund Name Aug 31, 1996 Waived-1996 Aug 31, 1995 Waived-
1995 Aug 31, 1994 Waived-1994
Capital Appreciation Fund $206,816$0 $177,184 $0
$184,784 $0
Louisiana Municipal
Income Fund $85,488 $0 $ 91,349 $0 $112,857 $0
Total Return Bond Fund $92,287 $0 $ 91,672 $0 $
85,233 $0
U.S. Government
Income Fund $52,624 $0 $ 64,915 $0 $104,100 $0
Cash Reserve Fund $250,721 $0 $265,774 $0 $225,124 $0
U.S. Treasury Money
Market Fund $161,067 $0 $111,430 $0 $ 54,326 $1,781
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING
SERVICES
Federated Shareholder Services Company, Pittsburgh, Pennsylvania, a
subsidiary of Federated Services Company, 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 Shareholder Services Company receives a fee based on the size,
type, and number of accounts and transactions made by shareholders.
Federated Shareholder 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, New Orleans,
Louisiana, 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.
INDEPENDENT AUDITORS
The independent auditors for the Funds are Ernst & Young LLP, Pittsburgh,
Pennsylvania.
PURCHASING SHARES
Class A Shares of Capital Appreciation Fund and shares of Louisiana
Municipal Income Fund, Total Return Bond Fund, and U.S. Government Income
Fund are sold at their net asset value with a front end sales charge.
Class B Shares of Capital Appreciation Fund are sold at net asset value and
are subject to a contingent deferred sales charge within six full years of
purchase. 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 combined prospectus under "Investing in the Funds" and in
the Capital Appreciation Fund Class B Shares prospectus under `Investing
in the Fund.''
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.
For the fiscal year ended August 31, 1996, payments in the amount of
$401,436, $179,104, and $486,620 were made pursuant to the distribution
plans for Capital Appreciation Fund (Class A Shares), Total Return Bond
Fund, and Cash Reserve Fund, all of which were paid to financial
institutions.
SHAREHOLDER SERVICES (CAPTIAL APPRECIATION FUND-CLASS B SHARES)
The Shareholder Services Agreement permits the payment of fees to Federated
Shareholder Services to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular
circumstances and goals. These activities may include, but are not limited
to: marketing efforts; providing office space, equipment, telephone
facilities, and various clerical, supervisory, computer, and other
personnel as necessary or beneficial to establish and maintain shareholder
accounts and records; processing purchase and redemption transactions and
automatic investments of client account cash balances; answering routine
client inquiries; and assisting clients in changing dividend options,
account designations, and addresses. Other benefits, which may be realized
under either arrangement, may include: (1) providing personal services to
shareholders; (2) investing shareholder assets with a minimum of delay and
administrative detail; (3) enhancing shareholder recordkeeping systems; and
(4) responding promptly to shareholders' requests and inquiries concerning
their accounts.
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 or its affiliates act 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% 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.
Class B Shares of Capital Appreciation Fund are not eligble for exchange
into other funds.
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 the Fund at the number 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 the Fund
receives the redemption request. Shareholder redemptions for Capital
Appeciation Fund-Class B Shares may be subject to a contingent deferred
sales charge. Redemption procedures are explained in the prospectuses under
`Redeeming Shares.'' Although the Fund 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.
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.
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
computed 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 Class A Shares
for the one-year and five-year periods ended August 31, 1996 and for the
period from October 14, 1988 (date of initial public investment) to August
31, 1996 were 14.47%, 11.83 % and 13.82%, respectively.
Louisiana Municipal Income Fund's average annual total returns for the one-
year and five-year periods ended August 31, 1996, and, for the period from
October 14, 1988 (date of initial public investment) to August 31, 1996,
were 1.89%, 6.50%, and 6.93%, respectively.
Total Return Bond Fund's average annual total returns for the one-year
period ended August 31, 1996 and for the period from November 2, 1992 (date
of initial public investment) to August 31, 1996, were -0.18% and 4.56%,
respectively.
U.S. Government Income Fund's average annual total returns for the one-year
and five-year periods ended August 31, 1996 and for the period from October
14, 1988 (date of initial public investment) to August 31, 1996 were 0.64%,
5.36% and 7.19%, respectively.
Cash Reserve Fund's average annual total returns for the one-year and five-
year periods ended August 31, 1996 and for the period from October 14, 1988
(effective date of the Trust's registration statement) to August 31, 1996
were 4.79%, 3.74% and 5.32%, respectively.
