1933 Act File No. 33-21321
1940 Act File No. 811-5536
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
----
Pre-Effective Amendment No. ...................
Post-Effective Amendment No. 17 ................... X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
----
Amendment No. 15 ........................................ X
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TOWER MUTUAL FUNDS
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
X on October 31, 1997 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i) on pursuant to paragraph
(a) (i). 75 days after filing pursuant to paragraph (a)(ii) on
_________________ pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
Registrant has filed with the Securities and Exchange Commission a declaration
pursuant to Rule 24f-2 under the Investment Company Act of 1940, and:
X filed the Notice required by that Rule on October 15, 1997; or intends to
file the Notice required by that Rule on or about ____________; or
during the most recent fiscal year did not sell any securities pursuant to
Rule 24f-2 under the Investment Company Act of 1940, and, pursuant to Rule
24f-2(b)(2), need not file the Notice.
Copies to:
Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, D.C. 20037
<PAGE>
CROSS REFERENCE SHEET
This Amendment to the Registration Statement of TOWER MUTAL FUNDS,
which consists of six portfolios, (1) Tower Capital Appreciation Fund, (a)Class
A Shares and (b) Class B Shares; (2) Tower Louisiana Municipal Income Fund; (3)
Tower Total Return Bond Fund; (4) Tower U.S. Government Income Fund; (5) Tower
Cash Reserve Fund; and (6) Tower U.S. Treasury Money Market Fund, relates only
to Tower Capital Appeciation Fund Class B Shares and is comprised of the
following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
<TABLE>
<CAPTION>
<S> <C> <C>
Item 1. Cover Page.................(1-6) Cover Page.
Item 2. Synopsis...................(1-4) Summary of Fund Expenses - Equity and
Income Funds; (5-6) Summary of Fund Expenses - Money Market Funds;
(1-6) Financial Highlights
Item 3. Condensed Financial
Information (1-6) Performance Information.
Item 4. General Description of
Registrant................(1-6) Synopsis; (1-6) Objective and Policies of Each Fund; (1-6)
Portfolio Investments and Strategies.
Item 5. Management of the Fund.....(1-6) Tower Mutual Funds Information; (1-6) Management of Tower
Mutual Funds; (1-6) Distribution of Fund Shares; (1-6) Fund Administration;
(1-6) Brokerage Transactions; 1(b) Shareholder Servicing Arrangements;
Item 6. Capital Stock and Other
Securities................(1-6) Dividends;
(1-6) Capital
Gains; (1-6)
Shareholder
Information; (1-6)
Voting Rights;
(1-6) Effect of
Banking Laws;
(1-6) Tax
Information; (1-6)
Federal Income
Tax; (2) Louisiana
Municipal Income
Fund - Additional
Tax Information.
Item 7. Purchase of Securities
Being
Offered..............................(1-6)
Net Asset Value;
(1-6) Investing in
the Funds; (1-6)
Share Purchases;
(1-6) Minimum
Investment
Required; (1-6)
What Shares Cost;
(1-6) Systematic
Investment
Program; (1-6)
Certificates and
Confirmations;
(1-6) Reducing the
Sales Charge;
(1-6) Exchanging
Securities for
Fund Shares.
Item 8. Redemption or Repurchase...(1-6) Redeeming Shares; (1-6) Systematic Withdrawal Program; (1-6) Accounts
With Low Balances; (1-6) Exchange Privilege.
Item 9. Pending Legal Proceedings..None.
<PAGE>
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page......................(1-6) Cover Page.
Item 11. Table of Contents...............(1-6) Table of Contents.
Item 12. General Information and
History........................(1-6) General Information About the Funds.
Item 13. Investment Objectives and
Policies.......................(1-6) Investment Objective and Policies of the Funds.
Item 14. Management of the Fund (1-6) Tower Mutual Funds Management; (1-6) Trustees' Compensation.
Item 15. Control Persons and Principal
Holders of Securities Not applicable.
Item 16. Investment Advisory and Other
Services.......................(1-6) Investment Advisory Service; (1-6) Other Services; (1-6) Custodian;
(1-6) Transfer Agent and Dividend Disbursing Agent and Portfolio
Accounting Services; (1-6) Independent Auditors.
Item 17. Brokerage Allocation............(1-6) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities Not applicable.
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered........................(1-6) Purchasing Shares; (1-6) Determining Net Asset Value; (1-6) Redeeming
Shares; (1-6) Exchange Privilege.
Item 20. Tax Status......................(1-6) Tax Status.
Item 21. Underwriters....................(1-6) Distribution Plan 1(b) Shareholder Services..
Item 22. Performance Data................(1-6) Performance Comparisons.
Item 23. Financial Statements............(1-6) Financial Statements.(Incorporated by reference to
Annual Report of Registrant dated August 31, 1997; File Nos.811-5536 and 33-21321)
</TABLE>
PROSPECTUS
OCTOBER 31, 1997
TOWER MUTUAL FUNDS
Tower Capital Appreciation Fund
Class A Shares
Class B Shares
Tower Louisiana Municipal Income Fund
Tower Total Return Bond Fund
Tower U.S. Government Income Fund
Tower Cash Reserve Fund
Tower U.S. Treasury Money Market Fund
TOWER MUTUAL FUNDS
PROSPECTUS
Tower Mutual Funds (the "Trust") is an open-end management investment company (a
mutual fund). This prospectus offers investors interests in the following six
investment portfolios (collectively referred to as the "Funds" and individually
as the "Fund"), each having a distinct investment objective and policies:
EQUITY AND INCOME FUNDS
- Tower Capital Appreciation Fund--Class A Shares and Class B Shares
- Tower Louisiana Municipal Income Fund
- Tower Total Return Bond Fund
- Tower U.S. Government Income Fund
MONEY MARKET FUNDS
- Tower Cash Reserve Fund
- Tower U.S. Treasury Money Market Fund
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
HIBERNIA NATIONAL BANK OR ITS AFFILIATES, ARE NOT ENDORSED OR GUARANTEED BY
HIBERNIA NATIONAL BANK OR ITS AFFILIATES, AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY.
INVESTMENT IN THE SHARES OFFERED BY THIS PROSPECTUS 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.
This prospectus contains the information you should read and know before you
invest in any of the Funds of the Trust. Keep this prospectus for future
reference.
Additional information about the Trust is contained in the Trust's Statement of
Additional Information dated October 31, 1997, which has also been filed with
the Securities and Exchange Commission ("SEC"). The information contained in the
Statement is incorporated by reference into this prospectus. You may request a
copy of the Statement, free of charge, obtain other information, or make
inquiries about any of the Funds by writing to the Trust or calling toll-free
1-800-999-0124. The Statement, material incorporated by reference into this
document, and other information regarding the Trust is maintained electronically
with the SEC at Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE. Prospectus dated October 31, 1997
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SYNOPSIS 1
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES--
EQUITY AND INCOME FUNDS 3
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES--
MONEY MARKET FUNDS 5
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 6
- ------------------------------------------------------
OBJECTIVE AND POLICIES OF EACH FUND 9
- ------------------------------------------------------
Capital Appreciation Fund 9
Louisiana Municipal Income Fund 10
Total Return Bond Fund 15
U.S. Government Income Fund 18
Cash Reserve Fund 20
U.S. Treasury Money Market Fund 22
PORTFOLIO INVESTMENTS AND STRATEGIES 22
- ------------------------------------------------------
Borrowing Money 22
Foreign Securities 23
Investing in Securities of Other
Investment Companies 23
Lending of Portfolio Securities 23
Put and Call Options 24
Financial Futures and Options on Futures 24
Repurchase Agreements 25
Restricted and Illiquid Securities 26
Temporary Investments 26
U.S. Government Securities 27
When-Issued and Delayed
Delivery Transactions 27
TOWER MUTUAL FUNDS INFORMATION 28
- ------------------------------------------------------
Management of Tower Mutual Funds 28
Distribution of Fund Shares 29
Fund Administration 31
Brokerage Transactions 31
Expenses of the Fund and
Class B Shares 31
NET ASSET VALUE 32
- ------------------------------------------------------
INVESTING IN THE FUNDS 32
- ------------------------------------------------------
Share Purchases 32
Minimum Investment Required 33
What Shares Cost 33
Reducing the Front-End Sales Charge 36
Systematic Investment Program 38
Exchanging Securities for Fund Shares 38
Confirmations and Account Statements 38
Dividends 39
Capital Gains 39
EXCHANGE PRIVILEGE 39
- ------------------------------------------------------
REDEEMING SHARES 40
- ------------------------------------------------------
Systematic Withdrawal Program 42
Accounts with Low Balances 42
SHAREHOLDER INFORMATION 43
- ------------------------------------------------------
Voting Rights 43
EFFECT OF BANKING LAWS 43
- ------------------------------------------------------
TAX INFORMATION 44
- ------------------------------------------------------
Federal Income Tax 44
Louisiana Municipal Income Fund--
Additional Tax Information 44
Other State and Local Taxes 45
PERFORMANCE INFORMATION 45
- ------------------------------------------------------
ADDRESSES 47
- ------------------------------------------------------
SYNOPSIS
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated April 8, 1988. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. Capital Appreciation Fund currently offers two
classes of shares, Class A Shares and Class B Shares. Each Fund is designed for
institutions and individuals as a convenient means of accumulating an interest
in a professionally managed portfolio. This prospectus relates to Tower
Louisiana Municipal Income Fund, Tower Total Return Bond Fund, Tower U.S.
Government Income Fund, Tower Cash Reserve Fund, Tower U.S. Treasury Money
Market Fund and Class A Shares and Class B Shares of Tower Capital Appreciation
Fund (collectively, the "Funds.")
As of the date of this prospectus, shares are offered in the following Funds:
-Tower Capital Appreciation Fund ("Capital Appreciation Fund")--seeks to
provide growth of capital and income by investing primarily in a
diversified portfolio of common stocks;
-Tower Louisiana Municipal Income Fund ("Louisiana Municipal Income
Fund")--seeks to provide current income which is generally exempt from
federal regular income tax and the personal income taxes imposed by the
state of Louisiana by investing primarily in a non-diversified portfolio
of Louisiana municipal securities;
-Tower Total Return Bond Fund ("Total Return Bond Fund")--seeks to
maximize total return by investing in a diversified portfolio of
government, mortgage-backed, asset-backed and corporate securities, as
well as collateralized mortgage obligations;
- Tower U.S. Government Income Fund ("U.S. Government Income Fund")--seeks
to provide current income by investing in a diversified portfolio
consisting primarily of U.S. government securities;
-Tower Cash Reserve Fund ("Cash Reserve Fund")--seeks to provide current
income consistent with stability of principal by investing in a
diversified portfolio of high quality money market instruments; and
- Tower U.S. Treasury Money Market Fund ("U.S. Treasury Money Market Fund"
and together with Cash Reserve Fund, the "Money Market Funds")--seeks to
provide current income consistent with stability of principal and
liquidity by investing in a portfolio limited to short-term U.S. Treasury
obligations.
For information on how to purchase shares of any of the Funds, please refer to
"Investing in the Funds." In most cases, the minimum initial investment of
$1,000 is required for each Fund; in the case of the Money Market Funds, a
minimum initial investment of $1,000 is required unless the investment is in a
retirement plan, in which case the minimum initial investment is $250. See
"Minimum Investment Required." Shares of the Money Market Funds are sold at net
asset value without a sales charge. Class A Shares of Capital Appreciation Fund
are sold at net asset value plus a maximum front-end sales charge of 4.50%.
Shares of Louisiana Municipal Income Fund, Total Return Bond Fund, and U.S.
Government Income Fund are sold at net asset value plus a maximum front-end
sales charge of 3.00%. The front-end sales charges may be reduced as discussed
under "Reducing the Sales Charge." Shares of the Funds, with the exception of
Class B Shares of Capital Appreciation Fund are redeemed at
net asset value. Class B Shares of Capital Appreciation Fund are sold at net
asset value, but are subject to a contingent deferred sales charge of up to
5.50% if redeemed within 6 full years following the date of purchase.
Information concerning the front-end and contingent deferred sales charges may
be found under "What Shares Cost." Information on redeeming shares may be found
under "Redeeming Shares." Additionally, information regarding the exchange
privilege offered with respect to the Trust may be found under "Exchange
Privilege." Hibernia National Bank is the investment adviser and custodian to
the Funds and receives compensation for these services.
One or more Funds may make certain investments and employ certain investment
techniques that involve risks, including entering into repurchase agreements,
lending portfolio securities, and entering into futures contracts and related
options as hedges. These risks and those associated with investing in Louisiana
municipal securities, mortgage-backed securities, asset-backed securities,
when-issued securities, and variable rate securities are described under
"Objective and Policies of Each Fund" and "Portfolio Investments and
Strategies."
SUMMARY OF FUND EXPENSES--EQUITY AND INCOME FUNDS
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CAPITAL CAPITAL
APPRECIATION APPRECIATION LOUISIANA TOTAL U.S.
FUND FUND MUNICIPAL RETURN GOVERNMENT
CLASS A CLASS B INCOME BOND INCOME
SHARES SHARES FUND FUND FUND
------------ ------------ --------- ------ ----------
<S> <C> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)...... 4.50% None 3.00% 3.00% 3.00%
Maximum Sales Charge Imposed on Reinvested
Dividends (as a percentage of offering
price)................................... None None None None None
Contingent Deferred Sales Charge (as a
percentage of original purchase price or
redemption proceeds, as applicable)
(1)...................................... None 5.50% None None None
Redemption Fee (as a percentage of amount
redeemed, if applicable)................. None None None None None
Exchange Fee............................... None None None None None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fees (2)........................ 0.75% 0.75% 0.37% 0.70% 0.39%
12b-1 Fees (3)............................. 0.25% 0.75% 0.00% 0.25% 0.00%
Total Other Expenses....................... 0.24% 0.49% 0.32% 0.34% 0.37%
Shareholder Services Fee............... None 0.25% None None None
Total Operating Expenses (4)...... 1.24% 1.99% 0.69% 1.29% 0.76%(5)
</TABLE>
(1) The contingent deferred sales charge is 5.50% in the first year, declining
to 1.00% in the sixth year and then 0.00% thereafter. See "What Shares
Cost--Contingent Deferred Sales Charge."
(2) The management fees of Louisiana Municipal Income Fund and U.S. Government
Income Fund have been reduced to reflect the voluntary waivers by the investment
adviser. The adviser may terminate these voluntary waivers at any time at its
sole discretion. The maximum management fees for Louisiana Municipal Income Fund
and U.S. Government Income Fund are each 0.45%.
(3) Under the Rule 12b-1 distribution plans, Louisiana Municipal Income Fund and
U.S. Government Income Fund can pay the distributor up to 0.25% as a 12b-1 fee.
Louisiana Municipal Income Fund and U.S. Government Income Fund did not pay or
accrue 12b-1 fees during the fiscal year ended August 31, 1997, nor do they have
any present intention of paying or accruing 12b-1 fees during the fiscal year
ending August 31, 1998.
(4) Total Operating Expenses for Louisiana Municipal Income Fund were 0.77%,
absent the voluntary waiver described in footnote (2).
(5) The Total Operating Expenses for U.S. Government Income Fund in the table
above are based on projected average net assets, and expenses expected during
the fiscal year ending August 31, 1998. The Total Operating Expenses for U.S.
Government Income Fund were 0.88% for the fiscal year ended August 31, 1997, and
would have been 0.94% absent the voluntary waiver of a portion of the management
fee by the adviser.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUNDS WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "TOWER MUTUAL FUNDS INFORMATION" AND "INVESTING IN THE FUNDS."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGES PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- ----------------------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; (2) redemption at the end of each time period;
and (3) payment of the maximum sales charge of 4.50% for Class A Shares of
Capital Appreciation Fund and a maximum sales charge of 3.00% for Louisiana
Municipal Income Fund, Total Return Bond Fund, and U.S. Government Income Fund.
Capital Appreciation Fund--Class A Shares.................... $ 57 $ 83 $ 110 $188
Louisiana Municipal Income Fund.............................. $ 37 $ 51 $ 67 $113
Total Return Bond Fund....................................... $ 43 $ 70 $ 99 $181
U.S. Government Income Fund.................................. $ 38 $ 54 $ 71 $121
You would pay the following expenses on a $1,000 investment in Class B Shares of
Capital Appreciation Fund assuming (1) 5% annual return and (2) redemption at
the end of each time
period........................................................... $ 77 $ 106 $ 130 $232
You would pay the following on the same investment in Class B
Shares of Capital Appreciation Fund assuming no redemptions...... $ 20 $ 62 $ 107 $232
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
SUMMARY OF FUND EXPENSES--MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CASH U.S. TREASURY
RESERVE MONEY MARKET
FUND FUND
------- -------------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)..................................... None None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)..................................... None None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable)............................ None None
Redemption Fee (as a percentage of amount redeemed, if applicable)........ None None
Exchange Fee.............................................................. None None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fees........................................................... 0.40% 0.40%
12b-1 Fees (1)............................................................ 0.25% 0.00%
Total Other Expenses...................................................... 0.24% 0.25%
Total Operating Expenses ............................................. 0.89% 0.65%(2)
</TABLE>
(1) Under the Rule 12b-1 distribution plans, U.S. Treasury Money Market Fund can
pay the distributor up to 0.25% as a 12b-1 fee. U.S. Treasury Money Market Fund
has no present intention of paying or accruing 12b-1 fees during the fiscal year
ending August 31, 1998.
(2) Total Operating Expenses for U.S. Treasury Money Market Fund in the table
above are based on projected average net assets, and expenses expected during
fiscal year ending August 31, 1998. The Total Operating Expenses for U.S.
Treasury Money Market Fund were 0.50% for the fiscal year ended August 31, 1997,
and would have been 0.64% absent the voluntary waiver of a portion of the
management fee by the adviser.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "TOWER MUTUAL FUNDS INFORMATION" AND "INVESTING IN THE FUNDS."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period. The Funds
charge no contingent deferred sales charges.
<TABLE>
<CAPTION>
CASH U.S. TREASURY
RESERVE MONEY MARKET
FUND FUND
------- -------------
<S> <C> <C>
1 Year.................................................................... $ 9 $ 7
3 Years................................................................... $ 28 $21
5 Years................................................................... $ 49 $36
10 Years.................................................................. $ 110 $81
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS--EQUITY AND INCOME FUNDS
- --------------------------------------------------------------------------------
The following table has been audited by Ernst & Young LLP, the Funds'
independent auditors. Their report dated October 13, 1997 on the Funds'
financial statements and financial highlights is incorporated by reference to
the Annual Report dated August 31, 1997. This table should be read in
conjunction with the Funds' financial statements and notes thereto, which may be
obtained from the Funds.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
NET ASSET NET INVESTMENT NET REALIZED DISTRIBUTIONS DISTRIBUTIONS
VALUE, INCOME AND UNREALIZED TOTAL FROM FROM NET FROM NET
YEAR ENDED BEGINNING (OPERATING GAIN/(LOSS) ON INVESTMENT INVESTMENT REALIZED GAIN
AUGUST 31, OF PERIOD LOSS) INVESTMENTS OPERATIONS INCOME ON INVESTMENTS
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
CAPITAL APPRECIATION FUND--CLASS A SHARES
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)
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)
1997 $ 17.87 0.15 6.51 6.66 (0.16) (1.99)
CAPITAL APPRECIATION FUND--CLASS B SHARES
1997(b) $ 18.90 (0.01)(i) 3.48 3.47 -- --
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) --
1997 $ 10.94 0.57 0.28 0.85 (0.58) --
TOTAL RETURN BOND FUND
1993(c) $ 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) --
1997 $ 9.77 0.60 0.23 0.83 (0.61) --
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)
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) --
1997 $ 9.82 0.62 0.18 0.80 (0.64) --
- ------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS IN
EXCESS OF NET
INVESTMENT
INCOME
--
(0.02)(g)
==
==
==
--
(0.05)(g)
==
==
==
==
--
==
==
--
==
==
(0.01)(g)
==
==
- ----
</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 December 2, 1996 (date of initial
public offering) to August 31, 1997.
(c) Reflects operations for the period from November 2, 1992 (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.
(h) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged. This
disclosure is required for fiscal years beginning on or after September 1,
1995.
(i) Per share information presented is based on the monthly average number of
shares outstanding divided by the net operating loss due to large
fluctuations in the number of shares outstanding during the period.
Further information about the Funds' performance is contained in the Annual
Report dated August 31, 1997, which can be obtained free of charge.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
-------------------------------------------
NET ASSET NET INVESTMENT NET ASSETS, PORTFOLIO
TOTAL VALUE, END TOTAL INCOME EXPENSE END OF PERIOD TURNOVER
DISTRIBUTIONS OF PERIOD RETURN(D) EXPENSES (OPERATING LOSS) WAIVER(F) (000 OMITTED) RATE
<S> <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%
(2.15) $22.38 39.56% 1.24% 0.72% -- $ 283,040 62%
(0.05) $22.32 18.40% 1.99%(e) (0.09%)(e) -- $ 4,635 62%
(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%
(0.58) $11.21 8.31% 0.69% 5.19% 0.08% $ 101,441 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%
(0.61) $ 9.99 8.71% 1.29% 6.00% -- $ 71,867 65%
(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%
(0.64) $ 9.98 8.39% 0.88% 6.31% 0.06% $ 59,438 72%
------------------------------------------------------------------------------------------------------------------
AVERAGE
COMMISSION
RATE PAID(H)
--
--
--
--
--
--
--
$ 0.0632
$ 0.0700
$ 0.0700
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
</TABLE>
FINANCIAL HIGHLIGHTS--MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
The following table has been audited by Ernst & Young LLP, the Funds'
independent auditors. Their report dated October 13, 1997 on the Funds'
financial statements and financial highlights is incorporated by reference to
the Annual Report dated August 31, 1997. This table should be read in
conjunction with the Funds' financial statements and notes thereto, which may be
obtained from the Funds.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
NET ASSET DISTRIBUTIONS
VALUE, FROM NET NET ASSET
YEAR ENDED BEGINNING NET INVESTMENT INVESTMENT VALUE, END TOTAL NET INVESTMENT
AUGUST 31, OF PERIOD INCOME INCOME OF PERIOD RETURN(C) EXPENSES INCOME
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<-> RATIO TO AVERAGE NET ASSETS
-----------------------------
- ------------------------------------------------------------------------------------------------------------------
CASH RESERVE FUND
1989(a) $1.00 0.07 (0.07) $ 1.00 6.86% 0.75%(d) 8.68%(d)
1990 $1.00 0.08 (0.08) $ 1.00 8.02% 0.77% 7.71%
1991 $1.00 0.06 (0.06) $ 1.00 6.45% 0.80% 6.30%
1992 $1.00 0.04 (0.04) $ 1.00 3.75% 0.89% 3.79%
1993 $1.00 0.02 (0.02) $ 1.00 2.49% 0.89% 2.48%
1994 $1.00 0.03 (0.03) $ 1.00 2.73% 0.91% 2.71%
1995 $1.00 0.05 (0.05) $ 1.00 4.97% 0.86% 4.87%
1996 $1.00 0.05 (0.05) $ 1.00 4.79% 0.87% 4.69%
1997 $1.00 0.05 (0.05) $ 1.00 4.70% 0.89% 4.59%
U.S. TREASURY MONEY MARKET FUND
1993(b) $1.00 0.002 (0.002) $ 1.00 0.34% 0.50%(d) 2.80%(d)
1994 $1.00 0.03 (0.03) $ 1.00 2.85% 0.66% 2.85%
1995 $1.00 0.05 (0.05) $ 1.00 5.15% 0.46% 5.15%
1996 $1.00 0.05 (0.05) $ 1.00 5.08% 0.44% 4.95%
1997 $1.00 0.05 (0.05) $ 1.00 4.92% 0.50% 4.81%
- ------------------------------------------------------------------------------------------------------------------
NET ASSETS,
EXPENSE END OF PERIOD
WAIVER(E) (000 OMITTED)
-- $ 169,303
0.01% $ 300,668
-- $ 249,822
0.03% $ 162,038
-- $ 154,052
-- $ 183,922
-- $ 191,242
-- $ 168,344
-- $ 150,377
0.32%(d) $ 33,995
0.23% $ 45,022
0.22% $ 116,489
0.22% $ 136,068
0.14% $ 154,624
- ----
</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 July 19, 1993 (date of initial
public investment) to August 31, 1993.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) Computed on an annualized basis.
(e) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
Further information about the Funds' performance is contained in the Annual
Report dated August 31, 1997, which can be obtained free of charge.
OBJECTIVE AND POLICIES OF EACH FUND
- --------------------------------------------------------------------------------
The investment objective and policies of each Fund appear below. The investment
objective of a Fund cannot be changed without the approval of holders of a
majority of that Fund's shares. While there is no assurance that a Fund will
achieve its investment objective, it endeavors to do so by following the
investment policies described in this prospectus, and, in the case of the Money
Market Funds, by complying with the diversification and other requirements of
Rule 2a-7 under the Investment Company Act of 1940 which regulates money market
mutual funds.
Unless indicated otherwise, the investment policies of a Fund may be changed by
the Board of Trustees ("Trustees") without approval of shareholders.
Shareholders will be notified before any material change in these policies
becomes effective.
Additional information about investment limitations, strategies that one or more
Funds may employ, and certain investment policies mentioned below appear in the
"Portfolio Investments and Strategies" section of this prospectus and in the
Statement of Additional Information.
CAPITAL APPRECIATION FUND
The investment objective of Capital Appreciation Fund is to provide growth of
capital and income. The Fund's investment approach is based on the conviction
that over the long term the economy will continue to expand and develop and that
this economic growth will be reflected in the growth of the revenues and
earnings of publicly held corporations.
ACCEPTABLE INVESTMENTS. The Fund attempts to achieve its investment objective by
investing primarily in a professionally managed, diversified portfolio of common
stocks. The securities in which the Fund invests include, but are not limited
to:
-common stocks of companies selected by the Fund's investment adviser on
the basis of traditional research techniques, including assessment of
earnings and dividend growth prospects of the companies. Ordinarily, these
companies will be in the top 30% of their industries with regard to
revenues. However, other factors such as product position, market share,
potential earnings growth, or asset values will be considered by the
investment adviser and may outweigh revenues. At least 65% of the Fund's
portfolio will be invested in common stocks, unless it is in a defensive
position;
- preferred stocks, corporate bonds, notes, warrants, rights, and
convertible securities of these companies; and
- U.S. government securities.
