HIBERNIA FUNDS, 485BPOS, 1998-10-27

HIBERNIA FUNDS
485BPOS, 1998-10-27

Previous: UNITED INVESTORS GROWTH PROPERTIES, 8-K/A, 1998-10-27

Next: COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP /DE/, 10-Q, 1998-10-27

1933 Act File No. 33-21321
1940 Act File No. 811-5536

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
----

Pre-Effective Amendment No. ....................

Post-Effective Amendment No. 22 .................... X
------- ----

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 20 ................................... X
------- ----

HIBERNIA FUNDS
(formerly, Tower Mutual Funds)

(Exact Name of Registrant as Specified in Charter)

5800 Corporate Drive, Pittsburgh, Pennsylvania 15237-7010
(Address of Principal Executive Offices)

(412) 288-1900
(Registrant's Telephone Number)

John W. McGonigle, Esquire,
Federated Investors Tower,
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)

It is proposed that this filing will become effective:

immediately upon filing pursuant to paragraph (b)
X on October 31, 1998 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i) on pursuant to paragraph
(a) (i) 75 days after filing pursuant to paragraph (a)(ii) on
_________________ pursuant to paragraph (a)(ii) of Rule 485.

If appropriate, check the following box:

This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Copies to:

Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, D.C. 20037

<PAGE>

CROSS REFERENCE SHEET

This Amendment to the Registration Statement of HIBERNIA FUNDS, which
consists of seven portfolios, (1) Hibernia Capital Appreciation Fund, (a)Class A
Shares and (b) Class B Shares; (2) Hibernia Louisiana Municipal Income Fund; (3)
Hibernia Total Return Bond Fund; (4) Hibernia U.S. Government Income Fund; (5)
Hibernia Cash Reserve Fund, (a)Class A Shares and (b) Class B Shares; (6)
Hibernia U.S. Treasury Money Market Fund; and (7) Hibernia Mid Cap Equity Fund,
(a)Class A Shares and (b) Class B Shares. This filing relates to all portfolios
and is comprised of the following:

PART A. INFORMATION REQUIRED IN A PROSPECTUS.

Prospectus Heading
(RULE 404(C) CROSS REFERENCE)

Item 1. Cover Page....................(1-7) Cover Page.
Item 2. Synopsis......................(1-4,7) Summary of Fund Expenses -
Equity and Income Funds; (5-6)
Summary of Fund Expenses - Money
Market Funds; (1-7) Financial
Highlights
Item 3. Condensed Financial
Information..................(1-7) Performance Information;
(7) Performance Information for
Predecessor Collective Trust Fund.
Item 4. General Description of
Registrant...................(1-7) Synopsis; (1-7) Objective and
Policies of Each Fund; (7) Objective
and Policies of the Fund;
(1-7) Portfolio Investments and
Strategies.
Item 5. Management of the Fund........(1-7) Tower Mutual Funds Information;
(1-7) Management of Tower Mutual
Funds; (1-7) Distribution of
Fund Shares; (1-7) Distribution Plan;
(1-7) Fund Administration; (1-7)
Brokerage Transactions;
1,5(b), 7(b) Shareholder Servicing
Arrangements;
Item 6. Capital Stock and Other
Securities...................(1-7) Dividends; (1-7) Capital Gains;
(1-7) Shareholder Information;
(1-7) Voting Rights; (1-7)
Effect of Banking Laws; (1-7) Tax
Information; (1-7) Federal Income
Tax; (2) Louisiana Municipal
Income Fund - Additional Tax
Information.
Item 7. Purchase of Securities
Being Offered................(1-7) Net Asset
Value; (1-7) Investing in the Funds;
(1-7) Share Purchases; (1-7) Minimum
Investment Required; (1-7) What Shares
Cost; (1-7) Systematic Investment
Program; (1-7) Certificates and
Confirmations; (1-7) Reducing the
Sales Charge; (1-7) Exchanging
Securities for Fund Shares.
Item 8. Redemption or Repurchase......(1-7) Redeeming Shares; (1-7)
Systematic Withdrawal Program; (1-7)
Accounts With Low Balances; (1-7)
Exchange Privilege.
Item 9. Pending Legal Proceedings.....None.

<PAGE>

PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.

