ANNUAL REPORT
AUGUST 31, 1998
============
TOWER
MUTUAL FUNDS
============
TOWER CAPITAL APPRECIATION FUND
CLASS A SHARES
CLASS B SHARES
TOWER LOUISIANA MUNICIPAL INCOME FUND
TOWER MID CAP EQUITY FUND
CLASS A SHARES
CLASS B SHARES
TOWER TOTAL RETURN BOND FUND
TOWER U.S. GOVERNMENT INCOME FUND
TOWER CASH RESERVE FUND
CLASS A SHARES
CLASS B SHARES
TOWER U.S. TREASURY MONEY MARKET FUND
<PAGE>
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TABLE OF CONTENTS
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PRESIDENT'S MESSAGE......................................................... 1
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MANAGEMENT DISCUSSION & ANALYSIS............................................ 3
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PORTFOLIOS OF INVESTMENTS................................................... 19
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NOTES TO PORTFOLIOS OF INVESTMENTS.......................................... 40
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STATEMENTS OF ASSETS AND LIABILITIES........................................ 42
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STATEMENTS OF OPERATIONS.................................................... 44
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STATEMENTS OF CHANGES IN NET ASSETS......................................... 46
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FINANCIAL HIGHLIGHTS........................................................ 48
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COMBINED NOTES TO FINANCIAL STATEMENTS...................................... 50
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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS........................... 57
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- - SHARES OF THE TOWER MUTUAL FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF HIBERNIA
NATIONAL BANK OR ITS AFFILIATES, ARE NOT ENDORSED OR GUARANTEED BY HIBERNIA
NATIONAL BANK OR ITS AFFILIATES, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL
AGENCY.
- - INVESTMENT IN THE SHARES OF THE TOWER MUTUAL FUNDS INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
- - TOWER CASH RESERVE FUND AND TOWER U.S. TREASURY MONEY MARKET FUND ATTEMPT TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO
ASSURANCE THAT THESE FUNDS WILL BE ABLE TO DO SO.
<PAGE>
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PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I'm pleased to present the Annual Report to Shareholders for the Tower Mutual
Funds. The report, which covers the funds' 12-month fiscal year from September
1, 1997 through August 31, 1998, includes an interview with each fund's
portfolio manager, as well as a complete list of portfolio holdings and
financial statements for each fund.
This report also contains information about Tower Mid Cap Equity Fund, the
newest member of the Tower Mutual Funds family. This fund, which opened to
investors on July 13, invests in the mid cap area of the stock market. It gives
investors a way to diversify their stock holdings beyond large caps--while
attempting to avoid the potentially high volatility associated with small-cap
stocks.
Please note the following highlights for each fund over the 12-month reporting
period:
- TOWER CAPITAL APPRECIATION FUND delivered a positive return in the wake
of extreme stock market volatility. The fund's Class A Shares achieved a
one-year total return of 5.12%* through dividends of $0.07 per share and
capital gains of $2.34 per share. The fund's income and capital gains
helped it withstand a $1.24 decline in net asset value as stock prices
fell late in the reporting period. The fund's Class B Shares delivered a
total return of 4.36%* through capital gains of $2.34 per share. At the
end of the reporting period, net assets in the fund totaled $290.6
million.
- TOWER LOUISIANA MUNICIPAL INCOME FUND paid double-tax-free dividends**
totaling $0.57 per share and capital gains totaling $0.05 per share.
Through dividends, capital gains, and a $0.26 increase in the fund's net
asset value, the fund produced a total return of 8.04%.* Net assets
totaled $98.7 million at the end of the reporting period.
- TOWER TOTAL RETURN BOND FUND paid a strong dividend stream totaling $0.58
per share and capital gains totaling $0.07 per share from a diversified
portfolio of government and high quality corporate bonds. Reflecting an
environment of decreasing yields, which increases bond prices, the fund's
net asset value increased by $0.28. As a result, the fund achieved a
positive total return of 9.51%.* At the end of the reporting period, net
assets totaled more than $79 million.
- TOWER U.S. GOVERNMENT INCOME FUND paid dividends of $0.60 per share. This
income stream and a $0.35 increase in net asset value--which reflected an
environment of decreasing yields and increasing bond prices--produced a
strong total return of 9.74%.* At the end of the reporting period, net
assets totaled $83.5 million.
* Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than their
original cost. Total returns quoted above are based on net asset value and do
not reflect the maximum sales charge. Total returns based on the maximum
sales charge for the 12-month period are as follows: Tower Capital
Appreciation Fund Class A Shares, 0.41%, Tower Capital Appreciation Fund
Class B Shares, (1.36%); Tower Louisiana Municipal Income Fund, 4.77%; Tower
Total Return Bond Fund, 6.21%; and Tower U.S. Government Income Fund, 6.43%.
The total return for the 12-month period ended September 30, 1998, based upon
net assets, was 4.79% for Tower Capital Appreciation Fund Class A Shares and
4.06% for Class B Shares.
** Income may be subject to the federal alternative minimum tax.
<PAGE>
- TOWER CASH RESERVE FUND*** paid dividends of $0.05 per share. At the end
of the reporting period, net assets totaled more than $149 million.
- TOWER U.S. TREASURY MONEY MARKET FUND*** paid dividends of $0.05 per
share. At the end of the reporting period, net assets reached $175.1
million.
Thank you for pursuing your financial goals through the diversification and
professional management of the Tower Mutual Funds. We'll continue to keep you
up-to-date on your investment progress through the highest quality service
possible.
Sincerely,
/s/ EDWARD C. GONZALES
- ------------------------
Edward C. Gonzales
President
October 15, 1998
*** Money market funds seek to maintain a stable net asset value of $1.00 per
share. There is no assurance that they will be able to do so. An investment
in the fund is not insured or guaranteed by the U.S. government.
<PAGE>
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MANAGEMENT DISCUSSION & ANALYSIS
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- ---------------------------------------------------------------
TOWER CAPITAL APPRECIATION FUND
ANNUAL REPORT/12-MONTH PERIOD ENDED AUGUST 31, 1998
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Q
Stocks experienced an extreme level of day-to-day volatility at the end of
the fund's fiscal year period, with the Dow ending August significantly off
its historic July 17 high. What is your analysis of this unsteady market?
A
The global economic slowdown has reached the U.S. Action in the market
since the July 17 high is reflecting slower U.S. earnings growth.
Q
How did Tower Capital Appreciation Fund perform over its fiscal year vs.
its peer group--the Lipper Growth & Income Funds Average?*
A
Tower Capital Appreciation Fund had a return of 5.12%** versus (1.39)% for
the Lipper Growth and Income Funds average for the fiscal year ended August
31, 1998. These returns are net of fees.
Q
Many evolving political and economic variables--at home and abroad--are
driving the volatility of the market. As 1998 draws to a close, should
investors expect the rocky ride to continue until these variables are
resolved?
A
We believe that the market will continue to be a rocky ride for some time
to come.
* Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling
into the respective categories indicated. These figures do not reflect sales
charges.
** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than their
original cost.
<PAGE>
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TOWER CAPITAL APPRECIATION FUND--CLASS A SHARES
- ---------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN TOWER CAPITAL APPRECIATION FUND--CLASS A SHARES
The graph below illustrates the hypothetical investment of $10,000 in the
Tower Capital Appreciation Fund--Class A Shares (the "Fund") from October 14,
1988 (start of performance) to August 31, 1998, compared to the Standard &
Poor's 500 Index ("S&P 500").+
<TABLE>
<CAPTION>
Standard
Measurement Period and Poors
(Fiscal Year Covered) The Fund 500
<S> <C> <C>
10/14/88 9550 10000
8/31/89 12634 13342
8/31/90 12241 12668
8/31/91 15150 16076
8/31/92 15594 17346
8/31/93 18384 19983
8/31/94 19169 21078
8/31/95 23139 25597
8/31/96 27311 30391
8/31/97 38115 42748
8/31/98 40066 46219
</TABLE>
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURN** FOR THE
PERIOD ENDED AUGUST 31, 1998
1 Year............................................... 0.41%
5 Year............................................... 15.79%
Start of Performance (10/14/88)...................... 15.08%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
+ The S&P 500 is not adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. This index
is unmanaged.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the original maximum sales charge of 4.50% ($10,000 investment minus $450
sales charge = $9,550), which was effective on October 14, 1988. For the
period from October 31, 1993 to August 31, 1996, the sales charge was reduced
to 3.00%. For the fiscal year ended August 31, 1998, the sales charge was
4.50%. The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P 500 has been adjusted to reflect reinvestment of
dividends on securities in the index.
** Total return quoted reflects the current 4.50% sales charge.
<PAGE>
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TOWER CAPITAL APPRECIATION FUND--CLASS B SHARES
- ---------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN TOWER CAPITAL APPRECIATION FUND--CLASS B SHARES
The graph below illustrates the hypothetical investment of $10,000 in the
Tower Capital Appreciation Fund--Class B Shares (the "Fund") from December 2,
1996 (start of performance) to August 31, 1998, compared to the Standard &
Poor's 500 Index ("S&P 500").+
<TABLE>
<CAPTION>
Standard
Measurement Period and Poors
(Fiscal Year Covered) The Fund 500
<S> <C> <C>
12/2/96 10000 10000
8/31/97 11290 12048
8/31/98 11410 13026
</TABLE>
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURN** FOR THE
PERIOD ENDED AUGUST 31, 1998
1 Year............................................... (1.36%)
Start of Performance (12/2/96)....................... 10.22%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
+ The S&P 500 is not adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. This index
is unmanaged.
* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 4.50% contingent deferred sales charge on any
redemption less than two years from the purchase date. The Fund's performance
assumes the reinvestment of all dividends and distributions. The S&P 500 has
been adjusted to reflect reinvestment of dividends on securities in the
index.
** Total return quoted reflects all applicable contingent deferred sales
charges.
<PAGE>
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TOWER LOUISIANA MUNICIPAL INCOME FUND
ANNUAL REPORT/12-MONTH PERIOD ENDED AUGUST 31, 1998
- ---------------------------------------------------------------
Q
The fund's fiscal year ended August 31, 1998 was a relatively good period
for municipal bonds, as yields have become very attractive when compared to
U.S. Treasury yields. What's your review of the municipal bond marketplace
over the reporting period?
A
Municipal bond interest rates have declined much more slowly than U.S.
Treasury bond rates. Municipal yields are now very attractive versus
Treasury bond yields for investors seeking tax exempt income. This opportunity
is only temporary and will likely disappear as interest rates begin to
stabilize.
Q
How did Tower Louisiana Municipal Income Fund perform during the 12-month
period ended August 31, 1998?
A
The Tower Louisiana Municipal Income Fund experienced excellent performance
during the period ended August 31, 1998. The net asset value of the fund
rose $0.26 per share from $11.21 to $11.47 while the average quality of the fund
remained AAA.*
Q
What is the condition of the Louisiana economy and its municipal bond
market?
A
The Louisiana economy is experiencing steady growth much like the overall
US economy. This growth has bolstered state and local government finances
and opened the door for a possible quality rating upgrade for the state by the
major rating services. In sum, the Louisiana municipal bond market offers
investors looking for tax exempt income an attractive high quality alternative
investment.
Q
As expectations grow for an "easing," or reduction in interest rates by the
Federal Reserve Board, what kind of environment do you see ahead for
municipal bond investors?
A
Looking ahead, interest rates on municipal securities will likely drift
lower as the Federal Reserve Board moves to lower short term interest
rates. This environment of low inflation and low interest rates will likely
persist as long as the global economies remain sluggish.
* An AAA rating from Standard & Poor's means that the fund's portfolio holdings
and counterparties provide extremely strong protection against losses from
credit defaults. Ratings are subject to change, and do not remove market
risks.
<PAGE>
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TOWER LOUISIANA MUNICIPAL INCOME FUND
- ---------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN TOWER LOUISIANA MUNICIPAL INCOME FUND
The graph below illustrates the hypothetical investment of $10,000 in the
Tower Louisiana Municipal Income Fund (the "Fund") from October 14, 1988 (start
of performance) to August 31, 1998, compared to the Lehman Ten Year Insured
Index ("LTYII").+
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) The Fund LTYII
<S> <C> <C>
10/14/88 9550 10000
8/31/89 10106 10791
8/31/90 10600 11455
8/31/91 11829 12853
8/31/92 13132 14252
8/31/93 14806 16069
8/31/94 14694 16184
8/31/95 15899 17762
8/31/96 16700 18729
8/31/97 18088 20433
8/31/98 19542 22180
</TABLE>
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURN** FOR THE
PERIOD ENDED AUGUST 31, 1998
1 Year............................................... 4.77%
5 Year............................................... 5.06%
Start of Performance (10/14/88)...................... 7.18%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
+ The LTYII is not adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. This index
is unmanaged.
* Represents a hypothetical investment of $10,000 in the fund after deducting
the original maximum sales charge of 4.50% ($10,000 investment minus $450
sales charge = $9,550), which was effective on October 14, 1988. Effective
October 31, 1993, the maximum sales charge has been reduced to 3.00%. The
Fund's performance assumes the reinvestment of all dividends and
distributions. The LTYII has been adjusted to reflect reinvestment of
dividends on securities in the index.
** Total return quoted reflects the current 3.00% sales charge.
<PAGE>
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TOWER MID CAP EQUITY FUND
NEW FUND/ANNUAL REPORT/12-MONTH PERIOD ENDED AUGUST 31, 1998
- ---------------------------------------------------------------------------
Q
Tower Mid Cap Equity Fund, the newest addition to the Tower Fund family,
invests in stocks with market values of between $500 million and $10
billion. What advantage has this mid cap sector of the market historically
offered to investors?
A
The opportunity to diversify equity ownership in an area of the stock
market that has outperformed both large cap and small cap stocks.
Q
Although this is a new mutual fund, it actually has a 10-year record of
competitive performance as a Hibernia-managed common trust fund. What is
your strategy for selecting stocks for the fund?
A
Exclusive use of our quantitative stock reduction process has accounted for
the competitive performance of the Mid-Cap Fund.
Q
The third quarter of 1998 saw stocks for every type get hammered in the
market's turmoil. What is your short-term and long-term view of the market
from the perspective of a mid cap fund manager?
A
Continue to use our quantitative approach to select stocks in the mid cap
arenas, and not be influenced by market forces beyond our control.
<PAGE>
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TOWER MID CAP EQUITY FUND--CLASS A SHARES
- ---------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN TOWER MID CAP EQUITY FUND--CLASS A SHARES
The graph below illustrates the hypothetical investment of $10,000 in Tower
Mid Cap Equity Fund--Class A Shares, (the "Fund") from August 31, 1988** to
August 31, 1998 compared to the Standard & Poor's 400 Index ("S&P 400").+
<TABLE>
<CAPTION>
Standard
Measurement Period and Poors
(Fiscal Year Covered) The Fund 500
<S> <C> <C>
8/31/88 9500 10000
8/31/89 13158 14098
8/31/90 13155 12988
8/31/91 15823 18388
8/31/92 16138 20330
8/31/93 19613 25304
8/31/94 20407 26478
8/31/95 24113 31914
8/31/96 26850 35709
8/31/97 38902 49007
8/31/98 35913 44405
</TABLE>
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURN*** FOR THE
PERIOD ENDED AUGUST 31, 1998
1 Year................................................ (7.07%)
5 Years............................................... 11.82%
10 Years.............................................. 13.64%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
+ The S&P 400 is not adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. This index
is unmanaged.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the original maximum sales charge of 4.50% ($10,000 investment minus $450
sales charge = $9,550), which was effective on July 13, 1998. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
S&P 400 has been adjusted to reflect reinvestment of dividends on securities
in the index.
** Tower Mid Cap Equity Fund Class A Shares is the successor to a common trust
fund. The quoted performance data includes performance of the common trust
fund for the period from 8/31/88 to 7/12/98 when the Fund first commenced
operation, as adjusted to reflect the Fund's anticipated expenses. The
common trust fund was not registered under the Investment Company Act of
1940 ("1940 Act") and therefore was not subject to certain investment
restrictions imposed by the 1940 Act. If the common trust fund had been
registered under the 1940 Act, the performance may have been adversely
affected.
