ANNUAL REPORT
AUGUST 31, 1996
TOWER
MUTUAL FUNDS
TOWER CAPITAL APPRECIATION FUND
TOWER LOUISIANA MUNICIPAL INCOME FUND
TOWER TOTAL RETURN BOND FUND
TOWER U.S. GOVERNMENT INCOME FUND
TOWER CAS RESERVE FUND
TOWER U.S. TREASURY MONEY MARKET FUND
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PRESIDENT'S MESSAGE........................................................ 1
- --------------------------------------------------------------------------------
MANAGEMENT DISCUSSION & ANALYSIS........................................... 2
- --------------------------------------------------------------------------------
PORTFOLIOS OF INVESTMENTS.................................................. 14
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS.......................................... 28
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES....................................... 30
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS................................................... 32
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS........................................ 34
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS....................................................... 36
- --------------------------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS..................................... 38
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS.......................... 43
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
. 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 governmental
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.
- --------------------------------------------------------------------------------
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the Annual Report to Shareholders for the Tower Mutual
Funds. The Report, which covers the 12-month period ended August 31, 1996,
includes an interview with each fund's portfolio manager, as well as a complete
list of investments and financial statements for each fund.
Please note the following highlights for each fund over the 12-month period:
. TOWER CAPITAL APPRECIATION FUND continued to perform well in a favorable
stock market environment. The fund achieved a total return of 18.03%
through dividends of $0.19 per share, capital gains of $0.84 per share, and
an 11% increase in net asset value.* At the end of the reporting period,
net assets stood at more than $169 million.
. TOWER LOUISIANA MUNICIPAL INCOME FUND paid double-tax-free dividends** of
$0.60 per share. Amid rising interest rates that impacted bond prices early
in 1996, the fund's net asset value decreased only slightly. Nevertheless,
a healthy income stream helped the fund produce a total return of 5.04%.*
Net assets totaled more than $65 million at the end of the reporting
period.
. TOWER TOTAL RETURN BOND FUND paid a healthy dividend stream totaling $0.57
per share. Despite a rising interest rate environment early in 1996 that
caused bond prices to fall, the fund's diversified portfolio achieved a
positive total return of 2.90%.* At the end of the reporting period, net
assets stood at more than $71 million.
. TOWER U.S. GOVERNMENT INCOME FUND paid dividends of $0.69 per share.
Despite a rising interest rate environment early in 1996 that impacted bond
prices, the fund's income stream helped it achieve a positive total return
of 3.72%.* At the end of the reporting period, net assets stood at more
than $37.5 million.
. TOWER CASH RESERVE FUND paid dividends of $0.05 per share. At the end of
the reporting period, net assets stood at more than $168 million.
. TOWER U.S. TREASURY MONEY MARKET FUND paid dividends of $0.05 per share. At
the end of the reporting period, net assets stood at more than $136
million.
Thank you for selecting one or more of the Tower Mutual Funds to put your money
to work. We will continue to keep you up-to-date on your investment progress
through the highest quality service possible.
Sincerely,
/s/ Edward C. Gonzales
Edward C. Gonzales
President
October 15, 1996
*Performance quoted represents past performance. Investment return and
principal value will fluctuate, so an investor's shares, when redeemed, may be
worth more or less than their original cost. Total returns quoted above are
based on net asset value and do not reflect the maximum sales charge of 3.00%.
Total returns based on offering price for the 12-month period are as follows:
Tower Capital Appreciation Fund, 14.47%; Tower Louisiana Municipal Income
Fund, 1.89%; Tower Total Return Bond Fund, (0.18%); and Tower U.S. Government
Income Fund, 0.64%.
**Income may be subject to the federal alternative minimum tax.
1
MANAGEMENT DISCUSSION & ANALYSIS
TOWER CAPITAL APPRECIATION FUND
Q After a memorable 1995, the stock market experienced a degree of volatility
in 1996. What is your analysis of the market's performance during the
period?
A The market experienced a period of less liquidity and has been more
reactive to news in 1996 versus 1995. However, the trend still appears to
be positive.
Q In this environment, how did Tower Capital Appreciation Fund perform in
terms of total return over the 12-month period ended August 31, 1996?
A The fund produced a total return of 18.03%, based on net asset value,*
versus 18.73% for Standard & Poor's 500 Composite Stock Index ("S&P
500").**
Q The fund is managed to bring shareholders the long-term growth potential of
stocks by investing across the entire spectrum of sectors that make up the
S&P 500. Its portfolio focuses on well-known, established leaders. What
fundamental qualities do the fund's holdings share?
A Ultimately, the fund's holdings share the characteristic of consistent and
predictable earnings growth potential.
Q What is your outlook for stocks as we approach the end of 1996?
A We believe that the bull market is intact, and we look for modest positive
returns as the year draws to a close.
* Performance quoted represents past performance. Investment return and
principal value will fluctuate so that an investors shares, when redeemed,
may be worth more or less than their original cost.
** Standard & Poor's 500 Composite Stock Index is an unmanaged composite index
of common stocks in industry, transportation, and financial and public
utility companies, that compares total returns of funds whose portfolios are
invested primarily in common stocks. Investments cannot be made in an index.
2
TOWER CAPITAL APPRECIATION FUND
GROWTH OF $10,000 INVESTED IN TOWER CAPITAL APPRECIATION FUND
The graph below illustrates the hypothetical investment of $10,000 in Tower
Capital Appreciation Fund (the "Fund") from October 14, 1988 (start of
performance) to August 31, 1996, compared to the Standard & Poor's 500 Composite
Stock Index ("S&P 500 Index").+
GRAPHIC REPRESENTATION OMITTED. SEE APPENDIX A
AVERAGE ANNUAL TOTAL RETURN** FOR THE PERIOD ENDED AUGUST 31, 1996
1 Year 14.47%
5 Year 11.83%
Start of Performance (10/14/88) 13.82%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
+The S&P 500 is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. This index is unmanaged.
*Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge which was 4.50% at the start of performance ($10,000
investment minus $450 sales charge=$9,550). For the period from October 31,
1993 to August 31, 1996, the sales charge was reduced to 3.00%. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
S&P 500 has been adjusted to reflect reinvestment of dividends on securities
in the index.
**Total return quoted reflects the 3.00% sales charge as of August 31, 1996.
3
TOWER LOUISIANA MUNICIPAL INCOME FUND
Q After a positive 1995, the bond market overall has been adversely impacted
by interest rate increases in 1996. How have municipal bonds fared?
A The municipal bond market outperformed the taxable bond market during 1996.
The reasons for this performance were twofold. First, the fog of pending
income tax reform lifted, which eliminated investor fears that Congress
might somehow eliminate the tax free advantage of municipal bonds. Second,
the continued lack of new supply to the market left more buyers scrambling
for fewer bonds. The market reached equilibrium and should move in unison
for the coming months.
Q How did Tower Louisiana Municipal Income Fund perform during the 12-month
period ended August 31, 1996?
A For the 12-month period ended August 31, 1996, Tower Louisiana Municipal
Income Fund posted a 5.04% total rate of return, based on net asset value.*
This performance compared favorably to the market performance overall of
4.43% as measured by the Lehman Brothers 10-year State General Obligations
Bond Index.**
Q Has tax-reform--which had caused a great deal of fanfare amid the
presidential primaries-- become a non-issue for the municipal bond market?
A True tax reform has become a secondary issue for the markets as both
major-party presidential candidates seem to be advocating a simple cut in
the income tax rates before considering a major overhaul in the current
system. In general, however, Democrats appear to be less likely to change
or eliminate the current code than Republicans. Any changes would likely
take years to implement and at this juncture there does not appear to be
any foreseeable threat.
Q With a rising interest rate environment adversely affecting bond prices,
income plays a key role in the fund's performance. How has this affected
your strategy?
A In flat-to-rising interest rate environments as we have experienced thus
far in 1996, income plays a significant role in the performance of the
fund. The fund's relative performance, as compared to the Lehman Brothers
10-Year State General Obligations Bond Index over the last year, has been
due largely to the ownership of higher coupon but shorter-term callable
bonds. The bonds serve to cushion the portfolio against the effects of a
falling market.
* Performance quoted represents past performance. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
** Lehman Brothers 10-Year State General Obligations Bond Index is an unmanaged
index comprised of state general obligation debt issues with maturity ranges
between 9 and 11 years. Investments cannot be made in an index.
4
Q What is your outlook for the municipal market as we approach the close of
1996?
A The prospect for municipal bonds, as well as most fixed income securities,
seems to be positive for the remainder of 1996 and 1997. Conflicting
economic data will likely keep the markets extremely volatile but within
their recent trading range until early 1997. A slower economy in early 1997
should diminish the risk of inflation and allow bond prices to move higher.
5
TOWER LOUISIANA MUNICIPAL INCOME FUND
GROWTH OF $10,000 INVESTED IN TOWER LOUISIANA MUNICIPAL INCOME FUND
The graph below illustrates the hypothetical investment of $10,000 in Tower
Louisiana Municipal Income Fund (the "Fund"), from October 14, 1988 (start of
performance) to August 31, 1996, compared to the Lehman Brothers Ten-Year
Insured Index ("LTYII").+
GRAPHIC REPRESENTATION OMITTED. SEE APPENDIX B
AVERAGE ANNUAL TOTAL RETURN** FOR THE PERIOD ENDED AUGUST 31, 1996
1 Year 1.89%
5 Year 6.50%
Start of Performance (10/14/88) 6.93%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
+The LTYII is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. This index is unmanaged.
*Represents a hypothetical investment of $10,000 in the Fund after deducting
the original maximum sales charge of 4.50% ($10,000 investment minus $450
sales charge=$9,550), which was effective on October 14, 1988. Effective
October 31, 1993, the maximum sales charge was reduced to 3.00%. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
LTYII has been adjusted to reflect reinvestment of dividends on securities in
the index.
**Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
6
TOWER TOTAL RETURN BOND FUND
Q The bond market overall has been adversely affected by rising interest
rates in 1996--after a positive economic environment for bonds in 1995.
With 1996 past its midpoint, what is your brief review of the economy and
its impact on the bond market?
A The fixed income markets turned sour in February of 1996 after experiencing
double-digit returns in 1995. The bond market's sudden reversal was brought
on by an unexpected acceleration in business and construction activity and
renewed investor concerns over rising inflation. As we move forward toward
1997 it becomes more apparent that what we have is much fear of inflation,
but no inflation itself. We anticipate a stabilization in bond prices in
the near term with a move up occurring in early 1997.
Q How did Tower Total Return Bond Fund perform over the 12-month period ended
August 31, 1996?
A Despite the recent bond market declines, Tower Total Return Bond Fund
posted a positive total return for the fiscal year ended August 31, 1996.
The fund experienced a 2.90% total rate of return*, based on net asset
value, for the year, while the bond market overall as represented by the
Salomon Brothers Broad Investment-Grade Bond Index** returned 4.11%.
Q How were the fund's assets allocated at the end of the period and why?
A Current investment strategy has the fund's assets heavily invested in U.S.
Treasury and agency securities. These securities offer high quality,
attractive yield and good call protection. As of August 31, 1996, 52.2% and
10.5% of the fund assets, based on market value, were invested in Treasury
and agency securities respectively. Agency Mortgage related investments
comprised 19.6% of the fund while asset-backed securities totaled 5.2%.
These investments generally offer higher yields over comparable Treasuries
and help boost portfolio income. The fund also held minor positions in
corporate bonds (8.5%) and short-term cash investments (4.0%).
* Performance quoted represents past performance. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
** Salomon Brothers Broad Investment-Grade Bond Index is an unmanaged index
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. Investments cannot be
made in an index.
7
Q What is your outlook for interest rates for the balance of 1996 and beyond,
and do you anticipate making any portfolio adjustments in response?
A Looking ahead to the balance of 1996 and beyond, we expect bond prices to
move within a narrow range until the new year. The presidential election,
unclear Federal Reserve Board (the "Fed") policy and conflicting economic
data should hold both the bulls and bears at bay. We believe the coming
year should bring better times for investors as evidence of a slowing
economy appears and bond prices begin to move higher.
8
TOWER TOTAL RETURN BOND FUND
GROWTH OF $10,000 INVESTED IN TOWER TOTAL RETURN BOND FUND
The graph below illustrates the hypothetical investment of $10,000 in Tower
Total Return Bond Fund (the "Fund") from November 2, 1992 (start of performance)
to August 31, 1996, compared to the Salomon Brothers Broad Investment Grade Bond
Index ("SBBIGBI").+
GRAPHIC REPRESENTATION OMITTED. SEE APPENDIX C
AVERAGE ANNUAL TOTAL RETURN** FOR THE PERIOD ENDED AUGUST 31, 1996
1 Year (0.18%)
Start of Performance (11/2/92) 4.56%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THE ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
+ The SBBIGBI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. This index is unmanaged.