Item 10. Cover Page....................(1-7) Cover Page.
Item 11. Table of Contents.............(1-7) Table of Contents.
Item 12. General Information and
History......................(1-7) General Information About the
Funds.
Item 13. Investment Objectives and
Policies.....................(1-7) Investment Objective and
Policies of the Funds.
Item 14. Management of the Fund (1-7) Tower Mutual Funds Management;
(1-7) Trustees' Compensation.
Item 15. Control Persons and Principal
Holders of Securities Not applicable.
Item 16. Investment Advisory and Other
Services.....................(1-7) Investment Advisory Service;
(1-7) Other Services; (1-7)
Custodian; (1-7) Transfer Agent and
Dividend Disbursing Agent and
Portfolio Accounting Services; (1-7)
Independent Auditors.
Item 17. Brokerage Allocation..........(1-7) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities Not applicable.
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered......................(1-7) Purchasing Shares;
(1-7) Determining Net Asset Value;
(1-7) Redeeming Shares;
(1-7) Exchange Privilege.
Item 20. Tax Status....................(1-7) Tax Status.
Item 21. Underwriters..................(1-7) Distribution Plan 1,5(b);
Shareholder Services..
Item 22. Performance Data..............(1-7) Performance Comparisons.
Item 23. Financial Statements..........(1-7) Financial Statements.
(Incorporated by reference to Annual
Report of Registrant dated August 31,
1998, File Nos. 811-5536 and
33-21321).

PROSPECTUS

OCTOBER 31, 1998

[LOGO] HIBERNIA
---FUNDS

HIBERNIA CAPITAL APPRECIATION FUND
CLASS A SHARES
CLASS B SHARES

HIBERNIA LOUISIANA MUNICIPAL INCOME FUND

HIBERNIA MID CAP EQUITY FUND
CLASS A SHARES
CLASS B SHARES

HIBERNIA TOTAL RETURN BOND FUND

HIBERNIA U.S. GOVERNMENT INCOME FUND

HIBERNIA CASH RESERVE FUND
CLASS A SHARES
CLASS B SHARES

HIBERNIA U.S. TREASURY MONEY MARKET FUND
<PAGE>

HIBERNIA FUNDS

(formerly, Tower Mutual Funds)

PROSPECTUS

Hibernia Funds (the "Trust") is an open-end management investment company (a
mutual fund). This prospectus offers investors interests in the following seven
investment portfolios (collectively referred to as the "Funds" and individually
as the "Fund"), each having a distinct investment objective and policies:

EQUITY AND INCOME FUNDS

- Hibernia Capital Appreciation Fund--Class A Shares and Class B Shares

- Hibernia Louisiana Municipal Income Fund

- Hibernia Mid Cap Equity Fund--Class A Shares and Class B Shares

- Hibernia Total Return Bond Fund

- Hibernia U.S. Government Income Fund

MONEY MARKET FUNDS

- Hibernia Cash Reserve Fund--Class A Shares and Class B Shares

- Hibernia U.S. Treasury Money Market Fund

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
HIBERNIA NATIONAL BANK OR ITS AFFILIATES, ARE NOT ENDORSED OR GUARANTEED BY
HIBERNIA NATIONAL BANK OR ITS AFFILIATES, AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THE SHARES OF THE HIBERNIA FUNDS INVOLVES
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.

Hibernia Cash Reserve Fund and Hibernia U.S. Treasury Money Market Fund attempt
to maintain a stable net asset value of $1.00 per share; there can be no
assurance that these Funds will be able to do so.

This prospectus contains the information you should read and know before you
invest in any of the Funds of the Trust. Keep this prospectus for future
reference.

Additional information about the Trust is contained in the Trust's Statement of
Additional Information dated October 31, 1998, which has also been filed with
the Securities and Exchange Commission ("SEC"). The information contained in the
Statement is incorporated by reference into this prospectus. You may request a
copy of the Statement, free of charge, obtain other information, or make
inquiries about any of the Funds by writing to the Trust or calling toll-free
1-800-999-0124. The Statement, material incorporated by reference into this
document, and other information regarding the Trust is maintained electronically
with the SEC at Internet Web site (http://www.sec.gov).