*** Total return quoted reflects the current 4.50% sales charge.
<PAGE>
- ---------------------------------------------------------------
TOWER MID CAP EQUITY FUND--CLASS B SHARES
- ---------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN TOWER MID CAP EQUITY FUND--CLASS B SHARES
The graph below illustrates the hypothetical investment of $10,000 in Tower
Mid Cap Equity Fund--Class B Shares (the "Fund") from July 13, 1998 (start of
performance) to August 31, 1998 compared to the Standard & Poor's 400 ("S&P
400").+
<TABLE>
<CAPTION>
Standard
Measurement Period and Poors
(Fiscal Year Covered) The Fund 500
<S> <C> <C>
7/13/98 10000 10000
8/31/98 7680 7823
</TABLE>
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURN** FOR THE
PERIOD ENDED AUGUST 31, 1998
Start of Performance (7/13/98)(cumulative)........... (23.20%)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
+ The S&P 400 is not adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. This index
is unmanaged.
* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 5.50% contingent deferred sales charge on any
redemption less than one year from the purchase date. The Fund's performance
assumes the reinvestment of all dividends and distributions. The S&P 400 has
been adjusted to reflect reinvestment of dividends on securities in the
index.
** Total return quoted reflects all applicable contingent deferred sales
charges.
<PAGE>
- ---------------------------------------------------------------
TOWER TOTAL RETURN BOND FUND
ANNUAL REPORT/12-MONTH PERIOD ENDED AUGUST 31, 1998
- ---------------------------------------------------------------
Q
What are your comments on the U.S. bond market during the fund's fiscal
year ended August 31, 1998?
A
The U.S. bond market has enjoyed an extraordinary period of low inflation
and falling global interest rates combined with steady domestic growth and
federal government surpluses. In this environment, bond prices have risen
sharply while rates have fallen.
Q
While other, credit-sensitive sectors of the bond market struggled later in
the reporting period, Treasuries benefited from a "flight to quality." Do
you see that trend continuing?
A
The trend toward the safe haven of U.S. Treasuries will continue for the
foreseeable future. International investors remain nervous about the
serious financial problems experienced by Asia, Russia and other countries
around the globe. These problems will likely not be resolved in the near future.
In addition, U.S. equity investors are also extremely nervous and continue to
see the Treasury bond market as a safe "parking spot" for cash until the turmoil
subsides.
Q
How did Tower Total Return Bond Fund perform compared to its benchmark, the
Salomon Brothers Broad Investment Grade Bond Index*?
A
The Tower Total Return Bond Fund returned 9.51%** for the year ended August
31, 1998 on a net asset value basis. This compares to the Salomon Brothers
Broad Index return of 10.50%.
*Salomon Brothers Broad Investment-Grade Bond Index is an unmanaged index
designed to provide the investment-grade bond manager with an all-inclusive
universe of institutionally traded U.S. Treasury, Agency, Mortgage and
Corporate securities which can be used as a benchmark. Investments cannot be
made in an index.
**Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
<PAGE>
Q
Did you make any significant changes to the fund's allocation among
different bond sectors? How were the fund's assets allocated among
Treasuries, mortgage-backed securities and corporates at the end of the
reporting period?
A
During the past year, several steps were taken to increase the overall
portfolio return. High quality corporate and taxable municipal securities
were added to increase portfolio income while treasury securities were reduced.
At the year end, the portfolio asset allocation was: U.S. Treasury 41%, Agency
Mortgages 22%, Asset backed Securities 1%, Corporate bonds 29%, Taxable
Municipal 6% and Cash Equivalents 1%.
Q
With expectations mounting for a Federal Reserve Board "easing," or cut in
rates, what is your outlook for the remainder of 1998, and how may that
impact your strategy?
A
We anticipate interest rates to move lower as the Federal Reserve Board
seeks to offset the impact of the global economic slowdown. Our strategy,
given this environment, will be to position the fund's average maturity to take
advantage of rising bond prices and lower interest rates. We will also continue
to emphasize higher yielding corporate and taxable municipal securities in order
to maintain the portfolio income.
<PAGE>
- ---------------------------------------------------------------
TOWER TOTAL RETURN BOND FUND
- ---------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN TOWER TOTAL RETURN BOND FUND
The graph below illustrates the hypothetical investment of $10,000 in the
Tower Total Return Bond Fund (the "Fund") from November 2, 1992 (start of
performance) to August 31, 1998, compared to the Salomon Brothers Broad
Investment Grade Bond Index ("SBBIGBI").+
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) The Fund SBBIGBI
<S> <C> <C>
11/2/92 9550 10000
8/31/93 10563 11126
8/31/94 10303 10965
8/31/95 11353 12212
8/31/96 11683 12714
8/31/97 12701 13985
8/31/98 13909 15453
</TABLE>
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURN** FOR THE
PERIOD ENDED AUGUST 31, 1998
1 Year............................................... 6.21%
5 Year............................................... 5.02%
Start of Performance (11/2/92)....................... 6.10%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
+ The SBBIGBI is not adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. This index
is unmanaged.
* Represents a hypothetical investment of $10,000 in the fund after deducting
the original maximum sales charge of 4.50% ($10,000 investment minus $450
sales charge = $9,550), which was effective on November 2, 1992. Effective
May 1, 1994, the maximum sales charge has been reduced to 3.00%. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
SBBIGBI has been adjusted to reflect reinvestment of dividends on securities
in the index.
** Total return quoted reflects the current 3.00% sales charge.
<PAGE>
- ---------------------------------------------------------------
TOWER U.S. GOVERNMENT INCOME FUND
ANNUAL REPORT/12-MONTH PERIOD ENDED AUGUST 31, 1998
- ---------------------------------------------------------------
Q
What are your comments on the bond market over the fund's fiscal year ended
August 31, 1998, in which we experienced negligible inflation, extreme
stock market volatility and overseas economic distress?
A
All of the factors listed above became reasons to buy bonds in the past
year. As a result we saw the yield on the 5-year U.S. Treasury decline from
6.2% to 4.9%, generating nice portfolio gains for the US Government Income Fund.
Q
How did Tower U.S. Government Income Fund perform in terms of income and
total return over the 12-month period ended August 31, 1998?
A
The total return for the period was 9.7%* with dividends reinvested. Simple
price appreciation was 3.5% for the 1-year period ended August 31, 1998.
Q
Due to a "flight to quality" from stock volatility and credit-sensitive
sectors of the bond market, Treasuries emerged as the top-performing bond
sector late in the reporting period. Do you expect that trend to continue?
A
I do expect this trend to continue for the near future. Until the roiling
of the worldwide equity markets ceases, we will continue to see foreign and
domestic investors put their money into U.S. Treasuries, the safest investment
on the planet.
Q
Did you make any significant changes to the fund's allocation among
different bond sectors? How were the fund's assets allocated at the end of
the reporting period among mortgage-backed securities, Treasuries and
agencies?
A
We did shift some assets out of mortgage securities and into Treasuries and
Agencies in the most recent 6 months. As of August 31, 1998, assets were
allocated as follows: Mortgages 25%; Treasuries 30%; Agencies 33%; and other
securities, including cash, 12%. At the semi-annual review February 28, 1998,
Mortgages were 38% and Treasuries and Agencies totaled 53%.
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
<PAGE>
Q
With expectations mounting for a Federal Reserve Board (the "Fed")
"easing," or cut in rates, what is your outlook for the remainder of the
fund's fiscal year, and how may that impact your strategy?
A
The bond market should continue to show strength in the coming months. Much
will depend on the success of the Fed to keep the U.S. economy strong
through at least one, and most likely a series of small rate cuts. If the Fed
action works and the U.S. economy picks up steam, bonds will lose some ground
and we will act accordingly.
<PAGE>
- ---------------------------------------------------------------
TOWER U.S. GOVERNMENT INCOME FUND
- ---------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN TOWER U.S. GOVERNMENT INCOME FUND
The graph below illustrates the hypothetical investment of $10,000 in the
Tower U.S. Government Income Fund (the "Fund") from October 14, 1988 (start of
performance) to August 31, 1998, compared to the Salomon Brothers Medium Term
Broad Index ("SBMTBI").+
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) The Fund SBMTBI
<S> <C> <C>
10/14/88 9550 10000
8/31/89 10429 10951
8/31/90 11225 11899
8/31/91 12715 13525
8/31/92 14078 15282
8/31/93 15220 16599
8/31/94 14966 16599
8/31/95 16402 18262
8/31/96 17012 19113
8/31/97 18439 20866
8/31/98 20235 22706
</TABLE>
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURN** FOR THE
PERIOD ENDED AUGUST 31, 1998
1 Year............................................... 6.43%
5 Year............................................... 5.23%
Start of Performance (10/14/88)...................... 7.57%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
+ The SBMTBI is not adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. This index
is unmanaged.
* Represents a hypothetical investment of $10,000 in the fund after deducting
the original maximum sales charge of 4.50% ($10,000 investment minus $450
sales charge = $9,550), which was effective on October 14, 1988. Effective
October 31, 1993, the maximum sales charge was reduced to 3.00%. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
SBMTBI has been adjusted to reflect reinvestment of dividends on securities
in the index.
** Total return quoted reflects the current 3.00% sales charge.
<PAGE>
- ---------------------------------------------------------------
TOWER CASH RESERVE FUND
ANNUAL REPORT/12-MONTH PERIOD ENDED AUGUST 31, 1998
- ---------------------------------------------------------------
Q
How did the cash markets react to the combination of benign inflation and
serious political and economic developments during the reporting period
ended August 31, 1998?
A
The cash markets saw no dramatic shift higher or lower as the Federal
Reserve Board stayed on the sidelines during the entire reporting period.
Q
As a result, where did the 7-day net yield of Tower Cash Reserve Fund stand
at the beginning and end of the reporting period?
A
The 7-day net yield was 4.73%* on August 31, 1997 and 4.71%* on August 31,
1998.
Q
What was your strategy during the reporting period in terms of average
maturity?
A
We maintained a target average maturity between 30-40 days.
Q
As expectations grow for an "easing," or reduction in interest rates by the
Federal Reserve Board, what kind of environment do you see ahead for money
market investors?
A
Money market rates will decline. I look for rates to be about 50 basis
points lower by year-end.
* Performance quoted represents past performance and is not indicative of future
results. Yield will vary. Yields quoted for money market funds most closely
reflect the fund's current earnings.
<PAGE>
- ---------------------------------------------------------------
TOWER U.S. TREASURY MONEY MARKET FUND
ANNUAL REPORT/12-MONTH PERIOD ENDED AUGUST 31, 1998
- ---------------------------------------------------------------
Q
Inflation remained benign, but serious political and economic developments
impacted the financial markets during the reporting period. How did the
cash markets react?
A
The cash markets did experience some volatility as a result of the last
year's events but nowhere near the results seen in the stock and bond
markets. At the end of the fiscal year, short-term rates were pretty near where
they started as the Federal Reserve Board stayed on the sidelines.
Q
As a result, where did the 7-day net yield of Tower U.S. Treasury Money
Market Fund stand at the beginning and end of the reporting period?
A
The 7-day net yield was 4.81%* on August 31, 1997 and 4.78%* on August 31,
1998.
Q
What was your strategy during the reporting period in terms of average
maturity?
A
We maintained a target average maturity between 30-40 days.
Q
As expectations grow for an "easing," or reduction in interest rates by the
Federal Reserve Board, what kind of environment do you see ahead for money
market investors?
A
Money market rates will decline. The current position with overnight yields
higher than 30 year Treasuries cannot continue indefinitely.
* Performance quoted represents past performance and is not indicative of future
results. Yield will vary. Yields quoted for money market funds most closely
reflect the fund's current earnings.
<PAGE>
- ------------------------------------------------------
PORTFOLIOS OF INVESTMENTS TOWER MUTUAL FUNDS
August 31, 1998
- ------------------------------------------------------
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
----------
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--98.1%
Commercial Services--1.2%
15,500 Omnicom Group, Inc. $ 738,188
