TOWER MUTUAL FUNDS, 497, 1997-10-29

TOWER MUTUAL FUNDS
497, 1997-10-29

Previous: W W CAPITAL CORP, DEF 14A, 1997-10-29

Next: KINETIC CONCEPTS INC /TX/, 10-Q, 1997-10-29

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
- --------------------------------------------------------------------------------

<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.

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.

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.

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."

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

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

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.

<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>

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
<S> <C> <C> <C> <C> <C> <C>

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

</TABLE>

BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the
order at a favorable price. In working with dealers, the Adviser will
generally use those who are recognized dealers in specific portfolio
instruments, except when a better price and execution of the order can
be obtained elsewhere. The Adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to guidelines
established by the Trustees. The Adviser may select brokers and
dealers who offer brokerage and research services. These services may
be furnished directly to the Funds or to the Adviser and may include;
advice as to the advisability of investing in securities; security
analysis and reports; economic studies; industry studies; receipt of
quotations for portfolio evaluations; and similar services. Research
services provided by brokers may be used by the Adviser or its
affiliates in advising the Funds and other accounts. To the extent
that receipt of these services may supplant services for which the
Adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting brokers who offer brokerage
and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. For the fiscal years ended August 31, 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>

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
<S> <C> <C> <C> <C> <C> <C>

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.