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE. Prospectus dated October 31, 1998 <PAGE>

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

SYNOPSIS 1
- ------------------------------------------------------

SUMMARY OF FUND EXPENSES--
EQUITY AND INCOME FUNDS 3
- ------------------------------------------------------

SUMMARY OF FUND EXPENSES--
MONEY MARKET FUNDS 5
- ------------------------------------------------------

FINANCIAL HIGHLIGHTS 6
- ------------------------------------------------------

OBJECTIVE AND POLICIES OF EACH FUND 8

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

Capital Appreciation Fund 8

Louisiana Municipal Income Fund 9

Mid Cap Equity Fund 13

Total Return Bond Fund 15

U.S. Government Income Fund 17

Cash Reserve Fund 18

U.S. Treasury Money Market Fund 20

PORTFOLIO INVESTMENTS AND STRATEGIES 20

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

Borrowing Money 20

Foreign Securities 20

Investing in Securities of Other
Investment Companies 21

Lending of Portfolio Securities 21

Put and Call Options 21

Financial Futures and Options on Futures 22

Repurchase Agreements 23

Restricted and Illiquid Securities 24

Temporary Investments 24

U.S. Government Securities 25

When-Issued and Delayed
Delivery Transactions 25

Asset-Backed Securities 26

Investment Risks 26

HIBERNIA FUNDS INFORMATION 27

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

Management of Hibernia Mutual Funds 27

Distribution of Fund Shares 29

Shareholder Servicing Arrangements
(Class B Shares only) 30

Fund Administration 30

Brokerage Transactions 30

Expenses of the Funds and

Class A Shares and Class B Shares 31

NET ASSET VALUE 31

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

INVESTING IN THE FUNDS 32

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

Share Purchases 32

Minimum Investment Required 33

What Shares Cost 33

Reducing the Front-End Sales Charge 36

Systematic Investment Program 37

Exchanging Securities for Fund Shares 37

Confirmations and Account Statements 37

Dividends 38

Capital Gains 38

EXCHANGE PRIVILEGE 38

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

REDEEMING SHARES 39

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

Systematic Withdrawal Program 41

Accounts with Low Balances 41

SHAREHOLDER INFORMATION 42

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

Voting Rights 42

EFFECT OF BANKING LAWS 42

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

TAX INFORMATION 42

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

Federal Income Tax 42

Louisiana Municipal Income Fund--
Additional Tax Information 43

Other State and Local Taxes 44

PERFORMANCE INFORMATION 44

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

Performance Information for
Predecessor Collective Trust Fund 45

ADDRESSES 46

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

<PAGE>

SYNOPSIS
- --------------------------------------------------------------------------------

The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated April 8, 1988. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. Hibernia Capital Appreciation Fund (formerly, Tower
Capital Appreciation Fund), Hibernia Mid Cap Equity Fund (formerly, Tower Mid
Cap Equity Fund) and Hibernia Cash Reserve Fund (formerly, Tower Cash Reserve
Fund) currently offer two classes of shares, Class A Shares and Class B Shares.
Each Fund is designed for institutions and individuals as a convenient means of
accumulating an interest in a professionally managed portfolio. This prospectus
relates to Hibernia Louisiana Municipal Income Fund (formerly, Tower Louisiana
Municipal Income Fund), Hibernia Total Return Bond Fund (formerly, Tower Total
Return Bond Fund), Hibernia U.S. Government Income Fund (formerly, Tower U.S.
Government Income Fund), Hibernia U.S. Treasury Money Market Fund (formerly,
Tower U.S. Treasury Money Market Fund) and Class A Shares and Class B Shares of
Hibernia Capital Appreciation Fund, Hibernia Mid Cap Equity Fund and Hibernia
Cash Reserve Fund (collectively, the "Funds.")

As of the date of this prospectus, shares are offered in the following Funds:

- Hibernia Capital Appreciation Fund ("Capital Appreciation Fund")--seeks
to provide growth of capital and income by investing primarily in a
diversified portfolio of common stocks;

- Hibernia Louisiana Municipal Income Fund ("Louisiana Municipal Income
Fund")--seeks to provide current income which is generally exempt from
federal regular income tax and the personal income taxes imposed by the
state of Louisiana by investing primarily in a non-diversified portfolio
of Louisiana municipal securities;

- Hibernia Mid Cap Equity Fund ("Mid Cap Equity Fund")--seeks total return
by investing in a portfolio of equity securities comprising the mid-sized
capitalization ("mid-cap") sector of the United States equity market;

- Hibernia Total Return Bond Fund ("Total Return Bond Fund")--seeks to
maximize total return by investing in a diversified portfolio of
government, mortgage-backed, asset-backed and corporate securities, as
well as collateralized mortgage obligations;

- Hibernia U.S. Government Income Fund ("U.S. Government Income
Fund")--seeks to provide current income by investing in a diversified
portfolio consisting primarily of U.S. government securities;

- Hibernia Cash Reserve Fund ("Cash Reserve Fund")--seeks to provide
current income consistent with stability of principal by investing in a
diversified portfolio of high quality money market instruments; and

- Hibernia U.S. Treasury Money Market Fund ("U.S. Treasury Money Market
Fund" and together with Cash Reserve Fund, the "Money Market
Funds")--seeks to provide current income consistent with stability of
principal and liquidity by investing in a portfolio limited to short-term
U.S. Treasury obligations.