130,000 Sysco Corp. 2,624,375
------------
Total 3,362,563
------------
Consumer Durables--2.1%
57,430 Ford Motor Co. 2,526,920
76,900 Newell Co. 3,671,975
------------
Total 6,198,895
------------
Consumer Non-Durables--
8.7%
40,750 Avon Products, Inc. 2,562,156
20,800 Clorox Co. 2,005,900
97,700 Coca-Cola Co. 6,362,712
80,200 ConAgra, Inc. 1,984,950
105,000 PepsiCo, Inc. 2,907,187
105,900 Philip Morris Cos., Inc. 4,401,469
37,920 Procter & Gamble Co. 2,900,880
19,700 V.F. Corp. 746,137
19,900 Wrigley (Wm.), Jr. Co. 1,542,250
------------
Total 25,413,641
------------
Consumer Services--4.0%
41,000 Gannett Co., Inc. 2,419,000
46,300 (a)King World Productions,
Inc. 972,300
36,700 McDonald's Corp. 2,057,494
39,800 Time Warner, Inc. 3,198,925
57,600 (a)Viacom, Inc., Class B 2,858,400
------------
Total 11,506,119
------------
Electronic
Technology--8.7%
43,987 (a)Cisco Systems, Inc. 3,601,436
78,700 (a)Dell Computer Corp. 7,870,000
66,900 (a)EMC Corp. Mass 3,023,044
103,400 Harris Corp. 3,295,875
11,800 Intel Corp. 840,013
52,200 (a)Sun Microsystems, Inc. 2,068,425
62,100 United Technologies Corp. 4,506,131
------------
Total 25,204,924
------------
Energy Minerals--7.1%
49,700 Amoco Corp. 2,252,031
23,200 Atlantic Richfield Co. 1,345,600
40,500 British Petroleum Co. PLC,
ADR 2,961,562
----------
SHARES VALUE
102,950 Exxon Corp. $ 6,736,791
51,400 Mobil Corp. 3,553,025
38,700 Royal Dutch Petroleum Co.,
ADR 1,538,325
18,600 Texaco, Inc. 1,033,462
44,800 USX Corp. 1,164,800
------------
Total 20,585,596
------------
Finance--15.4%
58,200 AMBAC 2,746,313
65,500 Allstate Corp. 2,456,250
71,500 BankAmerica Corp. 4,580,469
99,400 BankBoston Corp. 3,547,337
19,000 Chase Manhattan Corp. 1,007,000
20,100 Citicorp 2,173,312
108,700 Equitable Cos., Inc. 6,216,281
96,300 First Union Corp. 4,670,550
75,825 Fleet Financial Group,
Inc. 4,971,277
39,500 Lehman Brothers Holdings,
Inc. 1,555,313
49,700 Merrill Lynch & Co., Inc. 3,280,200
15,700 Morgan Stanley, Dean
Witter & Co. 911,581
22,200 National City Corp. 1,304,250
68,150 Republic New York Corp. 2,811,188
54,200 Travelers Group, Inc. 2,405,125
------------
Total 44,636,446
------------
Health Services--0.7%
90,200 HBO & Co. 1,916,750
------------
Health Technology--12.2%
89,400 Abbott Laboratories 3,441,900
95,550 Biomet, Inc. 2,567,906
54,700 Bristol-Myers Squibb Co. 5,353,762
17,400 Guidant Corp. 1,074,450
35,900 Johnson & Johnson 2,477,100
38,600 Merck & Co., Inc. 4,475,187
74,900 Pfizer, Inc. 6,965,700
81,900 Schering Plough Corp. 7,043,400
30,700 Warner-Lambert Co. 2,003,175
------------
Total 35,402,580
------------
Industrial Services--0.6%
40,700 Schlumberger Ltd. 1,783,169
------------
</TABLE>
(See Notes to Portfolios of Investments)
<PAGE>
CAPITAL APPRECIATION FUND (continued)
<TABLE>
<CAPTION>
----------
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--continued
Non-Energy Minerals--1.2%
33,000 Aluminum Co. of America $ 1,975,875
13,700 Vulcan Materials Co. 1,527,550
------------
Total 3,503,425
------------
Process Industries--3.5%
91,275 Ball Corp. 3,411,403
68,450 PPG Industries, Inc. 3,478,116
149,200 Solutia, Inc. 3,347,675
------------
Total 10,237,194
------------
Producer Manufacturing--
8.4%
40,900 Dana Corp. 1,602,769
71,900 Deere & Co. 2,368,206
35,200 Emerson Electric Co. 2,006,400
127,300 General Electric Co. 10,184,000
30,200 Honeywell, Inc. 1,887,500
59,800 Tyco International, Ltd. 3,318,900
34,500 Xerox Corp. 3,029,531
------------
Total 24,397,306
------------
Retail Trade--5.7%
95,800 Dayton-Hudson Corp. 3,448,800
95,450 Home Depot, Inc. 3,674,825
30,600 Lowe's Cos., Inc. 1,072,912
69,550 (a)Safeway, Inc. 2,738,531
203,600 TJX Cos., Inc. 4,542,825
19,900 Wal-Mart Stores, Inc. 1,169,125
------------
Total 16,647,018
------------
Technology Services--7.1%
50,500 (a)Compuware Corp. 2,294,594
30,400 General Motors Corp. 1,755,600
86,200 Lucent Technologies, Inc. 6,109,425
103,100 (a)Microsoft Corp. 9,891,156
34,200 (a)Oracle Corp. 681,863
------------
Total 20,732,638
------------
----------
SHARES OR
PRINCIPAL
AMOUNT VALUE
Transportation--1.0%
23,400 Burlington Northern Santa
Fe $ 2,177,663
14,100 (a)UAL Corp. 850,406
------------
Total 3,028,069
------------
Utilities--10.5%
59,000 AT&T Corp. 2,957,375
47,500 Ameritech Corp. 2,238,438
67,600 Bell Atlantic Corp. 2,982,850
69,500 BellSouth Corp. 4,765,094
44,000 Coastal Corp. 1,144,000
65,800 DTE Energy Co. 2,771,825
179,700 Edison International 5,110,219
79,700 GTE Corp. 3,985,000
116,800 SBC Communications, Inc. 4,438,400
------------
Total 30,393,201
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST
$216,874,588) 284,949,534
------------
(b) REPURCHASE
AGREEMENTS--1.7%
$5,072,000 State Street Corp., 5.70%,
dated 8/31/1998, due
9/1/1998 (at amortized
cost) 5,072,000
------------
TOTAL INVESTMENTS
(IDENTIFIED COST
$221,946,588) $290,021,534
============
</TABLE>
(See Notes to Portfolios of Investments)
<PAGE>
LOUISIANA MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING(D) VALUE
<C> <S> <C> <C>
(c) LONG-TERM
MUNICIPALS--97.9%
COLORADO--0.5%
$ 475,000 Colorado Health
Facilities
Authority, Revenue
Bonds, 7.125% (Rose
Medical Center
Project), 9/1/2008 AAA $ 539,928
------------
FLORIDA--0.8%
145,000 Florida State Board
of Education
Administration, GO
UT Refunding Bonds,
6.10%, 6/1/2000 AA+ 147,459
655,000 Florida State Board
of Education
Administration, GO
UT Refunding Bonds,
6.10%, 6/1/2000 AAA 665,696
------------
Total 813,155
------------
LOUISIANA--95.9%
500,000 Alexandria, LA
Utilities Revenue,
Revenue Bonds,
5.25% (FGIC INS)/
(Original Issue
Yield: 5.70%),
5/1/2010 AAA 528,735
1,000,000 Bossier City, LA,
Revenue Bonds,
5.00% (FGIC INS),
12/1/2019 AAA 999,270
500,000 Bossier City, LA,
Revenue Refunding
Bonds, 5.20% (FGIC
INS)/(Original
Issue Yield:
5.35%), 11/1/2014 AAA 516,305
200,000 Caddo Parish, LA, GO UT, 7.20% (MBIA INS)/(United States
Treasury PRF)/ (Original Issue Yield: 7.45%),
2/1/1999 (@100) AAA 203,114
PRINCIPAL CREDIT
AMOUNT RATING(D) VALUE
$ 250,000 East Ascension
Parish, LA Drainage
District No. 1,
Revenue Refunding
Bonds, 5.45% (FGIC
INS)/ (Original
Issue Yield:
5.60%), 12/1/2009 AAA $ 267,998
1,500,000 East Baton Rouge Parish, LA, Refunding Revenue Bonds, 5.40%
(FGIC INS)/(Original Issue Yield:
5.85%), 2/1/2018 AAA 1,563,060
1,250,000 East Baton Rouge
Parish, LA, Sales &
Use Tax Revenue
Bonds (Series ST),
5.90% (FGIC INS),
2/1/2017 AAA 1,345,038
930,000 East Baton Rouge
Parish, LA, Sales &
Use Tax Revenue
Bonds (Series ST-
A), 4.80% (FGIC
INS)/ (Original
Issue Yield:
5.15%), 2/1/2011 AAA 944,834
500,000 East Baton Rouge
Parish, LA, Sales
and Use Tax Revenue
Bonds (Series ST),
5.20% (FSA INS)/
(Original Issue
Yield: 5.65%),
2/1/2017 AAA 510,790
205,000 East Baton Rouge, LA
Mortgage Finance
Authority, Revenue
Bonds, 7.625% (GNMA
COL), 8/1/2008 Aaa 214,328
300,000 East Baton Rouge, LA
Mortgage Finance
Authority, Revenue
Refunding Bonds,
4.80% (GNMA COL),
10/1/2004 Aaa 307,782
</TABLE>
(See Notes to Portfolios of Investments)
<PAGE>
LOUISIANA MUNICIPAL INCOME FUND (continued)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING(D) VALUE
<C> <S> <C> <C>
LONG-TERM
MUNICIPALS--
continued
Louisiana--continued
$ 540,000 East Baton Rouge, LA
Mortgage Finance
Authority, SFM
Purchasing Revenue
Bonds (Series B),
5.40% (FNMA COL),
10/1/2025 Aaa $ 546,944
1,520,000 East Baton Rouge, LA
Mortgage Finance
Authority, SFM
Revenue Refunding
Bonds (Series B),
7.40% (GNMA COL),
8/1/2012 Aaa 1,594,495
570,000 East Baton Rouge, LA
Mortgage Finance
Authority, SFM
Revenue Refunding
Bonds (Series C),
7.00%, 4/1/2032 Aaa 602,804
1,000,000 Ernest N Morial-New
Orleans, LA Exhibit
Hall Authority,
Special Tax
Refunding Bonds
(Series C), 5.50%
(MBIA INS)/
(Original Issue
Yield: 5.58%),
7/15/2018 AAA 1,045,990
1,200,000 Ernest N Morial-New
Orleans, LA Exhibit
Hall Authority,
Special Tax
Refunding Bonds
(Series C), 5.60%
(MBIA INS)/
(Original Issue
Yield: 5.65%),
7/15/2025 AAA 1,267,296
PRINCIPAL CREDIT
AMOUNT RATING(D) VALUE
$ 1,450,000 Greater New Orleans
Expressway
Commission, LA,
Revenue Refunding
Bonds, 6.00%
(Louisiana
Expressway)/(MBIA
INS)/(Original
Issue Yield:
6.55%), 11/1/2016 AAA $ 1,579,224
1,000,000 Houma, LA, Utilities
Revenue Refunding
Bonds, 6.25% (FGIC
INS)/(Original
Issue Yield:
6.40%), 1/1/2012 AAA 1,083,910
1,000,000 Jefferson Parish LA
Hospital Service
District No. 2,
Hospital Revenue
Bonds, 5.50% (MBIA
INS)/ (Original
Issue Yield:
5.924%), 7/1/2008 AAA 1,067,860
1,000,000 Jefferson Parish LA
Hospital Service
District No. 2,
Refunding Revenue
Bonds, 5.75% (MBIA
INS)/ (Original
Issue Yield:
6.05%), 7/1/2016 AAA 1,052,040
2,000,000 Jefferson Parish, LA
Home Mortgage
Authority,
Refunding Revenue
Bonds (Series A),
6.15% (FNMA and
GNMA COLs),
6/1/2028 AAA 2,161,600
500,000 Jefferson Parish, LA
Home Mortgage
Authority, Revenue
Bonds, 5.85%
(Fannie Mae and
GNMA LOCs),
12/1/2028 AAA 523,895
</TABLE>
(See Notes to Portfolios of Investments)
<PAGE>
LOUISIANA MUNICIPAL INCOME FUND (continued)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING(D) VALUE
<C> <S> <C> <C>
LONG-TERM
MUNICIPALS--
continued
Louisiana--continued
$ 1,000,000 Jefferson Parish, LA
School Board, GO UT
Bonds, (FSA INS)/
(Original Issue
Yield: 5.10%),
3/1/2010 AAA $ 584,140
200,000 Jefferson Parish, LA
School Board,
Revenue Bonds,
5.00% (AMBAC INS),
2/1/2008 AAA 210,660
1,000,000 Jefferson Parish,
LA, Drain Sales Tax
Revenue Bond, 6.50%
(AMBAC INS)/
(Original Issue
Yield: 6.753%),
11/1/2011 AAA 1,081,480
165,000 Jefferson, LA
Housing Development
Corp., Multifamily
Revenue Refunding
Bonds (Series A),
7.375% (Concordia
Project)/ FNMA
COL)/ (Original
Issue Yield:
7.544%), 8/1/2005 AAA 177,901
1,000,000 Lafayette Parish, LA
School Board,
Revenue Bonds,
4.60% (FGIC INS),
4/1/2014 AAA 977,010
1,000,000 Lafayette Parish, LA
School Board,
Revenue Bonds,
4.60% (FGIC INS),
4/1/2018 AAA 953,860
2,000,000 Lafayette Parish, LA School Board, Revenue Bonds, 4.60% (FGIC
INS)/ (Original Issue Yield: 5.05%),
4/1/2017 AAA 1,914,340
PRINCIPAL CREDIT
AMOUNT RATING(D) VALUE
$ 500,000 Lafayette, LA Public
Power Authority,
Refunding Revenue
Bonds, 5.50% (AMBAC
INS), 11/1/2010 AAA $ 524,210
500,000 Lafayette, LA Public
Power Authority,
Refunding Revenue
Bonds, 5.50% (AMBAC
INS), 11/1/2011 AAA 523,140
260,000 Lafayette, LA Public
Power Authority,
Refunding Revenue
Bonds, 5.50% (AMBAC
INS), 11/1/2012 AAA 271,302
250,000 Lafayette, LA,
Public Improvement
Sales Tax Revenue
Bonds, 5.50% (FGIC
INS)/ (Original
Issue Yield:
5.60%), 3/1/2009 AAA 265,280
1,650,000 Louisiana HFA,
Multifamily Housing
Revenue Refunding
Bonds (Series A),
6.10% (Woodward
Wright Apartments
Project)/(GNMA
COL), 4/20/2018 Aaa 1,731,972
350,000 Louisiana HFA,
Multifamily Housing
Revenue Refunding
Bonds, 5.85%
(Woodward Wright
Apartments
Project)/ (GNMA
COL), 12/20/2008 Aaa 368,862
1,000,000 Louisiana HFA,
Multifamily Housing
Revenue Refunding
Bonds, 6.20%
(Woodward Wright
Apartments
Project)/ (GNMA
COL), 6/20/2028 Aaa 1,049,500
</TABLE>
(See Notes to Portfolios of Investments)
<PAGE>
LOUISIANA MUNICIPAL INCOME FUND (continued)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING(D) VALUE
<C> <S> <C> <C>
LONG-TERM
MUNICIPALS--
continued
Louisiana--continued
$ 1,000,000 Louisiana HFA,
Revenue Bond, 7.10%
(Villa Maria
Retirement Center)/
(GNMA COL),
1/20/2035 AAA $ 1,084,540
545,000 Louisiana HFA, SFM
Revenue Bonds
(Series A-2),
6.55%, 12/1/2026 Aaa 585,041
500,000 Louisiana PFA,
Hospital Revenue
Bonds, 5.70%
(Woman's Hospital
Foundation)/(FGIC
INS)/(Original
Issue Yield:
5.80%), 10/1/2008 AAA 542,715
500,000 Louisiana PFA,
Hospital Revenue Refunding Bonds, 6.40% (Lafayette General
Medical Center Project)/ (FSA INS)/(Original Issue Yield:
6.53%), 10/1/2012 AAA 555,990
2,045,000 Louisiana PFA,
Multifamily Housing
Revenue Bonds
(Series A), 7.50%
(FHLMC COL),
6/1/2021 AAA 2,221,545
2,000,000 Louisiana PFA,
Refunding Revenue
Bonds, 5.75% (Alton
Ochsner Medical
Foundation)/(MBIA
INS)/(Original
Issue Yield:
6.636%), 5/15/2011 AAA 2,116,480
PRINCIPAL CREDIT
AMOUNT RATING(D) VALUE
$ 1,000,000 Louisiana PFA,
Revenue Bond, 5.25%
(Xavier University
of LA
Project)/(MBIA INS
LOC), 9/1/2027 AAA $ 1,022,230
750,000 Louisiana PFA,
Revenue Bond, 6.00%
(General Health,
Inc.)/(MBIA
INS)/(Original
Issue Yield:
6.15%), 11/1/2012 AAA 816,840
500,000 Louisiana PFA,
Revenue Bonds,
5.10% (Tulane
University)/(MBIA
INS)/(Original
Issue Yield:
5.27%), 11/15/2021 AAA 500,175
275,000 Louisiana PFA,
Revenue Bonds,
5.875% (Our Lady of
Lourdes Regional
Medical Center)/
(MBIA INS)/
(Original Issue
Yield: 5.95%),
2/1/2002 AAA 292,523
425,000 Louisiana PFA,
Revenue Bonds,
6.00% (Our Lady of
Lourdes Regional
Medical Center)/
(MBIA INS)/
(Original Issue
Yield: 6.05%),
2/1/2003 AAA 460,424
1,890,000 Louisiana PFA,
Revenue Refunding
Bonds (Series A),
6.75% (Bethany Home
Project)/(FHA LOC),
8/1/2025 AAA 2,033,073
</TABLE>
(See Notes to Portfolios of Investments)
<PAGE>
LOUISIANA MUNICIPAL INCOME FUND (continued)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING(D) VALUE
<C> <S> <C> <C>
LONG-TERM
MUNICIPALS--
continued
Louisiana--continued
$ 350,000 Louisiana PFA,
Revenue Refunding
Bonds (Series B),
6.50% (Alton
Ochsner Medical
Foundation)/
(MBIA INS)/(Original Issue Yield:
6.743%), 5/15/2022 AAA $ 381,500
1,000,000 Louisiana PFA,
Revenue Refunding
Bonds, 5.45% (AMBAC
INS)/ (Original
Issue Yield:
5.45%), 2/1/2013 NR 1,055,790
830,000 Louisiana PFA,
Revenue Refunding
Bonds, 6.20%
(Student Loans
GTD), 3/1/2001 Aaa 869,110
750,000 Louisiana PFA,
Revenue Refunding
Bonds, 7.70%
(Jefferson Parish
Eastbank)/(FGIC
INS)/(Original
Issue Yield:
7.747%), 8/1/2010 AAA 787,710
PRINCIPAL CREDIT
AMOUNT RATING(D) VALUE
$ 385,000 Louisiana PFA,
Student Loan
Refunding Revenue
Bonds (Series A-2),
6.75% (Student
Loans GTD),
9/1/2006 NR $ 407,145