*Represents a hypothetical investment of $10,000 in the Fund after deducting
the original maximum sales charge of 4.50% ($10,000 investment minus $450
sales charge=$9,550), which was effective on November 2, 1992. Effective May
1, 1994, the maximum sales charge was reduced to 3.00%. The Fund's performance
assumes the reinvestment of all dividends and distributions. The SBBIGBI has
been adjusted to reflect reinvestment of dividends on securities in the index.
**Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
9
TOWER U.S. GOVERNMENT INCOME FUND
Q After a positive economic environment for bonds in 1995, the market was
adversely impacted by rising interest rates early in 1996. With 1996 past
it midpoint, what is your brief review of the economy and its impact on the
government market?
A The current economy has perplexed many an economist--as well as Central
Bankers. 1996 has seen strong growth and large gains in employment but
little or no inflationary price pressure. For the 12-month period ended
August 31, 1996, consumer prices were only up 2.9%. This comes on the
heels of a 2.5% price rise for the previous 12-month period, the lowest
since 1986. As inflation expectations ease, real rates of interest can
only decline, making bonds a good buy. If the economy, seemingly on a
delicate fulcrum, swings in the direction of a slowdown, bond values
should only be further enhanced.
Q How did Tower U.S. Government Income Fund perform in terms of income and
total return over the 12-month period ended August 31, 1996?
A The total return of the fund for the 12-month period ended August 31, 1996
was 3.72%, based on net asset value,* and the income component was 6.88%.
As of August 31, 1996, the 30-day SEC yield for the fund was 6.20%. The
negative difference between the two was a slight decline in the fund's
net asset value due to a downturn in bond prices caused by higher
interest rates.
Q In this difficult environment, the mortgage-backed sector has been
relatively brighter than other fixed-income sectors. How were the fund's
assets allocated at the end of the period among mortgage-backed securities
and Treasuries?
A As of August 31, 1996 the fund's assets, based on net asset value, were
allocated as follows: mortgage-backed securities 42.6%; Treasuries 28.7%;
agencies 27.7%; and cash 1.0%. Within the mortgage-backed category we are
holding slightly more collateralized mortgage obligations than pass-thru
securities although we believe both types represent excellent values in an
interest rate environment similar to our current one. In general, we
slightly
favor higher coupon mortgages as a defensive measure.
Q What is your outlook for interest rates for the balance of 1996, and do you
anticipate making any portfolio adjustments in response?
A We anticipate that bond rates will stay neutral or decline slightly for the
remainder of 1996 as the economy gradually cools off. In line with this
forecast, we will stay slightly long in our neutral duration target and
continue to look for value bargains in adjusting the portfolio.
* Performance quoted represents past performance. Investment return and
principal value will fluctuate so that an investors shares, when redeemed,
may be worth more or less than their original cost.
10
TOWER U.S. GOVERNMENT INCOME FUND
GROWTH OF $10,000 INVESTED IN TOWER U.S. GOVERNMENT INCOME FUND
The graph below illustrates the hypothetical investment of $10,000 in Tower
U.S. Government Income Fund (the "Fund"), from October 14, 1988 (start of
performance) to August 31, 1996, compared to the Salomon Brothers Medium Term
Broad Index ("SBMTBI").+
GRAPHIC REPRESENTATION OMITTED. SEE APPENDIX D
AVERAGE ANNUAL TOTAL RETURN** FOR THE PERIOD ENDED AUGUST 31, 1996
1 Year 0.64%
5 Year 5.36%
Start of Performance (10/14/88) 7.19%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
+The SBMTBI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. This index is unmanaged.
*Represents a hypothetical investment of $10,000 in the Fund after deducting
the original maximum sales charge of 4.50% ($10,000 investment minus $450
sales charge=$9,550), which was effective on October 14, 1988. Effective
October 31, 1993, the maximum sales charge was reduced to 3.00%. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
SBMTBI has been adjusted to reflect reinvestment of dividends on securities in
the index.
**Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
11
TOWER CASH RESERVE FUND
Q What was the interest rate environment over the 12-month period ended
August 31, 1996, and how did the money markets react?
A The interest rate environment over the period was schismatic. The first
half of the period saw declining interest rates and the last half of the
period experienced rising rates. Interest rates were spurred lower by two
quarter-point Fed Funds target rate decreases by the Fed and moved higher
after strong economic news gave the markets reason to believe the Fed
would reverse course and increase rates.
Q In this environment, how did Tower Cash Reserve Fund perform for
shareholders?
A The 7-day net yield for Tower Cash Reserve Fund was 5.01% at August 31,
1995 and 4.51% on August 31, 1996.* The decrease in net yield was a
reflection of short-term rates going lower between the two period dates.
The total net return during the fiscal year ended August 31, 1996 was
4.79%.*
Q What was your strategy during the period in terms of average maturity and
portfolio mix?
A Our average maturity strategy was driven equally by a combination of
factors: the relative attractiveness of overnight repurchase agreement
rates, availability of prime commercial paper in the marketplace, and our
internal view of the economy and subsequently the likelihood of Fed rate
action. During the first half of the period, the U.S. economy was clearly
cooling off and we extended maturities to lock in higher interest rates
before the Fed moved to lower them. In the last half of the period, we
shortened that maturity position as the Fed moved from a position of
lowering short-term rates to one of a neutral posture.
Q As 1996 draws to a close, what is your overall outlook for the economy and
short-term interest rates?
A Slowing growth and benign inflation should characterize the U.S. economy
for the rest of 1996. However, the Fed may have to raise short-term rates
slightly if they believe our current low rate of unemployment and
subsequent pressures on wages will be inflationary. The Fed will be closely
examining the wage and price data of the upcoming months. If price
pressures remain dormant, the Fed may stay on the sidelines and short-term
rates would trend slightly downward.
* Performance quoted represents past performance and is not indicative of future
results. Yield will vary.
12
TOWER U.S. TREASURY MONEY MARKET FUND
Q The 12-month period ended August 31, 1996 was characterized by decidedly
different interest rate environments. Can you comment?
A The first half of the period saw falling long-term rates, an accommodative
Fed easing of short-term rates and concern about a slowing economy. The
sharp decrease in U.S. unemployment reported in February, 1996, was the
trumpet that sounded the end of that concern. For the last half of the
period, short- and long-term rates moved higher as more economic data
signaling a strengthening economy followed. By August, 1996 rates had
seemingly stabilized as we were given economic data of conflicting nature.
Q As a result, where did the 7-day net yield of Tower U.S. Treasury Money
Market Fund stand at the beginning and end of the period?
A As of August 31, 1995, the 7-day net yield of Tower U.S. Treasury Money
Market Fund was 5.26%.* The yield had declined slightly to 4.81% by August
31, 1996* due to lower overall short-term rates. The decrease was in line
with the 0.50% decline in the Fed Funds target rate over the period.
Q What was your strategy during the period in terms of average maturity?
A Our average maturity strategy was guided by our overall desire to maintain
a high percentage of the portfolio, approximately 50%, in overnight
repurchase agreements with the remainder in the highest yielding Treasury
bills available to us using a laddered approach to minimize reinvestment
risk. Typically, this led to an average maturity in the 30- to 40-day
range.
Q As 1996 draws to a close, what is your overall outlook for the economy and
short-term interest rates?
A During the remainder of 1996, we look for the economy to continue to show
mixed signals but trend toward slowing growth after a heated second
quarter. As a result, we see slightly lower short-term rates off of current
levels for the remainder of 1996.
* Performance quoted represents past performance and is not indicative of future
results. Yield will vary.
13
TOWER MUTUAL FUNDS
Portfolios of Investments August 31, 1996
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS97.2%
AEROSPACE & DEFENSE0.9%
29,500 Rockwell International
Corp. $ 1,534,000
-----------
AUTOMOBILE1.8%
60,000 Chrysler Corp. 1,747,500
39,800 Ford Motor Co. 1,333,300
-----------
Total 3,080,800
-----------
COMMERCIAL
SERVICES0.3%
22,200 Equifax, Inc. 566,100
-----------
CONSUMER DURABLES2.9%
30,000 Black & Decker Corp. 1,185,000
32,400 Brunswick Corp. 684,450
15,500 Eastman Kodak Co. 1,123,750
33,800 Goodyear Tire & Rubber Co. 1,542,125
10,000 Hasbro, Inc. 367,500
-----------
Total 4,902,825
-----------
CONSUMER
NON-DURABLES12.3%
26,200 Avon Products, Inc. 1,254,325
]18,800 Campbell Soup Co. 1,224,350
30,900 Clorox Co. 2,893,013
82,900 Coca-Cola Co. 4,145,000
20,300 Gillette Co. 1,294,125
15,850 Hershey Foods Corp. 1,380,931
10,700 Nike, Inc. 1,155,600
84,650 PepsiCo, Inc. 2,433,687
34,400 Philip Morris Cos., Inc. 3,087,400
64,150 Sara Lee Corp. 2,020,725
-----------
Total 20,889,156
-----------
CONSUMER SERVICES3.5%
31,168 Disney (Walt) Co. 1,776,575
17,200 (a)King World
Productions, Inc. 606,300
32,100 Marriott International,
Inc. 1,761,487
58,000 New York Times Co. 1,812,500
-----------
Total 5,956,862
-----------
<CAPTION>
Shares Value
<C> <S> <C>
ELECTRICAL EQUIPMENT1.1%
31,100 Honeywell, Inc. $ 1,807,688
-----------
ELECTRONIC
TECHNOLOGY7.2%
11,500 (a)Adaptec, Inc. 573,562
31,200 (a)Cisco Systems, Inc. 1,645,800
19,500 (a)Compaq Computer Corp. 1,104,187
31,600 Harris Corp. 1,943,400
29,600 Intel Corp. 2,362,450
30,500 Sun Microsystems, Inc. 1,658,437
15,750 (a)Tellabs, Inc. 998,156
16,500 United Technologies Corp. 1,860,375
-----------
Total 12,146,367
-----------
ENERGY MINERALS7.5%
18,500 Amoco Corp. 1,276,500
7,200 Atlantic Richfield Co. 840,600
18,300 British Petroleum, Ltd.,
ADR 2,154,825
36,000 Exxon Corp. 2,929,500
22,650 Mobil Corp. 2,553,787
3,500 Royal Dutch Petroleum Co.,
ADR 522,812
18,800 Texaco, Inc. 1,668,500
24,200 Unocal Corp. 828,850
-----------
Total 12,775,374
-----------
FINANCE13.7%
3,908 Aetna, Inc. 258,419
18,500 Allstate Corp. 825,562
33,200 BankAmerica Corp. 2,573,000
19,400 CIGNA Corp. 2,252,825
30,700 Citicorp 2,555,775
35,575 Comerica, Inc. 1,734,281
40,300 First Chicago NBD Corp. 1,717,787