U.S. Treasury Money Market Fund's average annual total return for the one-
year period and the period from July 19, 1993 (date of initial public
investment) to August 31, 1996 were 5.08% and 4.29%, 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 Class A Shares for the thirty-day
period ended August 31, 1996 was 1.04%.
Louisiana Municipal Income Fund's yield for the thirty-day period ended
August 31, 1996 was 4.97%.
Total Return Bond Fund's yield for the thirty-day period ended August 31,
1996 was 5.63%.
U.S. Government Income Fund's yield for the thirty-day period ended August
31, 1996 was 6.20%.
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, 1996
was 4.51%.
U.S. Treasury Money Market Fund's yield for the seven-day period ended
August 31, 1996 was 4.81%.
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,
1996 was 9.13%.
TAXABLE YIELD EQUIVALENT FOR 1996
STATE OF LOUISIANA
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
19.00% 34.00% 37.00% 42.00% 45.60%
SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.85% 2.27% 2.38% 2.59% 2.76%
2.00% 2.47% 3.03% 3.17% 3.45% 3.68%
2.50% 3.09% 3.79% 3.97% 4.31% 4.60%
3.00% 3.70% 4.55% 4.76% 5.17% 5.51%
3.50% 4.32% 5.30% 5.56% 6.03% 6.43%
4.00% 4.94% 6.06% 6.35% 6.90% 7.35%
4.50% 5.56% 6.82% 7.14% 7.76% 8.27%
5.00% 6.17% 7.58% 7.94% 8.62% 9.19%
5.50% 6.79% 8.33% 8.73% 9.48% 10.11%
6.00% 7.41% 9.09% 9.52% 10.34% 11.03%
6.50% 8.02% 9.85% 10.32% 11.21% 11.95%
7.00% 8.64% 10.61% 11.11% 12.07% 12.87%
7.50% 9.26% 11.36% 11.90% 12.93% 13.79%
8.00% 9.88% 12.12% 12.70% 13.79% 14.71%
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional
state and local taxes paid on comparable taxable investments were not
used to increase federal deductions.
PERFORMANCE INFORMATION
Performance depends upon such variables as: portfolio quality; average
portfolio maturity; type of instruments in which the portfolio is invested;
changes in interest rates and market value of portfolio securities; changes
in expenses; and the relative amount of cash flow.
The Funds' (except the Money Market Funds) performance fluctuates on a
daily basis largely because net earnings and offering price per share
fluctuate daily. Both net earnings and offering price per share are
factors in the computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Funds' performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Funds
use in advertising may include:
o LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all income dividends and capital gains
distributions, if any. From time to time, the Fund will quote its
Lipper ranking in the ``money market instruments funds'' category in
advertising and sales literature.
O BANK RATE MONITOR NATIONAL INDEX, Miami Beach, Florida, is a financial
reporting service which publishes weekly average rates of 50 leading
bank and thrift institution money market deposit accounts. The rates
published in the index are averages of the personal account rates
offered on the Wednesday prior to the date of publication by ten of the
largest banks and thrifts in each of the five largest Standard
Metropolitan Statistical Areas. Account minimums range upward from
$2,500 in each institution, and compounding methods vary. If more than
one rate is offered, the lowest rate is used. Rates are subject to
change at any time specified by the institution.
O DOW JONES INDUSTRIAL AVERAGE (``DJIA'') represents share prices of
selected blue-chip industrial corporations as well as public utility and
transportation companies. The DJIA indicates daily changes in the
average price of stocks in any of its categories. It also reports total
sales for each group of industries. Because it represents the top
corporations of America, the DJIA index is a leading economic indicator
for the stock market as a whole.
O STANDARDS & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a
composite index of common stocks in industry, transportation, and
financial and public utility companies, compares total returns of funds
whose portfolios are invested primarily in common stocks. In addition,
the Standard & Poor's index assumes reinvestment of all dividends paid
by stock listed on the index. Taxes due on any of these distributions
are not included, nor are brokerage or other fees calculated in the
Standard & Poor's figures.
o LEHMAN BROTHERS GOVERNMENT/CORPORATE TOTAL INDEX is compromised of
approximately 5,000 issues which include: non-convertible bonds
publicly issued by the U.S. government or its agencies; corporate bonds
guaranteed by the U.S. government and quasi-federal corporations; and
publicly issued, fixed rate, non-convertible domestic bonds of companies
in industry, public utilities, and finance. The average maturity of
these bonds approximates nine years. Tracked by Lehman Brothers, 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.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Trust's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Trust can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Trust may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by the Trust portfolio managers and their views and
analysis on how such developments could affect the Funds. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including the growth of the
industry, from sources such as the Investment Company Institute (`ICI'').