315,000 Louisiana PFA,
Student Opportunity
Loans Revenue Bonds
(Series A), 6.80%
(FSA INS), 1/1/2006 AAA 340,216
310,000 Louisiana PFA,
Student Opportunity
Loans Revenue Bonds
(Series A), 6.85%
(FSA COL), 1/1/2009 AAA 334,946
215,000 Louisiana Public
Facilities
Authority Hospital
Revenue, Refunding
Revenue Bonds,
5.00% (Louisiana
Health System
Corporate
Project)/(FSA
LOC)/(Original
Issue Yield:
5.10%), 10/1/2013 AAA 217,817
500,000 Louisiana Stadium
and Expo District,
Hotel Occupancy Tax
and Stadium Revenue
Refunding Bonds
(Series A), 6.00%
(FGIC INS),
7/1/2016 AAA 548,080
2,155,000 Louisiana Stadium
and Expo District,
Hotel Occupancy Tax
and Revenue
Refunding Bonds
(Series A), 6.00%
(FGIC INS)/(Original Issue Yield:
6.10%), 7/1/2024 AAA 2,357,570
</TABLE>
(See Notes to Portfolios of Investments)
<PAGE>
LOUISIANA MUNICIPAL INCOME FUND (continued)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING(D) VALUE
<C> <S> <C> <C>
LONG-TERM
MUNICIPALS--
continued
Louisiana--continued
$ 3,500,000 Louisiana Stadium
and Expo District,
Revenue Bonds,
5.75% (FGIC INS)/
(Original Issue
Yield: 5.85%),
7/1/2026 AAA $ 3,765,055
5,000,000 Louisiana State
University and
Agricultural and
Mechanical College,
Revenue Bonds,
5.50% (MBIA INS)/
(Original Issue
Yield: 5.80%),
7/1/2026 AAA 5,245,450
1,565,000 Louisiana State
University and
Agricultural and
Mechanical College,
Revenue Bonds,
5.75% (FGIC INS)/
(Original Issue
Yield: 6.043%),
7/1/2014 AAA 1,673,814
1,250,000 Louisiana State
University and
Agricultural and
Mechanical College,
University &
College Improvement
Revenue Refunding
Bonds, 5.00%
(University of New
Orleans Project)/
(AMBAC LOC),
10/1/2030 NR 1,231,275
1,000,000 Louisiana State, GO UT Bonds (Series B), 5.00% (FSA
INS)/(Original Issue Yield:
5.17%), 4/15/2018 AAA 999,320
PRINCIPAL
AMOUNT CREDIT
OR SHARES RATING(D) VALUE
$ 220,000 Louisiana State, GO
UT Refunding Bonds,
5.375% (MBIA INS)/
(Original Issue
Yield: 5.50%),
8/1/2005 AAA $ 236,667
775,000 Louisiana State, GO UT, 5.125% (FGIC INS)/(Original Issue
Yield:
5.30%), 4/15/2009 AAA 821,221
250,000 Louisiana State, GO UT, 6.30% (MBIA INS)/(Original Issue
Yield:
6.35%), 5/1/2004 AAA 275,228
400,000 Louisiana State, Gas
and Fuel Tax
Revenue Bonds
(Series A), 7.25%
(FGIC INS)/
(Original Issue
Yield: 7.45%),
11/15/2004 AAA 424,584
250,000 Monroe, LA School
District, Special
School District, GO
UT Bonds, 5.35%
(FGIC INS)/
(Original Issue
Yield: 5.75%),
3/1/2009 AAA 263,200
525,000 Monroe-Brentwood, LA
Housing Development
Corp., Multifamily
Housing Mortgage
Revenue Refunding
Bonds, 6.50% (FNMA
COL), 2/1/2010 Aaa 544,945
1,020,000 Monroe-Brentwood, LA
Housing Development
Corp., Multifamily
Housing Mortgage
Revenue Refunding
Bonds, 6.70% (FNMA
COL), 8/1/2021 Aaa 1,053,895
</TABLE>
(See Notes to Portfolios of Investments)
<PAGE>
LOUISIANA MUNICIPAL INCOME FUND (continued)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING(D) VALUE
<C> <S> <C> <C>
LONG-TERM
MUNICIPALS--
continued
Louisiana--continued
$ 2,000,000 New Orleans, LA
Audubon Park, GO LT
Bonds, 6.00% (FGIC
INS)/(Original
Issue Yield:
6.25%), 10/1/2013 AAA $ 2,187,340
1,250,000 New Orleans, LA Home
Mortgage Authority,
SFM Revenue Bonds
(Series A), 6.65%
(GNMA COL),
9/1/2008 Aaa 1,324,913
100,000 New Orleans, LA Home
Mortgage Authority,
SFM Revenue Bonds,
5.35% (FNMA and
GNMA COLs),
12/1/2020 Aaa 102,764
1,000,000 New Orleans, LA Home
Mortgage Authority, Special Obligation Revenue Bonds, 6.25%
(United States Treasury COL)/ (Original Issue Yield:
6.517%), 1/15/2011 AAA 1,141,680
230,000 New Orleans, LA
Housing Development
Corp., Multifamily
Housing Refunding
Revenue Bonds,
7.375% (FNMA COL)/
(Original Issue
Yield: 7.544%),
8/1/2005 AAA 248,982
PRINCIPAL CREDIT
AMOUNT RATING(D) VALUE
$ 835,000 New Orleans, LA
Housing Development
Corp., Multifamily
Housing Revenue
Bonds, 7.375%
(Southwood
Patio)/(FNMA
COL)/(Original
Issue Yield:
7.544%), 8/1/2005 AAA $ 899,662
1,900,000 New Orleans, LA, GO
Refunding Bond,
6.20% (AMBAC INS)/
(Original Issue
Yield: 6.30%),
10/1/2021 AAA 2,113,332
4,750,000 New Orleans, LA, GO
UT Capital
Appreciation Bonds
(AMBAC INS)/
(Original Issue
Yield: 7.10%),
9/1/2013 AAA 2,254,588
980,000 New Orleans, LA, GO UT Refunding Bonds, 5.875% (AMBAC
INS)/(Original Issue Yield:
6.00%), 10/1/2011 AAA 1,079,343
6,000 New Orleans, LA, GO UT Refunding Bonds, 7.30% (AMBAC
INS)/(Original Issue Yield:
7.35%), 12/1/2001 AAA 6,644
2,000,000 New Orleans, LA, GO UT, 7.70% (BIG and FSA INSs),
10/1/1998 NR 2,006,860
2,000,000 New Orleans, LA,
Refunding Revenue
Bonds (Series B),
5.00% (FSA INS)/
(Original Issue
Yield: 5.10%),
12/1/2012 AAA 2,043,080
</TABLE>
(See Notes to Portfolios of Investments)
<PAGE>
LOUISIANA MUNICIPAL INCOME FUND (continued)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING(D) VALUE
<C> <S> <C> <C>
LONG-TERM
MUNICIPALS--
continued
Louisiana--continued
$ 500,000 Orleans Parish, LA
Parishwide School
District, GO UT,
5.125% (MBIA INS)/
(Original Issue
Yield: 5.35%),
9/1/2021 Aaa $ 501,940
750,000 Orleans Parish, LA
School Board,
Revenue Refunding
Bonds, 6.00% (MBIA
INS), 12/1/2006 AAA 842,978
1,000,000 Orleans, LA Levee District, Refunding Revenue Bonds (Series
A), 5.95% (FSA INS)/(Original Issue Yield:
6.039%), 11/1/2014 AAA 1,105,430
1,000,000 Regional
Transportation
Authority, Sales
Tax Revenue Bonds,
6.50% (FGIC INS)/
(Original Issue
Yield: 6.673%),
12/1/2008 AAA 1,096,530
750,000 Shreveport, LA,
Revenue Bonds
(Series A), 5.375%
(FSA INS), 1/1/2028 AAA 763,973
500,000 Shreveport, LA,
Revenue Bonds
(Series B), 5.375%
(FSA INS), 1/1/2024 AAA 508,885
PRINCIPAL CREDIT
AMOUNT RATING(D) VALUE
$ 750,000 Shreveport, LA,
Water & Sewer,
Revenue Bonds
(Series A), 5.95%
(FGIC LOC),
12/1/2014 AAA $ 825,945
1,485,000 St. Charles Parish,
LA Consolidated
Waterworks and
Wastewater District
No. 1, Utility
Revenue Refunding
Bonds, 7.15% (MBIA
INS), 7/1/2016 AAA 1,634,926
1,000,000 St. Charles Parish,
LA Public Improvement, UT GO Refunding Bonds (Series ST-96),
5.25% (MBIA INS)/(Original Issue Yield:
5.45%), 12/1/2009 AAA 1,058,540
500,000 St. Charles Parish,
LA, Environmental Improvement Revenue Bonds, 5.95% (LA Power &
Light Company)/ (FSA INS)/(Original Issue Yield:
5.986%), 12/1/2023 AAA 531,825
1,000,000 St. Charles Parish,
LA, Solid Waste Disposal Revenue Bonds, 7.00% (LA Power &
Light Company)/ (AMBAC INS)/ (Original Issue Yield:
7.04%), 12/1/2022 AAA 1,118,590
</TABLE>
(See Notes to Portfolios of Investments)
<PAGE>
LOUISIANA MUNICIPAL INCOME FUND (continued)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING(D) VALUE
<C> <S> <C> <C>
LONG-TERM
MUNICIPALS--
continued
Louisiana--continued
$ 400,000 St. Tammany Parish,
LA Hospital Service
District No. 2,
Hospital Revenue
Refunding Bonds,
6.125% (Connie Lee
INS)/(Original
Issue Yield:
6.315%), 10/1/2011 AAA $ 443,848
1,000,000 St. Tammany Parish,
LA Hospital Service
District No. 2,
Revenue Bonds,
6.25% (Connie Lee
LOC)/(Original
Issue Yield:
6.40%), 10/1/2014 AAA 1,113,390
500,000 St. Tammany Parish,
LA Wide School
District No. 12, GO
UT Bonds, 5.375%
(FSA INS), 3/1/2013 AAA 523,860
500,000 State Colleges &
Universities, LA,
Revenue Bonds,
5.65% (University
of Southwestern,
LA)/ (MBIA INS),
9/1/2026 AAA 535,330
------------
Total 94,642,261
------------
PRINCIPAL
AMOUNT CREDIT
OR SHARES RATING(D) VALUE
PUERTO RICO--0.7%
$ 600,000 Puerto Rico
Municipal Finance
Agency, Revenue
Bonds (Series A),
6.00% (FSA INS)/
(Original Issue
Yield: 6.30%),
7/1/2014 AAA $ 660,905
------------
TOTAL LONG-TERM
MUNICIPALS
(IDENTIFIED COST
$89,950,960) 96,656,249
------------
MUTUAL FUND--2.4%
2,325,937 Dreyfus Tax Exempt
Cash Management (at
net asset value) 2,325,937
------------
TOTAL INVESTMENTS
(IDENTIFIED COST
$92,276,897) $ 98,982,186
============
</TABLE>
(See Notes to Portfolios of Investments)
<PAGE>
MID-CAP EQUITY FUND
<TABLE>
<CAPTION>
----------
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--87.9%
Commercial Services--3.2%
9,100 (a) ACNielsen Corp. $ 182,569
5,860 (a) AccuStaff, Inc. 73,250
3,907 (a) Robert Half
International, Inc. 187,536
-----------
Total 443,355
-----------
Consumer Durables--1.7%
3,600 Centex Corp. 127,350
7,470 Clayton Homes, Inc. 115,318
-----------
Total 242,668
-----------
Consumer Non-Durables--
5.9%
1,500 American Greetings Corp.,
Class A 54,938
980 Church and Dwight, Inc. 26,521
2,550 Coca Cola Enterprises, Inc. 60,563
4,000 Coors Adolph Co., Class B 165,000
2,525 Dial Corp. 49,238
144 Earthgrains Co. 3,960
7,050 Interstate Bakeries Corp. 183,741
2,970 (a) Jones Apparel Group,
Inc. 57,544
1,400 Liz Claiborne, Inc. 39,900
3,675 (a) Ralcorp Holdings, Inc. 70,973
1,260 (a) Tommy Hilfiger Corp. 58,905
2,800 Universal Foods Corp. 59,150
-----------
Total 830,433
-----------
Consumer Services--3.3%
2,700 (a) Papa Johns
International, Inc. 71,550
10,780 Ruby Tuesday, Inc. 151,594
4,200 TCA Cable TV, Inc. 96,600
280 Washington Post Co., Class
B 143,500
-----------
Total 463,244
-----------
Electrical Equipment--0.8%
1,695 (a) Excel Ltd. 113,247
-----------
Electronic Technology--7.6%
5,090 (a) Cadence Design Systems,
Inc. 107,526
4,420 Cordant Technologies, Inc. 157,463
7,450 Daniel Industries, Inc. 82,881
2,610 (a) Dell Computer Corp. 261,000
4,340 Harris Corp. 138,338
3,625 Linear Technology Corp. 170,375
2,630 (a) Storage Technology
Corp. 57,203
2,200 Symbol Technologies, Inc. 90,200
-----------
Total 1,064,986
-----------
----------
SHARES VALUE
Energy Minerals--1.3%
2,300 Ashland, Inc. $ 104,794
1,800 Tosco Corp. 39,600
2,350 Valero Energy Corp. 42,006
-----------
Total 186,400
-----------
Finance--13.5%
1,270 AMBAC 59,928
3,100 Aflac, Inc. 77,888
8,442 Amsouth Bancorporation 290,190
1,960 Capital One Financial Corp. 171,500
1,425 City National Corp. 39,722
3,265 Countrywide Credit
Industries, Inc. 122,233
1,875 Lehman Brothers Holdings,
Inc. 73,828
7,980 Old Kent Financial Corp. 257,355
1,875 Old Republic International
Corp. 41,836
3,160 Republic New York Corp. 130,350
2,300 Ryder Systems, Inc. 54,194
4,145 State Street Corp. 215,799
2,955 SunAmerica, Inc. 183,025
4,320 Zions Bancorp 165,780
-----------
Total 1,883,628
-----------
Health Services--4.6%
5,600 Allegiance Corp. 158,200
5,400 HBO & Co. 114,750
7,550 (a) Lincare Holdings, Inc. 256,228
3,875 Omnicare, Inc. 120,852
-----------
Total 650,030
-----------
Health Technology--4.5%
5,380 (a) Biogen, Inc. 248,825
3,390 Hillenbrand Industries,
Inc. 181,577
1,950 Mylan Laboratories, Inc. 44,606
3,360 (a) Watson Pharmaceuticals,
Inc. 151,410
-----------
Total 626,418
-----------
Industrial Services--0.9%
1,300 (a) BJ Services Co. 16,413
3,720 Transocean Offshore, Inc. 91,373
2,450 (a) Varco International,
Inc. 17,456
-----------
Total 125,242
-----------
Non-Energy Minerals--1.3%
1,600 Cleveland Cliffs, Inc. 58,400
1,160 Vulcan Materials Co. 129,340
-----------
Total 187,740
-----------
</TABLE>
(See Notes to Portfolios of Investments)
<PAGE>
MID-CAP EQUITY FUND (continued)
<TABLE>
<CAPTION>
----------
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--continued
Process Industries--3.6%
6,490 Albemarle Corp. $ 109,113
3,300 Ball Corp. 123,338
4,995 Cabot Corp. 108,641
2,930 Fort James Corp. 85,336
3,150 Solutia, Inc. 70,678
-----------
Total 497,106
-----------
Producer Manufacturing
--8.0%
5,160 (a) American Power
Conversion Corp. 139,320
2,810 Avery Dennison Corp. 150,862
3,500 Dana Corp. 137,156
2,500 Danaher Corp. 90,625
1,767 (a) Evi Weatherford, Inc. 26,947
1,100 Hubbell, Inc., Class B 39,325
3,650 Kaydon Corp. 98,778
3,225 (a) Lexmark Intl. Group,
Class A 195,314
2,320 Olin Corp. 65,250
2,365 Teleflex, Inc. 74,498
3,360 Trinity Industries, Inc. 101,640
-----------
Total 1,119,715
-----------
Retail Trade--6.8%
2,130 (a) Bed Bath & Beyond, Inc. 38,473
1,700 (a) Best Buy Co., Inc. 66,938
8,500 Family Dollar Stores, Inc. 107,844
6,100 Fingerhut Companies, Inc. 147,925
1,350 Gap (The), Inc. 68,934
4,675 (a) Officemax, Inc. 49,088
1,000 (a) Safeway, Inc. 39,375
6,230 (a) Staples, Inc. 168,989
11,640 TJX Cos., Inc. 259,718
-----------
Total 947,284
-----------
Technology Services--5.8%
7,370 (a) BMC Software, Inc. 311,839
6,765 (a) Compuware Corp. 307,385
2,415 (a) Network Associates,
Inc. 77,884
4,500 (a) Synopsys, Inc. 117,563
-----------
Total 814,671
-----------
----------
SHARES OR
PRINCIPAL
AMOUNT VALUE
Transportation--0.9%
1,130 (a) UAL Corp. $ 68,153
2,300 USFreightways Corp. 51,606
-----------
Total 119,759
-----------
Utilities--14.2%
4,950 BEC Energy 196,144
3,634 Bell Atlantic Corp. 160,350
4,927 Century Telephone
Enterprises, Inc. 223,563
3,500 Coastal Corp. 91,000
7,160 Conectiv, Inc. 145,885
3,350 DQE, Inc. 119,553
5,355 Montana Power Co. 208,845
7,050 NIPSCO Industries, Inc. 206,213
3,330 New England Electric System 134,449
7,850 New York State Electric and
Gas Corp. 353,250
8,970 Questar Corp. 145,763
-----------
Total 1,985,015
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST
$15,432,275) 12,300,941
-----------
(b)REPURCHASE
AGREEMENTS--11.7%
$1,641,000 State Street Corp., 5.70%,
dated 8/31/1998, due
9/1/1998 (at amortized
cost) 1,641,000
-----------
TOTAL INVESTMENTS
(IDENTIFIED COST
$17,073,275) $13,941,941
===========
</TABLE>
(See Notes to Portfolios of Investments)
<PAGE>
TOTAL RETURN BOND FUND
<TABLE>
<CAPTION>
-----------
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS/ ASSET
BACKED SECURITIES--28.6%
Automobile--1.4%
$ 1,000,000 Ford Capital BV, Deb.,
10.125%, 11/15/2000 $ 1,091,050
-----------
Banking--2.0%
1,500,000 Swiss Bank Corp. New York,
Sub. Note, 7.25%, 9/1/2006 1,612,554
-----------
Consumer Durables--2.7%
2,000,000 Ford Motor Co., Note,
7.25%, 10/1/2008 2,160,800
-----------
Consumer Non-Durables--
1.8%
1,500,000 Nabisco, Inc., Note,
6.375%, 2/1/2035 1,477,830
-----------
Finance--6.5%
1,250,000 American Express Co., Sr.