<PAGE>

For information on how to purchase shares of any of the Funds, please refer to
"Investing in the Funds." In most cases, the minimum initial investment of
$1,000 is required for each Fund; in the case of the Money Market Funds, a
minimum initial investment of $1,000 is required unless the investment is in a
retirement plan, in which case the minimum initial investment is $250. See
"Minimum Investment Required." Shares of the Money Market Funds are sold at net
asset value without a sales charge. Class A Shares of Capital Appreciation Fund
and Mid Cap Equity Fund are sold at net asset value plus a maximum front-end
sales charge of 4.50%. Shares of Louisiana Municipal Income Fund, Total Return
Bond Fund, and U.S. Government Income Fund are sold at net asset value plus a
maximum front-end sales charge of 3.00%. The front-end sales charges may be
reduced as discussed under "Reducing the Sales Charge." Shares of the Funds
(with the exception of Class B Shares of Capital Appreciation Fund, Mid Cap
Equity Fund and Cash Reserve Fund) are redeemed at net asset value. Class B
Shares of Capital Appreciation Fund, Mid Cap Equity Fund and Cash Reserve Fund
are sold at net asset value, but are subject to a contingent deferred sales
charge of up to 5.50% if redeemed within 6 full years following the date of
purchase. Information concerning the front-end and contingent deferred sales
charges may be found under "What Shares Cost." Information on redeeming shares
may be found under "Redeeming Shares." Additionally, information regarding the
exchange privilege offered with respect to the Trust may be found under
"Exchange Privilege." Hibernia National Bank is the investment adviser and
custodian to the Funds and receives compensation for these services.

One or more Funds may make certain investments and employ certain investment
techniques that involve risks, including entering into repurchase agreements,
lending portfolio securities, and entering into futures contracts and related
options as hedges. These risks and those associated with investing in Louisiana
municipal securities, mortgage-backed securities, asset-backed securities,
when-issued securities, and variable rate securities are described under
"Objective and Policies of Each Fund" and "Portfolio Investments and
Strategies."

YEAR 2000 STATEMENT. Like other mutual funds and business organizations
worldwide, the Funds' service providers (among them, the adviser, distributor,
administrator and transfer agent) must ensure that their computer systems are
adjusted to properly process and calculate date-related information from and
after January 1, 2000. Many software programs and, to a lesser extent, the
computer hardware in use today cannot distinguish the year 2000 from the year
1900. Such a design flaw could have a negative impact in the handling of
securities trades, pricing and accounting services. The Funds and their service
providers are actively working on necessary changes to computer systems to deal
with the year 2000 issue and believe that systems will be year 2000 compliant
when required. Analysis continues regarding the financial impact of instituting
a year 2000 compliant program on the Funds' operations.

<PAGE>

SUMMARY OF FUND EXPENSES--EQUITY AND INCOME FUNDS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES

CAPITAL CAPITAL MID CAP MID CAP
APPRECIATION APPRECIATION LOUISIANA EQUITY EQUITY TOTAL U.S.
FUND FUND MUNICIPAL FUND FUND RETURN GOVERNMENT
CLASS A CLASS B INCOME CLASS A CLASS B BOND INCOME
SHARES SHARES FUND SHARES SHARES FUND FUND
------ ------ ---- ------ ------ ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases
(as a percentage of offering
price).......................... 4.50% None 3.00% 4.50% None 3.00% 3.00%
Maximum Sales Charge Imposed on
Reinvested Dividends (as a
percentage of offering price)... None None None None None None None
Contingent Deferred Sales Charge
(as a percentage of original
purchase price or redemption
proceeds, as applicable) (1).... None 5.50% None None 5.50% None None
Redemption Fee (as a percentage of
amount redeemed, if
applicable)..................... None None None None None None None
Exchange Fee...................... None None None None None None None

ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fees (after waivers)
(2)............................. 0.75% 0.75% 0.22% 0.00% 0.00% 0.40% 0.24%
12b-1 Fees (after waivers) (3).... 0.25% 0.75% 0.15% 0.25% 0.75% 0.25% 0.15%
Total Other Expenses (after
waivers)........................ 0.21% 0.46% 0.30% 1.51%(6) 1.76%(6) 0.33% 0.30%
Shareholder Services Fee...... None 0.25% None None 0.25% None None
Total Operating Expenses
(after waivers) (4)..... 1.21% 1.96% 0.67%(5) 1.76%(5) 2.51%(5) 0.98%(5) 0.69%(5)
</TABLE>

(1) The contingent deferred sales charge is 5.50% in the first year, declining
to 1.00% in the sixth year and then 0.00% thereafter. See "What Shares
Cost--Contingent Deferred Sales Charge."