For example, according to the ICI, twenty-seven percent of American
households are pursuing their financial goals through mutual funds. These
investors, as well as businesses and institutions, have entrust over $3
trillion to the more than 5,000 funds available.
FINANCIAL STATEMENTS
The financial statements for the fiscal year ended August 31, 1996, are
incorporated herein by reference to the Funds' Annual Report dated August
31, 1996 . 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
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:
G00858-02 (11/96)
(a) Financial Statements (Incorporated by reference to the
Annual Report of the Registrant dated August 31, 1996; File
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
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) Conformed Copy of 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) Conformed copy of Opinion and Consent of Counsel as to
legality of shares being registered;(7)
(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)
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)
7 Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 filed October 28, 1996. (File Nos. 33-21321 and 811-
5536)
(ii) Conformed copy of Opinion and Consent of Special
Counsel;(7)
(12) Not applicable;
(13) Conformed copy of Initial Capital Understanding;(7)
(14) Not applicable;
(15) (i) Conformed copy of Distribution Plan (5.);
(ii) Copy of Sales Agreement with Federated Securities
Corp. (3.);
(iii)Confomed Copy of Shareholder Services
Agreement;(7)
(16) (i) Copy of Schedule for Computation of Performance
Data for Tower Capital Appreciation Fund;(7)
(ii) Copy of Schedule for Computation of Performance
Data for Tower Cash Reserve Fund;(7)
(iii)Copy of schedule for Computation of Performance
Data for Tower Louisiana Municipal Income
Fund;(7)
(iv) Copy of schedule for Computation of Performance
Data for Tower U.S. Government Income Fund;(7)
(v) Copy of schedule for Computation of Performance
Data for Tower Total Return Bond Fund;(7)
(vi) Copy of Schedule for Computation of Performance
Data for Tower U.S. Treasury Money Market
Fund;(5.)
(17) Financial Data Schedules.+
(18) Conformed Copy of Multiple Class Plan;(7)
(19) 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)
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)
7 Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 filed October 28, 1996. (File Nos. 33-21321 and 811-
5536)
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of October 7, 1996
Shares of beneficial interest
Tower Capital Appreciation Fund
Class A Shares 902
Class B Shares (not yet offered)
Tower U.S. Government Income
Fund 993
Tower Louisiana Municipal Income
Fund 1,435
Tower Total Return Bond Fund 315
Tower Cash Reserve Fund 1,509
Tower U.S. Treasury Money Market
Fund 1,790
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
March 31, 1996, the Trust Group had $4.97 billion under
administration of which it had investment discretion over $1.7
billion. The Trust Group has managed pools of commingled funds
since 1966; as of March 31, 1996, the Trust Group manages seven
such investment pools along with the six Tower Mutual Funds. 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.
Paul J. Bonitatibus Executive Vice President
J. Herbert Boydstun Chairman-Southwest Louisiana Region and
Director
E.R. Campbell Chairman-Northern Louisiana Region
Cindy S. Collins Executive Vice President
K. Kirk Domingos III Senior Executive Vice President
B. D. Flurry President, Northern Louisiana Region
Marsha M. Gassan Senior Executive Vice President and Chief
Financial Officer
Michael G. Gretchen Executive Vice President
Stephen A. Hansel President, Chief
Executive Officer,
and Director
Russell S. Hoadley Executive Vice President
Linda A. Hoffman Executive Vice President
Scott P. Howard Senior Executive Vice President
Hugh J. Kelly Vice Chairman and Director
Patricia C. Meringer Senior Vice President, Corporate Counsel and
Secretary
Donald J. Nalty Vice Chairman and Director
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
Willie L. Spears Executive Vice President
Walter P. Walker Executive Vice President
Richard G. Wright Senior Executive Vice President and Chief
Credit Officer
Directors
Robert H. Boh Robert T. Holleman William C. O'Malley
J. Herbert Boydstun Hugh J. Kelly Robert T. Radcliff
J. Terrell Brown Elton R. King H. Duke Shackelford
E. R. Campbell Sidney W. Lassen James H. Stone
Richard W. Freeman, Jr. Laura A. Leach Janee M. Tucker
Dick H. Hearin Donald J. Nalty Virginia E. Weinmann
Robert E. Zetzmann
Item 29. Principal Underwriters:
(a) 111 Corcoran Funds; Annuity Management Series; Arrow Funds;
Automated Government Money Trust; BayFunds; Blanchard Funds;
Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash
Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co.