Unsub., 6.75%, 6/23/2004 1,319,650
750,000 American General Finance
Corp., Note, 8.00%,
2/15/2000 775,005
1,000,000 BankAmerica Corp., Sub.
Note, 7.50%, 10/15/2002 1,067,960
1,000,000 General Electric Capital
Corp., Medium Term Note,
Series A, 6.15%, 11/5/2001 1,023,200
1,000,000 Lehman Brothers, Inc.,
Bond, 6.50%, 4/15/2008 991,950
-----------
Total 5,177,765
-----------
Finance-Insurance--2.6%
2,000,000 Old Republic International
Corp., Deb., 7.00%,
6/15/2007 2,110,740
-----------
Finance-Retail--1.4%
111,592 CIT Manf. Housing Tr. Corp.
1993-1, Class A2, 5.75%,
6/15/2018 111,438
1,000,000 Signet Credit Card Master
Trust 1993-1, Class A,
5.20%, 2/15/2002 1,000,415
-----------
Total 1,111,853
-----------
Process Industries--1.3%
1,000,000 Du Pont (E.I.) de Nemours &
Co., Note, 6.50%, 9/1/2002 1,027,790
-----------
-----------
PRINCIPAL
AMOUNT VALUE
Retail Trade--4.1%
$ 3,000,000 Dayton-Hudson Corp., Note,
7.50%, 7/15/2006 $ 3,268,620
-----------
Utilities--4.8%
1,500,000 Enron Corp., Note, 6.40%,
7/15/2006 1,524,195
2,000,000 K N Energy, Inc., Deb.,
9.625%, 8/1/2021 2,305,040
-----------
Total 3,829,235
-----------
TOTAL CORPORATE BONDS/ASSET
BACKED SECURITIES
(IDENTIFIED COST
$21,988,278) 22,868,237
-----------
GOVERNMENT AGENCIES--21.2%
Federal Home Loan
Bank--0.8%
550,000 7.01%, 6/14/2006 598,736
-----------
Federal Home Loan Mortgage
Corp. 30-Year Gold--0.0%
30,844 Series 1024, 9.00%,
11/15/2005 30,802
-----------
(e)Federal National
Mortgage Association
30-Year Seasoned--0.0%
6,889 Pool 1804, 11.00%, 4/1/2011 7,482
6,663 Pool 34138, 11.00%,
4/1/2010 7,390
4,490 Pool 76204, 11.00%,
6/1/2019 5,078
14,012 Pool 85131, 11.00%,
5/1/2017 15,847
-----------
Total 35,797
-----------
(e)Government National
Mortgage Association
15-Year--1.1%
834,145 Pool 420153, 7.00%,
9/15/2010 855,257
-----------
(e)Government National
Mortgage Association
30-Year--19.3%
77,995 Pool 147875, 10.00%,
3/15/2016 86,257
111,958 Pool 168511, 8.00%,
7/15/2016 117,556
</TABLE>
(See Notes to Portfolios of Investments)
<PAGE>
TOTAL RETURN BOND FUND (continued)
-----------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
GOVERNMENT AGENCIES--
continued
Government National
Mortgage Association
30-Year--continued
$ 116,276 Pool 174673, 8.00%,
8/15/2016 $ 122,452
53,018 Pool 177145, 8.00%,
1/15/2017 55,668
7,117 Pool 188080, 8.00%,
9/15/2018 7,464
101,160 Pool 212047, 8.00%,
5/15/2017 106,218
93,847 Pool 212660, 8.00%,
4/15/2017 98,833
180,055 Pool 216950, 8.00%,
6/15/2017 188,947
119,296 Pool 217533, 8.00%,
5/15/2017 125,261
31,633 Pool 225725, 10.00%,
9/15/2020 34,846
80,617 Pool 227430, 9.00%,
8/15/2019 86,487
66,325 Pool 253449, 10.00%,
10/15/2018 73,186
86,376 Pool 278300, 10.00%,
7/15/2019 95,310
64,282 Pool 279619, 10.00%,
9/15/2019 70,931
59,552 Pool 279629, 9.00%,
10/15/2019 63,888
58,537 Pool 283261, 9.00%,
11/15/2019 62,799
126,356 Pool 287853, 9.00%,
4/15/2020 135,439
16,054 Pool 288052, 10.00%,
7/15/2020 17,684
58,369 Pool 288570, 10.00%,
8/15/2020 64,297
21,927 Pool 288967, 9.00%,
4/15/2020 23,551
105,328 Pool 288994, 9.00%,
5/15/2020 112,899
81,748 Pool 289082, 9.00%,
4/15/2020 87,700
-----------
PRINCIPAL
AMOUNT VALUE
$ 50,763 Pool 291100, 9.00%,
5/15/2020 $ 54,460
53,006 Pool 292364, 10.00%,
9/15/2020 58,489
15,061 Pool 296315, 10.00%,
9/15/2020 16,619
416,784 Pool 302101, 7.00%,
6/15/2024 425,904
75,957 Pool 302697, 8.00%,
4/15/2021 79,565
381,568 Pool 345031, 7.00%,
10/15/2023 390,154
421,081 Pool 345090, 7.00%,
11/15/2023 430,555
206,568 Pool 360772, 7.00%,
2/15/2024 211,926
516,505 Pool 382074, 7.00%,
9/15/2025 527,480
140,184 Pool 404653, 7.00%,
9/15/2025 143,163
428,537 Pool 408884, 7.00%,
9/15/2025 437,644
618,127 Pool 410108, 7.00%,
9/15/2025 631,262
280,391 Pool 410786, 7.00%,
9/15/2025 286,349
917,072 Pool 415427, 7.50%,
8/15/2025 944,869
462,059 Pool 415865, 7.00%,
9/15/2025 471,878
1,175,469 Pool 418781, 7.00%,
9/15/2025 1,200,447
1,331,018 Pool 420157, 7.00%,
10/15/2025 1,359,302
928,826 Pool 453533, 7.50%,
1/15/1999 931,250
4,898,257 Pool 780717, 7.00%,
2/15/2028 5,000,827
-----------
Total 15,439,816
-----------
TOTAL GOVERNMENT AGENCIES
(IDENTIFIED COST
$16,629,370) 16,960,408
-----------
</TABLE>
(See Notes to Portfolios of Investments)
<PAGE>
TOTAL RETURN BOND FUND (continued)
-----------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
MUNICIPALS--7.0%
$ 1,175,000 Liberal, KS, GO UT (Series
2), 6.50% Bonds (FSA INS),
12/1/2010 $ 1,226,395
2,000,000 New Orleans, LA Aviation
Board, Revenue Bonds,
7.10% Bonds (AMBAC INS),
10/1/2027 2,131,040
1,480,000 New Orleans, LA, Refunding
Revenue Bonds, 6.00% Bonds
(FSA INS), 12/1/2000 1,491,692
360,000 Vail, CO Sales Tax Revenue,
Refunding Revenue Bonds,
6.00% Bonds (MBIA INS
LOC), 12/1/2006 361,120
350,000 Vail, CO Sales Tax Revenue,
Refunding Revenue Bonds,
6.05% Bonds (MBIA INS
LOC), 12/1/2007 352,422
-----------
TOTAL MUNICIPALS
(IDENTIFIED COST
$5,350,180) 5,562,669
-----------
TREASURY SECURITIES--39.4%
U.S. Treasury Bonds--24.4%
3,475,000 United States Treasury
Bond, 6.00%, 2/15/2026 3,756,753
1,000,000 United States Treasury
Bond, 7.50%, 11/15/2016 1,237,290
11,500,000 United States Treasury
Bond, 7.50%, 5/15/2002 12,445,185
1,300,000 United States Treasury
Bond, 12.50%, 8/15/2014 2,072,681
-----------
Total 19,511,909
-----------
-----------
PRINCIPAL
AMOUNT VALUE
U.S. Treasury Notes--15.0%
$ 1,500,000 United States Treasury
Note, 5.50%, 1/31/2003 $ 1,527,911
4,250,000 United States Treasury
Note, 6.625%, 4/30/2002 4,477,333
3,600,000 United States Treasury
Note, 7.125%, 2/29/2000 3,705,480
2,250,000 United States Treasury
Note, 7.875%, 11/15/1999 2,322,045
-----------
Total 12,032,769
-----------
TOTAL TREASURY SECURITIES
(IDENTIFIED COST
$30,635,062) 31,544,678
-----------
(b)REPURCHASE
AGREEMENTS--3.4%
2,729,000 State Street Corp., 5.70%,
dated 8/31/1998, due
9/1/1998 (at amortized
cost) 2,729,000
-----------
TOTAL INVESTMENTS
(IDENTIFIED COST
$77,331,890) $79,664,992
===========
</TABLE>
(See Notes to Portfolios of Investments)
<PAGE>
U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
-----------
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM
OBLIGATIONS--94.1%
Asset-Backed
Securities--5.0%
$ 1,250,000 American Express Credit
Account Master Trust
1996-1, Class A, 6.800%,
12/15/2003 $ 1,291,195
318,036 CIT Manf. Housing Tr. Corp.
1993-1, Class A2, 5.750%,
6/15/2018 317,597
375,000 Discover Card Master
Trust I 1993-2, Class A,
5.400%, 11/16/2001 375,041
500,000 Premier Auto Trust 1995-4,
Class A4, 6.575%,
10/6/2000 504,370
1,400,000 Sears Credit Account Master
Trust 1995-2, Class A,
8.100%, 6/15/2004 1,450,106
250,000 Sears Credit Account Master
Trust 1995-4, Class A,
6.250%, 1/15/2003 250,593
-----------
Total 4,188,902
-----------
Corporate Notes--1.2%
1,000,000 General Electric Capital
Corp., 6.150%, 11/5/2001 1,023,200
-----------
Federal Farm Credit
Bank--2.4%
1,000,000 Federal Farm Credit System,
6.030%, 3/11/2002 1,000,680
1,000,000 Federal Farm Credit System,
7.210%, 10/29/2007 1,003,674
-----------
Total 2,004,354
-----------
Federal Home Loan Bank
PC--4.4%
2,000,000 5.980%, 6/18/2008 2,042,500
850,000 7.010%, 6/14/2006 925,319
205,000 7.555%, 2/27/2002 219,377
500,000 8.450%, 7/26/1999 512,210
-----------
Total 3,699,406
-----------
-----------
PRINCIPAL
AMOUNT VALUE
(e)Federal Home Loan
Mortgage Corporation
REMIC--11.2%
$ 443,880 6.000%, 10/15/2004 $ 445,801
512,944 6.100%, 6/15/2016 512,970
1,000,000 6.500%, 10/17/2020 1,016,950
3,074,000 7.000%, 11/15/2005 3,275,132
820,488 7.500%, 2/15/2003 854,005
1,558,000 7.500%, 9/15/2007 1,559,184
1,000,000 7.500%, 9/15/2021 1,075,010
420,217 9.000%, 6/15/2020 424,780
169,207 9.500%, 1/15/2005 176,792
-----------
Total 9,340,624
-----------
(e)Federal Home Loan
Mortgage Corporation 15
Year--1.0%
54,452 8.750%, 1/1/2002 55,975
91,157 9.000%, 8/1/2001 94,889
129,238 9.250%, 6/1/2002 132,771
29,719 9.500%, 10/1/2001 30,759
51,674 9.500%, 10/1/2004 54,129
69,022 9.500%, 12/1/2001 72,301
-----------
Total 440,824
-----------
(e)Federal Home Loan
Mortgage Corporation 30
Year--1.3%
225,090 8.750%, 1/1/2011 234,411
273,225 8.750%, 2/1/2017 287,484
58,734 9.000%, 1/1/2017 61,891
6,715 9.000%, 10/1/2016 7,116
12,245 9.000%, 5/1/2018 12,903
48,902 9.000%, 6/1/2016 51,821
1,391 9.000%, 9/1/2016 1,466
55,153 9.500%, 10/1/2019 58,842
63,730 10.000%, 5/1/2014 69,366
205,593 10.000%, 6/1/2018 223,776
34,862 10.000%, 6/1/2020 37,945
6,469 10.000%, 6/1/2020 7,041
28,294 10.000%, 8/1/2019 30,797
-----------
Total 1,084,859
-----------
(e)Federal Home Loan
Mortgage Corporation
PC--8.5%
1,500,000 5.825%, 2/9/2006 1,521,525
2,000,000 6.125%, 7/14/2003 2,004,680
2,000,000 6.320%, 4/29/2003 2,013,980
1,500,000 7.055%, 8/2/2001 1,523,955
-----------
Total 7,064,140
-----------
</TABLE>
(See Notes to Portfolios of Investments)
<PAGE>
U.S. GOVERNMENT INCOME FUND (continued)
-----------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM
OBLIGATIONS--continued
(e)Federal National
Mortgage Association
REMIC--2.1%
$ 557,591 6.500%, 5/25/2023 $ 569,669
1,000,000 7.500%, 3/25/2021 1,014,640
128,977 9.400%, 7/25/2003 136,343
-----------
Total 1,720,652
-----------
(e)Federal National
Mortgage Association 15
Year--1.1%
848,048 7.000%, 8/1/2012 866,866
33,731 10.750%, 1/1/2001 35,998
-----------
Total 902,864
-----------
(e)Federal National
Mortgage Association 30
Year--0.2%
145,388 8.500%, 2/1/2011 152,794
74,461 9.500%, 8/1/2020 79,860
-----------
Total 232,654
-----------
Federal National Mortgage
Association Medium
Term--16.2%
1,000,000 4.920%, 9/28/1998 1,000,310
1,000,000 5.750%, 6/15/2005 1,014,900
1,000,000 5.830%, 10/16/2000 1,012,060
1,000,000 6.000%, 5/15/2008 1,030,750
2,500,000 6.170%, 8/4/2003 2,519,200
1,000,000 6.350%, 8/25/2005 1,002,660
465,000 6.460%, 6/29/2012 495,448
1,000,000 6.560%, 11/26/2007 1,042,360
500,000 6.710%, 7/24/2001 519,355
1,000,000 6.780%, 1/15/2002 1,005,730
1,750,000 7.150%, 1/29/2007 1,838,190
1,000,000 7.280%, 5/23/2007 1,063,840
-----------
Total 13,544,803
-----------
(e)Government National
Mortgage Association 15
Year--0.0%
66,916 7.000%, 11/15/2009 68,673
297,102 7.000%, 9/15/2010 304,621
-----------
Total 373,294
-----------
-----------
PRINCIPAL
AMOUNT VALUE
(e)Government National
Mortgage Association 30
Year--9.6%
$ 582,519 7.500%, 10/15/2022 $ 599,994
1,125,854 7.500%, 3/15/2026 1,159,979
1,481,041 8.000%, 1/15/2022 1,544,903
692,054 8.000%, 11/15/2022 718,006
1,393,245 8.000%, 4/15/2022 1,450,716
1,549,078 8.000%, 8/15/2022 1,612,977
315,057 8.500%, 2/20/2025 330,908
267,547 9.000%, 2/15/2020 286,527
41,006 9.500%, 6/15/2020 44,606
111,177 9.500%, 6/15/2020 120,940
45,832 9.500%, 7/15/2020 49,856
71,914 9.500%, 7/15/2020 78,251
-----------
Total 7,997,663
-----------
U.S. Treasury Bonds--13.5%
1,000,000 United States Treasury
Bond, 10.750%, 2/15/2003 1,224,880
3,000,000 United States Treasury
Bond, 6.000%, 2/15/2026 3,243,240
1,500,000 United States Treasury
Bond, 7.250%, 5/15/2016 1,810,530
2,600,000 United States Treasury
Bond, 7.250%, 8/15/2022 3,218,930
500,000 United States Treasury
Bond, 7.875%, 2/15/2021 655,110
300,000 United States Treasury
Bond, 8.500%, 2/15/2020 414,954
500,000 United States Treasury
Bond, 8.750%, 5/15/2020 708,270
-----------
Total 11,275,914
-----------
</TABLE>
(See Notes to Portfolios of Investments)
<PAGE>
U.S. GOVERNMENT INCOME FUND (continued)
-----------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM
OBLIGATIONS--continued
U.S. Treasury Notes--16.4%
$ 500,000 United States Treasury
Note, 5.625%, 2/15/2006 $ 517,020
750,000 United States Treasury
Note, 5.625%, 4/30/2000 757,545
1,700,000 United States Treasury
Note, 5.875%, 11/30/2001 1,743,367
1,000,000 United States Treasury
Note, 6.125%, 8/15/2007 1,070,800
1,800,000 United States Treasury
Note, 6.250%, 2/15/2003 1,885,788
1,500,000 United States Treasury
Note, 6.250%, 2/15/2007 1,614,615
1,000,000 United States Treasury
Note, 6.250%, 8/31/2002 1,043,150
32,000 United States Treasury
Note, 6.375%, 7/15/1999 32,347
250,000 United States Treasury
Note, 6.500%, 10/15/2006 272,513
1,000,000 United States Treasury
Note, 6.500%, 5/15/2005 1,082,930
500,000 United States Treasury
Note, 6.500%, 5/31/2002 525,005
500,000 United States Treasury
Note, 6.750%, 4/30/2000 513,760
500,000 United States Treasury
Note, 6.875%, 7/31/1999 507,755
1,000,000 United States Treasury
Note, 7.000%, 7/15/2006 1,120,140
1,000,000 United States Treasury
Note, 7.750%, 12/31/1999 1,033,980
-----------
Total 13,720,715
-----------
TOTAL LONG-TERM OBLIGATIONS
(IDENTIFIED COST
$76,182,606) 78,614,868
-----------
-----------
PRINCIPAL
AMOUNT VALUE
(b)REPURCHASE
AGREEMENTS--5.3%
$ 4,465,000 State Street Corp., 5.700%,
dated 8/31/1998, due
9/1/1998 (at amortized
cost) $ 4,465,000
-----------
TOTAL INVESTMENTS
(IDENTIFIED COST
$80,647,606) $83,079,868
===========
</TABLE>
(See Notes to Portfolios of Investments)
<PAGE>
CASH RESERVE FUND
<TABLE>
<CAPTION>
-----------
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(f) COMMERCIAL
PAPER--55.2%
Consumer Non-Durables--
10.0%
$ 5,000,000 Coca-Cola Co., 5.541%,
10/28/1998 $ 4,956,775
5,000,000 Heinz (H.J.) Co.,
5.525%-5.544%,
9/1/1998-10/16/1998 4,981,437
5,000,000 PepsiCo, Inc., 5.523%,
10/15/1998 4,966,511
------------
Total 14,904,723
------------
Consumer Services--3.3%
5,000,000 Disney (Walt) Co., 5.515%,
11/18/1998 4,941,283
------------
Finance--23.3%
5,000,000 American General Finance
Corp., 5.581%, 9/1/1998 5,000,000
5,000,000 BellSouth Capital Funding
Corp., 5.525%, 10/7/1998 4,972,550
5,000,000 CIESCO, L.P., 5.556%,
9/10/1998 4,993,125