In addition, the Fund may engage in when-issued and delayed delivery
transactions and invest in foreign securities, temporary investments, and
repurchase agreements. The Fund may also purchase put options on its portfolio
securities and on futures contracts and write call options on its portfolio
securities.
The Fund reserves the right to attempt to hedge the portfolio by entering into
financial futures contracts and to write calls on financial futures contracts.
The Fund will notify shareholders before it begins engaging in these
transactions. See "Portfolio Investments and Strategies."
PORTFOLIO TURNOVER. The Fund conducts portfolio transactions to accomplish its
investment objective, to invest new money obtained from selling its shares, and
to meet redemption requests. The Fund may dispose of portfolio securities at any
time if it appears that selling the securities will help the Fund achieve its
investment objective. The Fund's rate of portfolio turnover may exceed that of
certain other mutual funds with the same investment objective. A higher rate of
portfolio turnover involves correspondingly greater brokerage commissions and
other expenses which must be borne directly by the Fund and, thus, indirectly by
its shareholders. In addition, a high rate of portfolio turnover may result in
the realization of larger amounts of capital gains which, when distributed to
the Fund's shareholders, are taxable to them. Nevertheless, transactions for the
Fund's portfolio will be based only upon investment considerations and will not
be limited by any other considerations when the Fund's investment adviser deems
it appropriate to make changes in the Fund's portfolio.
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Investing in Securities of Other Investment
Companies," "Lending of Portfolio Securities," and "Restricted and Illiquid
Securities."
LOUISIANA MUNICIPAL INCOME FUND
The investment objective of Louisiana Municipal Income Fund is to provide
current income which is generally exempt from federal regular income tax and the
personal income taxes imposed by the state of Louisiana. (Federal regular income
tax does not include the federal individual alternative minimum tax or the
federal alternative minimum tax for corporations.)
ACCEPTABLE INVESTMENTS. The Fund attempts to achieve its investment objective by
investing in a professionally managed portfolio primarily limited to Louisiana
municipal securities. As a matter of fundamental investment policy, the Fund
will invest its assets so that, under normal circumstances, at least 80% of its
annual interest income is exempt from federal regular and Louisiana state income
taxes or at least 80% of its total assets are invested in obligations, the
interest income from which is exempt from federal regular and Louisiana state
income taxes.
MUNICIPAL SECURITIES. The municipal securities in which the Fund invests
are:
-debt obligations, including industrial development bonds, issued on
behalf of the state of Louisiana, its political subdivisions or agencies;
-debt obligations issued by or on behalf of any state, territory or
possession of the United States, including the District of Columbia, or
any political subdivision or agency of any of these; and
- participation interests, as described below, in any of the above
obligations;
the interest from which is, in the opinion of bond counsel for the issuers,
or in the opinion of officers of Tower Mutual Funds and/or the investment
adviser to the Fund, exempt from both federal regular income tax and the
personal income tax imposed by the state of Louisiana. (Municipal
securities not issued by the state of Louisiana, its political subdivisions
or agencies, which may generate interest income subject to the Louisiana
personal income tax, may also be purchased by the Fund.) As a matter of
investment policy which may be changed without shareholder approval, at
least 65% of the Fund's total assets will be invested in Louisiana
municipal securities. It is likely that shareholders will be required to
include interest from a portion
of the municipal securities owned by the Fund in calculating the federal
individual alternative minimum tax or the federal alternative minimum tax
for corporations.
CHARACTERISTICS. The municipal securities which the Fund buys are:
-rated Baa or above by Moody's Investors Service, Inc. ("Moody's") or BBB
or above by Standard & Poor's Ratings Group ("S&P"). Bonds rated BBB by
S&P or Baa by Moody's have speculative characteristics. Changes in
economic conditions or other circumstances are more likely to lead to
weakened capacity to make principal and interest payments than higher
rated bonds. A description of the rating categories is contained in the
Appendix to the Statement of Additional Information;
- insured by a municipal bond insurance company which is rated AAA by S&P
or Aaa by Moody's;
- guaranteed at the time of purchase by the U.S. government as to the
payment of principal and interest; fully collateralized by an escrow of
U.S. government securities; or
-unrated if determined to be of comparable quality to one of the foregoing
rating categories by the Fund's investment adviser.
PARTICIPATION INTERESTS. The Fund may purchase participation interests from
financial institutions such as commercial banks, savings associations, and
insurance companies. These participation interests give the Fund an
undivided interest in Louisiana municipal securities.
The municipal securities subject to the participation interests are not
limited to maturities of one year or less, so long as the participation
interests include the right to demand payment, typically within seven days,
from the issuers of those interests. The Fund will purchase only
participation interests which have such a demand feature or which mature in
less than one year. The financial institutions from which the Fund
purchases participation interests frequently provide or secure irrevocable
letters of credit or guarantees to assure that the participation interests
are of high quality. The Trustees will determine that participation
interests meet the prescribed quality standards for the Fund.
OTHER INVESTMENT TECHNIQUES. The Fund may purchase a right to sell a security
held by it back to the issuer or to another party at an agreed upon price at any
time during a stated period or on a certain date. These rights may be referred
to as "liquidity puts" or "standby commitments."
The Fund may also hedge all or a portion of its investments by entering into put
and call options and by entering into futures contracts or options on them. Any
gains realized on these futures contracts and options are taxable. Before the
Fund begins using these investment techniques, it will notify shareholders.
In addition, the Fund may concentrate certain of its investments, engage in
when-issued and delayed delivery transactions, and invest in temporary
investments and repurchase agreements. See "Portfolio Investments and
Strategies."
LOUISIANA MUNICIPAL SECURITIES. Louisiana municipal securities are generally
issued to finance public works, such as airports, bridges, highways, housing,
hospitals, mass transportation projects,
schools, streets, and water and sewer works. They are also issued to repay
outstanding obligations, to raise funds for general operating expenses, and to
make loans to other public institutions and facilities.
Louisiana municipal securities include industrial development and pollution
control bonds issued by or on behalf of public authorities to provide financing
aid to acquire sites or construct and equip facilities for privately or publicly
owned corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby increases
local employment.
The two principal classifications of municipal securities are "general
obligation bonds" and "revenue bonds." General obligation bonds are secured by
the issuer's pledge of its full faith and credit and taxing power for the
payment of principal and interest. Interest on and principal of revenue bonds,
however, are payable only from the revenue generated by the facility financed by
the bond or other specified sources of revenue or collateral. Revenue bonds do
not represent a pledge of credit or create any debt of or charge against the
general revenues of a municipality or public authority. Industrial development
bonds and pollution control bonds are typically classified as revenue bonds.
The Fund may invest more than 25% of the value of its total assets in industrial
development and pollution control bonds, which may result in more than 25% of
the Fund's total assets being invested in one industry. The Fund may also invest
more than 25% of its assets in housing bonds, which are revenue bonds.
Legislative actions at the state or federal level, changes in national or
regional economic conditions, or changes in the quality of mortgages securing
some housing bonds are some of the factors that could affect housing bonds.
MUNICIPAL BOND INSURANCE. The Fund may purchase municipal securities covered by
insurance which guarantee the timely payment of principal at maturity and
interest on such securities. These insured municipal securities are either (1)
covered by an insurance policy applicable to a particular security, whether
obtained by the issuer of the security or by a third party ("Issuer-Obtained
Insurance") or (2) insured under master insurance policies issued by municipal
bond insurers, which may be purchased by the Fund (the "Policies").
The Fund will require or obtain municipal bond insurance when purchasing
municipal securities which would not otherwise meet the Fund's quality
standards. The Fund may also require or obtain municipal bond insurance when
purchasing or holding specific municipal securities when, in the opinion of the
Fund's investment adviser, such insurance would benefit the Fund, for example,
through improvement of portfolio quality or increased liquidity of certain
securities. The Fund's investment adviser anticipates that more than 50% of the
Fund's net assets will be invested in municipal securities which are insured.
Issuer-Obtained Insurance policies are noncancellable and continue in force as
long as the municipal securities are outstanding and their respective insurers
remain in business. If a municipal security is covered by Issuer-Obtained
Insurance, then such security need not be insured by the Policies purchased by
the Fund.
The Fund may purchase two types of Policies issued by municipal bond insurers.
One type of Policy covers certain municipal securities only during the period in
which they are in the Fund's portfolio. In the event that a municipal security
covered by such a Policy is sold from the Fund, the insurer of the relevant
Policy will be liable only for those payments of interest and principal which
are then due and owing.
The other type of Policy covers municipal securities not only while they remain
in the Fund's portfolio but also until their final maturity even if they are
sold out of the Fund's portfolio, so that the coverage may benefit all
subsequent holders of those municipal securities. The Fund will obtain insurance
which covers municipal securities until final maturity even after they are sold
out of the Fund's portfolio only if, in the judgment of the investment adviser,
the Fund would receive net proceeds from the sale of those securities, after
deducting the cost of such permanent insurance and related fees, significantly
in excess of the proceeds it would receive if such municipal securities were
sold without insurance.
The premiums for the Policies are paid by the Fund and the yield on the Fund's
portfolio is reduced thereby. Premiums for the Policies are paid by the Fund
monthly, and are adjusted for purchases and sales of municipal securities during
the month. Depending upon the characteristics of the municipal security held by
the Fund, the annual premium for the Policies are estimated to range from 0.1%
to 0.25% of the value of the municipal securities covered under the Policies,
with an average annual premium rate of approximately 0.175%.
The Fund may purchase Policies from MBIA Corp. ("MBIA"), AMBAC Indemnity
Corporation ("AMBAC"), Financial Guaranty Insurance Company ("FGIC"), Bond
Investors Guaranty Insurance Company ("BIG"), or any other municipal bond
insurer which is rated AAA by S&P or Aaa by Moody's. A more detailed description
of these insurers may be found in the Statement of Additional Information. Each
Policy guarantees the payment of principal and interest on the municipal
securities it insures. The Policies will have the same general characteristics
and features. A municipal security will be eligible for coverage if it meets
certain requirements set forth in a Policy. In the event interest or principal
on an insured municipal security is not paid when due, the insurer covering the
security will be obligated under its Policy to make such payment not later than
30 days after it has been notified by the Fund that such non-payment has
occurred. The insurance feature reduces financial risk, but the cost thereof and
the restrictions on investments imposed by the guidelines in the insurance
policies reduce the yield to shareholders.
MBIA, AMBAC, FGIC, and BIG will not have the right to withdraw coverage on
securities insured by their Policies so long as such securities remain in the
Fund's portfolio, nor may MBIA, AMBAC, FGIC, and BIG cancel their Policies for
any reason except failure to pay premiums when due. MBIA, AMBAC, FGIC, and BIG
will reserve the right at any time upon 90 days' written notice to the Fund to
refuse to insure any additional municipal securities purchased by the Fund after
the effective date of such notice. The Trustees will reserve the right to
terminate any policy if it determines that the benefits to the Fund of having
its portfolio insured under such policy are not justified by the expense
involved.
Under the Policies, municipal bond insurers unconditionally guarantee to the
Fund the timely payment of principal and interest on the insured municipal
securities when and as such payments shall become due but shall not be paid by
the issuer, except that in the event of any acceleration of the due date of the
principal by reason of mandatory or optional redemption (other than acceleration
by reason of mandatory sinking fund payment), default or otherwise, the payments
guaranteed will be made in such amounts and at such times as payments of
principal would have been due had there not been such acceleration. The
municipal bond insurers will be responsible for such payments less any amounts
received by the Fund from any trustee for the municipal bond issuers or from any
other source. The Policies do not guarantee payment on an accelerated basis, the
payment of any redemption premium, the value of the shares of the Fund, or
payments of any tender purchase price upon the tender of the
municipal securities. The Policies also do not insure against nonpayment of
principal of or interest on the securities resulting from the insolvency,
negligence or any other act or omission of the trustee or other paying agent for
the securities. However, with respect to small issue industrial development
municipal bonds and pollution control revenue municipal bonds covered by the
Policies, the municipal bond insurers guarantee the full and complete payments
required to be made by or on behalf of an issuer of such municipal securities,
if there occurs any change in the tax-exempt status of interest on such
municipal securities, including principal, interest or premium payments, if any,
as and when required to be made by or on behalf of the issuer pursuant to the
terms of such municipal securities. A "when-issued" municipal security will be
covered under the Policies upon the settlement date of the issuer of such
"when-issued" municipal security. In determining to insure municipal securities
held by the Fund, each municipal bond insurer has applied its own standards,
which correspond generally to the standards established for determining the
insurability of new issues of municipal securities. This insurance is intended
to reduce financial risk, but the cost thereof and compliance with investment
restrictions imposed under the Policies will reduce the yield to shareholders of
the Fund.
If a Policy terminates as to municipal securities sold by the Fund on the date
of sale, in which event municipal bond insurers will be liable only for those
payments of principal and interest that are then due and owing, the provision
for insurance will not enhance the marketability of securities held by the Fund,
whether or not the securities are in default or subject to significant risk of
default, unless the option to obtain permanent insurance is exercised. On the
other hand, since Issuer-Obtained Insurance will remain in effect as long as the
insured municipal securities are outstanding, such insurance may enhance the
marketability of municipal securities covered thereby, but the exact effect, if
any, on marketability cannot be estimated. The Fund generally intends to retain
any securities that are in default or subject to significant risk of default and
to place a value on the insurance, which ordinarily will be the difference
between the market value of the defaulted security and the market value of
similar securities of minimum investment grade (i.e., rated "BBB") that are not
in default. To the extent that the Fund holds defaulted securities, it may be
limited in its ability to manage its investments and to purchase other municipal
securities. Except as described above with respect to securities that are in
default or subject to significant risk of default, the Fund will not place any
value on the insurance in valuing the municipal securities that it holds.
INVESTMENT RISKS. The value of the Fund's shares will fluctuate. The amount of
this fluctuation is dependent upon the quality and maturity of the municipal
securities in the Fund's portfolio, as well as on market conditions. Municipal
security prices are interest rate sensitive, which means that their value varies
inversely with market interest rates. Thus, if market interest rates have
increased from the time a security was purchased, the security, if sold, might
be sold at a price less than its cost. Similarly, if market interest rates have
declined from the time a security was purchased, the security, if sold, might be
sold at a price greater than its cost. (In either instance, if the security was
held to maturity, no loss or gain normally would be realized as a result of
interim market fluctuations.)
Yields on Louisiana municipal securities depend on a variety of factors,
including: the general conditions of the money market and the taxable and
municipal security markets; the size of the particular offering; the maturity of
the obligations; and the credit quality of the issue. The ability of the Fund to
achieve its investment objective also depends on the continuing ability of the
issuers of
Louisiana municipal securities to meet their obligations for the payment of
interest and principal when due.
Further, any adverse economic conditions or developments affecting the state of
Louisiana or its municipalities could impact the Fund's portfolio. Investing in
Louisiana municipal securities which meet the Fund's quality standards may not
be possible if the state of Louisiana and its municipalities do not maintain
their current credit ratings.
NON-DIVERSIFICATION. The Fund is a non-diversified investment company. An
investment in the Fund, therefore, may entail greater risk than would exist in a
diversified investment company because the higher percentage of investments
across fewer issuers could result in greater fluctuation in the total market
value of the Fund's portfolio. Any economic, political, or regulatory
developments affecting the value of the securities in the Fund's portfolio could
have a greater impact on the total value of the portfolio than would be the case
if the portfolio were diversified among more issuers.
The Fund will attempt to minimize the risks associated with a non-diversified
portfolio by limiting, with respect to 75% of the Fund's total assets,
investments in one issuer to not more than 10% of the value of its total assets.
The total amount of the remaining 25% of the value of the Fund's total assets
could be invested in a single issuer, but only if the investment adviser
believes such a strategy to be prudent. In addition, the Fund intends to comply
with Subchapter M of the Internal Revenue Code. This undertaking requires that
at the end of each quarter of the taxable year, the aggregate value of all
investments in any one issuer (except U.S. government obligations, cash, and
money market instruments) which exceed 5% of the Fund's total assets not exceed
50% of the value of the Fund's total assets.
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Investing in Securities of Other Investment
Companies," "Lending of Portfolio Securities," and "Restricted and Illiquid
Securities."
TOTAL RETURN BOND FUND
The investment objective of Total Return Bond Fund is to maximize total return.
The Fund manages its portfolio to achieve both income and capital appreciation.
ACCEPTABLE INVESTMENTS. The Fund pursues its investment objective by primarily
investing in U.S. government securities, mortgage-backed securities,
asset-backed securities and corporate bonds and other securities, as well as
collateralized mortgage obligations. Under normal market conditions, the Fund
will attempt to invest at least 65% of its assets in bonds. The securities in
which the Fund may invest are as follows:
- domestic issues of corporate debt obligations (rated Baa or better by
Moody's; BBB or better by S&P; or BBB or better by Fitch Investors
Service, Inc. ("Fitch")). Bonds rated BBB by S&P or Fitch or Baa by
Moody's have speculative characteristics. Changes in economic conditions
or other circumstances are more likely to lead to weakened capacity to
make principal and interest payments than higher rated bonds. A
description of the rating categories is contained in the Appendix to the
Statement of Additional Information;
- obligations of the United States;
- notes, bonds, and discount notes of the following U.S. government
agencies or instrumentalities: Federal Home Loan Banks, Federal National
Mortgage Association, Government National Mortgage Association, Farm
Credit System, including the National Bank for Cooperatives and Banks for
Cooperatives, Tennessee Valley Authority, Export-Import Bank of the
United States, Commodity Credit Corporation, Federal Financing Bank, The
Student Loan Marketing Association, Federal Home Loan Mortgage
Corporation, or National Credit Union Administration;
- commercial paper which matures in 270 days or less so long as at least
two ratings are high quality ratings by nationally recognized statistical
rating organizations ("NRSROs"). Such ratings would include: A-1 or A-2
by S&P, Prime-1 or Prime-2 by Moody's, or F-1 or F-2 by Fitch;
- time and savings deposits (including certificates of deposit) in
commercial or savings banks whose accounts are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC"), or in institutions whose accounts are
insured by the Savings Association Insurance Fund ("SAIF"), which is also
administered by the FDIC, including certificates of deposit issued by and
other time deposits in foreign branches of BIF-insured banks;
- bankers' acceptances;
- securities of other investment companies;
- repurchase agreements collateralized by eligible investments; and
- municipal securities.
If a security invested in by the Fund loses its rating or has its rating reduced
after the Fund has purchased it, the Fund is not required to sell or otherwise
dispose of the security, but may consider doing so.
The Fund may also purchase and sell put and call options on its portfolio
securities (including over-the-counter options), purchase and sell financial
futures contracts, and purchase and sell put and call options on financial
futures contracts.
In addition, the Fund may engage in when-issued and delayed delivery
transactions and invest in foreign securities, temporary investments, and
repurchase agreements. See "Portfolio Investments and Strategies."
MORTGAGE-BACKED SECURITIES. Some of the U.S. government securities in which the
Fund will invest can represent an undivided interest in a pool of residential
mortgages or may be collateralized by a pool of residential mortgages
("mortgage-backed securities"). Mortgage-backed securities have yield and
maturity characteristics corresponding to the underlying mortgages.
Distributions to holders of mortgage-backed securities include both interest and
principal payments. Principal payments represent the amortization of the
principal of the underlying mortgages and any prepayments of principal due to
prepayment, refinancing, or foreclosure of the underlying mortgages. Although
maturities of the underlying mortgage loans may range up to 30 years,
amortization and prepayments substantially shorten the effective maturities of
mortgage-backed securities. Due to these features, mortgage-backed securities
are less effective as a means of "locking-in" attractive long-term interest
rates than fixed-income securities which pay only a stated amount of interest
until maturity, when the entire principal amount is returned. This is caused by
the need to reinvest at lower interest rates both
distributions of principal generally and significant prepayments which become
more likely as mortgage interest rates decline. Since comparatively high
interest rates cannot be effectively "locked in," mortgage-backed securities may
have less potential for capital appreciation during periods of declining
interest rates than other non-callable fixed-income government securities of
comparable stated maturities. However, mortgage-backed securities may experience
less pronounced declines in value during periods of rising interest rates.
ASSET-BACKED SECURITIES. Asset-backed securities are obligations of trusts or
special purpose corporations that directly or indirectly represent a
participation in, or are secured by and payable from various types of assets. At
the present time, automobile and credit card receivables are the most common
collateral supporting asset-backed securities. In general, the collateral
supporting asset-backed securities is of shorter maturity than mortgage loans
and is less likely to experience substantial prepayments. As with
mortgage-backed securities, asset-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties and use
similar credit enhancement techniques.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same security interest in the related collateral. Credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most issuers of asset-backed securities backed by
automobile receivables permit the servicers of such receivables to retain
possession of the underlying obligations. If the servicer were to sell these
obligations to another party, there is a risk that the purchaser would acquire
an interest superior to that of the holders of the related asset-backed
securities. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of asset-backed securities backed by automobile receivables may not
have a proper security interest in all of the obligations backing such
receivables. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities.
In general, issues of asset-backed securities are structured to include
additional collateral and/or additional credit support to protect against the
risk that a portion of the collateral supporting the asset-backed securities may
default and/or may suffer from these defects. In evaluating the strength of
particular issues of asset-backed securities, the investment adviser considers
the financial strength of the guarantor or other provider of credit support, the
type and extent of credit enhancement provided as well as the documentation and
structure of the issue itself and the credit support.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs are bonds issued by
single-purpose stand-alone finance subsidiaries or trusts of financial
institutions, government agencies, investment bankers, or companies related to
the construction industry. Most of the CMOs in which the Fund would invest use
the same basic structure:
- Several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four classes of
securities: the first three (A, B, and C bonds) pay interest at their
stated rates beginning with the issue date; the final class (Z bond)
typically receives the residual income from the underlying investment
after payments are made to the other classes.
- The cash flows from the underlying mortgages are applied first to pay
interest and then to retire securities.
- The classes of securities are retired sequentially. All principal
payments are directed first to the shortest-maturity class (A bonds).
When those securities are completely retired, all principal payments are
then directed to the next-shortest-maturity security (B bond). This
process continues until all of the classes have been paid off.
Because the cash flow is distributed sequentially instead of pro rata as with
pass-through securities, the cash flows and average lives of CMOs are more
predictable, and there is a period of time during which the investors in the
longer-maturity classes receive no principal paydowns. The interest portion of
these payments is distributed by the Fund as income, and the capital portion is
reinvested. The prices of fixed income securities fluctuate inversely to the
direction of interest rates.
The Fund will invest only in CMOs which are rated AAA by an NRSRO and which may
be: (a) collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government; (b) collateralized by pools of mortgages
in which payment of principal and interest is guaranteed by the issuer and such
guarantee is collateralized by U.S. government securities; or (c) securities in
which the proceeds of the issuance are invested in mortgage securities and
payment of the principal and interest are supported by the credit of an agency
or instrumentality of the U.S. government.
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Investing in Securities of Other Investment
Companies," "Lending of Portfolio Securities," and "Restricted and Illiquid
Securities."
U.S. GOVERNMENT INCOME FUND
The investment objective of U.S. Government Income Fund is to provide current
income. Current income includes, in general, discount earned on U.S. Treasury
bills and agency discount notes, interest earned on all other U.S. government
securities and mortgage-related securities, and short-term capital gains.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in securities which are
guaranteed as to payment of principal and interest by the U.S. government or
U.S. government agencies or instrumentalities. The Fund may also invest in
certain privately issued mortgage-related securities, corporate bonds and
asset-backed securities, as defined below.
The Fund will invest, under normal circumstances, at least 65% of the value of
its total assets in U.S. government securities. The U.S. government securities
in which the Fund invests include:
- direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds;
- notes, bonds and discount notes issued or guaranteed by U.S. government
agencies and instrumentalities supported by the full faith and credit of
the United States;
- notes, bonds and discount notes of other U.S. government agencies or
instrumentalities which receive or have access to federal funding; and
- notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the instrumentalities.
The Fund may also invest in mortgage-related securities which are issued by
private entities such as investment banking firms and companies related to the
construction industry. The mortgage-related securities in which the Fund may
invest may be: (i) privately issued securities which are collateralized by pools
of mortgages in which each mortgage is guaranteed as to payment of principal and
interest by an agency or instrumentality of the U.S. government; (ii) privately
issued securities which are collateralized by pools of mortgages in which
payment of principal and interest are guaranteed by the issuer and such
guarantee is collateralized by U.S. government securities; and (iii) other
privately issued securities in which the proceeds of the issuance are invested
in mortgage-backed securities and payment of the principal and interest are
supported by the credit of any agency or instrumentality of the U.S. government.
The mortgage-related securities provide for a periodic payment consisting of
both interest and principal. The interest portion of these payments will be
distributed by the Fund as income, and the capital portion will be reinvested.
CORPORATE BONDS. The Fund may invest in domestic issues of corporate debt
obligations rated "A" or better by Moody's, S&P or Fitch, or which, if unrated,
are deemed to be of comparable quality by the investment adviser. If a debt
security's rating falls below "A" after the Fund had purchased it, the Fund is
not required to dispose of the security, but will consider appropriate action. A
description of the rating categories is contained in the Appendix to the
Statement of Additional Information. The prices of fixed income securities
fluctuate inversely to the direction of interest rates.
ASSET-BACKED SECURITIES. Asset-backed securities are obligations of trusts or
special purpose corporations that directly or indirectly represent a
participation in, or are secured by and payable from various types of assets. At
the present time, automobile and credit card receivables are the most common
collateral supporting asset-backed securities. In general, the collateral
supporting asset-backed securities is of shorter maturity than mortgage loans
and is less likely to experience substantial prepayments. As with
mortgage-backed securities, asset-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties and use
similar credit enhancement techniques.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same security interest in the related collateral. Credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most issuers of asset-backed securities backed by
automobile receivables permit the servicers of such receivables to retain
possession of the underlying obligations. If the servicer were to sell these
obligations to another party, there is a risk that the purchaser would acquire
an interest superior to that of the holders of the related asset-backed
securities. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of asset-backed securities backed by automobile receivables may not
have a proper security interest in all of the obligations backing such
receivables. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities.