44,950 First Union Corp. 2,871,181
19,400 Merrill Lynch & Co., Inc. 1,188,250
41,600 Morgan Stanley Group, Inc. 1,986,400
33,650 NationsBank Corp. 2,864,456
40,950 Providian Corp. 1,694,306
10,900 (a)SunAmerica, Inc. 742,563
-----------
Total 23,264,805
-----------
</TABLE>
(See Notes to Portfolios of Investments)
14
CAPITAL APPRECIATION FUND (continued)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
HEALTH SERVICES0.7%
20,400 Columbia/HCA Healthcare
Corp. $ 1,150,050
-----------
HEALTH TECHNOLOGY9.1%
31,200 Abbott Laboratories 1,407,900
36,000 Becton, Dickinson & Co. 1,471,500
30,100 Bristol-Myers Squibb Co. 2,641,275
46,800 Johnson & Johnson 2,304,900
40,600 Merck & Co., Inc. 2,664,375
35,700 Pfizer, Inc. 2,534,700
42,100 Schering Plough Corp. 2,352,338
-----------
Total 15,376,988
-----------
INDUSTRIAL SERVICES0.9%
11,800 Fluor Corp. 755,200
10,600 Schlumberger Ltd. 894,375
-----------
Total 1,649,575
-----------
NON-ENERGY MINERALS1.2%
26,000 Nucor Corp. 1,215,500
12,400 Phelps Dodge Corp. 750,200
-----------
Total 1,965,700
-----------
PROCESS INDUSTRIES5.3%
41,900 Crown Cork & Seal Co.,
Inc. 1,958,825
29,600 Du Pont (E.I.) de Nemours
& Co. 2,430,900
68,000 Monsanto Co. 2,184,500
38,100 Praxair, Inc. 1,566,863
16,600 Temple-Inland, Inc. 819,625
-----------
Total 8,960,713
-----------
PRODUCER
MANUFACTURING6.4%
12,400 Allied-Signal, Inc. 765,700
17,400 Emerson Electric Co. 1,457,250
50,100 General Electric Co. 4,164,563
5,700 Harsco Corp. 346,988
39,600 Ingersoll-Rand Co. 1,692,900
11,500 Textron, Inc. 981,813
27,950 Xerox Corp. 1,533,756
-----------
Total 10,942,970
-----------
RETAIL TRADE5.3%
41,500 American Stores Co. 1,706,688
27,600 Dayton-Hudson Corp. 952,200
75,200 Gap (The), Inc. 2,632,000
<CAPTION>
Shares
or
Principal
Amount Value
<C> <S> <C>
49,800 Sears, Roebuck & Co. $ 2,191,200
46,800 TJX Cos., Inc. 1,497,600
-----------
Total 8,979,688
-----------
TECHNOLOGY SERVICES4.0%
40,650 Computer Associates
International, Inc. 2,134,125
24,700 (a)Microsoft Corp. 3,025,750
45,300 (a)Oracle Corp. 1,596,825
-----------
Total 6,756,700
-----------
TRANSPORTATION2.1%
9,500 (a)AMR Corp. 779,000
30,000 CSX Corp. 1,518,750
4,900 Norfolk Southern Corp. 408,538
21,500 Tidewater, Inc. 825,063
-----------
Total 3,531,351
-----------
UTILITIES11.0%
26,000 AT&T Corp. 1,365,000
10,300 Ameritech Corp. 531,738
36,000 Bell Atlantic Corp. 2,025,000
64,100 BellSouth Corp. 2,323,625
55,900 Edison International 971,263
79,000 GPU, Inc. 2,488,500
42,800 GTE Corp. 1,685,250
60,200 Pinnacle West Capital
Corp. 1,730,750
30,900 SBC Communications, Inc. 1,440,713
58,000 Sprint Corp. 2,356,250
35,600 Williams Cos., Inc. (The) 1,775,550
-----------
Total 18,693,639
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST
$131,697,215) 164,931,351
-----------
(B)REPURCHASE
AGREEMENT2.6%
$4,380,000 HSBC Securities, Inc.,
5.19%, dated 8/30/96, due
9/3/96 (at amortized cost) 4,380,000
-----------
TOTAL INVESTMENTS
(IDENTIFIED COST
$136,077,215) $169,311,351
-----------
-----------
</TABLE>
(See Notes to Portfolios of Investments)
15
LOUISIANA MUNICIPAL
BOND FUND
<TABLE>
<CAPTION>
Principal Credit
Amount Rating(d) Value
<C> <S> <C> <C>
(C)LONG-TERM
MUNICIPALS100.6%
LOUISIANA99.7%
$ 200,000 Bossier City, LA, City
Sales & Use Tax Reve-
nue Bonds (Series ST-
1989), 6.875% (FGIC
INS)/(Original Issue
Yield: 7.20%),
11/1/2011 AAA $ 212,656
500,000 East Baton Rouge Par-
ish, LA, City Sales &
Use Tax Revenue Bonds
(Series ST), 6.50%
(AMBAC INS)/ (Original
Issue Yield: 6.80%),
2/1/2013 AAA 526,965
1,250,000 East Baton Rouge Par-
ish, LA, Sales & Use
Tax Revenue Bonds
(Series ST), 5.90%
(FGIC INS), 2/1/2017 AAA 1,258,750
930,000 East Baton Rouge Par-
ish, LA, Sales & Use
Tax Revenue Bonds
(Series ST-A), 4.80%
(FGIC INS)/(Original
Issue Yield: 5.15%),
2/1/2011 AAA 837,307
300,000 East Baton Rouge Par-
ish, LA, Sales & Use
Tax Bond, 7.25% (MBIA
INS)/(Original Issue
Yield: 7.40%), 2/1/2006 AAA 323,922
200,000 East Baton Rouge Par-
ish, LA, Sales & Use
Tax Bond, 7.25% (MBIA
INS)/(Original Issue
Yield: 7.45%), 2/1/2008 AAA 215,948
500,000 East Baton Rouge Par-
ish, LA, Sales & Use
Tax Revenue Bonds
(Series ST), 5.20% (FSA
INS)/(Original Issue
Yield: 5.65%), 2/1/2017 AAA 462,375
<CAPTION>
Principal Credit
Amount Rating(d) Value
<C> <S> <C> <C>
$ 30,000 East Baton Rouge, LA,
Mortgage Finance
Authority, Revenue
Bonds (Series C), 7.90%
(GNMA COL)/(Original
Issue Yield: 7.90%),
2/1/2002 Aaa $ 31,401
190,000 East Baton Rouge, LA,
Mortgage Finance
Authority, SFM
Purchasing Revenue
Bonds (Series B), 5.40%
(FNMA COL),
10/1/2025 Aaa 173,664
1,680,000 East Baton Rouge, LA,
Mortgage Finance
Authority, SFM Revenue
Refunding Bonds (Series
B), 7.40% (GNMA COL),
8/1/2012 Aaa 1,772,282
820,000 East Baton Rouge, LA,
Mortgage Finance
Authority, SFM Revenue
Refunding Bonds (Series
C), 7.00%,
4/1/2032 Aaa 847,306
1,000,000 Ernest N Morial-New
Orleans, LA, Exhibit
Hall Authority, Special
Tax Refunding Bonds
(Series C), 5.50% (MBIA
INS)/(Original Issue
Yield: 5.58%),
7/15/2018 AAA 955,270
1,000,000 Greater New Orleans
Expressway Commission,
LA, Revenue Refunding
Bonds, 6.00% (Louisiana
Expressway)/(MBIA
INS)/(Original Issue
Yield: 6.55%),
11/1/2016 AAA 1,009,210
</TABLE>
(See Notes to Portfolios of Investments)
16
LOUISIANA MUNICIPAL
BOND FUND (continued)
<TABLE>
<CAPTION>
Principal Credit
Amount Rating(d) Value
<C> <S> <C> <C>
LOUISIANACONTINUED
$1,000,000 Houma, LA, Utilities
Revenue Refunding
Bonds, 6.25% (FGIC
INS)/(Original Issue
Yield: 6.40%), 1/1/2012 AAA $1,044,190
1,000,000 Jefferson Parish LA,
Hospital Service Dis-
trict No. 2, Hospital
Revenue Bonds, 5.50%
(MBIA INS)/(Original
Issue Yield: 5.924%),
7/1/2008 AAA 1,000,960
2,000,000 Jefferson Parish, LA,
School Board, Sales &
Use Tax Revenue
Refunding Bond, 6.25%
(MBIA INS)/(Original
Issue Yield: 6.48%),
2/1/2008 AAA 2,127,180
1,000,000 Jefferson Parish, LA,
Drain Sales Tax Reve-
nue Bond, 6.50% (AMBAC
INS)/(Original Issue
Yield: 6.753%),
11/1/2011 AAA 1,065,860
195,000 Jefferson, LA, Housing
Development Corp.,
Multifamily Revenue
Refunding Bonds (Series
A), 7.375% (Concordia
Project)/ (FNMA
COL)/(Original Issue
Yield: 7.544%),
8/1/2005 AAA 209,235
115,000 Jefferson Parish, LA,
GO Refunding Bonds,
7.70% (FGIC INS),
9/1/2002 AAA 118,849
1,000,000 Lafayette Parish, LA,
School Board, Sales Tax
Revenue Bonds, 4.875%
(FGIC INS)/ (Original
Issue Yield: 5.15%),
4/1/2012 AAA 901,610
<CAPTION>
Principal Credit
Amount Rating(d) Value
<C> <S> <C> <C>
$1,170,000 Lafayette, LA, Public
Power Authority,
Refunding Revenue
Bonds, 5.50% (AMBAC
INS), 11/1/2010 Aaa $1,150,145
500,000 Lafayette, LA, Public
Power Authority,
Refunding Revenue
Bonds, 5.50% (AMBAC
INS), 11/1/2011 Aaa 488,650
260,000 Lafayette, LA, Public
Power Authority,
Refunding Revenue
Bonds, 5.50% (AMBAC
INS), 11/1/2012 Aaa 253,861
1,650,000 Louisiana HFA, Multi-
family Housing Revenue
Refunding Bonds (Series
A), 6.10% (Woodward
Wright Apartments
Project)/ (GNMA COL),
12/20/2018 Aaa 1,643,845
350,000 Louisiana HFA, Multi-
family Housing Revenue
Refunding Bonds, 5.85%
(Woodward Wright
Apartments
Project)/(GNMA COL),
12/20/2008 Aaa 354,473
1,000,000 Louisiana HFA, Multi-
family Housing Revenue
Refunding Bonds, 6.20%
(Woodward Wright
Apartments
Project)/(GNMA COL),
6/20/2028 Aaa 994,380
1,000,000 Louisiana HFA, Revenue
Bond, 7.10% (Villa
Maria Retirement
Center)/(GNMA COL),
1/20/2035 AAA 1,049,850
600,000 Louisiana HFA, SFM
Revenue Bonds (Series
A-2), 6.55%, 12/1/2026 Aaa 611,046
</TABLE>
(See Notes to Portfolios of Investments)
17
LOUISIANA MUNICIPAL
BOND FUND (continued)
<TABLE>
<CAPTION>
Principal Credit
Amount Rating(d) Value
<C> <S> <C> <C>
LOUISIANACONTINUED
$ 95,000 Louisiana PFA, Health
and Education Capital
Facilities Revenue
Bonds (Series D), 7.90%
(BIG LOC)/(United
States Treasury PRF),
12/1/2015 (@102) AAA $ 103,949
1,450,000 Louisiana PFA, Health
and Education Capital
Facilities, 8.20% (Our
Lady of Lake
Regional)/(BIG LOC),
12/1/2015 AAA 1,582,254
575,000 Louisiana PFA, Health
and Education Capital
Revenue Refunding Bonds
(Series D), 7.90% (West
Jefferson Medical
Center)/(BIG LOC),
12/1/2015 AAA 625,807
500,000 Louisiana PFA, Hospital
Revenue Bonds, 5.70%
(Woman's Hospital
Foundation)/(FGIC
INS)/(Original Issue
Yield: 5.80%),
10/1/2008 AAA 506,860
995,000 Louisiana PFA, Hospital
Revenue Crossover
Refunding Bonds (Series
C), 6.30% (Our Lady of
Lake Regional)/(MBIA
INS)/ (Original Issue
Yield: 6.375%),
12/1/2016 AAA 1,035,039
500,000 Louisiana PFA, Hospital
Revenue Refunding
Bonds, 6.40% (Lafayette
General Medical Center
Project)/(FSA
INS)/(Original Issue
Yield: 6.53%),
10/1/2012 AAA 530,200
<CAPTION>
Principal Credit
Amount Rating(d) Value
<C> <S> <C> <C>
$2,045,000 Louisiana PFA, Multi-
family Housing Revenue
Bonds (Series A), 7.50%
(FHLMC COL), 6/1/2021 AAA $2,185,573
500,000 Louisiana PFA,
Refunding Revenue
Bonds, 5.75% (Alton
Ochsner Medical Foun-
dation)/(MBIA INS)/
(Original Issue Yield:
6.636%), 5/15/2011 AAA 496,035
750,000 Louisiana PFA, Revenue
Bond, 6.00% (General
Health, Inc.)/(MBIA
INS)/(Original Issue
Yield: 6.15%),
11/1/2012 AAA 762,015
1,890,000 Louisiana PFA, Revenue
Refunding Bonds (Series
A), 6.75% (Bethany Home
Project)/ (FHA LOC),
8/1/2025 AAA 1,948,514
350,000 Louisiana PFA, Revenue
Refunding Bonds (Series
B), 6.50% (Alton
Ochsner Medical Foun-
dation)/(MBIA INS)/
(Original Issue Yield:
6.743%), 5/15/2022 AAA 370,251
425,000 Louisiana PFA, Revenue
Refunding Bonds, 7.60%
(Jefferson Parish
Eastbank)/(FGIC INS),
8/1/2003 AAA 463,191
750,000 Louisiana PFA, Revenue
Refunding Bonds, 7.70%
(Jefferson Parish
Eastbank)/(FGIC INS)/
(Original Issue Yield:
7.747%), 8/1/2010 AAA 819,420
670,000 Louisiana PFA, Student
Opportunity Loans
Revenue Bonds (Series
A), 6.80% (FSA INS),
1/1/2006 AAA 707,460
</TABLE>
(See Notes to Portfolios of Investments)
18
LOUISIANA MUNICIPAL
BOND FUND (continued)
<TABLE>
<CAPTION>
Principal Credit
Amount Rating(d) Value
<C> <S> <C> <C>
LOUISIANACONTINUED
$ 670,000 Louisiana PFA, Student
Opportunity Loans
Revenue Bonds (Series
A), 6.85% (FSA COL),
1/1/2009 AAA $ 697,282
500,000 Louisiana Stadium and
Expo District, Hotel
Occupancy Tax and
Stadium Revenue
Refunding Bonds (Series
A), 6.00% (FGIC INS),
7/1/2016 AAA 505,315
2,155,000 Louisiana Stadium and
Expo District, Hotel
Occupancy Tax and
Revenue Refunding Bonds
(Series A), 6.00% (FGIC
INS)/(Original Issue
Yield: 6.10%),
7/1/2024 AAA 2,174,697
550,000 Louisiana State Energy
& Power Authority,
Revenue Refunding
Bonds, 6.00%
(Rodemacher Unit No. 2
Project)/(FGIC INS)/
(Original Issue Yield:
6.962%), 1/1/2013 AAA 554,114
465,000 Louisiana State Univer-
sity and Agricultural
and Mechanical Col-
lege, Revenue Bonds,
5.75% (FGIC INS)/
(Original Issue Yield:
6.043%), 7/1/2014 AAA 458,332
1,500,000 Louisiana State, GO UT
Bonds (Series A), 6.10%
(AMBAC INS)/(Original
Issue Yield: 6.30%),
5/1/2011 AAA 1,550,190
<CAPTION>
Principal Credit
Amount Rating(d) Value
<C> <S> <C> <C>
$ 400,000 Louisiana State, Gas
and Fuel Tax Revenue
Bonds (Series A), 7.25%
(FGIC INS)/(Original
Issue Yield: 7.45%),
11/15/2004 AAA $ 436,340
750,000 Monroe, LA, School