5,000,000 Falcon Asset
Securitization Corp.,
5.568%, 10/19/1998 4,963,200
5,000,000 Ford Motor Credit Corp.,
5.624%, 2/1/1999 4,883,763
5,000,000 General Motors Acceptance
Corp., 5.537%, 11/23/1998 4,937,174
5,000,000 USAA Capital Corp.,
5.542%, 10/14/1998 4,967,213
------------
Total 34,717,025
------------
Finance--Commercial--
10.0%
5,000,000 CIT Group Holdings, Inc.,
5.596%, 9/22/1998 4,983,900
5,000,000 Deere (John) Capital
Corp., 5.558%, 10/21/1998 4,961,736
5,000,000 General Electric Capital
Corp., 5.520%, 1/20/1999 4,894,250
------------
Total 14,839,886
------------
-----------
PRINCIPAL
AMOUNT VALUE
Finance--Retail--6.6%
$ 5,000,000 Beta Finance, Inc.,
5.578%, 10/16/1998 $ 4,965,625
5,000,000 Commercial Credit Co.,
5.565%, 10/22/1998 4,960,971
------------
Total 9,926,596
------------
Retail Trade--2.0%
3,000,000 Toys 'R' Us, Inc., 5.530%,
9/17/1998 2,992,667
------------
TOTAL COMMERCIAL PAPER 82,322,180
------------
GOVERNMENT AGENCIES--6.6%
Finance--6.6%
10,000,000 (g) Federal National
Mortgage Association,
5.582%, 10/30/1998 9,911,007
------------
TIME DEPOSIT--10.1%
Finance--10.1%
5,000,000 ABN AMRO Bank N.V.,
Amsterdam, 5.600%,
1/5/1999 5,000,000
5,000,000 Deutsche Bank, AG, 5.550%,
10/6/1998 5,000,000
5,000,000 Societe Generale, Paris,
5.570%, 9/2/1998 5,000,000
------------
TOTAL TIME DEPOSITS 15,000,000
------------
(b)REPURCHASE
AGREEMENTS--28.3%
10,000,000 HSBC Securities, Inc.,
5.700%, dated 8/31/1998,
due 9/1/1998 10,000,000
32,260,000 State Street Corp.,
5.700%, dated 8/31/1998,
due 9/1/1998 32,260,000
------------
TOTAL REPURCHASE
AGREEMENTS 42,260,000
------------
TOTAL INVESTMENTS (AT
AMORTIZED COST) $149,493,187
============
</TABLE>
(See Notes to Portfolios of Investments)
<PAGE>
U.S. TREASURY MONEY MARKET FUND
<TABLE>
<CAPTION>
-----------
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(g) U.S. TREASURY
BILLS--34.0%
$ 5,000,000 5.190%, 1/7/1999 $ 4,911,022
5,000,000 5.051%, 11/12/1998 4,950,800
5,000,000 5.067%, 12/31/1998 4,917,485
5,000,000 5.137%, 2/25/1999 4,878,558
25,000,000 5.589-5.508%, 9/15/1998 24,947,344
15,000,000 5.191-5.223%, 9/17/1998 14,966,267
------------
TOTAL U.S. TREASURY BILLS 59,571,476
------------
U.S. TREASURY NOTES--20.0%
5,000,000 4.750%, 10/31/1998 4,994,395
5,000,000 5.000%, 1/31/1999 4,994,237
10,000,000 5.125%, 11/30/1998 9,995,055
5,000,000 5.125%, 12/31/1998 4,997,098
5,000,000 5.625%, 11/30/1998 5,003,516
5,000,000 6.000%, 9/30/1998 5,002,330
------------
TOTAL U.S. TREASURY NOTES 34,986,631
------------
(b) REPURCHASE
AGREEMENTS--46.0%
40,000,000 HSBC Securities, Inc.,
5.700%, dated 8/31/1998,
due 9/1/1998 40,000,000
40,578,000 State Street Corp.,
5.700%, dated 8/31/1998,
due 9/1/1998 40,578,000
------------
TOTAL REPURCHASE
AGREEMENTS 80,578,000
------------
TOTAL INVESTMENTS (AT
AMORTIZED COST) $175,136,107
============
</TABLE>
(See Notes to Portfolios of Investments)
<PAGE>
- ---------------------------------------------------------
NOTES TO PORTFOLIOS OF INVESTMENTS TOWER MUTUAL FUNDS
August 31, 1998
- ---------------------------------------------------------
(a) Non-income producing security.
(b) The repurchase agreements are fully collateralized by U.S. Treasury
obligations based on market prices at the date of the portfolio.
(c) At August 31,1998, 10.1% of the total investments at market value were
subject to alternative minimum tax.
(d) Please refer to the Appendix of the Statement of Additional Information for
an explanation of the credit ratings. Current credit ratings are unaudited.
(e) Because of monthly principal payments, the average lives of certain
government securities are less than the indicated periods.
(f) Rate shown represents yield to maturity.
(g) These issues show the rate of discount at the time of purchase.
The following acronyms are used throughout this portfolio:
<TABLE>
<S> <C>
ADR -- American Depositary Receipt
AMBAC -- American Municipal Bond Assurance Corporation
BIG -- Bond Investors Guaranty
COL -- Collateralized
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
FHLMC -- Federal Home Loan Mortgage Corporation
FNMA -- Federal National Mortgage Association
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
GO -- General Obligation GTD -- Guaranty HFA -- Housing Finance Authority INS --
Insured LOC -- Letter of Credit LT -- Limited Tax
MBIA -- Municipal Bond Investors Assurance
PC -- Participation Certificate
PCR -- Pollution Control Revenue
PFA -- Public Facility Authority
PLC -- Public Limited Company
PRF -- Pre-Refunded
REMIC -- Real Estate Mortgage Investment Conduit
SFM -- Single Family Mortgage
UT -- Unlimited Tax
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
FOR FEDERAL TAX PURPOSES
--------------------------------------------------------------------------------------------------------------
NET UNREALIZED GROSS GROSS
COST OF APPRECIATION UNREALIZED UNREALIZED
TOWER MUTUAL FUNDS INVESTMENTS (DEPRECIATION) APPRECIATION DEPRECIATION TOTAL NET ASSETS*
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital Appreciation Fund $221,946,588 $ 68,074,946 $86,036,135 $17,961,189 $290,617,489
Louisiana Municipal Income Fund 92,276,897 6,705,289 6,795,421 90,132 98,711,258
Mid-Cap Equity Fund 17,073,275 (3,131,334) 94,128 3,225,462 13,988,377
Total Return Bond Fund 77,331,890 2,333,102 2,458,686 125,584 79,957,276
U.S. Government Income Fund 80,647,606 2,432,262 2,469,166 36,904 83,535,201
Cash Reserve Fund 149,493,187 -- -- -- 149,219,349
U.S. Treasury Money Market Fund 175,136,107 -- -- -- 175,132,920
</TABLE>
* The categories of investments are shown as a percentage of net assets at
August 31, 1998.
(See Notes which are an integral part of the Financial Statements)
<PAGE>
(This page intentionally left blank)
<PAGE>
- ---------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES TOWER MUTUAL FUNDS
August 31, 1998
- ---------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
CAPITAL LOUISIANA MUNICIPAL MID-CAP
APPRECIATION FUND INCOME FUND EQUITY FUND
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investments in repurchase agreements $ 5,072,000 $ -- $ 1,641,000
Investments in securities 284,949,534 98,982,186 12,300,941
------------ ------------ -----------
Total investments in securities, at value 290,021,534 98,982,186 13,941,941
Cash 114,524 -- 35,099
Income receivable 553,707 1,349,287 11,942
Receivable for shares sold 206,795 -- 9,193
Deferred expenses -- -- --
------------ ------------ -----------
Total assets 290,896,560 100,331,473 13,998,175
------------ ------------ -----------
LIABILITIES:
Payable for investments purchased -- 1,206,065 --
Payable for shares redeemed 177,260 13,400 --
Income distribution payable -- 282,685 --
Payable to Bank -- 103,690 --
Accrued expenses 101,811 14,375 9,798
------------ ------------ -----------
Total liabilities 279,071 1,620,215 9,798
------------ ------------ -----------
NET ASSETS CONSIST OF:
Paid in capital 185,668,737 91,401,291 17,119,711
Net unrealized appreciation (depreciation) of
investments 68,074,946 6,705,289 (3,131,334)
Accumulated net realized gain (loss) on
investments 36,851,536 629,833 --
Undistributed net investment income
(Distributions in excess of net investment
income) 22,270 (25,155) --
------------ ------------ -----------
Total Net Assets $290,617,489 $ 98,711,258 $13,988,377
------------ ------------ -----------
NET ASSETS: $279,777,713(1) $ 98,711,258 $13,421,824(3)
------------ ------------ -----------
$ 10,839,776(2) -- $ 566,553(4)
------------ ------------ -----------
SHARES OUTSTANDING 13,236,570(1) 8,604,069 1,648,740(3)
516,474(2) -- 69,652(4)
------------ ------------ -----------
Total Shares Outstanding 13,753,044 8,604,069 1,718,392
============ ============ ===========
NET ASSET VALUE PER SHARE $21.14(1) $11.47 $8.14(3)
------------ ------------ -----------
$20.99(2) -- $8.13(4)
------------ ------------ -----------
OFFERING PRICE PER SHARE* $22.14(1)**** $11.82*** $8.52(3)****
------------ ------------ -----------
$20.99(2) -- $8.13(4)
------------ ------------ -----------
REDEMPTION PROCEEDS PER SHARE** $21.14(1) $11.47 $8.14(3)
------------ ------------ -----------
$19.84(2)***** -- $7.68(4)*****
------------ ------------ -----------
Investments, at identified cost $221,946,588 $ 92,276,897 $17,073,275
============ ============ ===========
Investments, at tax cost $221,946,588 $ 92,276,897 $17,073,275
============ ============ ===========
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents Class A Shares of Capital Appreciation Fund.
(2) Represents Class B Shares of Capital Appreciation Fund.
(3) Represents Class A Shares of Mid-Cap Equity Fund.
(4) Represents Class B Shares of Mid-Cap Equity Fund.
* See "What Shares Cost" in the Prospectus.
** See "Redeeming Shares" in the Prospectus.
*** Computation of Offering Price: 100/97 of net asset value.
**** Computation of Offering Price: 100/95.50 of net asset value.
***** Computation of Redemption Proceeds: 94.50/100 of net asset value.
(See Notes which are an integral part of the Financial Statements)
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
TOTAL RETURN U.S. GOVERNMENT CASH RESERVE U.S. TREASURY
BOND FUND INCOME FUND FUND MONEY MARKET FUND
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 2,729,000 $ 4,465,000 $ 42,260,000 $ 80,578,000
76,935,992 78,614,868 107,233,187 94,558,107
----------- ----------- ------------ ------------
79,664,992 83,079,868 149,493,187 175,136,107
73 -- -- --
1,170,118 739,573 163,585 792,563
39,301 33,792 7,041,994 8,874
-- -- -- 9,645
----------- ----------- ------------ ------------
80,874,484 83,853,233 156,698,766 175,947,189
----------- ----------- ------------ ------------
714,159 -- -- --
69,271 26,921 6,974,144 47,245
117,418 276,492 445,682 458,784
-- 1,757 20,332 294,103
16,360 12,862 39,259 14,137
----------- ----------- ------------ ------------
917,208 318,032 7,479,417 814,269
----------- ----------- ------------ ------------
77,453,581 84,440,906 149,219,349 175,132,920
2,333,102 2,432,262 -- --
181,074 (3,364,419) -- --
(10,481) 26,452 -- --
----------- ----------- ------------ ------------
$79,957,276 $83,535,201 $149,219,349 $175,132,920
----------- ----------- ------------ ------------
$79,957,276 $83,535,201 $149,219,349 $175,132,920
----------- ----------- ------------ ------------
-- -- -- --
----------- ----------- ------------ ------------
7,787,517 8,085,229 149,219,349 175,132,920
-- -- -- --
----------- ----------- ------------ ------------
7,787,517 8,085,229 149,219,349 175,132,920
=========== =========== ============ ============
$10.27 $10.33 $1.00 $1.00
----------- ----------- ------------ ------------
-- -- -- --
----------- ----------- ------------ ------------
$10.59*** $10.65*** $1.00 $1.00
----------- ----------- ------------ ------------
-- -- -- --
----------- ----------- ------------ ------------
$10.27 $10.33 $1.00 $1.00
----------- ----------- ------------ ------------
-- -- -- --
----------- ----------- ------------ ------------
$77,331,890 $80,647,606 $149,493,187 $175,136,107
=========== =========== ============ ============
$77,331,890 $80,647,606 $149,493,187 $175,136,107
=========== =========== ============ ============
-----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- ------------------------------------------------------
STATEMENTS OF OPERATIONS TOWER MUTUAL FUNDS
Year Ended August 31, 1998
- ------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
CAPITAL LOUISIANA
APPRECIATION MUNICIPAL MID-CAP
FUND INCOME FUND EQUITY FUND(D)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 4,772,233(e) $ -- $ 20,776
Interest 172,095 5,601,004 9,178
----------- ---------- -----------
Total income 4,944,328 5,601,004 29,954
----------- ---------- -----------
EXPENSES:
Investment advisory fee 2,417,253 450,310 15,872
Administrative personnel and services fee 374,710 116,480 6,713
Custodian fees 67,139 24,982 529
Transfer and dividend disbursing agent fees
and expenses 66,860 34,076 1,766
Directors'/Trustees' fees 9,885 3,591 314
Auditing fees 14,419 14,458 1,674
Legal fees 6,723 4,922 418
Portfolio accounting fees 98,065 54,654 3,656
Distribution services fee 848,930(a) -- 5,587(b)
Shareholder services fee 21,590(c) -- 148(c)
Share registration costs 27,378 18,134 3,903
Printing and postage 12,866 11,645 418
Insurance premiums 4,685 2,555 --
Miscellaneous 6,117 6,567 3,891
----------- ---------- -----------
Total expenses 3,976,620 742,374 44,889
----------- ---------- -----------
Waivers and reimbursements--
Waiver of investment advisory fee -- (80,055) --
Waiver of administrative personnel and
services fees -- -- (4,293)
----------- ---------- -----------
Total waivers and reimbursements -- (80,055) (4,293)
----------- ---------- -----------
Net expenses 3,976,620 662,319 40,596
----------- ---------- -----------
Net investment income (loss) 967,708 4,938,685 (10,642)
----------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on investments 41,697,078 860,440 --
Net change in unrealized appreciation
(depreciation) of investments (27,300,391) 2,003,434 (3,131,334)
----------- ---------- -----------
Net realized and unrealized gain (loss) on
investments 14,396,687 2,863,874 (3,131,334)
----------- ---------- -----------
Change in net assets resulting from operations $15,364,395 $7,802,559 $(3,141,976)
=========== ========== ===========
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Represents distribution services fee of $784,161 and $64,769 for Class A
Shares and Class B Shares, respectively, of Capital Appreciation Fund.