Daily Passport Cash Trust; Federated Adjustable Rate U.S.
Government Fund, Inc.; Federated American Leaders Fund, Inc.;
Federated ARMs Fund; Federated Equity Funds; Federated Equity
Income Fund, Inc.; Federated Fund for U.S. Government Securities,
Inc.; Federated GNMA Trust; Federated Government Income
Securities, Inc.; Federated Government Trust; Federated High
Income Bond Fund, Inc.; Federated High Yield Trust; Federated
Income Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Insurance Series;
Federated Investment Portfolios; Federated Investment Trust;
Federated Master Trust; Federated Municipal Opportunities Fund,
Inc.; Federated Municipal Securities Fund, Inc.; Federated
Municipal Trust; Federated Short-Term Municipal Trust; Federated
Short-Term U.S. Government Trust; Federated Stock and Bond Fund,
Inc.; 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: 2-5 Years; Federated U.S.
Government Securities Fund: 5-10 Years; Federated Utility Fund,
Inc.; First Priority Funds; Fixed Income Securities, Inc.; High
Yield Cash Trust; Independence One Mutual Funds; Intermediate
Municipal Trust; International Series, Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty U.S. Government
Money Market Trust; Liquid Cash Trust; Managed Series Trust;
Marshall Funds, Inc.; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities
Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument
Funds; SouthTrust Vulcan Funds; Star Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; The Biltmore Funds; The
Biltmore Municipal Funds; The Monitor Funds; The Planters Funds;
The Starburst Funds; The Starburst Funds II; The Virtus Funds;
Tower Mutual Funds; Trust for Financial Institutions; Trust for
Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; Vision Group of
Funds, Inc.; andWorld Investment Series, Inc.
Federated Securities Corp. also acts as principal underwriter for
the following closed-end investment company: Liberty Term Trust,
Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief --
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary, and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive VicePresident,
Federated Investors Tower President, Federated Treasurer and
Pittburgh, PA 15222-3779 Securities Corp. Trustee
Thomas R. Donahue Director, Assistant Secretary, --
Federated Investors Tower Assistant Treasurer
Pittsburgh, PA 15222-3779 Federated Securities Corp
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
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
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
Dale R. Browne 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
R. Leonard Corton, 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
John K. Goettlicher 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
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joeseph Kennedy 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
Thomas A. Peters III 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
Edward L. Smith 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
Richard Suder 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
Miles J. Wallace 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
Edward J. Wojnarowski 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
Edward R. Bozek 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
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Leslie K. Platt 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 Shareholder 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 11th day of November, 1996.
TOWER MUTUAL FUNDS
BY: /s/Peter J. Germain
Peter J. Germain, Assistant Secretary
Attorney in Fact for Edward C. Gonzales
November 8, 1996
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/Peter J. Germain
Attorney In Fact November 8, 1996
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
Exhibit 11 under Form N-1A
Exhibit 23 under Item 601/Reg. S-K
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions `Financial
Highlights''and ``Independent Auditors'' in Post-Effective Amendment
Number 16 to the Registration Statement (Form N-1A No. 33-21321) and the
related Prospectus of Tower Capital Appreciation Fund (Class C Shares)
dated November 30, 1996, and to the incorporation in the Statement of
Additional Information of our report dated October 10, 1996, on the
financial statements and financial highlights of Tower Capital Appreciation
Fund included in the Annual Report of Tower Mutual Funds for the year ended
August 31, 1996.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
November 6, 1996
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> Tower Mutual Funds