(2) The management fee of Louisiana Municipal Income Fund, Mid Cap Equity Fund,
Total Return Bond Fund, and U.S. Government Income Fund have been reduced to
reflect the voluntary waivers by the investment adviser. The adviser may
terminate these voluntary waivers at any time at its sole discretion. The
maximum management fees are 0.45%, 0.75%, 0.70% and 0.45% respectively.

(3) Under the Rule 12b-1 distribution plans, Louisiana Municipal Income Fund and
U.S. Government Income Fund can pay the distributor up to 0.25% as a 12b-1 fee.
Both funds plan to limit these payments to 0.15% for the foreseeable future.

(4) The Total Operating Expenses for Louisiana Municipal Income Fund, Mid Cap
Equity Fund Class A and Class B, Total Return Bond Fund, and U.S. Government
Income Fund are estimated to be 1.00%, 2.70%, 3.45%, 1.28%, and 1.00%,
respectively, absent the voluntary waivers described in footnotes (2), (3), and
(6).

(5) The Total Operating Expenses for Louisiana Municipal Income Fund, Mid Cap
Equity Fund Class A and Class B, Total Return Bond Fund, and U.S. Government
Income Fund are based on projected average net assets and expenses expected
during the fiscal year ending August 31, 1999. The Total Operating Expenses for
Louisiana Municipal Income Fund, Mid Cap Equity Fund Class A and Class B, Total
Return Bond Fund, and U.S. Government Income Fund were 0.66%, 1.90%, 2.65%,
1.08%, and 0.73%, respectively, for the fiscal year ended August 31, 1998.

(6) Total Other Expenses for Mid Cap Equity Fund Class A and Class B Shares have
been reduced to reflect the anticipated voluntary waiver by the administrator.
Total Other Expenses are expected to be 1.70% and 1.95%, respectively, for Class
A and Class B Shares, absent the voluntary waiver by the administrator. Total
Other Expenses for Class A and Class B Shares were 0.90% and 1.15%,
respectively, and would have been 1.10% and 1.35% absent the voluntary waiver by
the administrator.

<PAGE>

THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUNDS WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "HIBERNIA MUTUAL FUNDS INFORMATION" AND "INVESTING IN THE FUNDS."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.

<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; (2) redemption at the end of each time period;
and (3) payment of the maximum sales charge of 4.50% for Class A Shares of
Capital Appreciation Fund and Class A Shares of Mid Cap Equity Fund and a
maximum sales charge of 3.00% for Louisiana Municipal Income Fund, Total Return
Bond Fund, and U.S. Government Income Fund.
Capital Appreciation Fund--Class A Shares............... $57 $ 82 $108 $185
Louisiana Municipal Income Fund......................... $37 $ 51 $ 66 $111
Mid Cap Equity Fund--Class A Shares..................... $62 $ 98 N/A N/A
Total Return Bond Fund.................................. $40 $ 60 $ 83 $147
U.S. Government Income Fund............................. $37 $ 51 $ 67 $113
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period in
Class B Shares of Capital Appreciation Fund............. $77 $105 $129 $229
Class B Shares of Mid Cap Equity Fund................... $82 $121 N/A N/A
You would pay the following on the same investment assuming
no redemptions in
Class B Shares of Capital Appreciation Fund............. $20 $ 62 $106 $229
Class B Shares of Mid Cap Equity Fund................... $25 $ 78 N/A N/A
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

<PAGE>

SUMMARY OF FUND EXPENSES--MONEY MARKET FUNDS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
CASH CASH
RESERVE RESERVE U.S. TREASURY
FUND FUND MONEY MARKET
CLASS A CLASS B FUND
------- ------- -------------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)....................... None None None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)....................... None None None
Contingent Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds, as
applicable)............................................... None 5.50%(1) None
Redemption Fee (as a percentage of amount redeemed, if
applicable)............................................... None None None
Exchange Fee................................................ None None None

ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fees............................................. 0.40% 0.40% 0.40%
12b-1 Fees (2).............................................. 0.25% 0.75% 0.00%
Total Other Expenses........................................ 0.24% 0.49% 0.23%
Shareholder Services Fee................................ None 0.25% None
Total Operating Expenses............................ 0.89% 1.64% 0.63%
</TABLE>

(1) The contingent deferred sales charge is 5.50% in the first year, declining
to 1.00% in the sixth year and then 0.00% thereafter. See "What Shares
Cost--Contingent Deferred Sales Charge."