In general, issues of asset-backed securities are structured to include
additional collateral and/or additional credit support to protect against the
risk that a portion of the collateral supporting the asset-backed securities may
default and/or may suffer from these defects. In evaluating the strength of
particular issues of asset-backed securities, the investment adviser considers
the financial strength of the guarantor or other provider of credit support, the
type and extent of credit enhancement provided as well as the documentation and
structure of the issue itself and the credit support.
The Fund may also purchase and sell put and call options on its portfolio
securities (including over-the-counter options), purchase and sell financial
futures contracts, and purchase and sell put and call options on financial
futures contracts.
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Investing in Securities of Other Investment
Companies," "Lending of Portfolio Securities," and "Restricted and Illiquid
Securities."
CASH RESERVE FUND
The investment objective of Cash Reserve Fund is current income consistent with
stability of principal.
The Fund pursues its investment objective by investing in a portfolio of money
market instruments maturing in one year or less. As a matter of fundamental
policy, the average maturity of the securities in the Fund's portfolio, computed
on a dollar-weighted basis, will be 120 days or less. As a matter of operating
policy, which may be changed without shareholder approval, the Fund will limit
the average maturity of its portfolio to 90 days or less, in order to meet
regulatory requirements.
ACCEPTABLE INVESTMENTS. The Fund invests in high quality money market
instruments that are either rated in the highest short-term rating category by
one or more NRSROs or of comparable quality to securities having such ratings.
Examples of acceptable investments include, but are not limited to:
- domestic issues of corporate debt obligations, including variable rate
demand notes;
- commercial paper (including Canadian Commercial Paper and Europaper);
- certificates of deposit, demand and time deposits, bankers' acceptances
and other instruments of domestic and foreign banks and other deposit
institutions ("Bank Instruments");
- short-term credit facilities, such as demand notes;
- asset-backed securities;
- obligations issued or guaranteed as to payment of principal and interest
by the U.S. government or one of its agencies or instrumentalities; and
- other money market instruments.
The Fund invests only in instruments denominated and payable in U.S. dollars.
In addition, the Fund may concentrate certain of its investments, engage in
when-issued and delayed delivery transactions, and invest in repurchase
agreements. See "Portfolio Investments and Strategies."
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
corporate debt instruments that have variable or floating interest rates
and provide the Fund with the right to tender the security for repurchase
at its stated principal amount plus accrued interest. Such securities
typically bear interest at a rate that is intended to cause the securities
to trade at par. The interest rate may float or be adjusted at regular
intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand
notes allow the Fund to demand the repurchase of the security on not more
than seven days prior notice. Other notes only permit the Fund to tender
the security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features." The Fund treats variable rate demand
notes as maturing on the later of the date of the next interest adjustment
or the date on which the Fund may next tender the security for repurchase.
BANK INSTRUMENTS. The Fund only invests in Bank Instruments either issued
by an institution having capital, surplus and undivided profits over $100
million or insured by BIF or SAIF. Bank Instruments may include Eurodollar
Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit ("Yankee
CDs"), and Eurodollar Time Deposits ("ETDs"). The Fund will treat
securities credit enhanced with a bank's letter of credit as Bank
Instruments.
SHORT-TERM CREDIT FACILITIES. Demand notes are short-term borrowing
arrangements between a corporation and an institutional lender (such as the
Fund) payable upon demand by either party. The notice period for demand
typically ranges from one to seven days, and the party may demand full or
partial payment. The Fund may also enter into, or acquire participations
in, short-term revolving credit facilities with corporate borrowers. Demand
notes and other short-term credit arrangements usually provide for floating
or variable rates of interest.
ASSET-BACKED SECURITIES. Asset-backed securities are securities issued by
special purpose entities whose primary assets consist of a pool of loans or
accounts receivable. The securities may take the form of beneficial
interest in a special purpose trust, limited partnership interests or
commercial paper or other debt securities issued by a special purpose
corporation. Although the securities often have some form of credit or
liquidity enhancement, payments on the securities depend predominately upon
collections of the loans and receivables held by the issuer.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit or insurance. Any bankruptcy,
receivership, default or change in the credit quality of the party providing the
credit enhancement will adversely affect the quality and marketability of the
underlying security and could cause losses to the Fund and affect its share
price. The Fund may have more than 25% of its total assets invested in
securities credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature
before its exercise, will adversely affect the liquidity of the underlying
security. Demand features that are exercisable even after a payment default on
the underlying security may be treated as a form of credit enhancement.
CONCENTRATION OF INVESTMENTS. Generally, in excess of 50% of the total assets of
Cash Reserve Fund will be invested in commercial paper and variable rate demand
notes. Commercial paper issued by finance companies will comprise more than 25%
of the Fund's total assets, unless the Fund is in a temporary defensive position
as a result of economic conditions. These policies may not be changed without
shareholder approval. Concentration of the Fund's portfolio in such obligations
may entail additional risks which are not encountered by funds with more
diversified portfolios.
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Investing in Securities of Other Investment
Companies," and "Restricted and Illiquid Securities."'
U.S. TREASURY MONEY MARKET FUND
The investment objective of U.S. Treasury Money Market Fund is current income
consistent with stability of principal and liquidity. The Fund pursues its
investment objective by investing in a portfolio of short-term U.S. Treasury
obligations which are issued by the U.S. government and are fully guaranteed as
to payment of principal and interest by the United States.
ACCEPTABLE INVESTMENTS. The Fund invests only in short-term U.S. Treasury
obligations maturing in 397 days or less. The average maturity of the U.S.
Treasury obligations in the Fund's portfolio, computed on a dollar-weighted
basis, will be 90 days or less.
In addition, the Fund may engage in when-issued and delayed delivery
transactions and invest in repurchase agreements. See "Portfolio Investments and
Strategies."
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Investing in Securities of Other Investment
Companies," and "Restricted and Illiquid Securities."
PORTFOLIO INVESTMENTS AND STRATEGIES
- --------------------------------------------------------------------------------
BORROWING MONEY
The Funds will not borrow money directly or through reverse repurchase
agreements (arrangements in which a Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set date)
except, under certain circumstances, a Fund may borrow up to one-third of the
value of its total assets. Capital Appreciation Fund, Louisiana Municipal Income
Fund, U.S. Government Income Fund and Cash Reserve Fund may each pledge up to
15%, and Total Return Bond Fund may pledge up to 10%, of the value of their
respective assets to secure such borrowings. This policy cannot be changed
without the approval of holders of a majority of a Fund's shares.
FOREIGN SECURITIES
Capital Appreciation Fund and Total Return Bond Fund may invest in foreign
securities which are traded publicly in the United States. Investments in
foreign securities, particularly those of non-governmental issuers, involve
considerations which are not ordinarily associated with investments in domestic
issuers. These considerations include the possibility of expropriation, the
unavailability of financial information or the difficulty of interpreting
financial information prepared under foreign accounting standards, less
liquidity and more volatility in foreign securities markets, the impact of
political, social or diplomatic developments, and the difficulty of assessing
economic trends in foreign countries, the difficulty of obtaining or enforcing
court judgments abroad, restrictions on foreign investments in other
jurisdictions, difficulties in repatriation of capital invested abroad, and
difficulties in transaction settlements and the effect of delay on shareholder
equity. It may also be more difficult to enforce contractual obligations abroad
than would be the case in the United States because of differences in the legal
systems. Transaction costs in foreign securities may be higher.
The Funds' investment adviser will consider these and other factors before
investing in foreign securities and will not make such investments unless, in
its opinion, such investments will meet the Funds' standards and objectives. The
Funds will only purchase securities issued in U.S. dollar denominations and will
not invest more than 15% of its total assets in foreign securities.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Funds may invest in the securities of other open-end investment companies,
as well as closed-end investment companies. The Funds, however, will not own
more than 3% of the total outstanding voting stock of any investment company,
invest more than 5% of their respective total assets in any one investment
company, or invest more than 10% of their respective total assets in investment
companies in general, unless permitted to do so by order of the SEC.
The Funds will purchase securities of investment companies only in open-market
transactions involving only customary broker's commissions. However, these
limitations are not applicable if the securities are acquired in a merger,
consolidation, or acquisition of assets.
It should be noted that investment companies incur certain expenses, such as
management fees, and, therefore, any investment by a Fund in shares of another
investment company would be subject to such duplicate expenses. The Funds will
invest in other investment companies primarily for the purposes of investing
their short-term cash on a temporary basis. The Funds' investment adviser will
waive its investment advisory fee on assets invested in securities of other
investment companies.
LENDING OF PORTFOLIO SECURITIES
In order to generate income, each of the Funds (except the Money Market Funds)
may lend portfolio securities on a short-term or long-term basis, or both, up to
one-third of the value of their respective total assets to broker/dealers,
banks, or other institutional borrowers of securities. The Funds will only enter
into loan arrangements with broker/dealers, banks, or other institutions which
the investment adviser has determined are creditworthy under guidelines
established by the Trustees and will receive collateral in the form of cash or
U.S. government securities equal to at least 100% of the value of the securities
loaned at all times. This policy cannot be changed with respect to any Fund
without the approval of holders of a majority of such Fund's shares.
There is the risk that when lending portfolio securities, the securities may not
be available to a Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
PUT AND CALL OPTIONS
The Funds (except the Money Market Funds) may engage in or reserve the right to
engage in put and call options as discussed for those Funds under "Objective and
Policies of Each Fund." The Funds may purchase put and call options on their
portfolio securities. These options will be used as a hedge to attempt to
protect securities which the Funds hold or will be purchasing against decreases
or increases in value. The Funds may also write (sell) put and call options on
all or any portion of their portfolio to generate income for the Funds. The
Funds will write call options on securities either held in their portfolio or
which they have the right to obtain without payment of further consideration or
for which they have segregated cash or U.S. government securities in the amount
of any additional consideration. In the case of put options, the Funds will
segregate cash or U.S. Treasury obligations with a value equal to or greater
than the exercise price of the underlying securities. Each Fund will limit its
purchase of options so that not more than 20% of its net assets will be invested
in option premiums. Each Fund will limit its option writing activities so that
the assets underlying such options will not exceed 25% of its total net assets.
(These limits apply to both options on securities and options on futures
contracts.)
The Funds will generally purchase and write over-the-counter options on
portfolio securities in negotiated transactions with the buyers or writers of
the options when options on the portfolio securities held by a Fund are not
traded on an exchange. The Funds purchase and write options only with investment
dealers and other financial institutions (such as commercial banks or savings
associations) deemed creditworthy by each Fund's investment adviser.
Over-the-counter options are two-party contracts with price and terms negotiated
between buyer and seller. In contrast, exchange-traded options are third-party
contracts with standardized strike prices and expiration dates and are purchased
from a clearing corporation. Exchange-traded options generally have a continuous
liquid market while over-the-counter options may not.
FINANCIAL FUTURES AND OPTIONS ON FUTURES
The Funds (except the Money Market Funds) may engage in or reserve the right to
engage in financial futures and options on futures as discussed for those Funds
under "Objective and Policies of Each Fund." The Funds may purchase and sell
financial futures contracts to hedge all or a portion of their portfolio of
securities against changes in interest rates or as a hedge to attempt to protect
securities which the Funds hold against decreases in value. (For the immediate
future, Capital Appreciation Fund will enter into futures contracts directly
only when it desires to exercise a financial futures put option in its portfolio
rather than either closing out the option or allowing it to expire.) Financial
futures contracts call for the delivery of particular debt instruments issued or
guaranteed by the U.S. Treasury or by specified agencies or instrumentalities of
the U.S. government at a certain time in the future. The seller of the contract
agrees to make delivery of the type of instrument called for in the contract,
and the buyer agrees to take delivery of the instrument at the specified future
time.
The Funds may write call options and purchase put options on financial futures
contracts as a hedge to attempt to protect securities in their portfolio against
decreases in value resulting from anticipated increases in market interest
rates. When a Fund writes a call option on a futures contract, it is undertaking
the obligation of selling the futures contract at a fixed price at any time
during a specified period if the option is exercised. Conversely, as purchaser
of a put option on a futures contract, a Fund is entitled (but not obligated) to
sell a futures contract at the fixed price during the life of the option.
The Funds (except Capital Appreciation Fund) may also write put options and
purchase call options on financial futures contracts as a hedge against rising
purchase prices of portfolio securities resulting from anticipated decreases in
market interest rates. The Funds will use these transactions to attempt to
protect their ability to purchase portfolio securities in the future at price
levels existing at the time it enters into the transactions. When a Fund writes
a put option on a futures contract, it is undertaking to buy a particular
futures contract at a fixed price at any time during a specified period if the
option is exercised. If the anticipated rise in purchase prices of portfolio
securities occurs, a Fund may use the premiums it receives from writing put
options to offset such increased prices. As a purchaser of a call option on a
futures contract, a Fund is entitled (but not obligated) to purchase a futures
contract at a fixed price at any time during the life of the option.
The Funds may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on a Fund's
existing futures position and premiums paid for related options would exceed 5%
of the market value of such Fund's total assets. When a Fund purchases futures
contracts or writes put options on futures contracts, an amount of cash and cash
equivalents equal to the underlying commodity value of the futures contracts
(less any related margin deposits) or equal to the exercise price of the put
options will be deposited in a segregated account with the Fund's custodian (or
the broker, if legally permitted) to collateralize the position and thereby
insure that the use of such futures contracts is unleveraged.
RISKS. When a Fund uses financial futures and options on futures as hedging
devices, there is a risk that the prices of the securities subject to the
futures contracts may not correlate perfectly with the prices of the
securities in the Fund's portfolio. This may cause the futures contracts
and any related options to react differently than the portfolio securities
to market changes. In addition, the Fund's investment adviser could be
incorrect in its expectations about the direction or extent of market
factors, such as interest rate movements. In these events, the Fund may
lose money on the futures contracts or options. When a Fund writes a call
option, it retains the risk of a market decline in the price of the
underlying security, but gives up the right to capital appreciation of that
security above the "strike price" of the option.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although a Fund's investment adviser will
consider liquidity before entering into options transactions, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular futures contract or option at any particular time. The Funds' ability
to establish and close out futures and options positions depends on this
secondary market.
REPURCHASE AGREEMENTS
Each of the Funds may invest in repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers and other recognized financial
institutions sell U.S. government securities
or certificates of deposit or other securities to a Fund and agree at the time
of sale to repurchase them at a mutually agreed upon time and price within one
year from the date of acquisition. The Funds or their custodian will take
possession of the securities subject to repurchase agreements and these
securities will be marked to market daily.
To the extent that the original seller does not repurchase the securities from a
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by a Fund might be delayed
pending court action. The Funds believe that under the regular procedures
normally in effect for custody of the Funds' portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Funds and allow retention or disposition of such securities. The Funds will
only enter into repurchase agreements with banks and other recognized financial
institutions such as broker/dealers which are deemed by each Fund's investment
adviser to be creditworthy pursuant to guidelines established by the Trustees.
RESTRICTED AND ILLIQUID SECURITIES
The Funds may invest up to 10% of their respective total assets in restricted
securities. Certain restricted securities which the Trustees deem to be liquid
will be excluded from this limitation. The restriction is not applicable to
commercial paper issued under Section 4(2) of the Securities Act of 1933.
Restricted securities are any securities in which a Fund may otherwise invest
pursuant to its investment objective and policies but which are subject to
restriction on resale under federal securities law.
Capital Appreciation Fund, Louisiana Municipal Income Fund, Total Return Bond
Fund, and U.S. Government Income Fund will limit investments in illiquid
securities (including, as applicable, certain restricted securities not
determined by the Trustees to be liquid, non-negotiable time deposits,
repurchase agreements providing for settlement in more than seven days after
notice, and over-the-counter options) to 15% of their respective net assets. The
Money Market Funds will limit investments in illiquid securities to 10% of their
respective net assets.
TEMPORARY INVESTMENTS
During times of unusual market conditions, for defensive purposes and to
maintain liquidity, Capital Appreciation Fund, Total Return Bond Fund, and U.S.
Government Income Fund may invest in cash and money market instruments, such as
the following:
- prime commercial paper (rated A-2 or above by S&P, Prime-2 or above by
Moody's, or F-2 or above by Fitch) and Europaper (rated A-2 or above or
Prime-2 or above). In the case where commercial paper or Europaper has
received different ratings from different NRSROs, such commercial paper
or Europaper is an acceptable temporary investment so long as at least
one rating is one of the preceding high-quality ratings and provided the
investment adviser has determined that such investment presents minimal
credit risks;
- instruments of domestic and foreign banks and savings associations having
capital, surplus, and undivided profits of over $100 million or if the
principal amount of the instrument is insured by the FDIC or the Savings
Association Insurance Fund ("SAIF"). These instruments include
certificates of deposit, demand and time deposits, savings shares, ECDs,
ETDs, Canadian Time Deposits, and bankers' acceptances;
- securities issued and/or guaranteed as to payment of principal and
interest by the U.S. government, its agencies or instrumentalities;
- repurchase agreements; and
- other short-term money market instruments which are not rated but are
determined by the investment adviser to be of comparable quality to the
other temporary obligations in which the Funds may invest.
Louisiana Municipal Income Fund may, from time to time, on a temporary basis, or
when the investment adviser determines that market conditions call for a
temporary defensive posture, invest in short-term tax-exempt or taxable
temporary investments. These temporary investments include: notes issued by or
on behalf of municipal or corporate issuers; obligations issued or guaranteed by
the U.S. government, its agencies or instrumentalities; other debt securities;
commercial paper; certificates of deposit of banks; and repurchase agreements.
Louisiana Municipal Income Fund has no rating requirements applicable to
temporary investments. However, the investment adviser will limit temporary
investments to those it considers to be of high quality. Although the Fund is
permitted to make taxable, temporary investments, there is no current intention
of generating income subject to federal regular income tax.
For defensive purposes only, Total Return Bond Fund may also invest in
acceptable investments of the Fund with short-term maturities.
U.S. GOVERNMENT SECURITIES
The types of U.S. government securities in which the Funds may invest generally
include direct obligations of the U.S. Treasury (such as U.S. Treasury bills,
notes, and bonds) and obligations issued or guaranteed by U.S. government
agencies or instrumentalities. These securities are backed in a variety of ways
by the U.S. government or its agencies or instrumentalities. Some of these
obligations, such as Government National Mortgage Association mortgage-backed
securities and obligations of the Farmers Home Administration, are backed by the
full faith and credit of the U.S. Treasury. Obligations of the Farmers Home
Administration are also backed by the issuer's right to borrow from the U.S.
Treasury. Obligations of Federal Home Loan Banks and the Farmers Home
Administration are backed by the discretionary authority of the U.S. government
to purchase certain obligations of agencies or instrumentalities. Obligations of
Federal Home Loan Banks, Farmers Home Administration, Farm Credit System,
including the National Bank for Cooperatives and Banks for Cooperatives,
Tennessee Valley Authority, Export-Import Bank of the United States, Commodity
Credit Corporation, Federal Financing Bank, Federal National Mortgage
Association, and Federal Home Loan Mortgage Corporation, National Credit Union
Administration, and Student Loan Marketing Association are backed by the credit
of the agency or instrumentality issuing the obligations.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Funds may purchase securities on a when-issued or delayed delivery basis.
(Cash Reserve Fund will limit the securities purchased on a when-issued and
delayed delivery basis to short-term U.S. government obligations.) These
transactions are arrangements in which a Fund purchases securities with payment
and delivery scheduled for a future time. The seller's failure to complete these
transactions may cause a Fund to miss a price or yield considered to be
advantageous. The Funds
engage in when-issued and delayed delivery transactions only for the purpose of
acquiring portfolio securities consistent with each Fund's investment objective
and policies, not for investment leverage. Settlement dates may be a month or
more after entering into these transactions, and the market values of the
securities purchased may vary from the purchase prices. Accordingly, a Fund may
pay more/less than the market value of the securities on the settlement date.
The Funds may dispose of a commitment prior to settlement if the Funds'
investment adviser deems it appropriate to do so. In addition, the Funds may
enter into transactions to sell their purchase commitments to third parties at
current market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Funds may realize short-term profits or
losses upon the sale of such commitments.
As a matter of operating policy, which may be changed without shareholder
approval, each Fund will limit its purchase of securities on a when-issued or
delayed delivery basis to no more than 20% of the value of its total assets.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment a later increase or decrease in percentage resulting
from any change in value of a Fund's net assets will not result in a violation
of any of the above restrictions.
TOWER MUTUAL FUNDS INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF TOWER MUTUAL FUNDS
BOARD OF TRUSTEES. Tower Mutual Funds is managed by a Board of Trustees. The
Trustees are responsible for managing the Trust's business affairs and for
exercising all of the Trust's powers except those reserved for the shareholders.
The Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with Tower
Mutual Funds, investment decisions for the Funds are made by Hibernia National
Bank, the Funds' investment adviser (the "Adviser"), subject to direction by the
Trustees. The Adviser continually conducts investment research and supervision
for the Funds and is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the assets of each Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee at
annual rates equal to percentages of the relevant Fund's average net
assets, as follows: Capital Appreciation Fund-- 0.75%; Louisiana Municipal
Income Fund--0.45%; Total Return Bond Fund-- 0.70%; U.S. Government Income
Fund--0.45%; and Cash Reserve Fund and U.S. Treasury Money Market
Fund--0.40%. The Adviser may voluntarily choose to waive a portion of its
fee or reimburse a Fund for certain operating expenses. The Adviser may
modify or terminate this voluntary waiver of its advisory fee or
reimbursement of expenses at any time with respect to a Fund at its sole
discretion.
ADVISER'S BACKGROUND. Hibernia National Bank, a national bank organized in
1890, is a wholly owned subsidiary of Hibernia Corporation ("Hibernia").
Hibernia National Bank has acted as investment adviser to the Trust since
its inception in 1988. Through its subsidiaries and affiliates,
Hibernia offers a full range of financial services to the public, including
commercial lending, depository services, cash management, retail banking,
mortgage banking, discount brokerage, investment counseling, international
banking, and trust services.
Hibernia National Bank has been ranked by the American Banker newspaper as
the 67th largest U.S. Bank according to December 31, 1996, total deposits.
The 1996 Money Market Directory of Pension Funds ranked Hibernia National
Bank among the top 28% of the largest of nearly 200 bank and trust company
managers of tax-exempt funds in the United States. As of March 31, 1997,
the Trust Group had $4.70 billion under administration of which it had
investment discretion over $1.7 billion. The Trust Group has managed pools
of commingled funds since 1966; as of May 31, 1997, the Trust Group managed
two such investment pools, as well as the six Tower Mutual Funds.
As part of their regular banking operations, Hibernia National Bank may
make loans to public companies. Thus, it may be possible, from time to
time, for a Fund to hold or acquire the securities of issuers which are
also lending clients of Hibernia National Bank. The lending relationship
will not be a factor in the selection of securities.
John A. Cain became Capital Appreciation Fund's portfolio manager in March
1995. Mr. Cain is a Vice President and Trust Investment Officer
specializing in equity and balanced account management. Mr. Cain is the
investment manager of Hibernia Trust's Growth Stock Fund. He has 38 years
of investment management experience both in the brokerage and trust
industries. He earned his B.B.A. from the University of Mississippi.
Jeffrey R. Tanguis has been Louisiana Municipal Income Fund's portfolio
manager since 1988 and U.S. Government Income Fund's portfolio manager from
1992 to October 1996. Mr. Tanguis began to manage Total Return Bond Fund in
1995. Mr. Tanguis joined Hibernia in 1984 and is currently a Vice President
and Trust Investment Officer of Hibernia. Mr. Tanguis received a B.S. from
Louisiana State University.
James L. Chassen became the portfolio manager of U.S. Government Income
Fund, Cash Reserve Fund and U.S. Treasury Money Market Fund in October
1996. Mr. Chassen is a Vice President and Trust Investment Officer of
Hibernia National Bank. Prior to joining Hibernia, he worked for an
investment advisory firm in Dallas, Texas. Previously, he was the
Investment Manager for J.C. Penney Company. Mr. Chassen earned is B.S. from
Florida State University and his M.B.A. from the University of Texas at
Austin.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for shares of the Funds.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan of Tower
Mutual Funds, the distributor may select brokers and dealers to provide
distribution and administrative services. The distributor may also select
administrators (including depository institutions such as commercial banks and
savings associations) to provide administrative services. Fees paid by the
distributor for these services with respect to Class A Shares of Capital
Appreciation Fund and Shares of Louisiana Municipal Income Fund, Total Return
Bond Fund, U.S. Government Income Fund and the Money Market Funds will be
reimbursed by the relevant Fund or class up to 0.25% of average daily net assets
of the Fund. Fees paid by the distributor for these services with respect to
Class B Shares of Capital Appreciation Fund will be reimbursed by the Fund up to
0.75% of the average daily net assets of Class B Shares of Capital Appreciation
Fund.
These services may include, but are not limited to, providing office space,
equipment, telephone facilities, and various personnel, including clerical,
supervisory, and computer, as necessary or beneficial to establish and maintain
shareholder accounts and records, processing purchase and redemption
transactions, and performing other services. Brokers, dealers, and
administrators will receive fees based upon shares owned by their clients or
customers. The formula for calculating the fees will be determined from time to
time by the Trustees. The fees are calculated as a percentage of the average
aggregate net asset value of shares added to shareholder accounts and held in
the accounts during the period for which the brokers, dealers, and
administrators provide services. Although fees paid by a Fund or class relate
directly to the net asset value of the shares of a Fund or class, it is possible
that fees paid by a Fund or class may be used to provide similar services for
other of the Trust's funds. In addition, a Fund or class may reimburse the
distributor for writing, printing and distributing prospectuses, statements of
additional information, and sales literature. Payments made to the distributor
under the distribution plan will be limited to reimbursement of actual expenses.
With respect to Class B Shares of Capital Appreciation Fund, the distributor may
sell, assign or pledge its right to receive 12b-1 fees and contingent deferred
sales charges to finance payments made to brokers in connection with the sale of
Class B Shares. Actual distribution expenses for Class B Shares at any given
time may exceed the Rule 12b-1 fees and payments received pursuant to contingent
deferred sales charges. These unrecovered amounts, plus interest thereon, will
be carried forward and paid from future 12b-1 fees and payments received through
contingent deferred sales charges. If a distribution plan were terminated or not
continued, the Fund would not be contractually obligated to pay for any expenses
not previously reimbursed by the Fund or recovered through contingent deferred
sales charges.