District, Special
School District, GO UT
Bonds, 5.35% (FGIC
INS)/ (Original Issue
Yield: 5.75%), 3/1/2009 AAA 739,455
525,000 Monroe-Brentwood, LA,
Housing Development
Corp., Multifamily
Housing Mortgage
Revenue Refunding
Bonds, 6.50% (FNMA
COL), 2/1/2010 Aaa 536,902
1,020,000 Monroe-Brentwood, LA,
Housing Development
Corp., Multifamily
Housing Mortgage
Revenue Refunding
Bonds, 6.70% (FNMA
COL), 8/1/2021 Aaa 1,036,963
1,500,000 New Orleans, LA,
Audubon Park, GO LT
Bonds, 6.00% (FGIC
INS)/(Original Issue
Yield: 6.25%),
10/1/2013 AAA 1,526,700
1,250,000 New Orleans, LA, Home
Mortgage Authority, SFM
Revenue Bonds (Series
A), 6.65% (GNMA COL),
9/1/2008 Aaa 1,307,712
1,000,000 New Orleans, LA, Home
Mortgage Authority,
Special Obligation
Revenue Bonds, 6.25%
(United States Treasury
COL)/(Original Issue
Yield: 6.517%),
1/15/2011 AAA 1,068,120
</TABLE>
(See Notes to Portfolios of Investments)
19
LOUISIANA MUNICIPAL
BOND FUND (continued)
<TABLE>
<CAPTION>
Principal Credit
Amount Rating(d) Value
<C> <S> <C> <C>
LOUISIANACONTINUED
$ 290,000 New Orleans, LA, Hous-
ing Development Corp.,
Multifamily Housing
Refunding Revenue
Bonds, 7.375% (FNMA
COL)/(Original Issue
Yield: 7.544%),
8/1/2005 AAA $ 312,835
1,020,000 New Orleans, LA, Hous-
ing Development Corp.,
Multifamily Housing
Revenue Bonds, 7.375%
(Southwood Patio)/
(FNMA COL)/(Original
Issue Yield: 7.544%),
8/1/2005 AAA 1,097,112
1,900,000 New Orleans, LA, GO
Refunding Bond, 6.20%
(AMBAC INS)/(Original
Issue Yield: 6.30%),
10/1/2021 AAA 1,947,823
2,375,000 New Orleans, LA, GO UT
Capital Appreciation
Bonds (AMBAC
INS)/(Original Issue
Yield: 7.10%), 9/1/2013 AAA 867,777
2,000,000 New Orleans, LA, GO UT
Capital Appreciation
Revenue Bonds (AMBAC
INS)/(Original Issue
Yield: 7.15%), 9/1/2016 AAA 600,060
980,000 New Orleans, LA, GO UT
Refunding Bonds, 5.875%
(AMBAC INS)/ (Original
Issue Yield: 6.00%),
10/1/2011 AAA 999,365
100,000 New Orleans, LA, GO UT
Refunding Bonds, 6.00%
(AMBAC INS)/ (United
States Treasury
PRF)/(Original Issue
Yield: 7.40%),
12/1/2004 (@100) AAA 100,551
<CAPTION>
Principal Credit
Amount Rating(d) Value
<C> <S> <C> <C>
$ 500,000 Orleans Parish, LA, Law
Enforcement District,
GO UT Bonds, 7.10%
(AMBAC INS)/(Original
Issue Yield: 7.25%),
5/1/2010 AAA $ 537,270
750,000 Orleans, LA, Levee
District, Crossover
Refunding Bonds (Series
A), 8.125% (MBIA
INS)/(Original Issue
Yield: 8.174%),
11/1/2007 AAA 770,295
1,000,000 Orleans, LA, Levee Dis-
trict, Refunding Reve-
nue Bonds (Series A),
5.95% (FSA INS)/(Orig-
inal Issue Yield:
6.039%), 11/1/2014 AAA 1,006,380
300,000 Plaquemines Parish LA,
GO UT Refunding Bonds,
6.50% (AMBAC
INS)/(Original Issue
Yield: 6.65%), 8/1/2008 AAA 325,677
1,300,000 Regional Transportation
Authority, Revenue
Refunding Bonds, 8.00%
(FGIC INS),
12/1/2008 AAA 1,414,699
500,000 St. Tammany Parish, LA,
Wide School District
No. 12, GO UT Bonds,
5.375% (FSA INS),
3/1/2013 AAA 477,110
500,000 Shreveport, LA, Water &
Sewer, Revenue Bonds
(Series A), 5.95% (FGIC
LOC), 12/1/2014 AAA 502,700
1,485,000 St. Charles Parish, LA,
Consolidated Water-
works and Wastewater
District No. 1, Utility
Revenue Refunding
Bonds, 7.15% (MBIA
INS), 7/1/2016 AAA 1,644,920
</TABLE>
(See Notes to Portfolios of Investments)
20
LOUISIANA MUNICIPAL
BOND FUND (continued)
<TABLE>
<CAPTION>
Principal Credit
Amount Rating(d) Value
<C> <S> <C> <C>
LOUISIANACONTINUED
$1,000,000 St. Charles Parish, LA,
Public Improvement, UT
GO Refunding Bonds
(Series ST-96), 5.25%
(Original Issue Yield:
5.45%), 12/1/2009 AAA $ 977,060
500,000 St. Charles Parish, LA,
Environmental
Improvement Revenue
Bonds, 5.95% (LA Power
& Light Company)/(FSA
INS)/(Original Issue
Yield: 5.986%),
12/1/2023 AAA 484,560
1,000,000 St. Charles Parish, LA,
Solid Waste Disposal
Revenue Bonds, 7.00%
(LA Power & Light
Company)/(AMBAC
INS)/(Original Issue
Yield: 7.04%),
12/1/2022 AAA 1,088,430
500,000 St. Landry Parish, LA,
Consolidated School
District No. 1, GO UT
Bonds, 6.10% (MBIA
INS)/(Original Issue
Yield: 6.60%), 5/1/2008 AAA 515,375
375,000 St. Mary Parish, LA,
Sewage District No. 5,
Refunding Bonds, 7.60%
(AMBAC INS), 5/1/2004 AAA 401,708
400,000 St. Tammany Parish, LA,
Hospital Service
District No. 2,
Hospital Revenue
Refunding Bonds, 6.125%
(Connie Lee
INS)/(Original Issue
Yield: 6.315%),
10/1/2011 AAA 410,720
<CAPTION>
Principal Credit
Amount Rating(d) Value
<C> <S> <C> <C>
$1,000,000 St. Tammany Parish, LA,
Hospital Service
District No. 2, Revenue
Bonds, 6.25% (Connie
Lee LOC)/(Original
Issue Yield: 6.40%),
10/1/2014 AAA $1,020,540
130,000 Terrebonne Parish, LA,
Hospital Service Dis-
trict No. 1, Refunding
Revenue Bonds, 7.50%
(Terrebonne General
Medical Center)/(BIG
INS)/(Original Issue
Yield: 7.649%),
4/1/2008 AAA 138,104
1,225,000 Terrebonne Parish, LA,
Hospital Service Dis-
trict No. 1, Revenue
Refunding Bonds, 7.50%
(Terrebonne General
Medical Center)/(BIG
LOC)/ (Original Issue
Yield: 7.745%),
4/1/2015 AAA 1,301,955
170,000 Terrebonne Parish, LA,
Hospital Service Dis-
trict No. 1, Service
District No. 1,
Hospital Revenue
Refunding Bonds, 7.40%
(Terrebonne General
Medical Center)/(BIG
INS)/ (Original Issue
Yield: 7.50%), 4/1/2003 AAA 180,341
----------
Total 65,493,247
----------
</TABLE>
(See Notes to Portfolios of Investments)
21
LOUISIANA MUNICIPAL
BOND FUND (continued) TOTAL RETURN BOND FUND
<TABLE>
<CAPTION>
Principal Credit
Amount Rating(d) Value
<C> <S> <C> <C>
PUERTO RICO0.9%
$ 600,000 Puerto Rico Municipal
Finance Agency, Reve-
nue Bonds (Series A),
6.00% (FSA INS)/(Orig-
inal Issue Yield:
6.30%), 7/1/2014 AAA $ 609,516
----------
TOTAL LONG-TERM
MUNICIPALS (IDENTIFIED
COST $63,928,900) 66,102,763
----------
MUTUAL FUND1.1%
700,669 Dreyfus Tax Exempt Cash
Management (at net
asset value) 700,669
----------
TOTAL INVESTMENTS
(IDENTIFIED COST
$64,629,569) $66,803,432
----------
----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS/
ASSET-BACKED
SECURITIES13.3%
AUTOMOTIVE1.6%
$1,000,000 Ford Capital BV, Debenture,
10.125%, 11/15/2000 $1,106,000
----------
BANKING3.5%
1,000,000 BankAmerica Corp.,
Subordinated Note, 7.50%,
10/15/2002 1,009,580
1,500,000 Swiss Bank Corp. New York,
Subordinated Note, 7.25%,
9/1/2006 1,480,470
----------
Total 2,490,050
----------
FINANCE-RETAIL5.2%
750,000 American General Finance
Corp., Note 8.00%,
2/15/2000 772,658
1,000,000 CIT Group Securitization
Corp., 1993-1, Class A2,
5.75%, 6/15/2018 977,080
1,000,000 Discover Card Trust 1993-A,
Class A, 6.25%, 8/16/2000 997,490
1,000,000 Signet Credit Card Master
Trust, 1993-1, Class A,
5.20%, 2/15/2002 975,500
----------
Total 3,722,728
----------
UTILITIES3.0%
2,000,000 K N Energy, Inc., Debenture,
9.625%, 8/1/2021 2,159,780
----------
TOTAL CORPORATE
BONDS/ASSET-BACKED
SECURITIES (IDENTIFIED COST
$9,531,621) 9,478,558
----------
GOVERNMENT
AGENCIES29.2%
FEDERAL HOME LOAN BANK0.8%
550,000 7.01%, 6/14/2006 541,970
----------
FEDERAL HOME LOAN
MORTGAGE CORP. 30-YEAR
GOLD1.5%
1,000,000 Series 1024, 9.00%,
11/15/2005 1,040,850
----------
</TABLE>
(See Notes to Portfolios of Investments)
22
TOTAL RETURN BOND FUND (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
FEDERAL NATIONAL MORTGAGE
CORP. 30-YEAR
SEASONED0.1%
$ 8,402 Pool 34138, 11.00%, 4/1/2010 $ 9,292
13,514 Pool 1804, 11.00%, 4/1/2011 14,489
17,548 Pool 85131, 11.00%, 5/1/2017 19,539
12,494 Pool 76204, 11.00%, 6/1/2019 13,911
----------
Total 57,231
----------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION BOND9.4%
3,000,000 6.22%, 3/13/2006 2,796,150
3,900,000 8.05%, 7/14/2004 3,917,745
----------
Total 6,713,895
----------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION
30-YEAR17.4%
941,403 Pool 420153, 7.00%,
9/15/2010 927,564
463,985 Pool 345031, 7.00%,
10/15/2023 443,101
492,693 Pool 345090, 7.00%,
11/15/2023 470,517
255,973 Pool 360772, 7.00%,
2/15/2024 244,452
521,685 Pool 302101, 7.00%,
6/15/2024 496,571
599,234 Pool 382074, 7.00%,
9/15/2025 569,374
206,061 Pool 404653, 7.00%,
9/15/2025 195,793
510,936 Pool 408884, 7.00%,
9/15/2025 485,476
787,756 Pool 410108, 7.00%,
9/15/2025 748,502
308,216 Pool 410786, 7.00%,
9/15/2025 292,858
510,493 Pool 415865, 7.00%,
9/15/2025 484,642
1,290,305 Pool 418781, 7.00%,
9/15/2025 1,226,009
1,516,158 Pool 420157, 7.00%,
10/15/2025 1,439,380
1,122,828 Pool 415427, 7.50%,
8/15/2025 1,098,114
187,090 Pool 168511 8.00%, 7/15/2016 189,718
187,744 Pool 174673, 8.00%,
8/15/2016 190,382
78,510 Pool 177145, 8.00%,
1/15/2017 79,613
135,988 Pool 212660, 8.00%,
4/15/2017 137,899
213,734 Pool 212047, 8.00%,
5/15/2017 216,737
161,471 Pool 217533, 8.00%,
5/15/2017 163,034
229,540 Pool 216950, 8.00%,
6/15/2017 231,762
11,175 Pool 188080, 8.00%,
9/15/2018 11,269
236,319 Pool 302697, 8.00%,
4/15/2021 238,162
139,681 Pool 227430, 9.00%,
8/15/2019 146,838
<CAPTION>
Principal
Amount Value
<C> <S> <C>
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION
30-YEARCONTINUED
$ 110,961 Pool 279629, 9.00%,
10/15/2019 $ 116,647
72,152 Pool 283261, 9.00%,
11/15/2019 75,939
169,334 Pool 287853, 9.00%,
4/15/2020 178,011
65,620 Pool 288967, 9.00%,
4/15/2020 68,983
119,230 Pool 289082, 9.00%,
4/15/2020 125,340
118,647 Pool 288994, 9.00%,
5/15/2020 124,727
83,293 Pool 291100, 9.00%,
5/15/2020 87,561
145,696 Pool 147875, 10.00%,
3/15/2016 159,172
102,717 Pool 253449, 10.00%,
10/15/2018 112,152
164,570 Pool 278300, 10.00%,
7/15/2019 179,637
98,036 Pool 279619, 10.00%,
9/15/2019 107,042
36,012 Pool 288052, 10.00%,
7/15/2020 39,309
59,601 Pool 288570, 10.00%,
8/15/2020 65,058
55,354 Pool 225725, 10.00%,
9/15/2020 60,422
113,003 Pool 292364, 10.00%,
9/15/2020 123,349
60,113 Pool 296315, 10.00%,
9/15/2020 65,616
----------
Total 12,416,732
----------
TOTAL GOVERNMENT AGENCIES
(IDENTIFIED COST
$21,268,861) 20,770,678
----------
</TABLE>
(See Notes to Portfolios of Investments)
23
U.S. GOVERNMENT
TOTAL RETURN BOND FUND (continued) INCOME FUND
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
TREASURY
SECURITIES50.8%
U.S.TREASURY BONDS29.5%
$ 750,000 7.125%, 2/15/2023 $ 737,325
2,000,000 7.625%, 11/15/2022 2,081,520
6,000,000 8.875%, 8/15/2017 7,024,140
3,800,000 11.25%, 2/15/2015 5,348,080
4,000,000 12.50%, 8/15/2014 5,775,000
----------
Total 20,966,065
----------
U.S.TREASURY NOTES21.3%
7,000,000 5.125%, 4/30/1998 6,877,500
2,500,000 5.625%, 2/15/2006 2,283,600
3,000,000 6.50%, 11/30/1996 3,007,860
2,000,000 6.875%, 5/15/2006 1,989,100
1,000,000 7.00%, 7/15/2006 1,004,080
----------
Total 15,162,140
----------
TOTAL TREASURY
SECURITIES (IDENTIFIED
COST $36,122,000) 36,128,205
----------
(B)REPURCHASE
AGREEMENT3.9%
2,763,000 HSBC Securities, Inc.,
5.19%, dated 8/30/1996, due
9/3/1996 (at amortized cost) 2,763,000
----------
TOTAL INVESTMENTS
(IDENTIFIED COST
$69,685,482) $69,140,441
----------
----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM
OBLIGATIONS98.4%
FEDERAL HOME LOAN BANK0.9%
$ 350,000 7.01%, 6/14/2006 $ 344,890
-----------
(E)FEDERAL HOME LOAN BANK
PC2.7%
341,278 8.75%, 1/1/2011 351,407
370,174 8.75%, 2/1/2017 381,450
248,288 9.25%, 6/1/2002 252,243
43,237 9.50%, 10/1/2001 44,250
-----------
Total 1,029,350
-----------
(E)FEDERAL HOME LOAN
MORTGAGE CORP.