(b) Represents distribution services fee of $5,143 and $444, for Class A
Shares and Class B Shares, respectively, of Mid-Cap Equity Fund.
(c) Represents shareholder services fee for Class B Shares.
(d) For the period from July 13, 1998 (date of initial public offering) to
August 31, 1998.
(e) Net of foreign taxes withheld of $4,441.
(See Notes which are an integral part of the Financial Statements)
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
TOTAL
RETURN BOND U.S. GOVERNMENT CASH U.S. TREASURY
FUND INCOME FUND RESERVE FUND MONEY MARKET FUND
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ -- $ -- $ -- $ --
5,126,398 4,319,256 9,232,687 9,706,745
---------- ---------- ---------- ----------
5,126,398 4,319,256 9,232,687 9,706,745
---------- ---------- ---------- ----------
532,051 289,526 658,507 718,045
88,402 74,793 191,658 208,245
19,002 16,085 37,925 42,421
31,513 33,495 39,617 48,692
3,072 2,160 4,717 4,178
15,998 15,370 15,543 16,395
4,411 4,455 6,200 5,232
41,064 46,415 49,687 47,744
190,018 -- 411,566 --
-- -- -- --
12,684 12,211 26,041 18,451
8,880 9,365 11,540 11,467
2,433 2,745 3,132 2,737
2,980 3,140 16,001 5,103
---------- ---------- ---------- ----------
952,508 509,760 1,472,134 1,128,710
---------- ---------- ---------- ----------
(131,063) (38,603) -- --
-- -- -- --
---------- ---------- ---------- ----------
(131,063) (38,603) -- --
---------- ---------- ---------- ----------
821,445 471,157 1,472,134 1,128,710
---------- ---------- ---------- ----------
4,304,953 3,848,099 7,760,553 8,578,035
---------- ---------- ---------- ----------
588,562 528,099 -- --
1,899,586 1,756,003 -- --
---------- ---------- ---------- ----------
2,488,148 2,284,102 -- --
---------- ---------- ---------- ----------
$6,793,101 $6,132,201 $7,760,553 $8,578,035
========== ========== ========== ==========
-----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS TOWER MUTUAL FUNDS
- --------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
CAPITAL LOUISIANA MUNICIPAL MID-CAP
APPRECIATION FUND INCOME FUND EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1998 1997 1998 1997 1998(A)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss) $ 967,708 $ 1,592,549 $ 4,938,685 $ 4,002,159 $ (10,642)
Net realized gain (loss) on
investments 41,697,078 26,519,341 860,440 774,842 --
Net change in unrealized
appreciation/(depreciation) (27,300,391) 62,190,078 2,003,434 2,527,992 (3,131,334)
------------ ------------ ------------ ------------ -----------
Change in net assets resulting
from operations 15,364,395 90,301,968 7,802,559 7,304,993 (3,141,976)
------------ ------------ ------------ ------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment
income (935,011)(1) (1,694,309)(3) (4,957,912) (4,058,449) --
Distributions in excess of net
investment income -- -- (25,155) -- --
Distributions from net realized gain
on investments (30,675,973)(2) (19,032,852)(4) (460,469) (220,394) --
------------ ------------ ------------ ------------ -----------
Change in net assets from
distributions to shareholders (31,610,984) (20,727,161) (5,443,536) (4,278,843) --
------------ ------------ ------------ ------------ -----------
SHARE TRANSACTIONS:
Proceeds from sale of shares 53,381,213 27,841,991 8,710,403 5,399,903 1,511,366
Proceeds from shares issued in
connection with the acquisition of
the Common Trust Funds -- 57,075,362 -- 36,590,980 15,919,383
Net asset value of shares issued to
shareholders in payment of
distributions declared 25,095,605 15,809,726 1,854,181 1,720,137 --
Cost of shares redeemed (59,287,266) (52,275,086) (15,653,812) (11,012,373) (300,396)
------------ ------------ ------------ ------------ -----------
Change in net assets from share
transactions 19,189,552 48,451,993 (5,089,228) 32,698,647 17,130,353
------------ ------------ ------------ ------------ -----------
Change in net assets 2,942,963 118,026,800 (2,730,205) 35,724,797 13,988,377
NET ASSETS:
Beginning of period 287,674,526 169,647,726 101,441,463 65,716,666 --
------------ ------------ ------------ ------------ -----------
End of period $290,617,489 $287,674,526 $ 98,711,258 $101,441,463 $13,988,377
============ ============ ============ ============ ===========
Undistributed net investment income
(Distributions in excess of net
investment income) included in net
assets at end of period $ 22,270 $ (10,427) $ (25,155) $ 19,227 $ --
============ ============ ============ ============ ===========
Net gain (loss) as computed for
federal tax purposes $ 41,643,171 $ 26,519,341 $ 860,440 $ 774,842 $ --
============ ============ ============ ============ ===========
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents income distributions for Class A Shares only.
(2) Represents gain distributions of $30,066,368 and $609,605 for Class A
Shares and Class B Shares, respectively.
(3) Represents income distributions of $1,691,843 and $2,466 for Class A
Shares and Class B Shares, respectively.
(4) Represents gain distributions for Class A Shares only.
(a) For the period from July 13, 1998 (date of initial public offering) to
August 31, 1998.
(See Notes which are an integral part of the Financial Statements)
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN U.S. GOVERNMENT U.S. TREASURY
BOND FUND INCOME FUND CASH RESERVE FUND MONEY MARKET FUND
- ----------------------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1998 1997 1998 1997 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 4,304,953 $ 4,188,597 $ 3,848,099 $ 2,667,853 $ 7,760,553 $ 7,825,771 $ 8,578,035 $ 7,203,624
588,562 884,814 528,099 (369,915) -- -- -- --
1,899,586 978,557 1,756,003 1,353,086 -- -- -- --
----------- ------------ ----------- ------------ ------------- ------------- ------------- -------------
6,793,101 6,051,968 6,132,201 3,651,024 7,760,553 7,825,771 8,578,035 7,203,624
----------- ------------ ----------- ------------ ------------- ------------- ------------- -------------
(4,306,667) (4,245,320) (3,791,842) (2,738,780) (7,760,553) (7,825,771) (8,578,035) (7,203,624)
(10,481) -- -- -- -- -- -- --
(472,991) -- -- -- -- -- -- --
----------- ------------ ----------- ------------ ------------- ------------- ------------- -------------
(4,790,139) (4,245,320) (3,791,842) (2,738,780) (7,760,553) (7,825,771) (8,578,035) (7,203,624)
----------- ------------ ----------- ------------ ------------- ------------- ------------- -------------
19,472,193 15,852,296 30,733,443 10,466,537 506,085,291 462,383,174 858,263,159 396,797,192
-- -- -- 21,368,846 -- -- -- --
3,439,628 3,287,237 665,703 623,990 1,897,589 1,743,290 2,936,491 3,258,924
(16,824,326) (20,267,617) (9,642,177) (11,477,619) (509,140,899) (482,092,964) (840,690,877) (381,500,330)
----------- ------------ ----------- ------------ ------------- ------------- ------------- -------------
6,087,495 (1,128,084) 21,756,969 20,981,754 (1,158,019) (17,966,500) 20,508,773 18,555,786
----------- ------------ ----------- ------------ ------------- ------------- ------------- -------------
8,090,457 678,564 24,097,328 21,893,998 (1,158,019) (17,966,500) 20,508,773 18,555,786
71,866,819 71,188,255 59,437,873 37,543,875 150,377,368 168,343,868 154,624,147 136,068,361
----------- ------------ ----------- ------------ ------------- ------------- ------------- -------------
$79,957,276 $71,866,819 $83,535,201 $59,437,873 $149,219,349 $150,377,368 $175,132,920 $ 154,624,147
=========== ============ =========== ============ ============= ============= ============= =============
$ (10,481) $ 1,714 $ 26,452 $ (29,805) -- -- -- --
=========== ============ =========== ============ ============= ============= ============= =============
$ 588,562 $ 840,675 $ 243,423 $ (553,828) -- -- -- --
=========== ============ =========== ============ ============= ============= ============= =============
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
FINANCIAL HIGHLIGHTS TOWER MUTUAL FUNDS
- ------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
DISTRIBUTIONS
NET ASSET NET NET REALIZED DISTRIBUTIONS FROM NET
VALUE, INVESTMENT AND UNREALIZED TOTAL FROM FROM NET REALIZED
YEAR ENDED BEGINNING INCOME GAIN/(LOSS) ON INVESTMENT INVESTMENT GAIN ON
AUGUST 31, OF PERIOD (LOSS) INVESTMENTS OPERATIONS INCOME INVESTMENTS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL APPRECIATION FUND--CLASS A SHARES
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)
1998 $22.38 0.08 1.09 1.17 (0.07) (2.34)
CAPITAL APPRECIATION FUND--CLASS B SHARES
1997(a) $18.90 (0.01)(c) 3.48 3.47 -- --
1998 $22.32 (0.06) 1.07 1.01 -- (2.34)
LOUISIANA MUNICIPAL INCOME FUND
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) --
1998 $11.21 0.56 0.32 0.88 (0.57) (0.05)
MID-CAP EQUITY FUND--CLASS A SHARES
1998(g) $10.00 (0.01) (1.85) (1.86) -- --
MID-CAP EQUITY FUND--CLASS B SHARES
1998(g) $10.00 (0.01) (1.86) (1.87) -- --
TOTAL RETURN BOND FUND
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) --
1998 $ 9.99 0.58 0.35 0.93 (0.58) (0.07)
U.S. GOVERNMENT INCOME FUND
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) --
1998 $ 9.98 0.61 0.34 0.95 (0.60) --
CASH RESERVE FUND
1994 $ 1.00 0.03 -- 0.03 (0.03) --
1995 $ 1.00 0.05 -- 0.05 (0.05) --
1996 $ 1.00 0.05 -- 0.05 (0.05) --
1997 $ 1.00 0.05 -- 0.05 (0.05) --
1998 $ 1.00 0.05 -- 0.05 (0.05) --
U.S. TREASURY MONEY MARKET FUND
1994 $ 1.00 0.03 -- 0.03 (0.03) --
1995 $ 1.00 0.05 -- 0.05 (0.05) --
1996 $ 1.00 0.05 -- 0.05 (0.05) --
1997 $ 1.00 0.05 -- 0.05 (0.05) --
1998 $ 1.00 0.05 -- 0.05 (0.05) --
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DISTRIBUTIONS
IN EXCESS OF
NET
YEAR ENDED INVESTMENT
AUGUST 31, INCOME
- ------------------------------------------------------
<S> <C>
CAPITAL APPRECIATION FUND--CLASS A SHARES
1994 --
1995 --
1996 --
1997 --
1998 --
CAPITAL APPRECIATION FUND--CLASS B SHARES
1997(a) (0.05)(b)
1998 --
LOUISIANA MUNICIPAL INCOME FUND
1994 --
1995 --
1996 --
1997 --
1998 (0.00)(b)(h)
MID-CAP EQUITY FUND--CLASS A SHARES
1998(g) --
MID-CAP EQUITY FUND--CLASS B SHARES
1998(g) --
TOTAL RETURN BOND FUND
1994 --
1995 --
1996 --
1997 --
1998 (0.00)(b)(h)
U.S. GOVERNMENT INCOME FUND
1994 --
1995 --
1996 --
1997 --
1998 --
CASH RESERVE FUND
1994 --
1995 --
1996 --
1997 --
1998 --
U.S. TREASURY MONEY MARKET FUND
1994 --
1995 --
1996 --
1997 --
1998 --
- -------------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from December 2, 1996 (date of initial
public offering) to August 31, 1997.
(b) 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.
(c) 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.
(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.
(g) Reflects operations for the period from July 13, 1998 (date of initial
public offering) to August 31, 1998.
(h) Amount is less than 0.01 per share.
(See Notes which are an integral part of the Financial Statements)
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
----------------------------------
NET
NET ASSET INVESTMENT NET ASSETS, PORTFOLIO
TOTAL VALUE, TOTAL INCOME EXPENSE END OF PERIOD TURNOVER
DISTRIBUTIONS END OF PERIOD RETURN (D) EXPENSES (LOSS) WAIVER (F) (000 OMITTED) RATE
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(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%
(2.41) $21.14 5.12% 1.21% 0.32% -- $279,778 62%
(0.05) $22.32 18.40% 1.99%(e) (0.09%)(e) -- $ 4,635 62%
(2.34) $20.99 4.36% 1.96% (0.44%) -- $ 10,840 62%
(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%
(0.62) $11.47 8.04% 0.66% 4.94% 0.08% $ 98,711 24%
-- $ 8.14 (18.60%) 1.89%(e) (0.48%)(e) 0.20%(e) $ 13,422 1%
-- $ 8.13 (18.70%) 2.76%(e) (1.22%)(e) 0.17%(e) $ 567 1%
(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%
(0.65) $10.27 9.51% 1.08% 5.66% 0.17% $ 79,957 31%
(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%
(0.60) $10.33 9.74% 0.73% 5.98% 0.06% $ 83,535 44%
(0.03) $ 1.00 2.73% 0.91% 2.71% -- $183,922 --
(0.05) $ 1.00 4.97% 0.86% 4.87% -- $191,242 --
(0.05) $ 1.00 4.79% 0.87% 4.69% -- $168,344 --
(0.05) $ 1.00 4.70% 0.89% 4.59% -- $150,377 --
(0.05) $ 1.00 4.82% 0.89% 4.72% -- $149,219 --
(0.03) $ 1.00 2.85% 0.66% 2.85% 0.23% $ 45,022 --
(0.05) $ 1.00 5.15% 0.46% 5.15% 0.22% $116,489 --
(0.05) $ 1.00 5.08% 0.44% 4.95% 0.22% $136,068 --
(0.05) $ 1.00 4.92% 0.50% 4.81% 0.14% $154,624 --
(0.05) $ 1.00 4.89% 0.63% 4.78% -- $175,133 --
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- ---------------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS TOWER MUTUAL FUNDS
August 31, 1998
- ---------------------------------------------------------------------
- ------------------------------------------------------
(1) ORGANIZATION
- ------------------------------------------------------
Tower Mutual Funds (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act"), as an open-end management investment
company. The Trust consists of seven portfolios (individually referred to as
the "Fund", or collectively as the "Funds") which are presented herein:
<TABLE>
<S> <C> <C>
-------------------------------------------------------------------------------------------------
PORTFOLIO NAME DIVERSIFICATION INVESTMENT OBJECTIVE
-------------------------------------------------------------------------------------------------
Tower Capital Appreciation Fund diversified provide growth of capital and income.
("Capital Appreciation Fund")
-------------------------------------------------------------------------------------------------
Tower Louisiana Municipal Income non-diversified provide current income
which is Fund generally exempt from federal income ("Louisiana Municipal
Income Fund") tax and personal income taxes imposed
by the state of Louisiana.
-------------------------------------------------------------------------------------------------
Tower Mid-Cap Equity Fund diversified total return.
("Mid-Cap Equity Fund")
-------------------------------------------------------------------------------------------------
Tower Total Return Bond Fund diversified maximize total return.
("Total Return Bond Fund")
-------------------------------------------------------------------------------------------------
Tower U.S. Government Income Fund diversified provide current income.