The Glass-Steagall Act limits the ability of a depository institution (such as a
commercial bank or a savings association) to become an underwriter or
distributor of securities. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the capacities described above
or should Congress relax current restrictions on depository institutions, the
Trustees will consider appropriate changes in the services.
SHAREHOLDER SERVICING ARRANGEMENTS (CAPITAL APPRECIATION FUND-CLASS B SHARES)
Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of Federated
Investors, is shareholder servicing agent (the "Shareholder Servicing Agent")
for Class B Shares of Capital Appreciation Fund. The Fund may pay the
Shareholder Servicing Agent a fee based on the average daily net asset value of
Class B Shares for which it provides shareholder services. These shareholder
services include, but are not limited to, distributing prospectuses and other
information, providing shareholder assistance and communicating or facilitating
purchases and redemptions of Class B Shares. This fee will be computed at an
annual rate equal to 0.25 of 1% of Class B Shares' average daily net assets;
however, the Shareholder Servicing Agent may choose voluntarily to waive all or
a portion of its fee at any time or pay all or some of its fees to financial
institutions or other financial service providers.
FUND ADMINISTRATION
ADMINISTRATIVE SERVICES. Federated Administrative Services ("FAS"), Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, provides the Funds with
certain administrative personnel and services necessary to operate each Fund,
such as legal and accounting services. FAS provides these at an annual rate as
specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
- ------------------- ------------------------------------
<S> <C>
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least $50,000
per Fund. FAS may voluntarily choose to waive a portion of its fee.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling shares of the Funds and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Trustees.
EXPENSES OF THE FUND AND CLASS B SHARES
Holders of Class B Shares of Capital Appreciation Fund pay their allocable
portion of Trust and Fund expenses.
The Trust expenses for which holders of Class B Shares pay their allocable
portion include, but are not limited to the cost of: organizing the Trust and
continuing its existence; registering the Trust; Trustees' fees; auditors' fees;
meetings of Trustees; legal fees of the Trust; association membership dues and
such non-recurring and extraordinary items as may arise.
Fund expenses for which holders of Class B Shares of Capital Appreciation Fund
pay their allocable portion based on average daily net assets include, but are
not limited to: registering a Fund and shares of a Fund; investment advisory
services; taxes and commissions; custodian fees; insurance premiums; auditors'
fees; and such non- recurring and extraordinary items as may arise.
At present, the only expenses allocated to Class B Shares are expenses under the
Distribution Plan and the Shareholder Servicing Arrangements. The Trustees
reserve the right to allocate certain expenses to holders of Shares as they deem
appropriate ("Class Expenses"). In any case, Class Expenses would be limited to:
transfer agent fees as identified by the transfer agent as attributable to
holders of Class B Shares; printing and postage expenses related to preparing
and distributing materials such as shareholder reports, prospectuses and proxies
to current shareholders; registration fees paid to the SEC; expenses related to
administrative personnel and services as required to support holders of Class B
Shares; legal fees relating solely to Class B Shares; and Trustees fees incurred
as a result of issues relating solely to Class B Shares.
NET ASSET VALUE
- --------------------------------------------------------------------------------
With respect to Capital Appreciation Fund, Louisiana Municipal Income Fund,
Total Return Bond Fund, and U.S. Government Income Fund, net asset value per
share fluctuates. The net asset value per share of each class is determined by
dividing the sum of the interest of a class of shares in the market value of all
securities and other assets of a Fund, less liabilities attributable to that
class of shares, by the number of shares outstanding within that class. The net
asset value of Class A Shares and Class B Shares of Capital Appreciation Fund
may differ slightly due to the variability in daily net income resulting from
the different distribution charge.
With respect to the Money Market Funds, each Fund attempts to stabilize the net
asset value of its shares at $1.00 by valuing its portfolio securities using the
amortized cost method. The net asset value per share is determined by
subtracting total liabilities from total assets and dividing the remainder by
the number of shares outstanding. Of course, the Money Market Funds cannot
guarantee that their net asset value will always remain at $1.00 per share.
On Monday through Friday, the Money Market Funds calculate net asset value at
11:00 a.m. (Central Standard Time) and 3:00 p.m. (Central Standard Time), while
Capital Appreciation Fund, Louisiana Municipal Income Fund, Total Return Bond
Fund, and U.S. Government Income Fund determine net asset value at the close of
the New York Stock Exchange, normally 3:00 p.m. (Central Standard Time), except
on: (i) days on which there are not sufficient changes in the value of the
Fund's portfolio securities that its net asset value might be materially
affected; (ii) days during which no shares are tendered for redemption and no
orders to purchase shares are received; and (iii) the following holidays: New
Year's Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
INVESTING IN THE FUNDS
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares of the Funds are sold on days on which the New York Stock Exchange is
open for business. Class A Shares of Capital Appreciation Fund and Shares of
Louisiana Municipal Income Fund, Total Return Bond Fund, and U.S. Government
Income Fund may be purchased through Hibernia National Bank, Hibernia Investment
Securities, Inc. ("HISI") or through brokers or dealers which have a sales
agreement with the distributor. Class B Shares of Capital Appreciation Fund may
be purchased through HISI or through brokers or dealers that have a sales
agreement with the distributor. Shares of the Money Market Funds may be
purchased through Hibernia National Bank or directly from the distributor. In
connection with the sale of shares of the Funds, the distributor may from time
to time
offer certain items of nominal value to any shareholder or investor. The Funds
reserve the right to reject any purchase request.
THROUGH HIBERNIA NATIONAL BANK OR HISI. An investor may call Hibernia National
Bank to place an order to purchase Class A Shares of Capital Appreciation Fund
and Shares of Louisiana Municipal Income Fund, Total Return Bond Fund, and U.S.
Government Income Fund (Call toll-free 1-800-999-0124.) Investors may purchase
shares through HISI, at 1-800-999-0426. Texas residents may purchase shares only
through HISI. Orders purchased through Hibernia National Bank or HISI are
considered received when the appropriate Fund is notified of the purchase order.
Purchase orders must be received by Hibernia National Bank or HISI before 3:00
p.m. (Central Standard Time) and must be transmitted by Hibernia National Bank
or HISI to the appropriate Fund before 3:00 p.m. (Central Standard Time) in
order for shares to be purchased at that day's public offering price. It is the
responsibility of Hibernia National Bank or HISI to transmit orders promptly.
Payment for shares of the Money Market Funds may be made either by check or
federal funds. Payment by check must be included with the order. Orders are
considered received after payment by check is converted by Hibernia National
Bank into federal funds. When payment is made with federal funds, the order is
considered received immediately. Payment by federal funds must be received
before 11:00 a.m. (Central Standard Time) on the same day as the order to earn
dividends for that day. Federal funds should be wired as follows: Hibernia
National Bank, New Orleans, Louisiana; for Credit to: include name of Fund (if
applicable, "Class A or B Shares"), Title or name of account; and Wire Order
Number. Shares cannot be purchased by wire on holidays when wire transfers are
restricted.
THROUGH AUTHORIZED BROKER/DEALERS. An investor may place an order through
authorized brokers and dealers to purchase Class A Shares and Class B Shares of
Capital Appreciation Fund and Shares of Louisiana Municipal Income Fund, Total
Return Bond Fund and U.S. Government Income Fund. Shares will be purchased at
the public offering price next determined after the Fund receives the purchase
request from Hibernia National Bank or HISI, which forwards the request to the
transfer agent. Purchase requests through registered broker/dealers must be
received by Hibernia National Bank or HISI and transmitted to the Fund before
3:00 p.m. (Central Standard Time) in order for shares to be purchased at that
day's public offering price.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in each Fund, by an investor is $1,000. With
respect to the Money Market Funds, if the investment is in a retirement plan,
the minimum initial investment is $250. Subsequent investments must be in
amounts of at least $100. The Funds may choose to waive these minimum investment
requirements for Hibernia National Bank or its affiliates and for directors and
employees of Hibernia National Bank.
WHAT SHARES COST
Shares of the Funds are sold at their net asset value next determined after an
order is received.
FRONT-END SALES CHARGE
Class A Shares of Capital Appreciation Fund are sold with a sales charge as
follows:
<TABLE>
<CAPTION>
SALES CHARGE AS A SALES CHARGE AS A
PERCENTAGE OF PUBLIC PERCENTAGE OF NET
AMOUNT OF TRANSACTION INVESTED OFFERING AMOUNT INVESTED
- ------------------------------- -------------------- -----------------
<S> <C> <C>
Less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.75% 3.90%
$250,000 but less than $500,000 2.50% 2.56%
$500,000 but less than $750,000 2.00% 2.04%
$750,000 but less than $1
million 1.00% 1.01%
$1 million but less than $2
million 0.50% 0.50%
$2 million or more 0.25% 0.25%
</TABLE>
Shares of Louisiana Municipal Income Fund, Total Return Bond Fund and U.S.
Government Income Fund are sold with a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS A SALES CHARGE AS A
PERCENTAGE OF PUBLIC PERCENTAGE OF NET
AMOUNT OF TRANSACTION INVESTED OFFERING AMOUNT INVESTED
- ------------------------------- -------------------- -----------------
<S> <C> <C>
Less than $100,000 3.00% 3.09%
$100,000 but less than $250,000 2.75% 2.83%
$250,000 but less than $500,000 2.00% 2.04%
$500,000 but less than $750,
000 1.00% 1.01%
$750,000 but less than $1
million 0.75% 0.76%
$1 million but less than $2
million 0.50% 0.50%
$2 million or more 0.25% 0.25%
</TABLE>
There is no sales charge imposed by the Money Market Funds.
PURCHASES AT NET ASSET VALUE. Class A Shares of Capital Appreciation Fund and
Shares of Louisiana Municipal Income Fund, Total Return Bond Fund, and U.S.
Government Income Fund may be purchased at net asset value, without a sales
charge, by the Trust Division of Hibernia National Bank or other affiliates of
Hibernia for funds which are held in a fiduciary, agency, custodial, or similar
capacity. Trustees/Directors and employees of the Trust, Hibernia National Bank,
or their affiliates, retired Trustees/Directors and retired employees of
Hibernia National Bank, and the spouse, children, parents and the parents of
spouse of any such person, and any accounts for which such an employee serves in
a fiduciary, agency, custodial, or similar capacity, may also buy shares at net
asset value, without a sales charge. Trustees/Directors and employees of
Federated Securities Corp. or its affiliates, retired Trustees/Directors and
retired employees of any bank or investment dealer who has a sales agreement
with Federated Securities Corp. with regard to the Funds, and their spouses and
children may also buy shares at net asset value, without a sales charge. In
addition, shares may be purchased at net asset value, without a sales charge, by
investors who purchase shares through The Personal Portfolio Manager(R), an
investment program sponsored by HISI or other similar asset allocation programs
made available through financial institutions who have established dealer
agreements with Federated Securities Corp.
CONTINGENT DEFERRED SALES CHARGE
Class B Shares of Capital Appreciation Fund are sold without an initial sales
charge, but are subject to a contingent deferred sales charge of up to 5.50% if
redeemed within six full years following the purchase date. Class B Shares also
bear a Rule 12b-1 fee. Class B Shares will automatically convert into Class A
Shares, based on relative net asset value, on or around the fifteenth of the
month, eight full years after the purchase date. Class B Shares provide an
investor the benefit of putting all of the investor's dollars to work from the
time the investment is made, but, until conversion, will have a higher expense
ratio and pay lower dividends than Class A Shares due to a higher Rule 12b-1 fee
and shareholder services fee.
Class B Shares redeemed within six years of their purchase will be subject to a
contingent deferred sales charge. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
shares at the time of purchase or the net asset value of the redeemed shares at
the time of redemption according to the following schedule:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR OF REDEMPTION AFTER PURCHASE SALES CHARGE
- ---------------------------------- -------------------
<S> <C>
First 5.50%
Second 4.50%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
</TABLE>
Redemptions will be processed in a manner intended to maximize the amount of
redemption which will not be subject to a contingent deferred sales charge. In
computing the amount of the applicable contingent deferred sales charge,
redemptions are deemed to have occurred in the following order: (1) shares
acquired through the reinvestment of dividends and long-term capital gains; (2)
shares held for more than six full years from the date of purchase; and (3)
shares held for fewer than seven years on a first-in, first-out basis.
No contingent deferred sales charge will be imposed on: (1) the portion of
redemption proceeds attributable to increases in the value of the account due to
increases in the net asset value per Share, (2) Shares acquired through
reinvestment of dividends and capital gains, (3) Shares held for more than six
years after the end of the calendar month of acquisition, (4) accounts following
the death or disability of a shareholder, (5) minimum required distributions to
a shareholder over the age of 70 1/2 from an IRA or other retirement plan, or
(6) involuntary redemptions by the Funds of shares in shareholder accounts that
do not comply with the minimum balance requirements.
CONVERSION FEATURE. Class B Shares include all Class B Shares which have been
outstanding for less than the period ending eight years after the end of the
month in which the shareholder's order to purchase Class B Shares was accepted.
At the end of this eight year period, Class B Shares will automatically convert
to Class A Shares of Capital Appreciation Fund, in which case the Shares will be
subject to a lower Rule 12b-1 distribution fee which is assessed on Class A
Shares. Such conversion will be on the basis of the relative net asset values of
the two classes, without the imposition of any sales charge, fee or other
charge. The purpose of the conversion feature is to relieve the holders of the
Class B Shares that have been outstanding for a period of time sufficient for
the distributor to have been compensated for distribution expenses related to
the Class B Shares from most of the burden of such distribution-related
expenses.
For purposes of conversion to Class A Shares, Class B Shares purchased through
the reinvestment of dividends and distributions paid on Class B Shares in a
shareholder's Fund account will be considered to be held in a separate
sub-account. Each time any Class B Shares in the shareholder's Fund account
(other than those in the sub-account) convert to Class A Shares, an equal pro
rata portion of the Class B Shares in the sub-account will also convert to Class
A Shares.
SALES CHARGE REALLOWANCE. For sales of Class A Shares of Capital Appreciation
Fund and Shares of Louisiana Municipal Income Fund, Total Return Bond Fund, and
U.S. Government Income Fund, Hibernia National Bank and any authorized dealer
will normally receive up to 100% of the applicable sales charge. For sales of
Class B Shares of Capital Appreciation Fund, HISI and any authorized dealer will
normally receive up to 100% of the contingent deferred sales charge. Any portion
of the sales charge which is not paid to Hibernia National Bank, or contingent
deferred sales charge which is not paid to HISI, or a dealer will be retained by
the distributor. However, the distributor, in its sole discretion, may uniformly
offer to pay to Hibernia National Bank, HISI or a dealer selling shares of the
Funds, all or a portion of the sales charge or contingent deferred sales charge
it normally retains. If accepted by Hibernia National Bank, HISI or a dealer,
such additional payments will be predicated upon the amount of shares sold. Such
payments may take the form of cash or promotional incentives, such as payment of
certain expenses of qualified employees and their spouses to attend
informational meetings about the Funds or other special events at recreational
facilities, or items of material value. In some instances, these incentives will
be made available only to dealers whose employees have sold or may sell
significant amounts of shares.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor, HISI, Hibernia
National Bank, or their affiliates may also offer to pay a fee from their own
assets to financial institutions as financial assistance for providing
substantial marketing and sales support. The support may include initiating
customer accounts, providing sales literature, or participating in sales,
educational and training seminars (including those held at recreational
facilities). Such assistance will be predicated upon the amount of shares the
financial institution sells or may sell and/or upon the type and nature of sales
or marketing support furnished by the financial institution. Any payments made
by the distributor may be reimbursed by Hibernia National Bank or its
affiliates.
REDUCING THE FRONT-END SALES CHARGE
The front-end sales charges imposed on all Funds (with the exception of Class B
Shares of Capital Appreciation Fund) can be reduced through:
- quantity discounts and accumulated purchases;
- signing a 13-month letter of intent;
- using the reinvestment privilege; or
- concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table on page 34
larger purchases of Class A Shares of Capital Appreciation Fund and Shares of
Louisiana Municipal Income Fund, Total Return Bond Fund, or U.S. Government
Income Fund reduce the sales charge paid. The distributor will combine purchases
made on the same day by the investor, his spouse, and his children under age 21
when it calculates the sales charge.
If an additional purchase of Class A Shares of Capital Appreciation Fund or
Shares of Louisiana Municipal Income Fund, Total Return Bond Fund, or U.S.
Government Income Fund is made, the distributor will consider the previous
purchases still invested in Class A Shares of Capital Appreciation Fund or
Shares of Louisiana Municipal Income Fund, Total Return Bond Fund, or U.S.
Government Income Fund. For example, if the shareholder already owns shares of
Louisiana Municipal Income Fund having a current value at the public offering
price of $90,000 and he purchases $10,000 more at the current public offering
price, the sales charge on the additional purchase according to the schedule now
in effect would be 2.75%, not 3.00%.
To receive the sales charge reduction, Hibernia National Bank or the distributor
must be notified by the shareholder in writing at the time the purchase is made
that Class A Shares of Capital Appreciation Fund or Shares of Louisiana
Municipal Income Fund, Total Return Bond Fund, or U.S. Government Income Fund
are already owned or that purchases are being combined. The distributor will
reduce the sales charge after it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of
Class A Shares of Capital Appreciation Fund and Shares of Louisiana Municipal
Income Fund, Total Return Bond Fund, or U.S. Government Income Fund over the
next 13 months, the sales charge may be reduced by signing a letter of intent to
that effect. This letter of intent includes a provision for a sales charge
adjustment depending on the amount actually purchased within the 13-month period
and a provision for the Fund's custodian to hold 3.00%, in the case of Louisiana
Municipal Income Fund, Total Return Bond Fund and U.S. Government Income Fund,
and in the case of Class A Shares of Capital Appreciation Fund, 4.50% of the
total amount intended to be purchased in escrow (in shares of that Fund) until
such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at the
end of the 13-month period unless the amount specified in the letter of intent
is not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. This letter may
be dated as of a prior date to include any purchases made within the past 90
days; however, these previous purchases will not receive the reduced sales
charge.
REINVESTMENT PRIVILEGE. If Class A Shares of Capital Appreciation Fund and
Shares of Louisiana Municipal Income Fund, Total Return Bond Fund, or U.S.
Government Income Fund have been redeemed, the shareholder has a one-time right,
within 30 days (within 120 days for IRA accounts), to reinvest the redemption
proceeds at the next-determined net asset value without any sales charge.
Hibernia National Bank or the distributor must be notified by the shareholder in
writing or by his financial institution of the reinvestment in order to
eliminate a sales charge. If the shareholder redeems his shares in a Fund, there
may be tax consequences.
CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction, a
shareholder has the privilege of combining concurrent purchases of two or more
funds in the Trust, the purchase price of which includes a front end sales
charge. For example, if a shareholder concurrently invested $30,000 in one of
the Funds with a front end sales charge and $70,000 in another Fund with a front
end sales charge, the sales charge would be reduced.
To receive this sales charge reduction, the distributor must be notified by the
shareholder in writing or by Hibernia National Bank at the time the concurrent
purchases are made. The sales charge will be reduced after the purchase is
confirmed.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Fund shares at the net asset value next determined after an order is
received, plus the applicable sales charge, if any. A shareholder of a Fund may
apply for participation in this program through Hibernia National Bank or HISI.
EXCHANGING SECURITIES FOR FUND SHARES
The Funds may accept securities in exchange for Fund shares. A Fund will allow
such exchanges only upon the prior approval of the Fund and a determination by
the Fund and the Adviser that the securities to be exchanged are acceptable.
Any securities exchanged must meet the investment objective and policies of the
Fund, must have a readily ascertainable market value, must be liquid, and must
not be subject to restrictions on resale. The market value of any securities
exchanged in an initial investment, plus any cash, must be at least $25,000.
Shares purchased by exchange of securities cannot be redeemed by telephone for
five business days to allow time for the transfer to settle.
Securities accepted by the Fund will be valued in the same manner as the Fund
values its assets. The basis of the exchange will depend upon the net asset
value of Fund shares on the day the securities are valued. One share of the Fund
will be issued for each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription or other rights
attached to the securities become the property of the Fund, along with the
securities.
CONFIRMATIONS AND ACCOUNT STATEMENTS
As transfer agent for the Funds, Federated Services Company, through its
subsidiary Federated Shareholder Services Company, maintains a share account for
each shareholder of record. Share certificates are not issued unless requested
by contacting Hibernia National Bank or HISI in writing. The Trust reserves the
right to discontinue the issuance of share certificates at its discretion.
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
DIVIDENDS
With respect to the Money Market Funds, dividends are declared daily and paid
monthly. Dividends are automatically reinvested on payment dates in additional
shares of the respective Fund unless cash payments are requested by writing to
one of these Funds or Hibernia National Bank. Share purchase orders received by
one of these Funds or Hibernia National Bank before 11:00 a.m. (Central Standard
Time) earn dividends that day.
Dividends are declared and paid monthly to all shareholders invested in
Louisiana Municipal Income Fund, Total Return Bond Fund, and U.S. Government
Income Fund and are declared and paid quarterly to all shareholders in Capital
Appreciation Fund on the record date. Dividends are automatically reinvested in
additional shares of the respective Fund on payment dates at the ex-dividend
date net asset value without a sales charge, unless cash payments are requested
by writing to one of these Funds, Hibernia National Bank or HISI.
CAPITAL GAINS
Capital gains realized by a Fund, if any, will be distributed at least once
every 12 months.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shareholders of any of the Funds are shareholders of Tower Mutual Funds.
Shareholders of Class A Shares of Capital Appreciation Fund or Shares of
Louisiana Municipal Income Fund, Total Return Bond Fund, U.S. Government Income
Fund, Cash Reserve Fund and U.S. Treasury Money Market Fund have easy access to
each of the portfolios of Tower Mutual Funds through a telephone exchange
program. Class B Shares of Capital Appreciation Fund are not eligible for
exchange into other funds.
EXCHANGING SHARES. Shares of those Funds with a front end sales charge may be
exchanged at net asset value for shares of the same class of any of the other
Funds in the Trust with an equal front end sales charge or no front end sales
charge. Shares of Funds with no front end sales charge acquired by direct
purchase or reinvestment of dividends on such shares may be exchanged for shares
of the same class of any of the other Funds in the Trust with a front end sales
charge at net asset value plus the applicable front end sales charge.
Shareholders who exercise this exchange privilege must exchange shares having a
net asset value of at least $1,000.
When an exchange is made from a Fund with a front end sales charge to a Fund
with no front end sales charge, the shares exchanged and additional shares which
have been purchased by reinvesting dividends on such shares retain the character
of the exchanged shares for purposes of exercising further exchange privileges;
thus, an exchange of such shares for shares of a Fund with a front end sales
charge would be at net asset value.
The exchange privilege is available to shareholders residing in any state in
which the Fund shares being acquired may legally be sold. Upon receipt of proper
instructions and all necessary supporting
documents, shares submitted for exchange will be redeemed at the next-determined
net asset value. Written exchange instructions may require a signature
guarantee. Exercise of this privilege is treated as a sale for federal income
tax purposes and, depending on the circumstances, a short or long-term capital
gain or loss may be realized.
The exchange privilege may be terminated at any time. Prior to such termination,
shareholders will be notified of the termination of the exchange privilege at
least 60 days before the date of termination. A shareholder may obtain further
information on the exchange privilege by calling Hibernia National Bank.
EXCHANGE-BY-TELEPHONE. Instructions for exchanges between the Funds may be given
by telephone to Hibernia National Bank at 1-800-999-0124 or to the distributor.
Shares may be exchanged by telephone only between fund accounts having identical
shareholder registrations. Exchange instructions given by telephone may be
electronically recorded.
Any shares held in certificate form cannot be exchanged by telephone but must be
forwarded to the transfer agent by Hibernia National Bank and deposited to the
shareholder's mutual fund account before being exchanged.
Telephone exchange instructions must be received before 3:00 p.m. (Central
Standard Time) for shares to be exchanged the same day. The telephone exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of such modification or termination at least 60 days prior to the date
of modification or termination. Shareholders may have difficulty in making
exchanges by telephone through banks, brokers, and other financial institutions
during times of drastic economic or market changes. If a shareholder cannot
contact his bank, broker, or financial institution by telephone, it is
recommended that an exchange request be made in writing and sent by overnight
mail. If reasonable procedures are not followed by a Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
WRITTEN EXCHANGE. A shareholder wishing to make an exchange by written request
may do so by sending a mail request to Hibernia National Bank, 313 Carondelet
Street, New Orleans, Louisiana 70130. In addition, an investor may exchange
shares by sending a written request to his or her authorized broker directly.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Funds redeem shares at their net asset value, less any applicable sales
charge (with respect to Class B Shares of Capital Appreciation Fund), next
determined after the relevant Fund receives the redemption request. Redemptions
may be made on days on which the Fund computes its net asset value. Telephone or
written requests for redemption must be received in proper form and can be made
through Hibernia National Bank, HISI or an authorized broker/dealer, or directed
to the respective Fund.
BY TELEPHONE. A shareholder may redeem shares of a Fund by calling Hibernia
National Bank or HISI to request the redemption. Shares will be redeemed at the
net asset value next determined after the
Fund receives the redemption request from Hibernia National Bank or HISI.
Redemption instructions given by telephone may be electronically recorded.
Redemption requests through Hibernia National Bank must be received by Hibernia
National Bank before 3:00 p.m. (Central Standard Time) and must be transmitted
by Hibernia National Bank to the appropriate Fund before 3:00 p.m. (Central
Standard Time) in order for shares to be redeemed at that day's net asset value.
Redemption requests through registered broker/dealers must be received by
Hibernia National Bank and transmitted to the appropriate Fund before 3:00 p.m.
(Central Standard Time) in order for shares to be redeemed at that day's net
asset value. Hibernia National Bank, HISI or the broker/dealer is responsible
for promptly submitting redemption requests and providing proper written
redemption instructions to a Fund. Registered broker/dealers may charge
customary fees and commissions for this service. With respect to the Money
Market Funds, for calls received before 10:00 a.m. (Central Standard Time),
proceeds will normally be wired the same day to the shareholder's account at a
domestic commercial bank that is a member of the Federal Reserve Wire System or
a check will be sent to the address of record.