DEBENTURES9.2%
2,000,000 6.50%, 6/8/2000 1,971,240
1,500,000 7.055%, 8/2/2001 1,496,595
-----------
Total 3,467,835
-----------
(E)FEDERAL HOME LOAN
MORTGAGE CORP. PC20.9%
500,000 6.00%, 10/15/2004 490,890
1,750,000 6.10%, 6/15/2016 1,714,737
2,000,000 7.00%, 11/15/2005 1,943,820
1,558,000 7.50%, 9/15/2007 1,524,986
1,000,000 7.50%, 9/15/2021 959,260
1,000,000 9.00%, 6/15/2020 1,028,120
164,209 9.50%, 1/15/2005 171,859
-----------
Total 7,833,672
-----------
FEDERAL HOME LOAN MORT-
GAGE CORP. 15-YEAR1.3%
211,102 9.00%, 8/1/2001 217,564
89,068 9.50%, 10/1/2004 92,212
163,465 9.50%, 12/1/2001 169,235
-----------
Total 479,011
-----------
FEDERAL HOME LOAN MORT-
GAGE CORP. 30-YEAR2.9%
115,149 9.00%, 5/1/2018 119,572
94,996 9.00%, 6/1/2016 99,062
84,866 9.50%, 10/1/2019 89,878
735,594 10.00%, 6/1/2018 790,984
-----------
Total 1,099,496
-----------
</TABLE>
(See Notes to Portfolios of Investments)
24
U.S. GOVERNMENT
INCOME FUND (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
(E)FEDERAL NATIONAL
MORTGAGE ASSOCIATION
DEBENTURES17.4%
$1,000,000 7.60%, 4/14/2004 $ 992,230
5,500,000 8.05%, 7/14/2004 5,525,025
-----------
Total 6,517,255
-----------
(E)FEDERAL NATIONAL
MORTGAGE ASSOCIATION
REMIC3.9%
1,000,000 7.50%, 3/25/2021 987,660
496,127 9.00%, 6/25/2019 497,784
-----------
Total 1,485,444
-----------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION 15-YEAR0.3%
91,083 10.75%, 1/1/2001 96,590
-----------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION 30-YEAR1.2%
302,369 8.50%, 2/1/2011 310,965
119,486 9.50%, 8/1/2020 128,073
-----------
Total 439,038
-----------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION
POOL1.5%
97,328 7.00%, 11/15/2009 95,898
386,383 7.00%, 9/15/2010 380,703
92,743 9.50%, 7/15/2020 99,408
-----------
Total 576,009
-----------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION
30-YEAR7.6%
792,194 8.00%, 10/15/2022 774,757
1,129,554 8.00%, 11/15/2022 1,129,893
451,814 9.00%, 2/15/2020 471,292
447,841 9.50%, 6/15/2020 477,363
-----------
Total 2,853,305
-----------
U.S. TREASURY BONDS18.1%
1,250,000 7.125%, 2/15/2023 1,228,875
1,000,000 8.00%, 11/15/2021 1,082,150
750,000 8.75%, 5/15/2020 872,798
3,000,000 10.75%, 2/15/2003 3,602,640
-----------
Total 6,786,463
-----------
<CAPTION>
Principal
Amount Value
<C> <S> <C>
U.S. TREASURY NOTES10.5%
$1,600,000 5.625%, 11/30/2000 $ 1,537,536
32,000 6.375%, 7/15/1999 31,905
2,250,000 9.25%, 8/15/1998 2,368,035
-----------
Total 3,937,476
-----------
TOTAL LONG-TERM
OBLIGATIONS (IDENTIFIED
COST $37,622,661) 36,945,834
-----------
(B)REPURCHASE
AGREEMENT1.1%
395,000 HSBC Securities, Inc.,
5.19%, dated 8/30/1996,
due 9/3/1996 (at amortized
cost) 395,000
-----------
TOTAL INVESTMENTS
(IDENTIFIED COST
$38,017,661) $37,340,834
-----------
-----------
</TABLE>
(See Notes to Portfolios of Investments)
25
CASH RESERVE FUND
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
(F)COMMERCIAL PAPER86.6%
COMPUTER SERVICES3.0%
$5,000,000 Electronic Data Systems
Corp., 5.38%, 9/24/1996 $ 4,982,814
-----------
CONSUMER DURABLES2.9%
5,000,000 Toyota Motor Credit Corp.,
5.30%, 9/27/1996 4,980,861
-----------
CONSUMER
NON-DURABLES14.8%
5,000,000 Anheuser-Busch Compa-
nies., Inc., 5.34%,
9/3/1996 4,998,517
5,000,000 Coca-Cola Co., 5.35%,
10/15/1996 4,967,306
5,000,000 Heinz (H.J.) Co., 5.27%,
10/15/1996 4,967,794
5,000,000 Colgate-Palmolive Co.,
5.37%, 9/27/1996 4,980,608
5,000,000 Philip Morris Cos., Inc.,
5.23%, 9/23/1996 4,984,019
-----------
Total 24,898,244
-----------
CONSUMER SERVICES3.0%
5,000,000 Disney (Walt) Co., 5.38%,
9/6/1996 4,996,264
-----------
ELECTRONIC
TECHNOLOGY2.9%
5,000,000 Hewlett Packard Co.,
5.25%, 11/26/1996 4,937,292
-----------
ENERGY MINERALS3.0%
5,000,000 Atlantic Richfield Co.,
5.30%, 9/25/1996 4,982,333
-----------
FINANCE11.8%
5,000,000 American General Finance
Corp., 5.40%, 9/26/1996 4,981,250
5,000,000 Ford Motor Credit Corp.,
5.31%, 11/7/1996 4,950,588
5,000,000 Paccar Financial Corp.,
5.39%, 9/16/1996 4,988,770
5,000,000 Norwest Corp., 5.40%,
10/2/1996 4,976,750
-----------
Total 19,897,358
-----------
FINANCECOMMERCIAL17.6%
5,000,000 CIT Group Holdings, Inc.,
5.31%, 10/1/1996 4,977,875
<CAPTION>
Principal
Amount Value
<C> <S> <C>
$5,000,000 Deere (John) Capital
Corp., 5.30%, 11/6/1996 $ 4,951,417
5,000,000 Falcon Asset
Securitization Corp.,
5.31%, 9/5/1996 4,997,050
5,000,000 General Electric Capital
Corp., 5.31%, 11/4/1996 4,952,800
5,000,000 Transamerica Finance
Corp., 5.36%, 1/28/1997 4,889,078
5,000,000 U.S.A.A. Capital Corp.,
5.33%, 1/16/1997 4,898,582
-----------
Total 29,666,802
-----------
FINANCERETAIL5.8%
5,000,000 Beta Finance, Inc., 5.42%,
2/7/1997 4,880,308
5,000,000 Commercial Credit Co.,
5.27%, 10/24/1996 4,961,207
-----------
Total 9,841,515
-----------
FOOD & BEVERAGE2.9%
5,000,000 Cargill, Inc., 5.27%,
11/18/1996 4,942,908
-----------
FUNDING CORPORATION2.9%
5,000,000 CIESCO, Inc., 5.40%,
10/1/1996 4,977,500
-----------
HEALTH TECHNOLOGY1.2%
2,000,000 Abbott Laboratories,
5.32%, 9/23/1996 1,993,498
-----------
OIL3.0%
5,000,000 Chevron Oil Finance Co.,
5.30%, 9/24/1996 4,983,069
-----------
PROCESS INDUSTRIES2.9%
5,000,000 Du Pont (E.I.) de Nemours
& Co., 5.31%, 1/22/1997 4,894,538
-----------
RETAIL TRADE3.0%
5,000,000 Toys R Us, Inc., 5.31%,
9/6/1996 4,996,313
-----------
</TABLE>
(See Notes to Portfolios of Investments)
26
U.S. TREASURY MONEY
CASH RESERVE FUND (continued) MARKET FUND
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
UTILITIES5.9%
$5,000,000 AT&T Corp., 5.30%,
2/10/1997 $ 4,880,750
5,000,000 BellSouth Telecommunica-
tions, Inc., 5.32%,
9/13/1996 4,991,133
-----------
Total 9,871,883
-----------
TOTAL COMMERCIAL PAPER $145,843,192
-----------
(F)BANKERS
ACCEPTANCE3.0%
FINANCE3.0%
5,000,000 First Union Corp., 5.28%,
9/13/19969/23/1996 4,986,800
-----------
(B)REPURCHASE
AGREEMENT10.7%
18,096,000 State Street Bank and
Trust Co., 5.21%, dated
8/30/1996, due 9/3/1996 18,096,000
-----------
TOTAL INVESTMENTS (AT
AMORTIZED COST) $168,925,992
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C> <C>
U.S. TREASURY BILLS38.0%
$52,000,000 9/5/199612/19/1996 $51,694,940
-----------
U.S. TREASURY NOTES16.9%
8,000,000 7.25%, 11/15/1996 8,030,986
15,000,000 4.75%, 2/15/1997 14,951,780
-----------
TOTAL U.S. TREASURY NOTES 22,982,766
-----------
(B)REPURCHASE
AGREEMENTS45.2%
30,000,000 HSBC Securities, Inc.,
5.19%, dated 8/30/1996,
due 9/3/1996 30,000,000
31,496,000 State Street Bank and
Trust Co., 5.21%, dated
8/30/1996, due 9/3/1996 31,496,000
-----------
TOTAL REPURCHASE
AGREEMENTS 61,496,000
-----------
TOTAL INVESTMENTS, (AT
AMORTIZED COST) $136,173,706
-----------
-----------
</TABLE>
(See Notes to Portfolios of Investments)
27
TOWER MUTUAL FUNDS
Notes to Portfolios of Investments
August 31, 1996
(a) Non-income producing security.