Tower Capital Appreciation Fund
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Aug-31-1996
<PERIOD-END> Aug-31-1996
<INVESTMENTS-AT-COST> 136,126,092
<INVESTMENTS-AT-VALUE> 169,311,351
<RECEIVABLES> 415,352
<ASSETS-OTHER> 4,978
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 169,731,681
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 83,955
<TOTAL-LIABILITIES> 83,955
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 118,027,192
<SHARES-COMMON-STOCK> 9,491,485
<SHARES-COMMON-PRIOR> 8,977,933
<ACCUMULATED-NII-CURRENT> 91,333
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 18,343,942
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 33,185,259
<NET-ASSETS> 169,647,726
<DIVIDEND-INCOME> 3,523,749
<INTEREST-INCOME> 203,388
<OTHER-INCOME> 0
<EXPENSES-NET> 1,994,891
<NET-INVESTMENT-INCOME> 1,732,246
<REALIZED-GAINS-CURRENT> 21,484,071
<APPREC-INCREASE-CURRENT> 2,454,787
<NET-CHANGE-FROM-OPS> 25,671,104
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,745,652
<DISTRIBUTIONS-OF-GAINS> 7,513,977
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,892,875
<NUMBER-OF-SHARES-REDEEMED> 1,820,179
<SHARES-REINVESTED> 440,856
<NET-CHANGE-IN-ASSETS> 25,172,037
<ACCUMULATED-NII-PRIOR> 104,739
<ACCUMULATED-GAINS-PRIOR> 4,373,848
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,204,309
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,994,891
<AVERAGE-NET-ASSETS> 160,588,543
<PER-SHARE-NAV-BEGIN> 16.090
<PER-SHARE-NII> 0.190
<PER-SHARE-GAIN-APPREC> 2.620
<PER-SHARE-DIVIDEND> 0.190
<PER-SHARE-DISTRIBUTIONS> 0.840
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 17.870
<EXPENSE-RATIO> 1.24
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> Tower Funds
Tower Cash Reserve Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1996
<PERIOD-END> Aug-31-1996
<INVESTMENTS-AT-COST> 168,925,992
<INVESTMENTS-AT-VALUE> 168,925,992
<RECEIVABLES> 254,018
<ASSETS-OTHER> 3,988
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 169,183,998
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 840,130
<TOTAL-LIABILITIES> 840,130
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 168,343,868
<SHARES-COMMON-STOCK> 168,343,868
<SHARES-COMMON-PRIOR> 191,242,362
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 168,343,868
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10,828,277
<OTHER-INCOME> 0
<EXPENSES-NET> 1,695,780
<NET-INVESTMENT-INCOME> 9,132,497
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 9,132,497
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9,132,497
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 432,905,070
<NUMBER-OF-SHARES-REDEEMED> 457,274,889
<SHARES-REINVESTED> 1,471,325
<NET-CHANGE-IN-ASSETS> (22,898,494)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 778,592
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,695,780
<AVERAGE-NET-ASSETS> 194,647,891
<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> 0.87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> Tower Mutual Funds
Tower Louisiana Municipal Income Fund
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Aug-31-1996
<PERIOD-END> Aug-31-1996
<INVESTMENTS-AT-COST> 66,803,432
<INVESTMENTS-AT-VALUE> 66,803,432
<RECEIVABLES> 1,051,932
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 67,855,364
<PAYABLE-FOR-SECURITIES> 1,900,429
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 238,269
<TOTAL-LIABILITIES> 2,138,698
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 63,791,872
<SHARES-COMMON-STOCK> 6,005,790
<SHARES-COMMON-PRIOR> 6,150,962
<ACCUMULATED-NII-CURRENT> 75,517
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (324,586)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,173,863
<NET-ASSETS> 65,716,666
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,055,332
<OTHER-INCOME> 0
<EXPENSES-NET> 492,821
<NET-INVESTMENT-INCOME> 3,562,511
<REALIZED-GAINS-CURRENT> 328,333
<APPREC-INCREASE-CURRENT> (599,781)
<NET-CHANGE-FROM-OPS> 3,291,063
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,561,907
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 709,049
<NUMBER-OF-SHARES-REDEEMED> 1,009,008
<SHARES-REINVESTED> 154,787
<NET-CHANGE-IN-ASSETS> (1,883,545)
<ACCUMULATED-NII-PRIOR> 74,742
<ACCUMULATED-GAINS-PRIOR> (652,748)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 298,550
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 545,897
<AVERAGE-NET-ASSETS> 66,339,395
<PER-SHARE-NAV-BEGIN> 10.990
<PER-SHARE-NII> 0.600
<PER-SHARE-GAIN-APPREC> (0.050)
<PER-SHARE-DIVIDEND> 0.600
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.940