("U.S. Government Income Fund")
-------------------------------------------------------------------------------------------------
Tower Cash Reserve Fund diversified provide current income consistent
("Cash Reserve Fund") with stability of principal.
-------------------------------------------------------------------------------------------------
Tower U.S. Treasury Money Market diversified provide current income consistent
Fund with stability of principal and
("U.S. Treasury Money Market Fund") liquidity.
-------------------------------------------------------------------------------------------------
</TABLE>
The assets of each portfolio are segregated and a shareholder's interest is
limited to the portfolio in which shares are held. On July 13, 1998, Mid-Cap
Equity Fund acquired a portfolio of a collective trust fund managed by the
adviser ("Acquired Fund"). The acquisition was accomplished by a tax-free
exchange of 1,591,938 shares of Mid-Cap Equity Fund (valued at $15,919,383)
for the 277,944 shares of the Acquired Fund outstanding on July 13, 1998. The
Acquired Fund's net assets of $15,919,383, which consisted of Paid in Capital,
at that date were combined with those of Mid-Cap Equity Fund. The aggregate
net assets of Mid-Cap Equity Fund and the Acquired Fund immediately before the
acquisition were $0 and $15,919,383, respectively.
- ------------------------------------------------------
(2) SIGNIFICANT ACCOUNTING POLICIES
- ------------------------------------------------------
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Municipal bonds are valued by an independent pricing
service, taking into consideration yield, liquidity, risk, credit quality,
coupon, maturity, type of issue, and any other factors or market data the
pricing service deems relevant. U.S. government securities, listed
corporate bonds, and other fixed income and asset-backed securities are
generally valued at the mean of the latest bid and asked price as furnished
by an independent pricing service. Listed equity securities are valued at
the last sale price reported on a national securities exchange. Cash
<PAGE>
Reserve and U.S. Treasury Money Market Funds use the amortized cost method
to value portfolio securities in accordance with Rule 2a-7 under the Act.
For Capital Appreciation Fund, Louisiana Municipal Income Fund, Total
Return Bond Fund, and U.S. Government Income Fund, short-term securities
are valued at the prices provided by an independent pricing service.
However, short-term securities purchased with remaining maturities of sixty
days or less may be valued at amortized cost, which approximates fair
market value. Investments in other open-end regulated investment companies
are valued at net asset value.
REPURCHASE AGREEMENTS--It is the policy of the Funds to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Funds to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
The Funds will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Funds' adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the
"Trustees").
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code"). Dividend
income and distributions to shareholders are recorded on the ex-dividend
date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are due to differing treatments for net
operating losses. The following reclassification has been made to the
financial statements.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
MID-CAP EQUITY FUND
-----------------------------------------------------------------------------------------------------------
INCREASE (DECREASE)
-----------------------------------------------------------------------------------------------------------
PAID IN CAPITAL UNDISTRIBUTED NET INVESTMENT INCOME
<S> <C>
-----------------------------------------------------------------------------------------------------------
$(10,642) $10,642
-----------------------------------------------------------------------------------------------------------
</TABLE>
Net investment income, net realized gains, and net assets were not affected
by this reclassification.
FEDERAL TAXES--It is the Funds' policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of their income. Accordingly, no
provisions for federal tax are necessary.
At August 31, 1998, U.S. Government Income Fund, for federal tax purposes,
had a capital loss carryforward, as noted below, which will reduce the
Fund's taxable income arising from future net realized gain on investments,
if any, to the extent permitted by the Code, and thus will reduce the
amount of the distributions to shareholders which would otherwise be
necessary to relieve the Fund of any liability for federal tax. Pursuant to
the Code, such capital loss carryforwards will expire as follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR
------------------------------------------------------------------------------------------------------
TOTAL TAX LOSS
FUND 2003 2004 2005 CARRYFORWARD
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------
U.S. Government Income Fund $1,511,953 $1,298,006 $553,828 $3,363,787
------------------------------------------------------------------------------------------------------
</TABLE>
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Funds may engage in
when-issued or delayed delivery transactions. The Funds record when-issued
securities on the trade date and maintain security positions such that
<PAGE>
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES--The costs incurred by U.S. Treasury Money Market Fund
with respect to registration of shares in the first fiscal year, excluding
the initial expense of registering the shares, have been deferred and are
being amortized over a period not to exceed five years from the Fund's
commencement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
- ------------------------------------------------------
(3) SHARES OF BENEFICIAL INTEREST
- ------------------------------------------------------
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
EQUITY AND INCOME FUNDS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
CAPITAL APPRECIATION FUND
YEAR ENDED YEAR ENDED
AUGUST 31, 1998 AUGUST 31, 1997
------------------------------------------------------------------------------------------------------------------
CLASS A SHARES SHARES DOLLARS SHARES DOLLARS
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,944,199 $ 45,967,030 2,060,360 $ 23,465,207
Shares issued in connection with the acquisition of the
Common Trust Funds -- -- 2,789,607 57,075,362
Shares issued to shareholders in payment of distributions
declared 1,143,415 24,488,265 835,384 15,807,335
Shares redeemed (2,499,674) (58,552,238) (2,528,206) (52,191,192)
---------- ------------ ---------- ------------
Net change resulting from Class A Share transactions 587,940 $ 11,903,057 3,157,145 $ 44,156,712
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
CAPITAL APPRECIATION FUND
------------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
AUGUST 31, 1998 AUGUST 31, 1997*
------------------------------------------------------------------------------------------------------------------
CLASS B SHARES SHARES DOLLARS SHARES DOLLARS
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 311,166 $ 7,414,183 211,458 $ 4,376,784
Shares issued to shareholders in payment of distributions
declared 28,474 607,340 113 2,391
Shares redeemed (30,789) (735,028) (3,948) (83,894)
---------- ------------ ---------- ------------
Net change resulting from Class B Share transactions 308,851 $ 7,286,495 207,623 $ 4,295,281
========== ============ ========== ============
Net change resulting from fund share transactions 896,791 $ 19,189,552 3,364,768 $ 48,451,993
========== ============ ========== ============
</TABLE>
*For the period from December 2, 1996 (date of initial public offering) to
August 31, 1997.
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
MID-CAP EQUITY FUND
PERIOD ENDED
AUGUST 31, 1998**
CLASS A SHARES SHARES DOLLARS
---------------------------------------------------------------------------------------
<S> <C> <C>
Shares sold 88,819 $ 836,513
Shares issued in connection with the Acquisition 1,591,938 15,919,383
Shares redeemed (32,017) (300,346)
---------- ------------
Net change resulting from Class A Share transactions 1,648,740 $ 16,455,550
========== ============
</TABLE>
**For the period from July 13, 1998 (date of initial public offering) to
August 31, 1998.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
MID-CAP EQUITY FUND
PERIOD ENDED
AUGUST 31, 1998**
CLASS B SHARES SHARES DOLLARS
---------------------------------------------------------------------------------------
<S> <C> <C>
Shares sold 69,657 $ 674,853
Shares redeemed (5) (50)
---------- ------------
Net change resulting from Class B Share transactions 69,652 $ 674,803
========== ============
Net change resulting from fund share transactions 1,718,392 $ 17,130,353
========== ============
</TABLE>
**For the period from July 13, 1998 (date of initial public offering) to
August 31, 1998.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
LOUISIANA MUNICIPAL TOTAL RETURN BOND FUND U.S. GOVERNMENT
INCOME FUND INCOME FUND
-------------------------------------------------------------------------------------------------------------
YEAR YEAR
YEAR ENDED YEAR YEAR ENDED YEAR
ENDED AUGUST ENDED ENDED AUGUST ENDED
AUGUST 31, 31, AUGUST 31, AUGUST 31, 31, AUGUST 31,
1998 1997 1998 1997 1998 1997
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 767,090 566,626 1,917,601 1,596,634 3,009,055 1,066,484
Shares issued in connection with
the acquisition of the Common
Trust Funds -- 3,317,405 -- -- -- 2,156,291
Shares issued to shareholders in
payment of distributions
declared 163,782 155,298 340,357 329,947 65,543 62,787
Shares redeemed (1,379,228) (992,694) (1,660,779) (2,022,793) (947,489) (1,151,003)
---------- --------- ---------- ---------- --------- ----------
Net change resulting from
share transactions (448,356) 3,046,635 597,179 (96,212) 2,127,109 2,134,559
========== ========= ========== ========== ========= ==========
</TABLE>
<PAGE>
MONEY MARKET FUNDS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
U.S. TREASURY
CASH RESERVE FUND MONEY MARKET FUND
-----------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1998 1997 1998 1997
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 506,085,291 462,383,174 858,263,159 396,797,192
Shares issued to shareholders in payment of
distributions declared 1,897,589 1,743,290 2,936,491 3,258,924
Shares redeemed (509,140,899) (482,092,964) (840,690,877) (381,500,330)
------------ ------------ ------------ ------------
Net change resulting from share transactions (1,158,019) (17,966,500) 20,508,773 18,555,786
============ ============ ============ ============
</TABLE>
- ------------------------------------------------------
(4) INVESTMENT ADVISORY FEE AND OTHER
TRANSACTIONS WITH AFFILIATES
- ------------------------------------------------------
INVESTMENT ADVISORY FEE--Hibernia National Bank, the Funds' investment adviser
(the "Adviser") receives for its services an annual investment advisory fee
based on a percentage of each Fund's average daily net assets (see below).
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
ANNUAL
FUND RATE
--------------------------------------------------------------------------------------
<S> <C>
Capital Appreciation Fund 0.75%
Louisiana Municipal Income Fund 0.45%
Mid-Cap Equity Fund 0.75%
Total Return Bond Fund 0.70%
U.S. Government Income Fund 0.45%
Cash Reserve Fund 0.40%
U.S. Treasury Money Market Fund 0.40%
</TABLE>
The Adviser may voluntarily choose to waive any portion of its fee. The
Adviser can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the
Funds with certain administrative personnel and services. The fee paid to FAS
is based on the level of average aggregate net assets of the Trust for the
period. FAS may voluntarily choose to waive any portion of its fee. FAS can
modify or terminate this voluntary waiver at any time at its sole discretion.
DISTRIBUTION SERVICES FEE--The Funds have adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Funds will reimburse Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Funds to finance activities intended
to result in the sale of each Fund's shares. The Plan provides that the Funds,
except for Class B Shares of the Capital Appreciation Fund and Class B Shares
of Mid-Cap Equity Fund, may incur distribution expenses up to 0.25% of the
average daily net assets of the Funds, annually, to reimburse FSC. Class B
Shares of the Capital Appreciation Fund and Class B Shares of Mid-Cap Equity
Fund may incur distribution expenses up to 0.75% of the average daily net
assets of the Class B Shares, annually, to reimburse FSC. For
<PAGE>
the year ended August 31, 1998, Louisiana Municipal Income Fund, U.S.
Government Income Fund and U.S. Treasury Money Market Fund did not incur
distribution services fees.
SHAREHOLDERS SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), Class B Shares of Capital
Appreciation Fund and Mid-Cap Equity Fund will pay FSS up to 0.25% of its
daily average net assets for the period. The fee paid to FSS is used to
finance certain services for shareholders and to maintain shareholder
accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services
Company ("FServ"), through its subsidiary, Federated Shareholder Services
Company ("FSSC") serves as transfer and dividend disbursing agent for the
Funds. The fee paid to FSSC is based on the size, type, and number of accounts
and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Funds' accounting records for
which it receives a fee. The fee is based on the level of each Fund's average
daily net assets for the period, plus out-of-pocket expenses.
CUSTODIAN FEES--Hibernia National Bank is the Funds' custodian for which it
receives a fee. The fee is based on the level of each Fund's average daily net
assets for the period, plus out-of-pocket expenses.
INTERFUND TRANSACTIONS--During the year ended August 31, 1998, Mid-Cap Equity
Fund engaged in purchase transactions with common trust funds that have a
common investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase transactions were
made at current market value pursuant to Rule 17a-7 under the Act amounting to
$15,432,275. These purchase transactions were attributable to a conversion of
the assets of common trust funds into this fund.
ORGANIZATIONAL EXPENSES--Organizational expenses were borne initially by FAS.
The Fund has reimbursed FAS for these expenses. These expenses have been
deferred and are being amortized over the five-year period following each
Fund's effective date. For the year ended August 31, 1998, the Fund listed
below paid the following pursuant to this agreement.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
AMOUNT REIMBURSED
EXPENSES OF TO FAS FOR THE
ORGANIZING YEAR ENDED
FUND THE FUNDS AUGUST 31, 1998
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Money Market Fund $17,585 $4,396
</TABLE>
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
- ------------------------------------------------------
(5) INVESTMENT TRANSACTIONS
- ------------------------------------------------------
Purchases and sales of investments, excluding short-term securities, for the
year ended August 31, 1998, were as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
FUND PURCHASES SALES
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Capital Appreciation Fund $194,623,575 $208,068,895
Louisiana Municipal Income Fund $ 23,725,698 $ 29,680,616
Mid-Cap Equity Fund $ 15,571,158 $ 128,241
Total Return Bond Fund $ 32,161,688 $ 22,510,086
U.S. Government Income Fund $ 45,197,338 $ 27,491,294
---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- ------------------------------------------------------
(6) CONCENTRATION OF CREDIT RISK
- ------------------------------------------------------
Since Louisiana Municipal Income Fund invests a substantial portion of its
assets in issuers located in one state, it will be more susceptible to factors
adversely affecting issuers of that state than would be a comparable general
tax-exempt mutual fund. In order to reduce the credit risk associated with
such factors, at August 31, 1998, 95.1% of the securities in the portfolio of
investments were backed by letters of credit or bond insurance of various
financial institutions and financial guaranty assurance agencies. The value of
investments insured by or supported (backed) by a letter of credit from any
one institution or agency did not exceed 26.9% of total investments.
- ------------------------------------------------------
(7) YEAR 2000 (UNAUDITED)
- ------------------------------------------------------
Similar to other financial organizations, the Funds could be adversely
affected if the computer systems used by the Funds' service providers do not
properly process and calculate date-related information and data from and
after January 1, 2000. The Funds' Adviser and administrator are taking
measures that they believe are reasonably designed to address the Year 2000
issue with respect to computer systems that they use and to obtain reasonable
assurances that comparable steps are being taken by each of the Funds' other
service providers. At this time, however, there can be no assurance that these
steps will be sufficient to avoid any adverse impact to the Funds.
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of TOWER MUTUAL FUNDS:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Tower Mutual Funds (comprising, respectively,
Tower Capital Appreciation Fund, Tower Louisiana Municipal Income Fund, Tower
Mid-Cap Equity Fund, Tower Total Return Bond Fund, Tower U.S. Government Income
Fund, Tower Cash Reserve Fund and Tower U.S. Treasury Money Market Fund) as of
August 31, 1998 and the related statements of operations, the statements of
changes in net assets, and the financial highlights for each of the periods
presented therein. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1998 by correspondence with the custodian and brokers and, where
appropriate, the application of alternative auditing procedures for unsettled
security transactions. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting Tower Mutual Funds at August 31, 1998,
the results of their operations, the changes in their net assets, and their
financial highlights for each of the periods presented therein, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
October 14, 1998
<PAGE>
TOWER MUTUAL FUNDS
------------------------------------------------
TRUSTEES AND OFFICERS
------------------------------------------------
<TABLE>
<S> <C>
TRUSTEES OFFICERS
EDWARD C. GONZALES EDWARD C. GONZALES
President and Treasurer
ROBERT L. DIBENEDETTO, M.D. JEFFREY W. STERLING
Vice President and Assistant Treasurer
JAMES A. GAYLE, SR. PETER J. GERMAIN
Secretary
J. GORDON REISCHE GAIL CAGNEY
Assistant Secretary
MUTUAL FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS, ARE NOT
GUARANTEED BY ANY BANK, AND ARE NOT INSURED OR GUARANTEED BY THE
U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN
MUTUAL FUNDS INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED. ALTHOUGH MONEY MARKET FUNDS SEEK TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE, THERE IS NO
ASSURANCE THAT THEY WILL BE ABLE TO DO SO.
THIS REPORT IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY WHEN PRECEDED OR
ACCOMPANIED BY THE FUNDS' PROSPECTUS WHICH CONTAINS FACTS CONCERNING THEIR OBJECTIVES AND
POLICIES, MANAGEMENT FEES, EXPENSES AND OTHER INFORMATION.
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
FEDERATED SECURITIES CORP. IS DISTRIBUTOR OF THE FUNDS. G01262-01 (10/98)