For calls received after 10:00 a.m. (Central Standard Time), proceeds will
normally be wired the following business day. Proceeds from redemption requests
received on holidays when wire transfers are restricted will be wired the
following business day. In no event will proceeds be wired more than five days
after a proper request for redemption has been received.
A daily dividend will be paid on shares of the Money Market Funds redeemed if
the redemption request is received after 10:00 a.m. (Central Standard Time).
However, the proceeds are normally not wired until the following business day.
Redemption requests received before 10:00 a.m. (Central Standard Time) will
normally be paid the same day but will not be entitled to that day's dividend.
If at any time, the Money Market Funds shall determine it necessary to terminate
or modify this method of redemption, shareholders would be promptly notified.
An authorization form permitting the Funds to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Hibernia National Bank, HISI or the distributor.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "By Mail," should be considered. If reasonable
procedures are not followed by the Funds, they may be liable for losses due to
unauthorized or fraudulent telephone instructions.
BY MAIL. Shareholders may redeem shares of a Fund by sending a written request
to Hibernia National Bank or HISI. The written request should include the
shareholder's name, the Fund name and Class designation, if applicable, the
account number, and the share or dollar amount requested. If share certificates
have been issued, they must be properly endorsed and should be sent by
registered or certified mail with the written request to Hibernia National Bank
or HISI. Shareholders should call Hibernia National Bank or HISI for assistance
in redeeming by mail.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with a Fund, or a redemption payable other than to the
shareholder of record must have signatures on written redemption requests
guaranteed by:
- a trust company or commercial bank whose deposits are insured by BIF,
which is administered by the FDIC;
- a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchange;
- a savings bank or savings association whose deposits are insured by SAIF,
which is administered by the FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934. The Funds do not accept signatures guaranteed by a
notary public.
The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed to the shareholder within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, shares of a
Fund are redeemed to provide for periodic withdrawal payments in an amount
directed by the shareholder. Depending upon the amount of the withdrawal
payments, the amount of dividends paid and capital gains distributions with
respect to Fund shares, and the fluctuation of the net asset value of Fund
shares redeemed under this program, redemptions may reduce, and eventually
deplete, the shareholder's investment in a Fund. For this reason, payments under
this program should not be considered as yield or income on the shareholder's
investment in a Fund. To be eligible to participate in this program, a
shareholder must have an account value of at least $10,000, other than
retirement accounts subject to required minimum distributions. A shareholder may
apply for participation in this program through Hibernia National Bank or HISI.
Due to the fact that Class A Shares of Capital Appreciation Fund and Shares of
Louisiana Municipal Income Fund, Total Return Bond Fund, and U.S. Government
Income Fund are sold with a sales charge, it is not advisable for shareholders
to be purchasing shares of those Funds while participating in this program. A
contingent deferred sales charge may be imposed on Class B Shares of Capital
Appreciation Fund.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Funds may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum of $1,000 due to shareholder
redemptions. This requirement does not apply, however, if the balance falls
below $1,000 because of changes in the net asset value of a Fund. Before shares
are redeemed to close an account, the shareholder is notified in writing and
allowed 30 days to purchase additional shares to meet the minimum requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of a Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of each Fund in
Tower Mutual Funds have equal voting rights, except that in matters affecting
only a particular Fund or class, only shareholders of that Fund or class are
entitled to vote. As a Massachusetts business trust, Tower Mutual Funds is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's or a Fund's operation and for the
election of Trustees under certain circumstances. As of October 3, 1997, Bost &
Co., c/o Mellon Bank N.A. may for certain purposes be deemed to control Cash
Reserve Fund and U.S. Treasury Money Market Fund because they are owner of
record of certain shares of those Funds.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the Trust's outstanding
shares.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Bank Holding Company Act of 1956 or
any affiliate thereof from sponsoring, organizing, or controlling a registered,
open-end investment company continuously engaged in the issuance of its shares,
and from issuing, underwriting, selling or distributing securities in general.
Such banking laws and regulations do not prohibit such a holding company or
affiliate from acting as investment adviser, transfer agent or custodian to such
an investment company or from purchasing shares of such a company as agent for
and upon the order of such a customer.
Some entities providing services to the Funds are subject to such banking laws
and regulations. They believe, based on the advice of their counsel, that they
may perform those services for any Fund contemplated by any agreement entered
into with the Funds without violating those laws or regulations. Changes in
either federal or state statutes and regulations relating to the permissible
activities of banks and their subsidiaries or affiliates, as well as further
judicial or administrative decisions or interpretations of such or future
statutes and regulations, could prevent these entities from continuing to
perform all or a part of the above services. If this happens, the Trustees would
consider alternative means of continuing available services. It is not expected
that shareholders would suffer any adverse financial consequences as a result of
any of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Funds will pay no federal income tax because each Fund expects to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
Each Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by a Fund
will not be combined for tax purposes with those realized by any of the other
Funds.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.
LOUISIANA MUNICIPAL INCOME FUND--ADDITIONAL TAX INFORMATION
Shareholders are not required to pay federal regular income tax on any dividends
received from Louisiana Municipal Income Fund that represent net interest on
tax-exempt municipal securities. However, under the Tax Reform Act of 1986,
dividends representing net interest earned on some municipal securities may be
included in calculating the federal individual alternative minimum tax or the
federal alternative minimum tax for corporations.
The alternative minimum tax, equal to up to 28% of alternative minimum taxable
income for individuals and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is equal to
the regular taxable income of the taxpayer increased by certain "tax-preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax-preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons, and other public facilities, private
activity bonds provide benefits to private parties. Louisiana Municipal Income
Fund may purchase all types of municipal securities, including private activity
bonds. Thus, in any tax year, a portion of the Fund's dividends may be treated
as a tax-preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax-preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, the difference will be included in the
calculation of the corporation's alternative minimum tax.
Dividends of Louisiana Municipal Income Fund representing net interest income
earned on some temporary investments and any realized net short-term gains are
taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.
LOUISIANA TAXES. Under existing Louisiana laws, distributions made by the Fund
are not subject to Louisiana income taxes provided that such distributions
qualify as exempt-interest dividends, and represent interest from obligations
which are issued by the State of Louisiana or any of its political subdivisions,
which interest is exempt from federal income tax. Conversely, to the extent that
distributions made by the Fund are attributable to other types of obligations,
such distributions will be subject to Louisiana income taxes.
OTHER STATE AND LOCAL TAXES
Income from Louisiana Municipal Income Fund is not necessarily free from state
income taxes in states other than Louisiana or from personal property taxes.
With respect to all the Funds, shareholders are urged to consult their own tax
advisers regarding the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time each Fund may advertise its total return and yield.
Additionally, Louisiana Municipal Income Fund may advertise its tax-equivalent
yield, and each Money Market Fund may also advertise its effective yield.
Total return represents the change, over a specified period of time, in the
value of an investment in a Fund after reinvesting all income and capital gains
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield for each Fund is calculated by dividing the net investment income per
share (as defined by the SEC) earned by such Fund over a thirty-day period by
the maximum offering price per share of the Fund on the last day of the period.
This number is then annualized using semi-annual compounding. With respect to
Louisiana Municipal Income Fund, the tax-equivalent yield is calculated
similarly to the yield, but is adjusted to reflect the taxable yield that that
Fund would have had to earn to equal its actual yield, assuming a specific tax
rate. Yield and tax-equivalent yield do not necessarily reflect income actually
earned by a Fund and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
With respect to the Money Market Funds, the effective yield is calculated
similarly to the yield, but, when annualized, the income earned by an investment
in a Money Market Fund is assumed to be reinvested daily. The effective yield
will be slightly higher than the yield because of the compounding effect of this
assumed reinvestment.
With respect to Capital Appreciation Fund, total return and yield will be
calculated separately for Class A Shares and Class B Shares. Expense differences
between Class A Shares and Class B Shares may affect the performance of each
class.
For Class A Shares of Capital Appreciation Fund and Shares of Louisiana
Municipal Income Fund, Total Return Bond Fund and U.S. Government Income Fund,
the performance information normally reflects the effect of the maximum sales
charge which, if excluded, would increase the total return, yield, and
tax-equivalent yield. For Class B Shares of Capital Appreciation Fund, the
performance information reflects the effect of non-recurring charges, such as
the contingent deferred sales charge which, if excluded, would increase the
total return and yield. Occasionally, performance information which does not
reflect the effect of the sales charge or contingent deferred sales charge may
be quoted in advertising.
From time to time, advertisements for the Trust may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Trust's performance to certain indices.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Tower Capital Appreciation Fund
Class A Shares and Class B Shares
Tower Louisiana Municipal Income Fund
Tower Total Return Bond Fund
Tower U.S. Government Income Fund
Tower Cash Reserve Fund
Tower U.S. Treasury Money Market Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ----------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ----------------------------------------------------------------------------------------------------
Investment Adviser
Hibernia National Bank Attention: Tower Mutual Funds
P.O. Box 61540
New Orleans, Louisiana 70161
- ----------------------------------------------------------------------------------------------------
Custodian
Hibernia National Bank Attention: Tower Mutual Funds
P.O. Box 61540
New Orleans, Louisiana 70161
- ----------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ----------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ----------------------------------------------------------------------------------------------------
</TABLE>
Federated Securities Corp. is distributor of the funds.
891836108
891836207
891836306
891836504
891836405
891836603
891836702
006584 (10/97)
Tower Mutual Funds
Statement of Additional Information
This Statement of Additional Information relates to the following six
portfolios (individually or collectively referred to as the "Fund" or "Funds")
of Tower Mutual Funds (the "Trust"):
Tower Capital Appreciation Fund;
Class A Shares
Class B Shares
Tower Louisiana Municipal Income Fund;
Tower Total Return Bond Fund;
Tower U.S. Government Income Fund;
Tower Cash Reserve Fund; and
Tower U.S. Treasury Money Market Fund.
This Statement should be read with the prospectus of the Funds dated
October 31, 1997. This Statement is not a prospectus. You may request a
copy of a prospectus, free of charge by calling 1-800-999-0124.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated October 31, 1997
The shares of the Tower Mutual Funds are not deposits or obligations
of Hibernia National Bank or its affiliates, are not endorsed or
guaranteed by Hibernia National Bank or its affiliates, and are not
insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency.
Investment in the shares of the Tower Mutual Funds involves
investment risks, including the possible loss of principal amount invested.
Tower Cash Reserve Fund and Tower U.S. Treasury Money Market Fund
attempt to maintain a stable net asset value of $1.00 per share;
there can be no assurance that these Funds will be able to do so.
[GRAPHIC OMITTED]
Cusip 891836108 Cusip 891836306 Cusip 891836504 Cusip 891836405 Cusip
891836207 Cusip 891836603 Cusip 891836702 006897 (10/97)
<PAGE>
Table of Contents
- ----------------------------------------------------------------------------I
General Information About the Funds 1
Investment Objective and Policies of the Funds 1
When-Issued and Delayed Delivery Transactions 1
Lending of Portfolio Securities 1
Reverse Repurchase Agreements 1
Futures and Options Transactions 2
Ratings 6
Credit Enhancement 6
Portfolio Turnover 6
Investment Limitations 7
Regulatory Compliance 12
Tower Mutual Funds Management 12
Officers and Trustees 12
Fund Ownership 13
Trustees Compensation 14
Trustee Liability 14
Investment Advisory Service 14
Adviser to the Trust 14
Advisory Fees 15
Brokerage Transactions 15
Other Services 16
Trust Administration 16
Transfer Agent, Dividend Disbursing Agent,
and Portfolio Accounting Services 16
Custodian 16
Independent Auditors 16
Purchasing Shares 16
Distribution Plan 17
Shareholder Services (Capital Appreciation
Fund-Class B Shares) 17
Conversion To Federal Funds 17
Determining Net Asset Value 17
Determining Market Value of Securities 18
Use of the Amortized Cost Method 18
Monitoring Procedures 18
Investment Restrictions 19
Exchange Privilege 19
Requirements for Exchange 19
Making an Exchange 19
Redeeming Shares 19
Redemption in Kind 20
Massachusetts Partnership Law 20
Tax Status 20
The Funds' Tax Status 20
Shareholders' Tax Status 20
Capital Gains 20
Total Return 21
Yield 21
Tax-Equivalent Yield 22
Performance Information 23
Economic and Market Information 24
Financial Statements 24
Appendix 25
Standard and Poor's Ratings Group Municipal
Bond Rating Definitions 25
<PAGE>
General Information About the Funds
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated April 8, 1988. As of the date of this Statement, the Trust
consists of six separate portfolios of securities (the "Funds") which are as
follows: Tower Capital Appreciation Fund ("Capital Appreciation Fund"), Tower
Louisiana Municipal Income Fund ("Louisiana Municipal Income Fund"), Tower Total
Return Bond Fund ("Total Return Bond Fund"), Tower U.S. Government Income Fund
("U.S. Government Income Fund"), Tower Cash Reserve Fund ("Cash Reserve Fund"),
and Tower U.S. Treasury Money Market Fund ("U.S. Treasury Money Market Fund" and
together with Cash Reserve Fund, the "Money Market Funds").
Capital Appreciation Fund currently offers two classes of shares, which are
designated as Class A Shares and Class B Shares .
Investment Objective and Policies of the Funds
The Prospectus discusses the objective of each Fund and the policies it employs
to achieve those objectives. The following discussion supplements the
description of the Funds' investment policies in the Prospectus.
The Funds' respective investment objectives cannot be changed without approval
of shareholders. The investment policies described below may be changed by the
Board of Trustees (the "Trustees") without shareholder approval. Shareholders
will be notified before any material change in these policies becomes effective.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be an advantageous
price or yield for a Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of a Fund sufficient to
make payment for the securities to be purchased are segregated on the Fund's
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled.
Lending of Portfolio Securities
The Funds (except the Money Market Funds) may lend portfolio securities. The
collateral received when a Fund lends portfolio securities must be valued daily
and, should the market value of the loaned securities increase, the borrower
must furnish additional collateral to the Fund. During the time portfolio
securities are on loan, the borrower pays the Fund or the borrower. A Fund may
pay reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or equivalent
collateral to the borrower or placing broker. The Fund does not have the right
to vote securities on loan, but would terminate the loan and regain the right to
vote if that were considered important with respect to the investment.
Reverse Repurchase Agreements
The Funds (except U.S. Treasury Money Market Fund) may invest in reverse
repurchase agreements. These transactions are similar to borrowing cash. In a
reverse repurchase agreement, a Fund transfers possession of a portfolio
instrument to another person, such as a financial institution, broker, or
dealer, in return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future such Fund will repurchase the
portfolio instrument by remitting the original consideration plus interest at an
agreed upon rate. The use of reverse repurchase agreements may enable a Fund to
avoid selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that a Fund will be able to avoid selling portfolio instruments
at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.
<PAGE>
Futures and Options Transactions
The Funds (except the Money Market Funds) may engage in or reserve the
right to engage in put and call options, financial futures, and options
on futures as discussed for those Funds in the prospectus. For purposes
of Capital Appreciation Fund, financial futures may include stock index
futures.
The Funds will maintain positions in securities, option rights, and
segregated cash subject to puts and calls until the options are
exercised, closed, or have expired. An option position may be closed
out only on an exchange which provides a secondary market for an option
of the same series.
Financial Futures Contracts
A futures contract is a firm commitment by two parties: the seller who
agrees to make delivery of the specific type of security called for in
the contract ("going short") and the buyer who agrees to take delivery
of the security ("going long") at a certain time in the future.
Financial futures contracts call for the delivery of particular debt
securities issued or guaranteed by the U.S. Treasury or by specified
agencies or instrumentalities of the U.S. government.
In the fixed income securities market, price moves inversely to
interest rates. A rise in rates means a drop in price. Conversely, a
drop in rates means a rise in price. In order to hedge their holdings
of securities, the Funds could enter into contracts to deliver
securities at a predetermined price (i.e., "go short") to protect
themselves against the possibility that the prices of their securities
may decline during the Funds' anticipated holding period. The Funds
would "go long" (agree to purchase securities in the future at a
predetermined price) to hedge against a decline in market interest
rates.
Purchasing Put Options on Financial Futures Contracts
Unlike entering directly into a futures contract, which requires the
purchaser to buy a financial instrument on a set date at a specified
price, the purchase of a put option on a futures contract entitles (but
does not obligate) its purchaser to decide on or before a future date
whether to assume a short position at the specified price.
A Fund could purchase put options on futures to protect portfolio
securities against decreases in value resulting from an anticipated
increase in market interest rates or as a means of reducing
fluctuations in the net asset value of shares of the Fund. Generally,
if the hedged portfolio securities decrease in value during the term of
an option, the related futures contracts will also decrease in value
and the option will increase in value. In such an event, a Fund will
normally close out its option by selling an identical option. If the
hedge is successful, the proceeds received by a Fund upon the sale of
the second option will be large enough to offset both the premium paid
by such Fund for the original option plus the realized decrease in
value of the hedged securities.
Alternately, a Fund may exercise its put to close out the position. To
do so, it would simultaneously enter into a futures contract of the
type underlying the option (for a price less than the strike price of
the option) and exercise the option. The Fund would then deliver the
futures contract in return for payment of the strike price. If a Fund
neither closes out nor exercises an option, the option will expire on
the date provided in the option contract, and only the premium paid for
the contract will be lost.
Writing Call Options on Financial Futures Contracts
In addition to purchasing put options on futures, a Fund may write
listed call options on futures contracts for U.S. government securities
to hedge its portfolio against an increase in market interest rates.
When a Fund writes a call option on a futures contract, it is
undertaking the obligation of assuming a short futures position
(selling a futures contract) at the fixed strike price at any time
during the life of the option if the option is exercised. As market
interest rates rise, causing the prices of futures to go down, a Fund's
obligation under a call option on a future (to sell a futures contact)
costs less to fulfill, causing the value of such Fund's call option
position to increase.
In other words, as the underlying futures price goes down below the
strike price, the buyer of the option has no reason to exercise the
call, so that Fund keeps the premium received for the option. This
premium can offset the drop in value of such Fund's fixed income
securities which is occurring as interest rates rise.
<PAGE>
Prior to the expiration of a call written by a Fund, or exercise of it
by the buyer, such Fund may close out the option by buying an identical
option. If the hedge is successful, the cost of the second option will
be less than the premium received by the Fund for the initial option.
The new premium income of the Fund will then offset the decrease in
value of the hedged securities.
Writing Put Options on Financial Futures Contracts
The Funds may write listed put options on financial futures contracts
for U.S. government securities to hedge its portfolio against a
decrease in market interest rates. When a Fund writes a put option on a
futures contract, it receives a premium for undertaking the obligation
to assume a long futures position (buying a futures contract) at a
fixed price at any time during the life of the option. As market
interest rates decrease, the market price of the underlying futures
contract increases.
As the market value of the underlying futures contract increases, the
buyer of the put option has less reason to exercise the put because the
buyer can sell the same futures contract at a higher price in the
market. The premium received by the Fund can then be used to offset the
higher prices of portfolio securities to be purchased in the future due
to the decrease in market interest rates.
Prior to the expiration of the put option, or its exercise by the buyer, a
Fund may close out the option by buying an identical option. If the hedge
is successful, the cost of buying the second option will be less than the
premium received by such Fund for the initial option.
Purchasing Call Options on Financial Futures Contracts
When a Fund purchases a call option on a futures contract, it is
purchasing the right (not the obligation) to assume a long futures
position (buy a futures contract) at a fixed price at any time during
the life of the option. As market interest rates fall, the value of the
underlying futures contract will normally increase, resulting in an
increase in value of such Fund's option position. When the market price
of the underlying futures contract increases above the strike price
plus premium paid, a Fund could exercise its option and buy the futures
contract below market price.
Limitation on Open Futures Position
A Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds
the current market value of its portfolio plus or minus the unrealized
gain or loss on those open positions, adjusted for the correlation of
volatility between the hedged securities and the futures contracts. If
this limitation is exceeded at any time, a Fund will take prompt action
to close out a sufficient number of open contracts to bring its open
futures and options positions within this limitation.
Margin in Futures Transactions
Unlike the purchase or sale of a security, a Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather,
the Fund is required to deposit an amount of "initial margin" in cash
or U.S. Treasury bills with its custodian (or the broker, if legally
permitted). The nature of initial margin in futures transactions is
different from that of margin in securities transactions in that
futures contract initial margin does not involve the borrowing of funds
by the Fund to finance the transactions. Initial margin is in the
nature of a performance bond or good-faith deposit on the contract
which is returned to the Fund upon termination of the futures contract,
assuming all contractual obligations have been satisfied.
A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the
Fund pays or receives cash, called "variation margin," equal to the
daily change in value of the futures contract. This process is know as
"marking to market." Variation margin does not represent a borrowing or
loan by the Fund but is instead settlement between the Fund and the
broker of the amount one would owe the other if the futures contract
expires. In computing its daily net asset value, a Fund will
mark-to-market its open futures positions.
The Funds are also required to deposit and maintain margin when they
write call options on futures contracts.
<PAGE>
Purchasing Put and Call Options on Portfolio Securities
The Funds may purchase put and call options on portfolio securities to
protect against price movements in particular securities. A put option
gives a Fund, in return for a premium, the right to sell the underlying
security to the writer (seller) at a specified price during the term of
the option. A call option gives a Fund, in return for a premium, the
right to buy the underlying security from the seller.
Capital Appreciation Fund may only buy put options which are listed on
a recognized options exchange.
Writing Covered Put and Call Options on Portfolio Securities
As writer of a call option, a Fund has the obligation, upon exercise of
the option during the option period, to deliver the underlying security
upon payment of the exercise price. As a writer of a put option, a Fund
has the obligation to purchase a security from the purchaser of the
option upon the exercise of the option.
A Fund may only write call options either on securities held in it
portfolio or on securities which it has the right to obtain without
payment of further consideration (or has segregated cash in the amount
of any additional consideration). In the case of put options, a Fund
will segregate cash or U.S. Treasury obligations with a value equal to
or greater than the exercise price of the underlying securities.
Restricted Securities
The Funds may invest in restricted securities. Restricted securities
are any securities in which a Fund may otherwise invest pursuant to its
investment objective and policies but which are subject to restriction
on resale under federal securities law.
The ability of the Trustees to determine the liquidity of certain
restricted securities is permitted under an SEC Staff position set
forth in the adopting release for Rule 144A under the Securities Act of
1933 (the "Rule"). The Rule is a non-exclusive, safe-harbor for certain
secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides
an exemption from registration for resales of otherwise restricted
securities to qualified institutional buyers. The Rule was expected to
further enhance the liquidity of the secondary market for securities
eligible for resale under Rule 144A. The Fund believes that the Staff
of the SEC has left the question of determining the liquidity of all
restricted securities to the Trustees. The Trustees consider the
following criteria in determining the liquidity of certain restricted
securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security
and the number of potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
The Funds may invest in commercial paper issued in reliance on an
exemption from registration afforded by Section 4(2) of the Securities
Act of 1933. Section 4(2) paper is restricted as to disposition under
federal securities law, and is generally sold to institutional
investors, such as a Fund, who agree that they are purchasing the paper
for investment purposes and not with a view to public distribution. Any
resale by the purchaser must be in an exempt transaction. Section 4(2)
paper is normally resold to other institutional investors, like the
Funds, through or with the assistance of the issuer or investment
dealers who make a market in Section 4(2), thus providing liquidity.
Warrants
Capital Appreciation Fund may invest in warrants. Warrants are
basically options to purchase common stock at a specific price (usually
at a premium above the market value of the optioned common stock at
issuance) valid for a specific period of time. Warrants may have a life
ranging from less than a year to twenty years or may be perpetual.
However, most warrants have expiration dates after which they are
worthless. In addition, if the market price of the common stock does
not exceed the warrant's exercise price during the life of the warrant,
the warrant will expire worthless. Warrants have no voting rights, pay
no dividends, and have no rights with respect to the assets of the
corporation issuing them. The percentage increase or decrease in the
market price of the warrant may tend to be greater than the percentage
increase or decrease in the market price of the optioned common stock.
<PAGE>
Louisiana Municipal Bond Insurers
If a high-rated security loses its rating or has its rating reduced
after Louisiana Municipal Income Fund has purchased it, the Fund is not
required to drop the security from its portfolio, but may consider
doing so. If ratings made by Moody's Investors Services, Inc.
("Moody's") or Standard & Poor's Ratings Group ("S&P") change because
of changes in those organizations or in their rating systems, the Fund
will try to use comparable ratings as standards in accordance with the
investment policies described in the Fund's prospectus.
Municipal bond insurance may be provided by one or more of the
following insurers or any other municipal bond insurer which is rated Aaa by
Moody's or AAA by S&P.
Municipal Bond Investors Assurance Corp.
Municipal Bond Investors Assurance Corp. ("MBIA") is a wholly-owned
subsidiary of MBIA, Inc., a Connecticut insurance company, which is
owned by The Aetna Life and Casualty, Credit Local DeFrance CAECL,
S.A., The Fund American Companies, and the public. The investors of
MBIA, Inc., are not obligated to pay the obligations of MBIA. MBIA,
domiciled in New York, is regulated by the New York State Insurance
Department and licensed to do business in various states. The address
of MBIA is 113 King Street, Armonk, New York 10504, and its telephone
number is (914) 273-4345. S&P has rated the claims-paying ability of
MBIA "AAA."
AMBAC Indemnity Corporation
AMBAC Indemnity Corporation ("AMBAC") is a Wisconsin-domiciled stock
insurance company, regulated by the Insurance Department of Wisconsin,
and licensed to do business in various states. AMBAC is a wholly-owned
subsidiary of AMBAC, Inc., a financial holding company which is owned
by the public. Copies of certain statutorily required filings of AMBAC
can be obtained from AMBAC. The address of AMBAC's administrative
offices is One State Street Plaza, 17th Floor, New York, New York
10004, and its telephone number is (212)668-0340. S&P has rated the
claims-paying ability of AMBAC "AAA."