(b) The repurchase agreements are fully collateralized by U.S. Treasury
obligations based on market prices at the date of the portfolio.
(c) At August 31, 1996, 7.3% of the total investments at market value were
subject to alternative minimum tax.
(d) Please refer to the Appendix of the Statement of Additional Information for
an explanation of the credit ratings. Current credit ratings are unaudited.
(e) Because of monthly principal payments, the average lives of the Federal Home
Loan Bank Participation Certificates, Federal Home Loan Mortgage Corp.
Debentures and Participation Certificates, and Federal National Mortgage
Association Debentures and REMICs are less than the indicated periods.
(f) Rate shown represents yield to maturity.
The following acronyms are used throughout these portfolios:
ADR -- American Depositary Receipt
AMBAC -- American Municipal Bond Assurance Corporation
BIG -- Bond Investors Guaranty
COL -- Collateralized
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
FHLMC -- Federal Home Loan Mortgage Corporation
FNMA -- Federal National Mortgage Association
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
GO -- General Obligation
HFA -- Housing Finance Authority
INS -- Insured
LOC -- Letter of Credit
LT -- Limited Tax
MBIA -- Municipal Bond Investors Assurance
PC -- Participation Certificate
PFA -- Public Facility Authority
PRF -- Pre-Refunded
REMIC -- Real Estate Mortgage Investment Conduit
SFM -- Single Family Mortgage
UT -- Unlimited Tax
<TABLE>
<CAPTION>
FOR FEDERAL TAX PURPOSES
NET UNREALIZED GROSS GROSS TOTAL
COST OF APPRECIATION UNREALIZED UNREALIZED NET
TOWER MUTUAL FUNDS INVESTMENTS (DEPRECIATION) APPRECIATION DEPRECIATION ASSETS*
<S> <C> <C> <C> <C> <C>
Capital Appreciation Fund $136,180,000 $33,131,351 $34,872,764 $1,741,413 169,647,726
Louisiana Municipal Income Fund 64,629,569 2,173,863 2,381,478 207,615 65,716,666
Total Return Bond Fund 69,685,482 (545,041) 361,378 906,419 71,188,255
U.S. Government Income Fund 38,017,661 (676,827) 254,014 930,841 37,543,875
Cash Reserve Fund 168,925,992 -- -- -- 168,343,868
U.S. Treasury Money Market Fund 136,173,706 -- -- -- 136,068,361
</TABLE>
* The categories of investments are shown as a percentage of net assets at
August 31, 1996.
(See Notes which are an integral part of the Financial Statements)
28
THIS PAGE INTENTIONALLY LEFT BLANK
29
TOWER MUTUAL FUNDS
Statements of Assets and Liabilities
August 31, 1996
<TABLE>
<CAPTION>
CAPITAL LOUISIANA
APPRECIATION MUNICIPAL
FUND INCOME FUND
<S> <C> <C>
ASSETS:
Investments in repurchase agreements $ 4,380,000 $ --
Investments in securities 164,931,351 66,803,432
--------------- ---------------
Total investments in securities, at value 169,311,351 66,803,432
Cash 4,978 --
Income receivable 401,604 953,851
Receivable for investments sold -- --
Receivable for shares sold 13,748 98,081
Deferred expenses -- --
--------------- ---------------
Total assets 169,731,681 67,855,364
--------------- ---------------
LIABILITIES:
Payable for investments purchased -- 1,900,429
Payable for shares redeemed 35,593 34,760
Income distribution payable -- 157,491
Payable to Bank -- 25,911
Accrued expenses 48,362 20,107
--------------- ---------------
Total liabilities 83,955 2,138,698
--------------- ---------------
NET ASSETS CONSIST OF:
Paid in capital 118,027,192 63,791,872
Net unrealized appreciation (depreciation) of investments 33,185,259 2,173,863
Accumulated net realized gain (loss) on investments 18,343,942 (324,586)
Undistributed net investment income 91,333 75,517
--------------- ---------------
Total Net Assets $ 169,647,726 $65,716,666
--------------- ---------------
Shares Outstanding 9,491,485 6,005,790
--------------- ---------------
NET ASSET VALUE AND REDEMPTION PROCEEDS PER SHARE
(net assets / shares outstanding) $17.87 $10.94
--------------- ---------------
Offering Price Per Share* $18.42 ** $11.28 **
--------------- ---------------
Investments, at identified cost $ 136,126,092 $ 64,629,569
--------------- ---------------
--------------- ---------------
Investments, at tax cost $ 136,180,000 $ 64,629,569
--------------- ---------------
--------------- ---------------
</TABLE>
* See "What Shares Cost" in the Prospectus.
** Computation of offering price: 100/97 of net asset value.
(See Notes which are an integral part of the Financial Statements)
30
<TABLE>
<CAPTION>
TOTAL U.S. GOVERNMENT CASH U.S. TREASURY
RETURN BOND INCOME RESERVE MONEY MARKET
FUND FUND FUND FUND
<S> <C> <C> <C>
$ 2,763,000 $ 395,000 $ 18,096,000 $ 61,496,000
66,377,441 36,945,834 150,829,992 74,677,706
- --------------- --------------- --------------- ---------------
69,140,441 37,340,834 168,925,992 136,173,706
-- 1,805 3,988 6,304
731,159 350,541 5,238 222,474
3,000,000 -- -- --
1,029 5,114 248,780 13,081
961 -- -- 620
- --------------- --------------- --------------- ---------------
72,873,590 37,698,294 169,183,998 136,416,185
- --------------- --------------- --------------- ---------------
1,494,720 -- -- --
1,000 1,603 254,887 10,868
60,800 149,490 537,570 322,882
-- -- -- --
128,815 3,326 47,673 14,074
- --------------- --------------- --------------- ---------------
1,685,335 154,419 840,130 347,824
- --------------- --------------- --------------- ---------------
72,494,170 41,702,183 168,343,868 136,068,361
(545,041) (676,827) -- --
(819,311) (3,522,603) -- --
58,437 41,122 -- --
- --------------- --------------- --------------- ---------------
$71,188,255 $37,543,875 $ 168,343,868 $ 136,068,361
- --------------- --------------- --------------- ---------------
7,286,550 3,823,561 168,343,868 136,068,361
- --------------- --------------- --------------- ---------------
$ 9.77 $ 9.82 $ 1.00 $ 1.00
- --------------- --------------- --------------- ---------------
$ 10.07** $ 10.12** $ 1.00 $ 1.00
- --------------- --------------- --------------- ---------------
$69,685,482 $38,017,661 $ 168,925,992 $ 136,173,706
- --------------- --------------- --------------- ---------------
- --------------- --------------- --------------- ---------------
$69,685,482 $38,017,661 $ 168,925,992 $ 136,173,706
- --------------- --------------- --------------- ---------------
- --------------- --------------- --------------- ---------------
</TABLE>
31
TOWER MUTUAL FUNDS
Statements of Operations
Year Ended August 31, 1996
<TABLE>
<CAPTION>
CAPITAL LOUISIANA
APPRECIATION MUNICIPAL
FUND INCOME FUND
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 3,523,749 $ --
Interest 203,388 4,055,332
--------------- ---------------
Total income 3,727,137 4,055,332
--------------- ---------------
EXPENSES:
Investment advisory fee 1,204,309 298,550
Administrative personnel and services fee 206,816 85,488
Custodian fees 36,887 12,648
Transfer and dividend disbursing agent fees and expenses 40,568 39,572
Directors'/Trustees' fees 7,768 4,226
Auditing fees 17,338 14,369
Legal fees 2,146 3,586
Portfolio accounting fees 55,423 64,273
Distribution services fee 401,436 --
Share registration costs 10,358 9,780
Printing and postage 6,410 6,508
Insurance premiums 3,790 3,094
Miscellaneous 1,642 3,803
--------------- ---------------
Total expenses 1,994,891 545,897
Waivers--
Waiver of investment advisory fee -- (53,076)
--------------- ---------------
Net expenses 1,994,891 492,821
--------------- ---------------
Net investment income 1,732,246 3,562,511
--------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 21,484,071 328,333
Net change in unrealized appreciation (depreciation) of invest-
ments 2,454,787 (599,781)
--------------- ---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 23,938,858 (271,448)
--------------- ---------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $25,671,104 $ 3,291,063
--------------- ---------------
--------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
32
<TABLE>
<CAPTION>
TOTAL U.S. GOVERNMENT CASH U.S. TREASURY
RETURN BOND INCOME RESERVE MONEY MARKET
FUND FUND FUND FUND
<S> <C> <C> <C>
$ -- $ -- $ -- $ --
4,912,617 3,067,843 10,828,277 6,739,912
- --------------- --------------- --------------- ---------------
4,912,617 3,067,843 10,828,277 6,739,912
- --------------- --------------- --------------- ---------------
501,491 183,788 778,592 500,504
92,287 52,624 250,721 161,067
17,910 14,755 41,430 34,633
29,834 42,580 34,687 35,695
4,294 1,935 11,011 5,795
13,699 13,003 16,672 15,956
1,829 3,531 4,356 4,320
58,977 52,833 49,068 39,997
179,104 -- 486,620 --
10,218 9,238 11,368 4,339
6,418 2,577 5,793 4,471
3,363 2,602 5,065 4,405
3,249 1,211 397 9,399
- --------------- --------------- --------------- ---------------
922,673 380,677 1,695,780 820,581
-- (24,505) -- (275,277)
- --------------- --------------- --------------- ---------------
922,673 356,172 1,695,780 545,304
- --------------- --------------- --------------- ---------------
3,989,944 2,711,671 9,132,497 6,194,608
- --------------- --------------- --------------- ---------------
562,208 (474,449) -- --
(2,533,917) (734,318) -- --
- --------------- --------------- --------------- ---------------
(1,971,709) (1,208,767) -- --
- --------------- --------------- --------------- ---------------
$ 2,018,235 $ 1,502,904 $ 9,132,497 $ 6,194,608
- --------------- --------------- --------------- ---------------
- --------------- --------------- --------------- ---------------
</TABLE>
33
TOWER MUTUAL FUNDS
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
LOUISIANA MUNICIPAL
CAPITAL APPRECIATION FUND INCOME FUND
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 1,732,246 $ 1,976,834 $ 3,562,511 $ 3,875,691
Net realized gain (loss) on investments 21,484,071 5,776,399 328,333 (644,227)
Net change in unrealized appreciation (depreciation) 2,454,787 17,920,887 (599,781) 1,707,708
--------------- --------------- -----------------------------
Change in net assets resulting from operations 25,671,104 25,674,120 3,291,063 4,939,172
--------------- --------------- -----------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income (1,745,652) (2,029,845) (3,561,907) (3,801,921)
Distributions from net realized gain on investments (7,513,977) (2,669,232) -- (563,576)
--------------- --------------- -----------------------------
Change in net assets from distributions
to shareholders (9,259,629) (4,699,077) (3,561,907) (4,365,497)
--------------- --------------- -----------------------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares 33,055,554 15,224,935 7,858,208 7,153,333
Net asset value of shares issued to shareholders in
payment of distributions declared 7,256,316 3,279,872 1,709,419 2,452,299
Cost of shares redeemed (31,551,308) (34,084,951) (11,180,328) (22,276,998)
--------------- --------------- ----------------------------
Change in net assets resulting from
share transactions 8,760,562 (15,580,144) (1,612,701) (12,671,366)
--------------- --------------- ----------------------------
Change in net assets 25,172,037 5,394,899 (1,883,545) (12,097,691)
NET ASSETS:
Beginning of period 144,475,689 139,080,790 67,600,211 79,697,902
--------------- --------------- -----------------------------