<EXPENSE-RATIO> 0.74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 05
<NAME> Tower Mutual Funds
Tower Total Return Bond Fund
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Aug-31-1996
<PERIOD-END> Aug-31-1996
<INVESTMENTS-AT-COST> 69,685,482
<INVESTMENTS-AT-VALUE> 69,140,441
<RECEIVABLES> 3,732,188
<ASSETS-OTHER> 961
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 72,873,590
<PAYABLE-FOR-SECURITIES> 1,494,720
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 190,615
<TOTAL-LIABILITIES> 1,685,335
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 72,494,170
<SHARES-COMMON-STOCK> 7,286,550
<SHARES-COMMON-PRIOR> 6,910,624
<ACCUMULATED-NII-CURRENT> 58,437
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (819,311)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (545,041)
<NET-ASSETS> 71,188,255
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,912,617
<OTHER-INCOME> 0
<EXPENSES-NET> 922,673
<NET-INVESTMENT-INCOME> 3,989,944
<REALIZED-GAINS-CURRENT> 562,208
<APPREC-INCREASE-CURRENT> (2,533,917)
<NET-CHANGE-FROM-OPS> 2,018,235
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,074,428
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,539,679
<NUMBER-OF-SHARES-REDEEMED> 1,507,834
<SHARES-REINVESTED> 344,081
<NET-CHANGE-IN-ASSETS> 1,733,613
<ACCUMULATED-NII-PRIOR> 142,921
<ACCUMULATED-GAINS-PRIOR> (1,381,519)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 501,491
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 922,673
<AVERAGE-NET-ASSETS> 71,714,274
<PER-SHARE-NAV-BEGIN> 10.050
<PER-SHARE-NII> 0.560
<PER-SHARE-GAIN-APPREC> (0.270)
<PER-SHARE-DIVIDEND> 0.570
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.770
<EXPENSE-RATIO> 1.29
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<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-31-1996
<PERIOD-END> Aug-31-1996
<INVESTMENTS-AT-COST> 38,017,661
<INVESTMENTS-AT-VALUE> 37,340,834
<RECEIVABLES> 355,655
<ASSETS-OTHER> 1,805
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 37,698,294
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 154,419
<TOTAL-LIABILITIES> 154,419
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 41,702,183
<SHARES-COMMON-STOCK> 3,823,561
<SHARES-COMMON-PRIOR> 4,199,561
<ACCUMULATED-NII-CURRENT> 41,122
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,522,603)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (676,827)
<NET-ASSETS> 37,543,875
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,067,843
<OTHER-INCOME> 0
<EXPENSES-NET> 356,172
<NET-INVESTMENT-INCOME> 2,711,671
<REALIZED-GAINS-CURRENT> (474,449)
<APPREC-INCREASE-CURRENT> (734,318)
<NET-CHANGE-FROM-OPS> 1,502,904
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,789,759
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 465,362
<NUMBER-OF-SHARES-REDEEMED> 931,881
<SHARES-REINVESTED> 90,519
<NET-CHANGE-IN-ASSETS> (5,049,255)
<ACCUMULATED-NII-PRIOR> 119,210
<ACCUMULATED-GAINS-PRIOR> (3,048,154)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 183,788
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 380,677
<AVERAGE-NET-ASSETS> 40,743,678
<PER-SHARE-NAV-BEGIN> 10.140
<PER-SHARE-NII> 0.670
<PER-SHARE-GAIN-APPREC> (0.300)
<PER-SHARE-DIVIDEND> 0.690
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.820
<EXPENSE-RATIO> 0.87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<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-31-1996
<PERIOD-END> Aug-31-1996
<INVESTMENTS-AT-COST> 136,173,706
<INVESTMENTS-AT-VALUE> 136,173,706
<RECEIVABLES> 235,555
<ASSETS-OTHER> 6,924
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 136,416,185
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 347,824
<TOTAL-LIABILITIES> 347,824
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 136,068,361
<SHARES-COMMON-STOCK> 136,068,361
<SHARES-COMMON-PRIOR> 116,489,072
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 136,068,361
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,739,912
<OTHER-INCOME> 0
<EXPENSES-NET> 545,304
<NET-INVESTMENT-INCOME> 6,194,608
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,194,608
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,194,608
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 315,672,475
<NUMBER-OF-SHARES-REDEEMED> 298,483,536
<SHARES-REINVESTED> 2,390,350
<NET-CHANGE-IN-ASSETS> 19,579,289
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 500,504
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 820,581
<AVERAGE-NET-ASSETS> 125,125,617
<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> 0.44
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