Financial Guaranty Insurance Company
Financial Guaranty Insurance Company ("Financial Guaranty") is a
wholly-owned subsidiary of FGIC Corporation, a Delaware holding
company. FGIC Corporation is wholly-owned by General Electric Capital
Corporation. The investors of FGIC Corporation are not obligated to pay
the debts of or the claims against Financial Guaranty. Financial
Guaranty is subject to regulation by the state of New York Insurance
Department and is licensed to do business in various states. The
address of Financial Guaranty is 115 Broadway, New York, New York
10006, and its telephone number is (212) 312-3000. S&P has rated the
claims-paying ability of Financial Guaranty "AAA."
Financial Security Assurance Inc.
Financial Security Assurance Inc. (FSA) insures municipal, asset-backed
and residential mortgage-backed obligations. FSA is a majority-owned
subsidiary of US West Capital Corp. US West is attempting to find a
buyer for FSA. The address of FSA is 350 Park Avenue, New York, New
York 10022, and its telephone number is (212) 826-0100. The
claims-paying ability for FSA holds the highest available ratings from
Moody's (Aaa) and S&P (AAA).
Zero-Coupon Securities
The Funds may invest in Zero-Coupon Securities. Zero-coupon securities
are debt obligations which are generally issued at a discount and
payable in full at maturity, and which do not provide for current
payments of interest prior to maturity. Zero-coupon securities usually
trade at a deep discount from their face or par value and are subject
to greater market value fluctuations from changing interest rates than
debt obligations of comparable maturities which make current
distributions of interest. As a result, the net asset value of shares
of a Fund investing in zero-coupon securities may fluctuate over a
greater range than shares of other Funds and other mutual funds
investing in securities making current distributions of interest and
having similar maturities.
<PAGE>
Zero-coupon securities may include U.S. Treasury bills issued directly
by the U.S. Treasury or other short-term debt obligations, and
longer-term bonds or notes and their unmatured interest coupons which
have been separated by their holder, typically a custodian bank or
investment brokerage firm. A number of securities firms and banks have
stripped the interest coupons from the underlying principal (the
"corpus") of U.S. Treasury securities and resold them in custodial
receipt programs with a number of different names, including Treasury
Income Growth Receipts ("TIGRS") and Certificates of Accrual on
Treasuries ("CATS"). The underlying U.S. Treasury bonds and notes
themselves are held in book-entry form at the Federal Reserve Bank or,
in the case of bearer securities (i.e., unregistered securities which
are owned ostensibly by the bearer of holder thereof), in trust on
behalf of the owners thereof.
In addition, the Treasury has facilitated transfers of ownership of
zero-coupon securities by accounting separately for the beneficial
ownership of particular interest coupons and corpus payments on
Treasury securities through the Federal Reserve book-entry
record-keeping system. The Federal Reserve program as established by
the Treasury Department is known as "STRIPS" or "Separate Trading of
Registered Interest and Principal of Securities." Under the STRIPS
program, a Fund will be able to have its beneficial ownership of U.S.
Treasury zero-coupon securities recorded directly in the book-entry
record-keeping system in lieu of having to hold certificated or other
evidence of ownership of the underlying U.S. Treasury securities.
When debt obligations have been stripped of their unmatured interest
coupons by the holder, the stripped coupons are sold separately. The
principal or corpus is sold at a deep discount because the buyer
receives only the right to receive a future fixed payment on the
security and does not receive any rights to periodic cash interest
payments. Once stripped or separated, the corpus and coupons may be
sold separately. Typically, the coupons are sold separately or grouped
with other coupons with like maturity dates and sold in such bundled
form. Purchasers of stripped obligations acquire, in effect, discount
obligations that are economically identical to the zero-coupon
securities issued directly by the obligor.
Ratings
A nationally recognized statistical rating organization's ("NRSROs") highest
rating category is determined without regard for sub-categories and gradations.
For example, securities rated A-1 or A-1+ by S&P, Prime-1 by Moody's, or F-1 (+
or -) by Fitch Investors Service ("Fitch") are all considered to be rated in the
highest short-term rating category. Cash Reserve Fund will follow applicable
regulations in determining whether a security rated by more than one NRSRO can
be treated as being in the highest short-term rating category; currently, such
securities must be rated by two NRSROs in their highest rating category. See
"Regulatory Compliance."
Credit Enhancement
Cash Reserve Fund typically evaluates the credit quality and ratings of
credit-enhanced securities based upon the financial condition and ratings of the
party providing the credit-enhancement (the "credit enhancer"), rather than the
issuer. However, the credit-enhanced securities will not be treated as having
been issued by the credit enhancer for diversification purposes unless the Fund
has invested more than 10% of its assets in securities issued, guaranteed or
otherwise credit enhanced by the credit enhancer, in which case the securities
will be treated as having been issued by both the issuer and the credit
enhancer. The Fund may have more than 25% of its total assets invested in
securities credit enhanced by banks.
Portfolio Turnover
Capital Appreciation Fund's portfolio turnover rate for the fiscal years ended
August 31, 1997 and 1996 were 62% and 69%, respectively.
Louisiana Municipal Income Fund conducts portfolio transactions to accomplish
its investment objective as interest rates change, to invest new money obtained
from selling its shares, and to meet redemption requests. The Fund may trade or
dispose of portfolio securities at any time if it appears that trading or
selling the securities will help the Fund achieve its investment objective. For
fiscal years ended August 31, 1997 and 1996, the portfolio turnover rates were
17% and 17%, respectively.
<PAGE>
Total Return Bond Fund may trade or dispose of portfolio securities as
considered necessary to meet its investment objective. For the fiscal years
ended August 31, 1997 and 1996, the portfolio turnover rates were 65% and 38%,
respectively.
Although U.S. Government Income Fund does not intend to invest for the purpose
of seeking short-term profits, securities in its portfolio will be sold whenever
the Fund's investment adviser believes it is appropriate to do so in light of
the Fund's investment objective, without regard to the length of time a
particular security may have been held. For the fiscal years ended August 31,
1997 and 1996, the portfolio turnover rates were 72% and 27%, respectively.
Investment Limitations
Diversification of Investments
With respect to 75% of the value of its total assets, Capital
Appreciation Fund will not purchase securities of any one issuer,
except cash and cash items and securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities,
if as a result more than 5% of the value of its total assets would be
invested in the securities of that issuer.
Capital Appreciation Fund will not acquire more than 10% of the
outstanding voting securities of any one issuer.
With respect to 75% of the value of Total Return Bond Fund's total
assets, the Fund will not invest more than 5% of the value of its total
assets in any one issuer (except cash and cash items, repurchase
agreements, and U.S. government obligations). The Fund will not acquire
more than 10% of the outstanding voting securities of any one issuer.
Cash Reserve Fund will not purchase securities issued by any one issuer
having a value of more than 5% of the value of its total assets except
cash or cash items, repurchase agreements, and U.S. government
obligations.
With respect to securities comprising 75% of the value of its total
assets, U.S. Treasury Money Market Fund will not purchase securities of
any one issuer (other than cash, cash items or securities issued or
guaranteed by the government of the United States or its agencies or
instrumentalities and repurchase agreements collateralized by U.S.
Treasury securities) if as a result more than 5% of the value of its
total assets would be invested in the securities of that issuer.
(For purposes of the foregoing limitations, the Funds consider
instruments issued by a U.S. branch of a domestic bank having capital,
surplus, and undivided profits in excess of $100,000,000 at the time of
investment to be "cash items.")
Concentration of Investments
Capital Appreciation Fund will not invest 25% or more of its total
assets in securities of issuers having their principal business
activities in the same industry. Total Bond Fund will not invest 25% or
more of the value of its total assets in any one industry. However,
investing in U.S. government obligations shall not be considered
investments in any one industry. Cash Reserve Fund will not invest more
than 25% of the value of its total assets in any one industry except
commercial paper of finance companies. However, investing in bank
instruments (such as time and demand deposits and certificates of
deposit), U.S. government obligations or instruments secured by these
money market instruments, such as repurchase agreements, shall not be
considered investments in any one industry.
Acquiring Securities
Cash Reserve Fund will not acquire the voting securities of any issuer. It
will not invest in securities issued by any other investment company. It
will not invest in securities of a company for the purpose of exercising
control or management.
<PAGE>
Investing in Commodities
Capital Appreciation Fund will not purchase or sell commodities,
commodity contracts, or commodity futures contracts. However, the Fund
may purchase put options on portfolio securities and on financial
futures contracts as a hedging strategy and not for speculative
purposes. In addition, the Fund reserves the right to hedge the
portfolio by entering into financial futures contracts and to sell
calls on financial futures contracts. The Fund will notify shareholders
before such a change in its operating policies is implemented.
Louisiana Municipal Income Fund will not purchase or sell commodities,
commodity contracts, or commodity futures contracts. The Fund may,
however, enter into future contracts on financial instruments or
financial indexes and may purchase or sell options on such futures
contracts. Such investments will be used as a hedging strategy only and
not for speculative purposes and will not exceed 5% of the Fund's total
net assets.
Total Return Bond Fund will not purchase or sell commodities or
commodities futures contracts. However, the Fund may purchase put and
call options on portfolio securities and on financial futures
contracts. In addition, the Fund reserves the right to hedge the
portfolio by entering into financial futures contracts and to sell puts
and calls on financial futures contracts.
U.S. Government Income Fund will not purchase or sell commodities,
except that the Fund may purchase or sell financial futures contracts and
related options.
Cash Reserve Fund will not invest in commodities or commodity
contracts.
U.S. Treasury Money Market Fund will not buy or sell commodities,
commodity contracts, or commodities futures contracts.
Issuing Senior Securities and Borrowing
Capital Appreciation Fund, Louisiana Municipal Income Fund, U.S.
Government Income Fund, and Cash Reserve Fund will not issue senior
securities except that each Fund may borrow money and engage in reverse
repurchase agreements in amounts up to one-third of the value of its
total assets (net assets in the case of U.S. Government Income Fund)
including the amount borrowed. A Fund will not borrow money or engage
in reverse repurchase agreements for investment leverage, but rather as
temporary, extraordinary, or emergency measure or to facilitate
management of the portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolios securities is deemed to be
inconvenient or disadvantageous. A Fund will not purchase any
securities while any borrowings in excess of 5% of its total assets are
outstanding. During the period any reverse repurchase agreements are
outstanding, a Fund will restrict the purchase of portfolio securities
to money market instruments maturing on or before the expiration date
of the reverse repurchase agreements, but only to the extent necessary
to assure completion of the reverse repurchase agreements. With respect
to Cash Reserve Fund, if a percentage limit is adhered to at the time
of investment, a later increase or decrease in percentage resulting
from any change in value of net assets will not result in a violation
of such restriction.
Total Return Bond Fund will not issue senior securities except that the
Fund may borrow money and engage in reverse repurchase agreements in
amounts up to one-third of the value of its net assets, including the
amounts borrowed. The Fund will not borrow money or engage in reverse
repurchase agreements for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to facilitate
management of the portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Fund will not purchase any
securities while borrowings in excess of 5% of its total assets are
outstanding.
U.S. Treasury Money Market Fund will not issue senior securities except
that the Fund may borrow money in amounts up to one-third of the value
of its total assets, including the amount borrowed. The Fund will not
borrow money except as a temporary, extraordinary, or emergency measure
or to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio securities
is deemed to be inconvenient or disadvantageous.
<PAGE>
Pledging Assets
Capital Appreciation Fund, Louisiana Municipal Income Fund, and Cash
Reserve Fund will not mortgage, pledge, or hypothecate securities,
except to secure permissible borrowings. In those cases, a Fund may
pledge assets having a value of 15% of its assets taken at cost.
Total Return Bond Fund will not mortgage, pledge, or hypothecate any
assets except to secure permitted borrowings. In those cases, it may
pledge assets having a market value not exceeding the lesser of the
dollar amounts borrowed or 10% of the value of total assets at the time
of the borrowing.
U.S. Government Income Fund will not mortgage, pledge, or hypothecate
any assets except to secure permitted borrowings. In these cases, it
may pledge assets having a market value not exceeding the lesser of the
dollar amounts borrowed or 15% of the value of total assets as the time
of the borrowing.
Neither the deposit of underlying securities and other assets in escrow
in connection with the writing of put or call options on U.S.
government securities nor margin deposits for the purchase and sale of
financial futures contracts and related options are deemed to be a
pledge.
Selling Short and Buying on Margin
Capital Appreciation Fund will not purchase any securities on margin
but may obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities.
Louisiana Municipal Income Fund will not sell securities short or
purchase any securities on margin but may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities.
Total Return Bond Fund and U.S. Government Income Fund will not sell
securities short or purchase any securities on margin but may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of securities. The deposit or payment by a Fund of
initial or variation margin in connection with financial futures
contracts or related options transactions is not considered the
purchase of a security on margin.
Cash Reserve Fund will not sell any money market instruments short or
purchase any money market instruments on margin but may obtain such
short-term credits as may be necessary for clearance of purchases and
sales of money market instruments.
Underwriting
Capital Appreciation Fund and Louisiana Municipal Income Fund will not
underwrite any issue of securities, except as it may be deemed to be an
underwriter under the Securities Act of 1933 in connection with the
disposition of its portfolio securities.
Total Return Bond Fund, U.S. Government Income Fund, and U.S. Treasury
Money Market Fund will not underwrite any issue of securities, except
as it may be deemed to be an underwriter under the Securities Act of
1933 in connection with the sale of securities in accordance with its
investment objectives, policies, and limitations.
Cash Reserve Fund will not engage in underwriting of securities issued
by others.
Investing in Real Estate
Capital Appreciation Fund and Louisiana Municipal Income Fund will not
purchase or sell real estate although a Fund may invest in securities
secured by real estate or interest in real estate or issued by
companies, including real estate investment trusts, which invest in
real estate or interests therein.
<PAGE>
Total Return Bond and U.S. Government Income Fund will not buy or sell
real estate, including limited partnership interests, although a Fund
may invest in the securities of companies whose business involves the
purchase or sale of real estate or in securities which are secured by
real estate or interests in real estate.
Cash Reserve Fund will not invest in real estate, except that it may
purchase money market instruments issued by companies that invest in real estate
or sponsor such interests.
U.S. Treasury Money Market Fund will not purchase or sell real estate,
including limited partnership interests.
Lending Cash or Securities
Capital Appreciation Fund will not lend any of its assets, except
portfolio securities . This shall not prevent the purchase or holding
of bonds, debentures, notes, certificates of indebtedness, or other
debt securities of an issuer, repurchase agreements or other
transactions which are permitted by its investment objective and
policies or the declaration of trust.
Louisiana Municipal Income will not lend any assets except portfolio
securities up to one-third of the value of its total assets. The Fund
may acquire publicly or non-publicly issued municipal bonds or
temporary investments or enter into repurchase agreements in accordance
with its investment objective, policies, and limitations.
Total Return Bond Fund will not lend any of its assets except portfolio
securities. This shall not prevent the purchase or holding of corporate
bonds, debentures, notes, certificates of indebtedness or other debt
securities of an issuer, repurchase agreements or other transactions
which are permitted by the Fund's investment objective and policies.
U.S. Government Income Fund will not lend any of its assets except
portfolio securities up to one-third of the value of its total assets.
Cash Reserve Fund will not lend any of its assets, except that it may
purchase or hold money market instruments, including repurchase
agreements and variable amount demand master notes, permitted by its
investment objective and policies.
U.S. Treasury Money Market Fund will not lend any of its assets, except
that it may purchase or hold U.S. Treasury obligations, permitted by
its investment objective, policies and limitations or the declaration
of trust.
Investing in Minerals
Capital Appreciation Fund and Louisiana Municipal Income Fund will not
invest in interests in oil, gas, or other mineral exploration or development
programs, other than debentures or equity stock interests.
U.S. Government Income Fund will not purchase or sell oil, gas, or
other mineral exploration or development programs.
Investing in Restricted Securities
Louisiana Municipal Income Fund will not invest more than 10% of its
total assets in securities subject to restrictions on resale under the
Securities Act of 1933.
Except as noted, the above investment limitations cannot be changed without
shareholder approval. The following limitations, however, may be changed by the
Trustees without shareholder approval. Except as noted, shareholders will be
notified before any material change in these limitations becomes effective.
Purchasing Securities to Exercise Control
The Funds will not purchase securities of a company for the purpose of
exercising control or management.
<PAGE>
Investing in Securities of Other Investment Companies
The Funds will limit their investment in other investment companies to
no more than 3% of the total outstanding voting stock of any investment
company, invest no more than 5% of its total assets in any investment
company, or invest no more than 10% of its total assets in investment
companies in general, unless permitted to do so by order of the SEC.
The Funds will purchase securities of investment companies only in
open-market transactions involving only customary broker's commissions.
However, these limitations are not applicable if the securities are
acquired in a merger, consolidation, or acquisition of assets. It
should be noted that investment companies incur certain expenses, such
as management fees, and, therefore, any investment by a Fund in shares
of another investment company would be subject to such duplicate
expenses. The Funds will invest in other investment companies primarily
for the purposes of investing its short-term cash on a temporary basis.
The investment adviser will waive its investment advisory fee on assets
invested in securities of open-end investment companies.
Writing Covered Call Options and Purchasing Put Options
Capital Appreciation Fund will not write call options on securities
unless the securities are held in the Fund's portfolio or unless the
Fund is entitled to them in deliverable form without further payment or
after segregating cash in the amount of any further payment. The Fund
will not purchase put options on securities, other than put options on
stock indices, unless the securities are held in the Fund's portfolio
and not more than 5% of the value of the Fund's net assets would be
invested in premiums on open put option positions.
Total Return Bond Fund will not purchase put options on securities
unless the securities are held in the Fund's portfolio. The Fund will
not write put or call options or purchase put or call options in
excess of 5% of the value of its total assets.
U.S. Government Income Fund will not write covered put and call options
on securities unless the securities are held in the Fund's portfolio or
unless the Fund is entitled to them in deliverable form without further
payment or after segregating cash or U.S. Treasury obligations with a
value equal to or greater than the exercise price of the underlying
securities. The Fund will not purchase put options on securities unless
the securities are held in the Fund's portfolio.
Capital Appreciation Fund did not borrow money, pledge securities or invest in
illiquid securities in excess of 5% of the value of its net assets in the last
fiscal year and has no present intent to do so during the coming fiscal year.
Louisiana Municipal Income Fund did not borrow money or pledge securities in
excess of 5% of the value of its net assets during the last fiscal year and has
no present intent to do so during the coming fiscal year.
U.S. Government Income Fund did not engage in reverse repurchase agreements,
borrow money, or invest in illiquid securities in excess of 5% of the value of
its net assets in the last fiscal year and has no present intent to do so during
the coming year.
Cash Reserve Fund did not borrow money or engage in when-issued and delayed
delivery transactions in excess of 5% of the value of its net assets during the
last fiscal year and has no present intent to do so during the coming year.
U.S. Treasury Money Market Fund does not expect to borrow money in
excess of 5% of the value of its net assets during the coming fiscal
year.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment a later increase or decrease in percentage resulting
from any change in value of a Fund's net assets will not result in a violation
of any of the above restrictions.
<PAGE>
Regulatory Compliance
The Money Market Funds may follow non-fundamental operational policies that are
more restrictive than their fundamental investment limitations, as set forth in
the prospectus and this Statement of Additional Information, in order to comply
with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940. In particular, the Funds
will comply with the various requirements of Rule 2a-7, which regulates money
market mutual funds. For example, with limited exceptions, Rule 2a-7 prohibits
the investment of more than 5% of a Fund's total assets in the securities of any
one issuer, although a Fund's investment limitations only requires such 5%
diversification with respect to 75% of its assets. The Funds will invest more
than 5% of their respective assets in any one issuer only under circumstances
permitted by Rule 2a-7. The Funds will also determine the effective maturity of
their investments, as well as their ability to consider a security as having
received the requisite short-term ratings by NRSROs, according to Rule 2a-7.
Except as otherwise noted, the Funds may change these operational policies to
reflect changes in the laws and regulations without the approval of their
shareholders.
Tower Mutual Funds Management
Officers and Trustees
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Hibernia National Bank,
Hibernia Corporation, Federated Investors, Federated Securities Corp., and
Federated Administrative Services.
Edward C. Gonzales*+
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President, Trustee and Treasurer
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds;
President, Executive Vice President and Treasurer of some of the Funds.
Robert L. diBenedetto, M.D.
781 Colonial Drive
Baton Rouge, LA
Birthdate:
Trustee
Gynecologist; President/CEO, Louisiana Medical Mutual Insurance Company;
Chairman of Board of Directors and Medical Director, LAMMICOPractice Management,
L.L.C.; Medical Director Emeritus, Women's Hospital.
James A. Gayle, Sr.
613 Turtle Creek Drive
Shreveport, LA
Birthdate:
Trustee
Vice President of Government Affairs and Community Development and Director,
Shreveport Chamber of Commerce; Director, Louisiana Forestry Association;
Director, Anthony Forest Products Company, Inc.; Retired from International
Paper Company in August 1985.
<PAGE>
J. Gordon Reische +
20 Dogwood Drive
Covington, LA
Birthdate: September 11, 1931
Trustee
Retired Managing Partner, New Orleans office, KPMG - Peat Marwick.
Jeffrey W. Sterling
Federated Investors Tower
Pittsburgh, PA
Birthdate: February 5, 1947
Vice President and Assistant Treasurer
Vice President and Director, Private Label Management, Federated Administrative
Services.
Peter J. Germain
Federated Investors Tower
Pittsburgh, PA
Birthdate: September 3, 1959
Secretary
Senior Corporate Counsel, Federated Investors.
*This Trustee is deemed to be an "interested person" of the Fund or Tower Mutual
Funds as defined in the Investment Company Act of 1940.
+Members of Tower Mutual Funds' Executive Committee. The Executive Committee of
the Board of Trustees handles the responsibilities of the Board of Trustees
between meetings of the Board.
Fund Ownership
Officers and Trustees of the Trust own less than 1% of each Fund's outstanding
shares.
The following list indicates the beneficial ownership of shareholders who are
the beneficial owners of more than 5% of the outstanding shares of the following
Funds as of October 3, 1997: Hibernia National Bank, acting in various
capacities for numerous accounts, was the owner of record of 896,963 shares
(7.14%) of the Class A Shares of Capital Appreciation Fund, 819,381 shares
(11.56%) of Total Return Bond Fund, 350,071 shares (5.90%) of U.S. Government
Income Fund, and 11,269,984 shares (5.20%) of Cash Reserve Fund. As of October
3, 1997, Bost & Co., was the owner of record of 1,132,772 shares (9.02%) of the
Class A Shares of Capital Appreciation Fund, and 965,519 shares (13.62%) of
Total Return Bond Fund. As of October 3, 1997, Bost & Co., for the benefit of
Hibernia National Bank, was the owner of record of 41,220,051 shares (19.01%) of
Cash Reserve Fund and 35,247,153 shares (22.96%) of U.S. Treasury Money Market
Fund and Bost & Co., c/o Mellon Bank N.A., was the owner of record of
138,123,932 shares (63.71%) and 55,221,155 shares (35.97%) of U.S. Treasury
Money Market Fund.
<PAGE>
Trustees Compensation
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM
TRUST THE TRUST*+
Edward C. Gonzales $0
President, Treasurer and Trustee
Robert L. di Benedetto, $12,000
Trustee
James A. Gayle, Sr., $12,000
Trustee
J. Gordon Reische, $12,000
Trustee
*Information is furnished for the fiscal year ended August 31, 1997. The Trust
is the only investment company in the complex.
+The aggregate compensation is provided for the Trust which is comprised of 6
portfolios.
Trustee Liability
The Trust's Declaration of Trust provides that the Trustees are not liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
Investment Advisory Service
Adviser to the Trust
The Trust's investment adviser is Hibernia National Bank (the "Adviser"). It
provides investment advisory services through its Trust Division. Hibernia
National Bank is a wholly-owned subsidiary of Hibernia Corporation.
The Adviser shall not be liable to the Trust, a Fund, or any shareholder of any
Fund for any losses that may be sustained in the purchase, holding, or sale of
any security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Because of the internal controls maintained by Hibernia National Bank to
restrict the flow of non-public information, Fund investments are typically made
without any knowledge of Hibernia National Bank's or its affiliates' lending
relationships with an issuer.
<PAGE>
Advisory Fees
For its advisory services, Hibernia National Bank receives an annual investment
advisory fee as described in the prospectus. The following shows all investment
advisory fees incurred by the Funds and the amounts of those fees that were
voluntarily waived by the Adviser:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Fund Name Year Ended Amount Year Ended Amount Year Ended Amount
Aug 31, 1997 Waived-1997 Aug 31, 1996 Waived-1996 Aug 31, 1995 Waived-1995
Capital Appreciation
Fund $1,674,455 $0 $1,204,309 $0 $1,018,267 $0
Louisiana Municipal
Income Fund $346,773 $61,649 $298,550 $53,076 $314,904 $55,983
Total Return Bond Fund $488,596 $0 $501,491 $0 $491,566 $0
U.S. Government
Income Fund $190,313 $25,375 $183,788 $24,505 $223,677 $29,824
Cash Reserve Fund $682,458 $0 $778,592 $0 $814,726 $0
U.S. Treasury Money
Market Fund $598,805 $214,099 $500,504 $275,277 $341,980 $188,089
Brokerage Transactions
</TABLE>
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Trustees. The Adviser may select brokers and
dealers who offer brokerage and research services. These services may be
furnished directly to the Funds or to the Adviser and may include; advice as to
the advisability of investing in securities; security analysis and reports;
economic studies; industry studies; receipt of quotations for portfolio
evaluations; and similar services. Research services provided by brokers may be
used by the Adviser or its affiliates in advising the Funds and other accounts.
To the extent that receipt of these services may supplant services for which the
Adviser or its affiliates might otherwise have paid, it would tend to reduce
their expenses. The Adviser and its affiliates exercise reasonable business
judgment in selecting brokers who offer brokerage and research services to
execute securities transactions. They determine in good faith that commissions
charged by such persons are reasonable in relationship to the value of the
brokerage and research services provided. For the fiscal years ended August 31,
1997, 1996 and 1995, Capital Appreciation Fund paid $294,766, $238,669 and
$304,546, respectively, in brokerage commissions on brokerage transactions.