End of period $169,647,726 $144,475,689 $65,716,666 $67,600,211
--------------- --------------- -----------------------------
--------------- --------------- -----------------------------
Undistributed net investment income included in net
assets at end of period $ 91,333 $ 104,739 $ 75,517 $ 74,913
--------------- --------------- -----------------------------
--------------- --------------- -----------------------------
Net gain (loss) as computed for federal tax purposes $21,433,652 $ 5,857,912 $ (229,807) $ (86,087)
--------------- --------------- -----------------------------
--------------- --------------- -----------------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
34
<TABLE>
<CAPTION>
U.S. TREASURY
U.S. GOVERNMENT MONEY
TOTAL RETURN BOND FUND INCOME FUND CASH RESERVE FUND MARKET FUND
YEAR YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1996 1995 1996 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C> <C>
$ 3,989,944 $ 4,006,295 $ 2,711,671 $ 3,488,037 $ 9,132,497 $ 9,913,465 $ 6,194,608
562,208 27,032 (474,449) (2,290,190) -- -- --
(2,533,917) 2,863,184 (734,318) 2,760,429 -- -- --
- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
2,018,235 6,896,511 1,502,904 3,958,276 9,132,497 9,913,465 6,194,608
- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
(4,074,428) (3,888,156) (2,789,759) (3,395,460) (9,132,497) (9,913,465) (6,194,608)
-- -- -- -- -- -- --
- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
(4,074,428) (3,888,156) (2,789,759) (3,395,460) (9,132,497) (9,913,465) (6,194,608)
- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
15,497,407 12,812,859 4,723,431 2,611,463 432,905,070 372,472,324 315,672,475
3,455,297 3,525,916 911,699 1,153,323 1,471,325 1,342,657 2,390,350
(15,162,898) (21,980,675) (9,397,530) (28,785,487) (457,274,889) (366,494,602) (298,483,536)
- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
3,789,806 (5,641,900) (3,762,400) (25,020,701) (22,898,494) 7,320,379 19,579,289
- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
1,733,613 (2,633,545) (5,049,255) (24,457,885) (22,898,494) 7,320,379 19,579,289
69,454,642 72,088,187 42,593,130 67,051,015 191,242,362 183,921,983 116,489,072
- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
$ 71,188,255 $ 69,454,642 $ 37,543,875 $ 42,593,130 $ 168,343,868 $ 191,242,362 $ 136,068,361
- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
$ 58,437 $ 142,921 $ 41,122 $ 119,210 -- -- --
- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
$ 264,963 $ (1,035,780) $ (1,298,006) $ (1,657,595) -- -- --
- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
<CAPTION>
YEAR
ENDED
AUGUST 31,
1995
<C>
$ 4,398,558
--
--
---------------
4,398,558
---------------
(4,398,558)
--
---------------
(4,398,558)
---------------
307,600,098
992,817
(237,126,184)
---------------
71,466,731
---------------
71,466,731
45,022,341
---------------
$ 116,489,072
---------------
---------------
--
---------------
---------------
--
---------------
---------------
</TABLE>
35
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
DISTRIBUTIONS
YEAR NET ASSET NET REALIZED DISTRIBUTIONS DISTRIBUTIONS IN
ENDED VALUE, NET AND UNREALIZED TOTAL FROM FROM NET FROM NET EXCESS OF NET
AUGUST BEGINNING INVESTMENT GAIN/(LOSS) ON INVESTMENT INVESTMENT REALIZED GAIN INVESTMENT
31, OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME ON INVESTMENTS INCOME
<S> <C> <C> <C> <C> <C> <C> <C>
CAPITAL APPRECIATION FUND
1989(a) $ 10.17 0.33 2.68 3.01 (0.24) -- --
1990 $ 12.94 0.38 (0.76) (0.38) (0.39) (0.22) (0.02)(g)
1991 $ 11.93 0.33 2.45 2.78 (0.36) -- --
1992 $ 14.35 0.29 0.11 0.40 (0.27) (0.46) --
1993 $ 14.02 0.30 2.00 2.30 (0.30) (1.42) --
1994 $ 14.60 0.23 0.36 0.59 (0.25) (1.13) --
1995 $ 13.81 0.22 2.54 2.76 (0.21) (0.27) --
1996 $ 16.09 0.19 2.62 2.81 (0.19) (0.84) --
LOUISIANA MUNICIPAL INCOME FUND
1989(a) $ 10.00 0.43 0.14 0.57 (0.43) -- --
1990 $ 10.14 0.64 (0.16) 0.48 (0.64) -- --
1991 $ 9.98 0.64 0.48 1.12 (0.64) -- --
1992 $ 10.46 0.64 0.48 1.12 (0.64) (0.03) --
1993 $ 10.91 0.62 0.73 1.35 (0.62) (0.04) --
1994 $ 11.60 0.59 (0.68) (0.09) (0.59) (0.10) --
1995 $ 10.82 0.59 0.24 0.83 (0.58) (0.08) --
1996 $ 10.99 0.60 (0.05) 0.55 (0.60) -- --
TOTAL RETURN BOND FUND
1993(b) $ 10.00 0.56 0.48 1.04 (0.55) -- --
1994 $ 10.49 0.57 (0.83) (0.26) (0.57) (0.02) --
1995 $ 9.64 0.56 0.39 0.95 (0.54) -- --
1996 $ 10.05 0.56 (0.27) 0.29 (0.57) -- --
U.S. GOVERNMENT INCOME FUND
1989(a) $ 10.17 0.69 0.03 0.72 (0.69) -- --
1990 $ 10.20 0.86 (0.11) 0.75 (0.86) (0.02) --
1991 $ 10.07 0.85 0.43 1.28 (0.85) (0.01) --
1992 $ 10.49 0.79 0.30 1.09 (0.79) (0.04) --
1993 $ 10.75 0.74 0.12 0.86 (0.74) (0.01) (0.01)(g)
1994 $ 10.85 0.69 (0.89) (0.20) (0.69) (0.04) --
1995 $ 9.92 0.71 0.20 0.91 (0.69) -- --
1996 $ 10.14 0.67 (0.30) 0.37 (0.69) -- --
CASH RESERVE FUND
1989(a) $ 1.00 0.07 -- 0.07 (0.07) -- --
1990 $ 1.00 0.08 -- 0.08 (0.08) -- --
1991 $ 1.00 0.06 -- 0.06 (0.06) -- --
1992 $ 1.00 0.04 -- 0.04 (0.04) -- --
1993 $ 1.00 0.02 -- 0.02 (0.02) -- --
1994 $ 1.00 0.03 -- 0.03 (0.03) -- --
1995 $ 1.00 0.05 -- 0.05 (0.05) -- --
1996 $ 1.00 0.05 -- 0.05 (0.05) -- --
U.S. TREASURY MONEY MARKET FUND
1993(c) $ 1.00 0.002 -- 0.002 (0.002) -- --
1994 $ 1.00 0.03 -- 0.03 (0.03) -- --
1995 $ 1.00 0.05 -- 0.05 (0.05) -- --
1996 $ 1.00 0.05 -- 0.05 (0.05) -- --
</TABLE>
(a) Reflects operations for the period from October 14, 1988 (date of initial
public investment) to August 31, 1989.
(b) Reflects operations for the period from November 2, 1992 (date of initial
public investment) to August 31, 1993.
(c) Reflects operations for the period from July 19, 1993 (date of initial
public investment) to August 31, 1993.
(d) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(e) Computed on an annualized basis.
(f) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(g) 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.
(See Notes which are an integral part of the Financial Statements)
36
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS
NET ASSETS,
END OF
NET ASSET NET PERIOD PORTFOLIO AVERAGE
TOTAL VALUE, END TOTAL INVESTMENT EXPENSE (000 TURNOVER COMMISSION
DISTRIBUTIONS OF PERIOD RETURN(d) EXPENSES INCOME WAIVER(f) OMITTED) RATE RATE PAID
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(0.24) $ 12.94 32.29% 0.56%(e) 4.00%(e) 0.83%(e) $ 48,093 70% --
(0.63) $ 11.93 (3.11%) 0.42% 3.06% 0.75% $ 60,448 123% --
(0.36) $ 14.35 23.77% 0.74% 2.58% 0.29% $ 87,927 124% --
(0.73) $ 14.02 2.93% 0.83% 1.99% 0.25% $ 73,653 163% --
(1.72) $ 14.60 17.89% 0.85% 2.10% 0.18% $ 140,808 127% --
(1.38) $ 13.81 4.27% 1.09% 1.67% -- $ 139,081 118% --
(0.48) $ 16.09 20.71% 1.25% 1.46% -- $ 144,476 69% --
(1.03) $ 17.87 18.03% 1.24% 1.08% -- $ 169,648 69% $ 0.0632
(0.43) $ 10.14 5.82% 0.62%(e) 6.57%(e) 0.61%(e)$ 12,285 28% --
(0.64) $ 9.98 4.89% 0.81% 6.35% 0.41% $ 31,380 32% --
(0.64) $ 10.46 11.59% 0.74% 6.29% 0.20% $ 42,210 26% --
(0.67) $ 10.91 11.02% 0.65% 6.04% 0.16% $ 57,547 19% --
(0.66) $ 11.60 12.75% 0.66% 5.59% 0.14% $ 85,914 32% --
(0.69) $ 10.82 (0.76%) 0.71% 5.24% 0.08% $ 79,698 33% --
(0.66) $ 10.99 8.20% 0.77% 5.54% 0.08% $ 67,600 22% --
(0.60) $ 10.94 5.04% 0.74% 5.37% 0.08% $ 65,717 17% --
(0.55) $ 10.49 10.39% 0.77%(e) 6.56%(e) 0.22%(e)$ 63,608 78% --
(0.59) $ 9.64 (2.46%) 1.21% 5.62% -- $ 72,088 96% --
(0.54) $ 10.05 10.19% 1.30% 5.71% -- $ 69,455 91% --
(0.57) $ 9.77 2.90% 1.29% 5.57% -- $ 71,188 38% --
(0.69) $ 10.20 9.20% 0.59%(e) 8.64%(e) 0.52%(e)$ 15,753 42% --
(0.88) $ 10.07 7.48% 0.69% 8.50% 0.45% $ 32,596 32% --
(0.86) $ 10.49 13.27% 0.68% 8.30% 0.17% $ 48,482 20% --
(0.83) $ 10.75 10.72% 0.69% 7.51% 0.11% $ 61,646 36% --
(0.76) $ 10.85 8.11% 0.68% 7.03% 0.11% $ 86,597 61% --
(0.73) $ 9.92 (1.67%) 0.74% 6.68% 0.06% $ 67,051 26% --
(0.69) $ 10.14 9.60% 0.82% 7.02% 0.06% $ 42,593 5% --
(0.69) $ 9.82 3.72% 0.87% 6.64% 0.06% $ 37,544 27% --
(0.07) $ 1.00 6.86% 0.75%(e) 8.68%(e) -- $ 169,303 -- --
(0.08) $ 1.00 8.02% 0.77% 7.71% 0.01% $ 300,668 -- --
(0.06) $ 1.00 6.45% 0.80% 6.30% -- $ 249,822 -- --
(0.04) $ 1.00 3.75% 0.89% 3.79% 0.03% $ 162,038 -- --
(0.02) $ 1.00 2.49% 0.89% 2.48% -- $ 154,052 -- --
(0.03) $ 1.00 2.73% 0.91% 2.71% -- $ 183,922 -- --
(0.05) $ 1.00 4.97% 0.86% 4.87% -- $ 191,242 -- --
(0.05) $ 1.00 4.79% 0.87% 4.69% -- $ 168,344 -- --
(0.002) $ 1.00 0.34% 0.50%(e) 2.80%(e) 0.32%(e)$ 33,995 -- --
(0.03) $ 1.00 2.85% 0.66% 2.85% 0.23% $ 45,022 -- --
(0.05) $ 1.00 5.15% 0.46% 5.15% 0.22% $ 116,489 -- --
(0.05) $ 1.00 5.08% 0.44% 4.95% 0.22% $ 136,068 -- --
</TABLE>
37
TOWER MUTUAL FUNDS
Combined Notes to Financial Statements
August 31, 1996
(1) ORGANIZATION
Tower Mutual Funds (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act"), as an open-end management investment
company. The Trust consists of six portfolios (individually referred to as the
"Fund", or collectively as the "Funds") which are presented herein:
<TABLE>
<CAPTION>
Portfolio Name Diversification Investment Objective
<S> <C> <C> <C>
Tower Capital Appreciation Fund diversified Provide growth of capital and income.
("Capital Appreciation Fund")
Tower Louisiana Municipal Income Fund non-diversified Provide current income which is generally exempt
("Louisiana Municipal Income Fund") from federal regular income tax and personal income
taxes imposed by the state of Louisiana.
Tower Total Return Bond Fund diversified Maximize total return.
("Total Return Bond Fund")
Tower U.S. Government Income Fund diversified Provide current income.
("U.S. Government Income Fund")
Tower Cash Reserve Fund diversified Current income consistent with stability of
("Cash Reserve Fund") principal.
Tower U.S. Treasury Money Market Fund diversified Current income consistent with stability of
("U.S. Treasury Money Market Fund") principal and liquidity.
</TABLE>
The assets of each portfolio are segregated and a shareholder's interest is
limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Municipal bonds are valued by an independent
pricing service, taking into consideration yield, liquidity, risk, credit
quality, coupon, maturity, type of issue, and any other factors or market
data the pricing service deems relevant. U.S. government securities,
listed corporate bonds, and other fixed income and asset-backed securities
are generally valued at the mean of the latest bid and asked price as
furnished by an independent pricing service. Listed equity securities are
valued at the last sale price reported on a national securities exchange.
Cash Reserve Fund and U.S. Treasury Money Market Funds' use of the
amortized cost method to value portfolio securities is in accordance with
Rule 2a-7 under the Act. For Capital Appreciation Fund, Louisiana
Municipal Income Fund, Total Return Bond Fund, and U.S. Government Income
Fund, short-term securities are valued at the prices provided by an
independent pricing service. However, short-term securities purchased with
remaining maturities of sixty days or less may be valued at amortized
cost, which approximates fair market value. Investments in other open-end
regulated investment companies are valued at net asset value.