Although investment decisions for the Funds are made independently from those of
other accounts managed by the Adviser, investments of the type the Funds may
make may also be made by those other accounts. When the Funds and one or more
other accounts managed by the Adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the Adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Funds or the size of the position obtained or disposed of by the Funds. In
some cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Funds.
<PAGE>
Other Services
Trust Administration
Federated Administrative Services, which is a subsidiary of Federated Investors,
provides administrative personnel and services to the Funds for a fee described
in the prospectus. The following shows all fees earned by Federated
Administrative Services and the amounts of those fees that were voluntarily
waived:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Fund Name Year Ended Amount Year Ended Amount Year Ended Amount
Aug 31, 1997 Waived-1997 Aug 31, 1996 Waived-1996 Aug 31, 1995 Waived-1995
Capital Appreciation
Fund $277,600 $0 $206,816 $0 $177,184 $0
Louisiana Municipal
Income Fund $95,787 $0 $85,488 $0 $91,349 $0
Total Return Bond Fund $87,209 $0 $92,287 $0 $91,672 $0
U.S. Government
Income Fund $52,512 $0 $52,624 $0 $64,915 $0
Cash Reserve Fund $213,586 $0 $250,721 $0 $265,774 $0
U.S. Treasury Money
Market Fund $186,989 $0 $161,067 $0 $111,430 $0
</TABLE>
Transfer Agent, Dividend Disbursing Agent, and Portfolio Accounting Services
Federated Shareholder Services Company, Pittsburgh, Pennsylvania, a subsidiary
of Federated Services Company, is transfer agent for the shares of the Funds and
dividend disbursing agent for the Funds. It also provides certain accounting and
recordkeeping services with respect to the Funds' portfolios of investments.
Federated Shareholder Services Company receives a fee based on the size, type,
and number of accounts and transactions made by shareholders. Federated
Shareholder Services Company also maintains the Funds' accounting records. The
fee is based on the level of a Fund's average net assets for the period plus
out-of-pocket expenses.
Custodian
For its services as custodian, Hibernia National Bank, New Orleans, Louisiana,
may receive an annual fee, payable monthly based on a percentage of each Fund's
average aggregate daily net assets, plus out-of-pocket expenses.
Independent Auditors
The independent auditors for the Funds are Ernst & Young LLP, Pittsburgh,
Pennsylvania.
Purchasing Shares
Class A Shares of Capital Appreciation Fund and Shares of Louisiana Municipal
Income Fund, Total Return Bond Fund, and U.S. Government Income Fund are sold at
their net asset value with a front end sales charge. Class B Shares of Capital
Appreciation Fund are sold at net asset value and are subject to a contingent
deferred sales charge if redeemed within six full years of purchase. The Money
Market Funds are sold at net asset value without a sales charge. Shares of the
Funds are sold on days the New York Stock Exchange is open for business. The
procedure for purchasing shares is explained in the combined prospectus under
"Investing in the Funds."
<PAGE>
Distribution Plan
Tower Mutual Funds has adopted a Plan pursuant to Rule 12b-1 which was
promulgated by the Securities and Exchange Commission pursuant to the Investment
Company Act of 1940. The Plan permits the payment of fees to brokers for
distribution and administrative services and to administrators for
administrative services. The Plan is designed to (i) stimulate brokers to
provide distribution and administrative support services to shareholders and
(ii) stimulate administrators to render administrative support services to
shareholders. The administrative services are provided by a representative who
has knowledge of the shareholder's particular circumstances and goals. By
adopting the Plan, the Trustees expect that the Funds will be able to achieve a
more predictable flow of cash for investment purposes and to meet redemptions.
This will facilitate more efficient portfolio management and assist the Funds in
seeking to achieve their investment objectives. By identifying potential
investors whose needs are served by a Fund's objective, and properly servicing
these accounts, a Fund may be able to curb sharp fluctuations in rates of
redemptions and sales. Other benefits may include: (1) an efficient and
effective administrative system; (2) a more efficient use of shareholder assets
by having them rapidly invested with a minimum of delay and administrative
detail; and (3) an efficient and reliable shareholder records system and prompt
responses to shareholder requests and inquiries concerning their accounts.
For the fiscal year ended August 31, 1997, payments in the amount of $554,420,
$174,499, and $426,536 were made pursuant to the distribution plans for Capital
Appreciation Fund (Class A Shares), Total Return Bond Fund, and Cash Reserve
Fund, all of which were paid to financial institutions. For the period from
December 2, 1996 (date of initial public offering) to August 31, 1997, a payment
in the amount of $11,195 was made pursuant to the distribution plan for Capital
Appreciation Fund (Class B Shares).
Shareholder Services (Capital Appreciation Fund-Class B Shares)
The Shareholder Services Agreement permits the payment of fees to Federated
Shareholder Services to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities may include, but are not limited to: marketing
efforts; providing office space, equipment, telephone facilities, and various
clerical, supervisory, computer, and other personnel as necessary or beneficial
to establish and maintain shareholder accounts and records; processing purchase
and redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses. Other benefits, which may
be realized under either arrangement, may include: (1) providing personal
services to shareholders; (2) investing shareholder assets with a minimum of
delay and administrative detail; (3) enhancing shareholder recordkeeping
systems; and (4) responding promptly to shareholders' requests and inquiries
concerning their accounts. For the period from December 2, 1996 (date of initial
public investment) to August 31, 1997, a payment in the amount of $3,732, none
of which was waived was made pursuant to the Shareholder Services Agreement for
Capital Appreciation Fund (Class B Shares).
Conversion To Federal Funds
It is the Funds' policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. Hibernia National Bank or its
affiliates act as the shareholder's agent in depositing checks and converting
them to federal funds.
Determining Net Asset Value
Net asset value of the Funds (except the Money Market Funds) generally changes
each day. The Money Market Funds attempt to stabilize the value of a share at
$1.00. The days on which the net asset value is calculated by a Fund are
described in the prospectus.
<PAGE>
Determining Market Value of Securities
Market values of the Equity and Income Funds' portfolio securities are
determined as follows:
o for equity securities, according to the last sale price on a
national securities exchange, if applicable;
o in the absence of recorded sales for listed equity securities,
according to the mean between the last closing bid and asked prices;
o for unlisted equity securities, the latest bid prices;
o for bonds and other fixed income securities, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and
asked prices as furnished by an independent pricing service or
for short-term obligations with remaining maturities of less than
60 days, at the time of purchase, at amortized cost; or
o for all other securities, at fair value as determined in good faith
by the Board of Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
The Funds will value futures contracts, options, and put options on futures and
at their market values established by the exchanges at the close of option
trading on such exchanges unless the Board of Trustees determine in good faith
that another method of valuing option positions is necessary to appraise their
fair value.
Use of the Amortized Cost Method
With respect to the Money Market Funds, the Trustees have decided that the best
method for determining the value of portfolio instruments is amortized cost.
Under this method, portfolio instruments are valued at the acquisition cost as
adjusted for amortization of premium or accumulation of discount rather than at
current market value.
The Funds' use of the amortized cost method of calling portfolio instruments
depends on its compliance with Rule 2a-7 (the "Rule") promulgated by the
Securities and Exchange Commission under the Investment Company Act of 1940.
Under the Rule, the Trustees must establish procedures reasonably designed to
stabilize the net asset value per share, as computed for purposes of
distribution and redemption, at $1.00 per share, taking into account current
market conditions and a Fund's investment objective.
Under the Rule, a Fund is permitted to purchase instruments which are subject to
demand features or standby commitments. As defined by the Rule, a demand feature
entitles the Fund to receive the principal amount of the instrument from the
issuer or a third party on (1) no more than 30 days' notice or (2) at specified
intervals not exceeding 397 days on no more than 30 days' notice. A standby
commitment entitles the Fund to achieve same day settlement and to receive an
exercise price equal to the amortized cost of the underlying instrument plus
accrued interest at the time of exercise.
The Fund acquires instruments subject to demand features and standby commitments
to enhance the instrument's liquidity. The Fund treats demand features and
standby commitments as a part of the underlying instruments, because the Fund
does not acquire then for speculative purposes and cannot transfer them
separately from the underlying instruments. Therefore, although the Rule defines
demand features and standby commitments as "puts," the Fund does not consider
them to be separate investments for the purposes of its investment policies.
Monitoring Procedures
The Trustees' procedures include monitoring the relationship between
the amortized cost value per share and the net asset value per share
based upon available indications of market value. The Trustees will
decide what, if any, steps should be taken if there is a difference of
more than .5% between the two values. The Trustees will take any steps
they consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
<PAGE>
Investment Restrictions
The Rule requires that a Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risks and
have received the requisite rating from one or more nationally
recognized statistical rating organizations. The Rule also requires a
Fund to maintain a dollar weighted average portfolio maturity (not more
than 90 days) appropriate to the objective of maintaining a stable net
asset value of $1.00 per share. In addition, no instruments with a
remaining maturity of more than 397 days can be purchased by the Fund.
Should the disposition of a portfolio security result in a dollar
weighted average portfolio maturity of more than 90 days, a Fund will
invest its available cash to reduce the average maturity to 90 days or
less as soon as possible. Shares of investment companies purchased by a
Fund will meet the same criteria and will have investment policies
consistent with Rule 2a-7.
A Fund may attempt to increase yield by trading portfolio securities to
take advantage of short-term market variations. This policy may, from
time to time, result in high portfolio turnover. Under the amortized
cost method of valuation, neither the amount of daily income nor the
net asset value is affected by normal unrealized appreciation or
depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on
shares of a Fund computed by dividing the annualized daily income on
the Fund's portfolio by the net asset value computed as above may tend
to be higher than a similar computation made by using a method of
valuation based upon market prices and estimates.
In periods of rising interest rates, the indicated daily yield on
shares of a Fund computed the same way may tend to be lower than a
similar computation made by using a method of calculation based upon
market prices and estimates.
Exchange Privilege
Requirements for Exchange
Shareholders using the exchange privilege must exchange shares having a net
asset value of at least $1,000. Before the exchange, the shareholder must
receive a prospectus of the fund for which the exchange is being made. Class B
Shares of Capital Appreciation Fund are not eligible for exchange into other
funds.
This privilege is available to shareholders residing in any state in which the
fund shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, shares submitted for exchange are redeemed and
the proceeds invested in shares of the other fund.
Further information on the exchange privilege and prospectuses may be obtained
by calling the Fund at the number on the cover of this Statement.
Making an Exchange
Instructions for exchanges may be given in writing. Written instructions may
require a signature guarantee. Shares may also be exchanged by telephone, but
only between fund accounts that have identical shareholder registrations.
Redeeming Shares
A Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Shareholder redemptions for Class B Shares of
Capital Appreciation Fund may be subject to a contingent deferred sales charge.
Redemption procedures are explained in the combined prospectus under "Redeeming
Shares." Although the Fund does not charge for telephone redemptions, it
reserves the right to charge a fee for the cost of wire-transferred redemptions
of less than $5,000.
<PAGE>
Redemption in Kind
A Fund is obligated to redeem shares solely in cash up to $250,000, or 1% of the
Fund's net asset value, whichever is less, for any one shareholder within a
90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that payments should be in kind. In such a case, the Trust will pay
all or a portion of the remainder of the redemption in portfolio instruments,
valued in the same way as net asset value is determined. The portfolio
instruments will be selected in a manner that the Trustees deem fair and
equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur transaction costs.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
Massachusetts Partnership Law
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument the Trust or its Trustees
enter into or sign.
In the unlikely event a shareholder is held personally liable for obligations of
the Trust, Tower Mutual Funds is required to use its property to protect or to
compensate the shareholder. On request, the Trust will defend any claim made and
pay any judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust cannot meet its obligations to indemnify shareholders and to
pay judgments against them from its assets.
Tax Status
The Funds' Tax Status
The Funds will pay no federal income tax because they expect to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, a Fund must, among other
requirements:
o derive at least 90% of its gross income from dividends, interest,
and gain from the sale of securities;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income
earned during the year.
Shareholders' Tax Status
Shareholders are subject to federal income tax on dividends and capital gains
reviewed as cash or additional shares. No portion of any income dividend paid by
the Fund is eligible for the dividends received deduction available to
corporations. These dividends, and any short-term capital gains, are taxable as
ordinary income.
Capital Gains
Long-term capital gains distributed to Fund shareholders (except the Money
Market Funds) will be treated as long-term capital gains regardless of how long
shareholders have held Fund shares.
Capital gains experienced by a Money Market Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If, for some
extraordinary reason, a Fund realized net long-term capital gains, it will
distribute them at least once every 12 months.
<PAGE>
Total Return
Average annual total return is the average compounded rate of return for a given
period that would equate a $1,000 initial investment to the ending redeemable
value of that investment. The ending redeemable value is computed by multiplying
the number of shares owned at the end of the period by the maximum offering
price per share at the end of the period. The number of shares owned at the end
of the period is based on the number of shares purchased at the beginning of the
period with $1,000, adjusted over the period by any additional shares, assuming
the monthly reinvestment of all dividends and distributions.
Capital Appreciation Fund's average annual total returns for Class A Shares for
the one-year and five-year periods ended August 31, 1997 and for the period from
October 14, 1988 (date of initial public investment) to August 31, 1997 were
33.30%, 18.48% and 16.26%, respectively.
For the period from December 2, 1996 (date of initial public investment) to
August 31, 1997, the cumulative total return for Class B Shares of Capital
Appreciation Fund was 12.89%. Cumulative total return reflects the total
performance over a specific period of time. This total return is representative
of only 9 months of activity since the date of initial public investment for
Class B Shares of Capital Appreciation Fund.
Louisiana Municipal Income Fund's average annual total returns for the one-year
and five-year periods ended August 31, 1997, and, for the period from October
14, 1988 (date of initial public investment) to August 31, 1997, were 5.05%,
5.96%, and 7.09%, respectively.
Total Return Bond Fund's average annual total returns for the one-year period
ended August 31, 1997 and for the period from November 2, 1992 (date of initial
public investment) to August 31, 1997, were 5.47% and 5.41%, respectively.
U.S. Government Income Fund's average annual total returns for the one-year and
five-year periods ended August 31, 1997 and for the period from October 14, 1988
(date of initial public investment) to August 31, 1997 were 5.18%, 4.91% and
7.33%, respectively.
Cash Reserve Fund's average annual total returns for the one-year and five-year
periods ended August 31, 1997 and for the period from October 14, 1988 (date of
initial public investment) to August 31, 1997 were 4.70%, 3.93% and 5.25%,
respectively.
U.S. Treasury Money Market Fund's average annual total returns for the one-year
period ended August 31, 1997 and the period from July 19, 1993 (date of initial
public investment) to August 31, 1997 were 4.92% and 4.44%, respectively.
Yield
The yield for a Fund (except the Money Market Funds) is determined by dividing
the net investment income per share (as defined by the Securities and Exchange
Commission) earned by a Fund over a thirty-day period by the maximum offering
price per share of the Fund on the last day of the period. This value is then
annualized using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each month
over a twelve month period and is reinvested every six months. The yield does
not necessarily reflect income actually earned by the Fund because of certain
adjustments required by the Securities and Exchange Commission and therefore,
may not correlate to the dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in a Fund,
the performance will be reduced for those shareholders paying those fees.
Capital Appreciation Fund's yields for Class A Shares and Class B Shares for the
thirty-day period ended August 31, 1997 were 0.39% and (0.35%), respectively.
Louisiana Municipal Income Fund's yield for the thirty-day period ended August
31, 1997 was 4.24%.
Total Return Bond Fund's yield for the thirty-day period ended August 31, 1997
was 5.01%.
U.S. Government Income Fund's yield for the thirty-day period ended August 31,
1997 was 5.94%.
<PAGE>
The Money Market Funds calculate yield based upon the seven days ending on the
day of the calculation, called the "base period." This yield is computed by:
determining the net change in the value of a hypothetical account with a balance
of one share at the beginning of the base period, with the net change excluding
capital changes but including the value of any additional shares purchased with
dividends earned from the original one share and all dividends declared on the
original and any purchased shares; dividing the net change in the account's
value by the value of the account at the beginning of the base period to
determine the base period return; and multiplying the base period return by
365/7.
Cash Reserve Fund's yield for the seven-day period ended August 31, 1997 was
4.74%.
U.S. Treasury Money Market Fund's yield for the seven-day period ended August
31, 1997 was 4.85%.
Tax-Equivalent Yield
Louisiana Municipal Income Fund's tax-equivalent yield is calculated similarly
to the yield, but is adjusted to reflect the taxable yield that the Fund would
have had to earn to equal its actual yield, assuming a combined federal and
state marginal tax rate of 45.60% and assuming that the income is 100%
tax-exempt.
The Fund's tax-equivalent yield for the thirty-day period ended August 31, 1997
was 7.79%.
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF LOUISIANA
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
19.00% 34.00% 37.00% 42.00% 45.60%
SINGLE $1- $24,651- $59,751- $124,651- OVER
RETURN 24,650 59,750 124,650 271,050 $271,051
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.85% 2.27% 2.38% 2.59% 2.76%
2.00% 2.47% 3.03% 3.17% 3.45% 3.68%
2.50% 3.09% 3.79% 3.97% 4.31% 4.60%
3.00% 3.70% 4.55% 4.76% 5.17% 5.51%
3.50% 4.32% 5.30% 5.56% 6.03% 6.43%
4.00% 4.94% 6.06% 6.35% 6.90% 7.35%
4.50% 5.56% 6.82% 7.14% 7.76% 8.27%
5.00% 6.17% 7.58% 7.94% 8.62% 9.19%
5.50% 6.79% 8.33% 8.73% 9.48% 10.11%
6.00% 7.41% 9.09% 9.52% 10.34% 11.03%
6.50% 8.02% 9.85% 10.32% 11.21% 11.95%
7.00% 8.64% 10.61% 11.11% 12.07% 12.87%
7.50% 9.26% 11.36% 11.90% 12.93% 13.79%
8.00% 9.88% 12.12% 12.70% 13.79% 14.71%
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional state
and local taxes paid on comparable taxable investments were not used to
increase federal deductions.
<PAGE>
Performance Information
Performance depends upon such variables as: portfolio quality; average portfolio
maturity; type of instruments in which the portfolio is invested; changes in
interest rates and market value of portfolio securities; changes in expenses;
and the relative amount of cash flow.
The Funds' (except the Money Market Funds) performance fluctuates on a daily
basis largely because net earnings and offering price per share fluctuate daily.
Both net earnings and offering price per share are factors
in the computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Funds' performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Funds use in advertising may include:
o Lipper Analytical Services, Inc., ranks funds in various fund
categories by making comparative calculations using total return. Total
return assumes the reinvestment of all income dividends and capital
gains distributions, if any. From time to time, the Fund will quote its
Lipper ranking in the "money market instruments funds" category in
advertising and sales literature.
oBank Rate Monitor National Index, Miami Beach, Florida, is a financial
reporting service which publishes weekly average rates of 50 leading
bank and thrift institution money market deposit accounts. The rates
published in the index are averages of the personal account rates
offered on the Wednesday prior to the date of publication by ten of the
largest banks and thrifts in each of the five largest Standard
Metropolitan Statistical Areas. Account minimums range upward from
$2,500 in each institution, and compounding methods vary. If more than
one rate is offered, the lowest rate is used. Rates are subject to
change at any time specified by the institution.
oDow Jones Industrial Average ("DJIA") represents share prices of
selected blue-chip industrial corporations as well as public utility
and transportation companies. The DJIA indicates daily changes in the
average price of stocks in any of its categories. It also reports total
sales for each group of industries. Because it represents the top
corporations of America, the DJIA index is a leading economic indicator
for the stock market as a whole.
oStandards & Poor's Daily Stock Price Index of 500 Common Stocks, a
composite index of common stocks in industry, transportation, and
financial and public utility companies, compares total returns of funds
whose portfolios are invested primarily in common stocks. In addition,
the Standard & Poor's index assumes reinvestment of all dividends paid
by stock listed on the index. Taxes due on any of these distributions
are not included, nor are brokerage or other fees calculated in the
Standard & Poor's figures.
oLehman Brothers Government/Corporate Total Index is compromised of
approximately 5,000 issues which include: non-convertible bonds
publicly issued by the U.S. government or its agencies; corporate bonds
guaranteed by the U.S. government and quasi-federal corporations; and
publicly issued, fixed rate, non-convertible domestic bonds of
companies in industry, public utilities, and finance. The average
maturity of these bonds approximates nine years. Tracked by Lehman
Brothers, Inc., the index calculates total returns for one-month,
three-months, twelve months, and ten-year periods and year-to-date.
oSalomon Brothers AAA-AA Corporate Index calculates total returns of
approximately 775 issues which include long-term, high grade domestic
corporate taxable bonds, rated AAA-AA with maturities of twelve years
or more and companies in industry, public utilities, and finance.
oMerrill Lynch Corporate & Government Master Index is an unmanaged
index comprised of approximately 4,821 issues which include corporate
debt obligations rated BBB or better and publicly issued,
non-convertible domestic debt of the U.S. government or any agency
thereof. These quality parameters are based on composite of rating
assigned by Standard and Poor's Ratings Group and Moody's Investors
Service, Inc. Only notes and bonds with a minimum maturity of one year
are included.
<PAGE>
oMerrill Lynch Corporate Master Index is an unmanaged index comprised
of approximately 4,356 corporate debt obligations rated BBB or better.
These quality parameters are based on composites of ratings assigned by
Standard and Poor's Ratings Group and Moody's Investors Service, Inc.
Only bonds with a minimum maturity of one year are included.
oSalomon Brothers Broad Investment-Grade ("Big") Bond Index is designed
to provide the investment-grade bond manager with an all-inclusive
universe of institutionally traded U.S. Treasury, agency, mortgage and
corporate securities which can be used as a benchmark. The BIG Index is
market capitalization-weighted and includes all fixed rate bonds with a
maturity of one year or longer and a minimum of $50-million amount
outstanding at entry ($200 million for mortgage coupons) and remain in
the index until their amount falls below $25 million.
oMorningstar, Inc., an independent rating service , is the publisher
of the bi-weekly Mutual Funds Values. Mutual Funds Values rates more
than 1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings
are effective for two weeks.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Trust's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Trust can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
Economic and Market Information
Advertising and sales literature for the Trust may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by the Trust's portfolio managers and their views and analysis on
how such developments could affect the Funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute ("ICI"). For example, according to the ICI,
thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrust over $3.5 trillion to the more than 6,000 funds available.
Financial Statements
The financial statements for the fiscal year ended August 31, 1997, are
incorporated herein by reference to the Funds' Annual Report dated August 31,
1997 . A copy of the Annual Report may be obtained without charge by contacting
the Funds at the address located on the back cover of the prospectus or by
calling the Funds toll-free 1-800-999-0124.
<PAGE>
Appendix
Standard and Poor's Ratings Group Municipal Bond Rating Definitions
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effect of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC - Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties of major risk exposures to adverse
conditions.
C - The rating C is reserved for income bonds on which no interest is being
paid.
D - Debt rated D is in default, and payments of interest and/or repayment of
principal is in arrears.
Moody's Investors Service, Inc., Municipal Bond Rating Definitions
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they compromise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default of have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
<PAGE>
Fitch Investors Service, Inc., Bond Rating Definitions
AAA bonds (highest quality) - the obligator has an extraordinary ability to pay
interest and repay principal which is unlikely to be affected by reasonably
foreseeable events.
AA bonds (high quality) - the obligor's ability to pay interest and repay
principal, while very strong, is some-what less than for AAA rated securities or
more subject to possible change over the term of the issue.
Moody's Investors Service, Inc. Short-Term Debt Rating Definitions
Prime-1 - Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
- - Leading market positions in well established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structure with moderate reliance on debt and ample
asset protection.
- - Broad margins in earning coverage of fixed financial charges and high internal
cash generation.
- - Well-established access to a range of financial markets and assured sources of
alternate liquidity
Prime-2 - Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions.
Ample alternate liquidity is maintained.
Prime-3 - Issuers rated Prime-3 (or related supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
Not Prime- Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Fitch Investors Service, Inc. Short-Term Debt Rating Definitions
F-1+- Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1- Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment only slightly less in degree than issues rated
F-1+.
F-2- Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
F-3- Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse changes could cause these securities to be rated below
investment grade.
F-S- Weak Credit Quality. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are vulnerable
to near-term adverse changes in financial and economic conditions.
D- Default. Issues assigned this rating are in actual or imminent payment
default.
LOC- The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements (Incorporated by reference to the Annual Report of
the Registrant dated August 31, 1997; File Nos. 811-5536 and 33-21321).
(b) Exhibits:
(1) Conformed copy of Declaration of Trust of the Registrant (5.);
(2) Copy of By-Laws of the Registrant (1.);
(3) Not applicable;
(4) (i) Copy of Specimen Certificate for Shares of Beneficial
Interest of the Registrant (3.);
(ii) Copy of Specimen Certificates for
Shares of Beneficial Interest of the Registrant;(5.)
(5) Conformed copy of Investment Advisory Contract
of the Registrant (5.); (6) Conformed copy of
Administrative Support and Distributor's Contract of
the Registrant;(5.)
(7) Not applicable;
(8) (i) Conformed copy of Custodian Agreement of
the Registrant (6); (ii) Conformed copy of
Transfer Agency and Service Agreement of the
Registrant (5.); (iii) Conformed copy of
Administrative Services Agreement of the
Registrant (5.);
(iv) Conformed Copy of Assignment of Administrative Services
Agreement of the Registrant to Federated Administrative
Services (5.);
(v) Copy of Schedule A to Custodian Contract;+
(9) Conformed copy of Agreement for Fund Accounting,
Shareholder Recordkeeping, and Custody Services
Procurement (6); (10) Conformed copy of Opinion and
Consent of Counsel as to legality of shares being
registered;(7) (11) (i) Conformed copy of Consent of
Independent Auditors;+
+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Registration Statement
on Form N-1A filed April 15, 1988. (File Nos. 33-21321 and 811-5536)
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed April 27, 1989. (File Nos. 33-21321 and
811-5536)
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 11 filed October 28, 1993. (File Nos. 33-21321 and 811-5536)
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 filed December 28, 1994. (File Nos. 33-21321 and 811-5536)
7 Response is incorporated by reference to Registrant's Post-Effective Amendment
No. 15 filed October 28, 1996. (File Nos. 33-21321 and 811-5536)
<PAGE>
(ii) Conformed copy of Opinion and Consent of Special Counsel;(7)
(12) Not applicable;
(13) Conformed copy of Initial Capital Understanding;(7)
(14) Not applicable;
(15) (i) Conformed copy of Distribution Plan (5.);
(ii) Copy of Sales Agreement with Federated Securities Corp. (3.);
(iii) Confomed Copy of Shareholder Services Agreement;(7)
(iv) Conformed Copy of Shareholder Services Agreement through and
Exhibit A which relates to Class B Shares of Capital
Appreciation Fund; +
(16) (i) Copy of Schedule for Computation of Performance Data for Tower
Capital Appreciation Fund;(7)
(ii) Copy of Schedule for Computation of
Performance Data for Tower Cash Reserve
Fund;(7) (iii) Copy of schedule for
Computation of Performance Data for Tower
Louisiana Municipal Income Fund;(7) (iv)
Copy of schedule for Computation of
Performance Data for Tower U.S. Government
Income Fund;(7) (v) Copy of schedule for
Computation of Performance Data for Tower
Total Return Bond Fund;(7) (vi) Copy of
Schedule for Computation of Performance Data
for Tower U.S. Treasury Money Market
Fund;(5.)
(17) Financial Data Schedules.+
(18) Conformed Copy of Multiple Class Plan;(7)
(19) Conformed copy of Power of Attorney (5);
Item 25. Persons Controlled by or Under Common Control with Registrant:
None.
+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 9 on Form N-1A file April 2, 1993. (File No. 33-21321 and
811-5536)
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed April 27, 1989. (File Nos. 33-21321 and
811-5536)
4. Response is incorporated by reference to Regestrant's Post-Effective
Amendment No. 10 on form N-1A filed April 23, 1993. (File Nos. 33-21321 and
811-5536)
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 11 filed October 28, 1994. (File Nos. 33-21321 and 811-5536)
7 Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 filed October 28, 1996. (File Nos. 33-21321 and 811-5536)
<PAGE>
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of October 3, 1997
-------------- -----------------------
Shares of beneficial interest
Tower Capital Appreciation Fund
Class A Shares 1,656
Class B Shares 470
Tower U.S. Government Income
Fund 1,041
Tower Louisiana Municipal Income
Fund 1,301
Tower Total Return Bond Fund 327
Tower Cash Reserve Fund 1,491
Tower U.S. Treasury Money Market
Fund 2,491
Item 27. Indemnification: (1)
Item 28. Business and Other Connections of Investment Adviser:
A. Investment Adviser
Hibernia National Bank is a national bank with its principal
place of business at 313 Carondelet Street, New Orleans,
Louisiana 70130. Hibernia National Bank, a national bank
organized in 1933, is a wholly-owned subsidiary of Hibernia
Corporation ("Hibernia"), a Louisiana Corporation. Through its
subsidiaries and affiliates, Hibernia offers a full range of
financial services to the public including commercial and
consumer lending and depository services, cash management,
retail banking, mortgage banking, brokerage, investment
counseling, international banking, and trust services.
Hibernia National Bank has been ranked by the American Banker
newspaper as the 67th largest U.S. Bank according to December
31, 1996 deposits. As of March 31, 1997, the Trust Group had
$4.70 billion under administration of which it had investment
discretion over $1.7 billion. The Trust Group has managed
pools of commingled funds since 1966; as of May 31, 1997, the
Trust Group manages two such investment pools along with the
six Tower Mutual Funds. The executive officers and directors
of the Adviser and any other business, profession, vocation or
employment of a substantial nature in which each such officer
and director is or has been engaged during the past two years
is set forth below. Unless otherwise noted, the position
listed under Other Business, Profession, Vocation or
Employment is with Hibernia National Bank.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Other Substantial
Position with Business, Profession,
Name the Adviser Vocation, Employment
Robert H. Boh Chairman and Director Chairman, Boh Brothers Construction Co. L.L.C.
Paul J. Bonitatibus Executive Vice President
J. Herbert Boydstun Chairman-Southwest Louisiana Region and Director
E.R. Campbell Vice Chairman and Director
Cindy S. Collins Executive Vice President
K. Kirk Domingos III Senior Executive Vice President
B. D. Flurry Chairman-Northern Louisiana Region
Marsha M. Gassan Senior Executive Vice President and Chief Financial Officer
Michael G. Gretchen Executive Vice President
Stephen A. Hansel President, Chief
Executive Officer,
and Director
Russell S. Hoadley Executive Vice President
Linda A. Hoffman Executive Vice President
Scott P. Howard Senior Executive Vice President
John H. Laing Chairman-Southeast Louisiana Region
Patricia C. Meringer Senior Vice President, Corporate Counsel and Secretary
Donald J. Nalty Vice Chairman and Director
Gerald F. Pavlas Executive Vice President
Kenneth A. Rains Executive Vice President
Ron E. Samford, Jr. Executive Vice President
and Controller
John E. Smith Executive Vice President
Willie L. Spears Executive Vice President
Richard L. Stage Senior Executive Vice President
Walter P. Walker Executive Vice President
Richard G. Wright Senior Executive Vice President and Chief Credit Officer
</TABLE>
<PAGE>
Directors
Robert H. Boh Robert T. Holleman William C. O'Malley
J. Herbert Boydstun Robert T. Ratcliff Robert E. Zetzmann
J. Terrell Brown Elton R. King H. Duke Shackelford
E. R. Campbell Sidney W. Lassen Virginia E. Weinmann
Richard W. Freeman, Jr. Laura A. Leach Janee M. Tucker
Dick H. Hearin Donald J. Nalty
Item 29. Principal Underwriters:
(a) 111 Corcoran Funds; Arrow Funds; Automated Government Money Trust; Blanchard
Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust
Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash
Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American
Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated
Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.;
Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated
Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Institutional Trust; Federated Insurance Series;
Federated Investment Portfolios; Federated Investment Trust; Federated Master
Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond
Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; High Yield Cash Trust; Independence One Mutual Funds; Intermediate
Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Marshall Funds, Inc.; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market Obligations Trust II; Money
Market Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree
Funds; RIMCO Monument Funds; SouthTrust Vulcan Funds; Star Funds; Targeted
Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The Virtus
Funds; The Wachovia Funds; The Wachovia Municipal Funds; Tower Mutual Funds;
Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations;
Vision Group of Funds, Inc.; and World Investment Series, Inc.
Federated Securities Corp. also acts as principal underwriter for the following
closed-end investment company: Liberty Term Trust, Inc.- 1999.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief --
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice President,
Federated Investors Tower President, Federated, Treasurer, and
Pittsburgh, PA 15222-3779 Securities Corp. Trustee
Thomas R. Donahue Director, Assistant Secretary --
Federated Investors Tower and Assistant Treasurer
Pittsburgh, PA 15222-3779 Federated Securities Corp
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Brian G. Kelly Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert D. Oehlschlager Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
George D. Riedel Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard Suder Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
</TABLE>
(c) Not applicable.
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section
31(a) of the Investment Company Act of 1940 and Rules 31a-1 through 31a-3
promulgated thereunder are maintained at one of the following locations:
Registrant Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Shareholder Services Company Federated Investors Tower
("Transfer Agent, Dividend Pittsburgh, PA 15222-3779
Disbursing Agent and Portfolio
Recordkeeper")
Federated Administrative Federated Investors Tower
Services Pittsburgh, PA 15222-3779
("Administrator")
Hibernia National Bank 313 Carondelet Street
("Adviser") New Orleans, LA 70130
Hibernia National Bank 313 Carondelet Street
("Custodian") New Orleans, LA 70130
<PAGE>
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of Trustees and the
calling of special shareholder meetings by shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus for Tower Mutual Funds is delivered a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, TOWER MUTUAL FUNDS, certifies
that it meets all of the requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of
Pittsburgh and Commonwealth of Pennsylvania, on the 22nd day of October, 1997.
TOWER MUTUAL FUNDS
BY: /s/ Gail Cagney
Gail Cagney, Assistant Secretary
Attorney in Fact for Edward C. Gonzales
October 22, 1997
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
NAME TITLE DATE
By: /s/Gail Cagney
Attorney In Fact October 22, 1997
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
Edward C. Gonzales* President, Treasurer
and Trustee
(Chief Executive Officer,
Principal Financial and
Accounting Officer)
Robert L. diBenedetto, M.D.* Trustee
James A. Gayle, Sr.* Trustee
J. Gordon Reische* Trustee
* By Power of Attorney
</TABLE>
Exhibit 8(v) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
SCHEDULE A
CUSTODIAN CONTRACT
Annual Fees per Fund
2.5 basis points on average net assets of the Fund from $0 but less
than $100 million, plus
2.0 basis points on average net assets of the Fund from $100 million
but less than $300 million, plus
1.0 basis points on average net assets of the Fund from $300 million
but less than $500 million, plus
0.5 basis points on average net assets of the Fund from and over $500
million.
The minimum annual charge per Fund is $15,000.00
Out-of-Pocket Expenses
Legal Fees
Special Services
Fees for activities of a non-recurring nature such as Fund
consolidation or reorganization, extraordinary security shipments and the
preparation of special reports will be subject to negotiation.
Exhibit 11 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Financial Highlights"
in Post-Effective Amendment Number 17 to the Registration Statement (Form N-1A
No. 33-21321) and the related Prospectus 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) dated October 31,
1997 and to the incorporation by reference therein of our report dated October
13, 1997 on the financial statements and financial highlights of Tower Mutual
Funds included in its Annual Report to Shareholders for the year ended August
31, 1997.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
October 20, 1997
Exhibit 15(iv) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
SHAREHOLDER SERVICES AGREEMENT
This Agreement, dated October 1, 1996, is made between the Financial
Institution executing this Agreement ("Provider") and Federated Shareholder
Services ("FSS") for Tower Mutual Funds (the "Trust"), on behalf of the
portfolios listed in Exhibit A hereto (the "Funds"), who have approved this form
of Agreement. In consideration of the mutual covenants hereinafter contained, it
is hereby agreed by and between the parties hereto as follows:
1. FSS hereby appoints Provider to render or cause to be rendered personal
services to shareholders of the Funds and/or the maintenance of accounts of
shareholders of the Funds ("Services"). Provider agrees to provide Services
which, in its best judgment, are necessary or desirable for its customers who
are investors in the Funds. Provider further agrees to provide FSS, upon
request, a written description of the Services which Provider is providing
hereunder.
2. The Services to be provided under Paragraph 1 may include, but are not
limited to, the following:
(a) communicating account openings through computer terminals located on
the Provider's premises ("computer terminals"), through a toll-free telephone
number or otherwise;
(b) communicating account closings via the computer terminals, through a
toll-free telephone number or otherwise;
(c) entering purchase transactions through the computer terminals,
through a toll-free telephone number or otherwise;
(d) entering redemption transactions through the computer terminals,
through a toll-free telephone number or otherwise;
(e) electronically transferring and receiving funds for Fund Share
purchases and redemptions, and confirming and reconciling all such transactions;
(f) reviewing the activity in Fund accounts;
(g) providing training and supervision of its personnel; and
(h) responding to customers' and potential customers' questions about
the Funds.
The Services listed above are illustrative. The Provider is not required to
perform each Service and may at any time perform either more or fewer Services
than described above.
3. During the term of this Agreement, the Funds will pay the Provider fees
as set forth in a written schedule delivered to the Provider pursuant to this
Agreement. The fee schedule for Provider may be changed by FSS sending a new fee
schedule to Provider pursuant to Paragraph 10 of this Agreement. For the payment
period in which this Agreement becomes effective or terminates, there shall be
an appropriate proration of the fee on the basis of the number of days that this
Agreement is in effect during the quarter.
<PAGE>
4. The Provider understands that the Department of Labor views ERISA as
prohibiting fiduciaries of discretionary ERISA assets from receiving
administrative service fees or other compensation from funds in which the
fiduciary's discretionary ERISA assets are invested. To date, the Department of
Labor has not issued any exemptive order or advisory opinion that would exempt
fiduciaries from this interpretation. Without specific authorization from the
Department of Labor, fiduciaries should carefully avoid investing discretionary
assets in any fund pursuant to an arrangement where the fiduciary is to be
compensated by the fund for such investment. Receipt of such compensation could
violate ERISA provisions against fiduciary self-dealing and conflict of interest
and could subject the fiduciary to substantial penalties.
5. The Provider agrees not to solicit or cause to be solicited directly, or
indirectly at any time in the future, any proxies from the shareholders of a
Fund in opposition to proxies solicited by management of the Trust, unless a
court of competent jurisdiction shall have determined that the conduct of a
majority of the Board of Trustees of the Trust constitutes willful misfeasance,
bad faith, gross negligence or reckless disregard of their duties. This
Paragraph 5 will survive the term of this Agreement.
6. This Agreement shall continue in effect for one year from the date of its
execution, and thereafter for successive periods of one year if the form of this
Agreement is approved at least annually by the Board of the Trust, including a
majority of the members of the Board of the Trust who are not interested persons
of the Funds and have no direct or indirect financial interest in the operation
of this Agreement or in any related documents to this Agreement ("Disinterested
Board Members") cast in person at a meeting called for that purpose.
7. Notwithstanding Paragraph 6, this Agreement may be terminated as follows:
(a) at any time, without the payment of any penalty, by the vote of a
majority of the Disinterested Board Members of the Trust or by a
vote of a majority of the outstanding voting securities of a Fund as
defined in the Investment Company Act of 1940 on not more than sixty
(60) days' written notice to the parties to this Agreement;
(b) automatically in the event of the Agreement's assignment as defined
in the Investment Company Act of 1940; and
(c) by either party to the Agreement without cause by giving the other
party at least sixty (60) days' written notice of its intention to
terminate.
8. The Provider agrees to obtain any taxpayer identification number
certification from its customers required under Section 3406 of the Internal
Revenue Code, and any applicable Treasury regulations, and to provide the Funds
or their designee with timely written notice of any failure to obtain such
taxpayer identification number certification in order to enable the
implementation of any required backup withholding.
9. This Agreement supersedes any prior service agreements between the
parties for the Funds.
10. This Agreement may be amended by FSS from time to time by the following
procedure. FSS will mail a copy of the amendment to the Provider's address, as
shown below. If the Provider does not object to the amendment within thirty (30)
days after its receipt, the amendment will become part of this Agreement. The
Provider's objection must be in writing and be received by FSS within such
thirty days.
11. The Provider acknowledges and agrees that FSS has entered into this
Agreement solely in the capacity of agent for the Funds. The Provider agrees not
to claim that FSS is liable for any responsibilities or amounts due by the Funds
hereunder.
12. This Agreement shall be construed in accordance with the laws of the
Commonwealth of Pennsylvania.
Provider
Address
City, State, Zip Code
Date
Authorized Signature
Title
Print Name of Authorized Signature
FEDERATED SHAREHOLDER SERVICES
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
By: /s/ Joseph M. Huber
Vice President
<PAGE>
EXHIBIT A
TO THE
SHAREHOLDER SERVICES AGREEMENT
Tower Capital Appreciation Fund
Class B Shares
Shareholder Service Fees
1. During the term of this Agreement, the Funds will pay Provider a
quarterly fee. This fee will be computed at the annual rate of 0.25 of 1% of the
average net asset value of shares of the Funds held during the quarter in
accounts for which the Provider provides Services under this Agreement, so long
as the average net asset value of Shares in the Funds during the quarter equals
or exceeds such minimum amount as the Funds shall from time to time determine
and communicate in writing to the Provider.
2. For the quarterly period in which the Shareholder Services Agreement
becomes effective or terminates, there shall be an appropriate proration of any
fee payable on the basis of the number of days that this Agreement is in effect
during the quarter.
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> Tower Mutual Funds
Tower Capital Appreciation Fund
Class A Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1997
<PERIOD-END> Aug-31-1997
<INVESTMENTS-AT-COST> 191,576,953
<INVESTMENTS-AT-VALUE> 286,952,290
<RECEIVABLES> 891,491
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 287,843,781
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 169,255
<TOTAL-LIABILITIES> 169,255
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 166,479,185
<SHARES-COMMON-STOCK> 12,856,253
<SHARES-COMMON-PRIOR> 9,491,485
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 10,427
<ACCUMULATED-NET-GAINS> 25,830,431
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 95,375,337
<NET-ASSETS> 283,039,690
<DIVIDEND-INCOME> 4,157,778
<INTEREST-INCOME> 209,578
<OTHER-INCOME> 0
<EXPENSES-NET> 2,774,807
<NET-INVESTMENT-INCOME> 1,592,549
<REALIZED-GAINS-CURRENT> 26,519,341
<APPREC-INCREASE-CURRENT> 62,190,078
<NET-CHANGE-FROM-OPS> 90,301,968
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,694,309
<DISTRIBUTIONS-OF-GAINS> 19,032,852
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,060,360
<NUMBER-OF-SHARES-REDEEMED> 2,528,206
<SHARES-REINVESTED> 835,384
<NET-CHANGE-IN-ASSETS> 118,026,800
<ACCUMULATED-NII-PRIOR> 91,333
<ACCUMULATED-GAINS-PRIOR> 18,343,942
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,674,455
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,774,807
<AVERAGE-NET-ASSETS> 222,076,718
<PER-SHARE-NAV-BEGIN> 17.870
<PER-SHARE-NII> 0.150
<PER-SHARE-GAIN-APPREC> 6.510
<PER-SHARE-DIVIDEND> 0.160
<PER-SHARE-DISTRIBUTIONS> 1.990
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 22.380
<EXPENSE-RATIO> 1.24
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> Tower Mutual Funds
Tower Capital Appreciation Fund
Class B Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1997
<PERIOD-END> Aug-31-1997
<INVESTMENTS-AT-COST> 191,576,953
<INVESTMENTS-AT-VALUE> 286,952,290
<RECEIVABLES> 891,491
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 287,843,781
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 169,255
<TOTAL-LIABILITIES> 169,255
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 166,479,185
<SHARES-COMMON-STOCK> 207,623
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 10,427
<ACCUMULATED-NET-GAINS> 25,830,431
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 95,375,337
<NET-ASSETS> 0
<DIVIDEND-INCOME> 4,157,778
<INTEREST-INCOME> 209,578
<OTHER-INCOME> 0
<EXPENSES-NET> 2,774,807
<NET-INVESTMENT-INCOME> 1,592,549
<REALIZED-GAINS-CURRENT> 26,519,341
<APPREC-INCREASE-CURRENT> 62,190,078
<NET-CHANGE-FROM-OPS> 90,301,968
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,466
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 211,458
<NUMBER-OF-SHARES-REDEEMED> 3,948
<SHARES-REINVESTED> 113
<NET-CHANGE-IN-ASSETS> 118,026,800
<ACCUMULATED-NII-PRIOR> 91,333
<ACCUMULATED-GAINS-PRIOR> 18,343,942
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,674,455
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,774,807
<AVERAGE-NET-ASSETS> 222,076,718
<PER-SHARE-NAV-BEGIN> 18.900
<PER-SHARE-NII> (0.010)
<PER-SHARE-GAIN-APPREC> 3.480
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.050
<PER-SHARE-NAV-END> 22.320
<EXPENSE-RATIO> 1.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> Tower Funds
Tower Louisiana Municipal Income Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1997
<PERIOD-END> Aug-31-1997
<INVESTMENTS-AT-COST> 95,816,585
<INVESTMENTS-AT-VALUE> 100,518,440
<RECEIVABLES> 1,512,308
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 102,030,748
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 589,285
<TOTAL-LIABILITIES> 589,285
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 96,490,519
<SHARES-COMMON-STOCK> 9,052,425
<SHARES-COMMON-PRIOR> 6,005,790
<ACCUMULATED-NII-CURRENT> 19,227
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 229,862
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,701,855
<NET-ASSETS> 101,441,463
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,534,425
<OTHER-INCOME> 0
<EXPENSES-NET> 532,266
<NET-INVESTMENT-INCOME> 4,002,159
<REALIZED-GAINS-CURRENT> 774,842
<APPREC-INCREASE-CURRENT> 2,527,992
<NET-CHANGE-FROM-OPS> 7,304,993
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,058,449
<DISTRIBUTIONS-OF-GAINS> 220,394
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,884,031
<NUMBER-OF-SHARES-REDEEMED> 992,694
<SHARES-REINVESTED> 155,298
<NET-CHANGE-IN-ASSETS> 35,724,797
<ACCUMULATED-NII-PRIOR> 75,517
<ACCUMULATED-GAINS-PRIOR> (324,586)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 346,773
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 593,915
<AVERAGE-NET-ASSETS> 77,088,350
<PER-SHARE-NAV-BEGIN> 10.940
<PER-SHARE-NII> 0.570
<PER-SHARE-GAIN-APPREC> 0.280
<PER-SHARE-DIVIDEND> 0.580
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.210
<EXPENSE-RATIO> 0.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 05
<NAME> Tower Mutual Funds
Tower Total Return Bond Fund
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Aug-31-1997
<PERIOD-END> Aug-31-1997
<INVESTMENTS-AT-COST> 70,614,023
<INVESTMENTS-AT-VALUE> 71,047,539
<RECEIVABLES> 942,077
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 71,989,616
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 122,797
<TOTAL-LIABILITIES> 122,797
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 71,366,086
<SHARES-COMMON-STOCK> 7,190,338
<SHARES-COMMON-PRIOR> 7,286,550
<ACCUMULATED-NII-CURRENT> 1,714
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 65,503
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 433,516
<NET-ASSETS> 71,866,819
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,091,457
<OTHER-INCOME> 0
<EXPENSES-NET> 902,860
<NET-INVESTMENT-INCOME> 4,188,597
<REALIZED-GAINS-CURRENT> 884,814
<APPREC-INCREASE-CURRENT> 978,557
<NET-CHANGE-FROM-OPS> 6,051,968
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,245,320
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,596,634
<NUMBER-OF-SHARES-REDEEMED> 2,022,793
<SHARES-REINVESTED> 329,947
<NET-CHANGE-IN-ASSETS> 678,564
<ACCUMULATED-NII-PRIOR> 58,437
<ACCUMULATED-GAINS-PRIOR> (819,311)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 488,596
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 902,860
<AVERAGE-NET-ASSETS> 69,856,339
<PER-SHARE-NAV-BEGIN> 9.770
<PER-SHARE-NII> 0.600
<PER-SHARE-GAIN-APPREC> 0.230
<PER-SHARE-DIVIDEND> 0.610
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.990
<EXPENSE-RATIO> 1.29
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> Tower Funds
Tower U.S. Government Income Fund
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Aug-31-1997
<PERIOD-END> Aug-31-1997
<INVESTMENTS-AT-COST> 58,274,936
<INVESTMENTS-AT-VALUE> 58,951,195
<RECEIVABLES> 846,303
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 59,797,498
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 359,625
<TOTAL-LIABILITIES> 359,625
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 62,683,937
<SHARES-COMMON-STOCK> 5,958,120
<SHARES-COMMON-PRIOR> 3,823,561
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 29,805
<ACCUMULATED-NET-GAINS> (3,892,518)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 676,259
<NET-ASSETS> 59,437,873
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,040,193
<OTHER-INCOME> 0
<EXPENSES-NET> 372,340
<NET-INVESTMENT-INCOME> 2,667,853
<REALIZED-GAINS-CURRENT> (369,915)
<APPREC-INCREASE-CURRENT> 1,353,086
<NET-CHANGE-FROM-OPS> 3,651,024
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,738,780
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,222,775
<NUMBER-OF-SHARES-REDEEMED> 1,151,003
<SHARES-REINVESTED> 62,787
<NET-CHANGE-IN-ASSETS> 20,981,754
<ACCUMULATED-NII-PRIOR> 41,122
<ACCUMULATED-GAINS-PRIOR> (3,522,603)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 190,313
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 397,715
<AVERAGE-NET-ASSETS> 42,343,351
<PER-SHARE-NAV-BEGIN> 9.820
<PER-SHARE-NII> 0.620
<PER-SHARE-GAIN-APPREC> 0.180
<PER-SHARE-DIVIDEND> 0.640
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.980
<EXPENSE-RATIO> 0.88
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> Tower Funds
Tower Cash Reserve Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1997
<PERIOD-END> Aug-31-1997
<INVESTMENTS-AT-COST> 150,536,109
<INVESTMENTS-AT-VALUE> 150,536,109
<RECEIVABLES> 62,011
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 589,985
<TOTAL-ASSETS> 151,188,105
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 810,737
<TOTAL-LIABILITIES> 810,737
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 150,377,368
<SHARES-COMMON-STOCK> 150,377,368
<SHARES-COMMON-PRIOR> 168,343,868
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 150,377,368
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,338,985
<OTHER-INCOME> 0
<EXPENSES-NET> 1,513,214
<NET-INVESTMENT-INCOME> 7,825,771
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,825,771
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,825,771
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 462,383,174
<NUMBER-OF-SHARES-REDEEMED> 482,092,964
<SHARES-REINVESTED> 1,743,290
<NET-CHANGE-IN-ASSETS> (17,966,500)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 682,458
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,513,214
<AVERAGE-NET-ASSETS> 170,614,908
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.050
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 06
<NAME> Tower Funds
Tower U.S. Treasury Money Market Fund
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Aug-31-1997
<PERIOD-END> Aug-31-1997
<INVESTMENTS-AT-COST> 154,523,117
<INVESTMENTS-AT-VALUE> 154,523,117
<RECEIVABLES> 500,093
<ASSETS-OTHER> 484
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 155,023,694
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 399,547
<TOTAL-LIABILITIES> 399,547
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 154,624,147
<SHARES-COMMON-STOCK> 154,624,147
<SHARES-COMMON-PRIOR> 136,068,361
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 154,624,147
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,954,368
<OTHER-INCOME> 0
<EXPENSES-NET> 750,744
<NET-INVESTMENT-INCOME> 7,203,624
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,203,624
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,203,624
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 396,797,192
<NUMBER-OF-SHARES-REDEEMED> 381,500,330
<SHARES-REINVESTED> 3,258,924
<NET-CHANGE-IN-ASSETS> 19,579,289
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 598,805
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 964,843
<AVERAGE-NET-ASSETS> 149,701,141
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.050
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>