REPURCHASE AGREEMENTS--It is the policy of the Funds to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Funds to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to
38
ensure that the value of collateral at least equals the repurchase price
to be paid under the repurchase agreement transaction.
The Funds will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are
deemed by the Funds' adviser to be creditworthy pursuant to the guidelines
and/or standards reviewed or established by the Board of Trustees (the
"Trustees").
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the
"Code"). Dividend income and distributions to shareholders are recorded on
the ex-dividend date.
FEDERAL TAXES--It is the Funds' policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of their income. Accordingly, no
provisions for federal tax are necessary.
At August 31, 1996, Louisiana Municipal Income Fund, Total Return Bond
Fund, and U.S. Government Income Fund, for federal tax purposes, had a
capital loss carryforward, as noted below, which will reduce the Funds'
taxable income arising from future net realized gain on investments, if
any, to the extent permitted by the Code, and thus will reduce the amount
of the distributions to shareholders which would otherwise be necessary to
relieve the Funds of any liability for federal tax. Pursuant to the Code,
such capital loss carryforwards will expire as follows:
<TABLE>
<CAPTION>
Total Tax
Expiration Year Loss
Fund 2002 2003 2004 Carryforward
<S> <C> <C> <C> <C>
Louisiana Municipal Income Fund $ -- $ 86,087 $ 229,807 $ 315,894
Total Return Bond Fund $ -- $ 818,651 $ -- $ 818,651
U.S. Government Income Fund $ 97,781 $1,657,595 $1,298,006 $ 3,053,382
</TABLE>
ADDITIONALLY, THE NET CAPITAL LOSS, AS NOTED BELOW, IS ATTRIBUTABLE TO
SECURITY TRANSACTIONS INCURRED AFTER OCTOBER 31, 1995 ARE TREATED AS
ARISING ON THE FIRST DAY OF THE FUNDS' NEXT TAXABLE YEAR (SEPTEMBER 1,
1996).
<TABLE>
<CAPTION>
Total Tax
Loss
Fund Pushforward
<S> <C>
U.S. Government Income Fund $ 468,868
</TABLE>
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Funds may engage in
when-issued or delayed delivery transactions. The Funds record when-issued
securities on the trade date and maintain security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on
the settlement date.
DEFERRED EXPENSES--The costs incurred by Total Return Bond Fund and U.S.
Treasury Money Market Fund with respect to registration of their shares in
their first fiscal year, excluding the initial expense of registering
their shares, have been deferred and are being amortized using the
straight-line method over a period of five years from each Fund's
commencement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
39
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At
August 31, 1996, Cash Reserve and U.S. Treasury Money Market Funds' capital
paid-in aggregated $168,343,868, and $136,068,361, respectively.
Transactions in shares were as follows:
EQUITY AND INCOME FUNDS
<TABLE>
<CAPTION>
Capital Appreciation Louisiana Municipal
Fund Income Fund
Year Ended August Year Ended August
31, 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Shares sold 1,892,875 1,095,340 709,049 672,074
Shares issued to shareholders in payment of
distributions declared 440,856 251,073 154,787 234,129
Shares redeemed (1,820,179)(2,437,091)(1,009,008)(2,118,527)
--------- --------- --------- ---------
Net change resulting from share transactions 513,552 (1,090,678) (145,172)(1,212,324)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
Total Return Bond U.S. Government
Fund Income Fund
Year Ended August Year Ended August
31, 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Shares sold 1,539,679 1,340,601 465,362 265,325
Shares issued to shareholders in payment of
distributions declared 344,081 364,803 90,519 117,298
Shares redeemed (1,507,834)(2,275,944) (931,881)(2,944,932)
--------- --------- --------- ---------
Net change resulting from share transactions 375,926 (570,540) (376,000)(2,562,309)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
MONEY MARKET FUNDS
<TABLE>
<CAPTION>
U.S. Treasury Money
Cash Reserve Fund Market Fund
Year Ended August 31, Year Ended August 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Shares sold 432,905,070 372,472,324 315,672,475 307,600,098
Shares issued to shareholders in payment of
distributions declared 1,471,325 1,342,657 2,390,350 992,817
Shares redeemed (457,274,889)(366,494,602)(298,483,536)(237,126,184)
----------- ----------- ----------- -----------
Net change resulting from share transactions (22,898,494) 7,320,379 19,579,289 71,466,731
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
40
(4) INVESTMENT ADVISORY FEE AND OTHER
TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Hibernia National Bank, the Funds' investment adviser
(the "Adviser") receives for its services an annual investment advisory fee
based on a percentage of each Fund's average daily net assets (see below).
<TABLE>
<CAPTION>
Annual
Fund Rate
<S> <C>
Capital Appreciation Fund 0.75%
Louisiana Municipal Income Fund 0.45%
Total Return Bond Fund 0.70%
U.S. Government Income Fund 0.45%
Cash Reserve Fund 0.40%
U.S. Treasury Money Market Fund 0.40%
</TABLE>
The Adviser may voluntarily choose to waive any portion of its fee. The
Adviser can modify or terminate this voluntary waiver at any time at its
sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the
Funds with certain administrative personnel and services. The fee paid to
FAS is based on the level of average aggregate net assets of the Trust for
the period.
DISTRIBUTION SERVICES FEE--The Funds have adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Funds will reimburse Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Funds to finance activities
intended to result in the sale of each Fund's shares. The Plan provides
that the Funds may incur distribution expenses up to 0.25% of the average
daily net assets of the Fund's shares, annually, to reimburse FSC. During
the fiscal year ended August 31, 1996, Louisiana Municipal Income Fund,
U.S. Government Income Fund, and U.S. Treasury Money Market Fund did not
incur distribution service fees.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated
Services Company ("FServ"), through its subsidiary, Federated Shareholder
Services Company ("FSSC") serves as transfer and dividend disbursing agent
for the Funds. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Funds' accounting records
for which it receives a fee. The fee is based on the level of each Fund's
average daily net assets for the period, plus out-of-pocket expenses.
CUSTODIAN FEES--Hibernia National Bank is the Funds' custodian for which
it receives a fee. The fee is based on the level of each Fund's average
daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses were initially borne by
FAS. The Funds have agreed to reimburse FAS for the organizational
expenses during the five year period following each Fund's effective date.
For the period ended August 31, 1996, the Funds paid the following
pursuant to this agreement.
<TABLE>
<CAPTION>
Amount reimbursed
Expenses of to FAS for the
organizing period ended
Fund the Funds August 31, 1996
<S> <C> <C>
Total Return Bond Fund $ 13,075 $ 3,042
U.S. Treasury Money Market Fund $ 17,585 $ 4,977
</TABLE>
41
GENERAL--Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended August 31, 1996, were as follows:
<TABLE>
<CAPTION>
Fund Purchases Sales
<S> <C> <C>
Capital Appreciation Fund $108,749,087 $107,076,122
Louisiana Municipal Income Fund $ 11,143,844 $13,819,880
Total Return Bond Fund $ 28,642,560 $25,437,465
U.S. Government Income Fund $ 10,883,645 $13,886,846
</TABLE>
(6) CONCENTRATION OF CREDIT RISK
Since Louisiana Municipal Income Fund invests a substantial portion of its
assets in issuers located in one state, it will be more susceptible to factors
adversely affecting issuers of that state than would be a comparable general
tax-exempt mutual fund. In order to reduce the credit risk associated with
such factors, at August 31, 1996, 73.6% of the securities in the portfolio of
investments were backed by letters of credit or bond insurance of various
financial institutions and financial guaranty assurance agencies. The value of
investments insured by or supported (backed) by a letter of credit from any
one institution or agency did not exceed 21.7% of total investments.
42
Report of Ernst & Young LLP, Independent Auditors
To the Trustees and Shareholders of
TOWER MUTUAL FUNDS:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Tower Mutual Funds (comprising, respectively,
Tower Capital Appreciation Fund, Tower Louisiana Municipal Income Fund, Tower
Total Return Bond Fund, Tower U.S. Government Income Fund, Tower Cash Reserve
Fund and Tower U.S. Treasury Money Market Fund) as of August 31, 1996, and the
related statements of operations for the year then ended and changes in net
assets for each of the two years in the period then ended, and the financial
highlights for the periods presented therein. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios of the Tower Mutual Funds, as identified above, at
August 31, 1996, the results of their operations for the year then ended, and
the changes in their net assets, and their financial highlights for the periods
presented therein, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
October 10, 1996
43
TOWER MUTUAL FUNDS
------------------------------------------------
TRUSTEES AND OFFICERS
- ------------------------------------ ------------------------------------
<TABLE>
<S> <C>
TRUSTEES OFFICERS
EDWARD C. GONZALES EDWARD C. GONZALES
ROBERT L. DIBENEDETTO, M.D. President and Treasurer
JAMES A. GAYLE, SR. JEFFREY W. STERLING
J. GORDON REISCHE Vice President and Assistant Treasurer
PETER J. GERMAIN
Secretary
GAIL CAGNEY
Assistant Secretary
MUTUAL FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS, ARE NOT GUARANTEED BY ANY BANK, AND ARE
NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN
MUTUAL FUNDS INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED. ALTHOUGH MONEY MARKET FUNDS SEEK TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE, THERE IS NO ASSURANCE THAT THEY WILL BE ABLE TO DO SO.
THIS REPORT IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY WHEN PRECEDED OR
ACCOMPANIED BY THE FUNDS' PROSPECTUS WHICH CONTAINS FACTS CONCERNING THEIR OBJECTIVES AND
POLICIES, MANAGEMENT FEES, EXPENSES AND OTHER INFORMATION.
</TABLE>
44
891836108
891836207
891836306
891836504
891836405
891836603
Federated Securities Corp. is distributor of the fund. G01262-01 (10-96)
TOWER MUTUAL FUNDS APPENDIX
A. The graphic presentation here displayed consists of a line graph
titled `Growth of $10,000 Invested in Tower Capital Appreciation Fund (the
`Fund''). The corresponding components of the line graph are listed
underneath. The Fund is represented by a broken line. The Standard &
Poor's 500 Composite Stock Index is represented by a solid line. The line
graph is a visual representation of a comparison of change in value of a
hypothetical $10,000 purchase in the Fund and the Standard & Poor's 500
Composite Stock Index. The "y" axis reflects the cost of the investment.
The "x" axis reflects computation periods from the Fund's start of
performance, 10/14/88 through 8/31/96. The right margin reflects the
ending value of the hypothetical investment in the Fund as compared to the
Standard & Poor's 500 Composite Stock Index; the ending values are $27,311
and $30,391, respectively.
B. The graphic presentation here displayed consists of a line graph
titled `Growth of $10,000 Invested in Tower Louisiana Municipal Income
Fund (the `Fund''). The corresponding components of the line graph are
listed underneath. The Fund is represented by a broken line. The Lehman
Brothers Ten-Year Insured Index is represented by a solid line. The line
graph is a visual representation of a comparison of change in value of a
hypothetical $10,000 purchase in the Fund and the Lehman Brothers Ten-Year
Insured Index. The "y" axis reflects the cost of the investment. The "x"
axis reflects computation periods from the Fund's start of performance,
10/14/88 through 8/31/96. The right margin reflects the ending value of
the hypothetical investment in the Fund as compared to the Lehman Brothers
Ten-Year Insured Index; the ending values are $16,700 and $18,729,
respectively.
C. The graphic presentation here displayed consists of a line graph
titled `Growth of $10,000 Invested in Tower Total Return Bond Fund (the
`Fund''). The corresponding components of the line graph are listed
underneath. The Fund is represented by a broken line. The Salomon Brothers
Broad Investment Grade Bond Index is represented by a solid line. The line
graph is a visual representation of a comparison of change in value of a
hypothetical $10,000 purchase in the Fund and the Salomon Brothers Broad
Investment Grade Bond Index. The "y" axis reflects the cost of the
investment. The "x" axis reflects computation periods from the Fund's
start of performance, 11/2/92 through 8/31/96. The right margin reflects
the ending value of the hypothetical investment in the Fund as compared to
the Salomon Brothers Broad Investment Grade Bond Index; the ending values
are $11,683 and $12,714, respectively.
D. The graphic presentation here displayed consists of a line graph
titled `Growth of $10,000 Invested in Tower U.S. Government Income Fund
(the `Fund''). The corresponding components of the line graph are listed
underneath. The Fund is represented by a broken line. The Salomon Brothers
Medium Term Broad Index is represented by a solid line. The line graph is
a visual representation of a comparison of change in value of a
hypothetical $10,000 purchase in the Fund and the Salomon Brothers Medium
Term Broad Index. The "y" axis reflects the cost of the investment. The
"x" axis reflects computation periods from the Fund's start of performance,
10/14/88 through 8/31/96. The right margin reflects the ending value of
the hypothetical investment in the Fund as compared to the Salomon Brothers
Medium Term Broad Index; the ending values are $17,012 and $19,113,
respectively.