(2) Under the Rule 12b-1 distribution plans, U.S. Treasury Money Market Fund can
pay the distributor up to 0.25% as a 12b-1 fee. Prior to 11/1/98 the 12b-1 Plan
was dormant.

THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "HIBERNIA FUNDS INFORMATION" AND "INVESTING IN THE FUNDS."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.

EXAMPLE

You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period. The Cash
Reserve Fund Class A and U.S. Treasury Money Market Fund charge no contingent
deferred sales charges.

<TABLE>
<CAPTION>
CASH CASH
RESERVE RESERVE U.S. TREASURY
FUND FUND MONEY MARKET
CLASS A CLASS B FUND
------- ------- -------------
<S> <C> <C> <C>
1 Year...................................................... $ 9 $ 74 $ 6
3 Years..................................................... $ 28 $ 96 $20
5 Years..................................................... $ 49 N/A $35
10 Years.................................................... $110 N/A $79
</TABLE>

<TABLE>
<CAPTION>
CASH
RESERVE
FUND
CLASS B
-------
<S> <C>
You would pay the following on the same investment assuming
no redemptions in.........................................
1 Year...................................................... $ 17
3 Years..................................................... $ 52
5 Years..................................................... N/A
10 Years.................................................... N/A
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

<PAGE>

FINANCIAL HIGHLIGHTS

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

The following table has been audited by Ernst & Young, LLP, the Funds'
independent auditors. Their report dated October 14, 1998 on the Fund's
financial statements and financial highlights is incorporated by reference to
the Annual Report dated August 31, 1998. This table should be read in
conjunction with the Funds' financial statements and notes thereto, which may be
obtained from the Funds.

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

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) --
- --------------------------------------------------------------------------------------------------------------------------------

DISTRIBUTIONS
IN EXCESS OF
YEAR ENDED NET 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 shown is less than 0.01 per share.

Further information about the Funds' performance is contained in the Annual
Report dated August 31, 1998, which can be obtained free of charge.

<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>

OBJECTIVE AND POLICIES OF EACH FUND
- --------------------------------------------------------------------------------

The investment objective and policies of each Fund appear below. The investment
objective of a Fund cannot be changed without the approval of holders of a
majority of that Fund's shares. While there is no assurance that a Fund will
achieve its investment objective, it endeavors to do so by following the
investment policies described in this prospectus, and, in the case of the Money
Market Funds, by complying with the diversification and other requirements of
Rule 2a-7 under the Investment Company Act of 1940 which regulates money market
mutual funds.

Unless indicated otherwise, the investment policies of a Fund may be changed by
the Board of Trustees ("Trustees") without approval of shareholders.
Shareholders will be notified before any material change in these policies
becomes effective.

Additional information about investment limitations, strategies that one or more
Funds may employ, and certain investment policies mentioned below appear in the
"Portfolio Investments and Strategies" section of this prospectus and in the
Statement of Additional Information.

CAPITAL APPRECIATION FUND

The investment objective of Capital Appreciation Fund is to provide growth of
capital and income. The Fund's investment approach is based on the conviction
that over the long term the economy will continue to expand and develop and that
this economic growth will be reflected in the growth of the revenues and
earnings of publicly held corporations.

ACCEPTABLE INVESTMENTS. The Fund attempts to achieve its investment objective by
investing primarily in a professionally managed, diversified portfolio of common
stocks. The securities in which the Fund invests include, but are not limited
to:

- common stocks of companies selected by the Fund's investment adviser on
the basis of traditional research techniques, including assessment of
earnings and dividend growth prospects of the companies. Ordinarily,
these companies will be in the top 30% of their industries with regard to
revenues. However, other factors such as product position, market share,
potential earnings growth, or asset values will be considered by the
investment adviser and may outweigh revenues. At least 65% of the Fund's
portfolio will be invested in common stocks, unless it is in a defensive
position;

- preferred stocks, corporate bonds, notes, warrants, rights, and
convertible securities of these companies; and

- U.S. government securities.

In addition, the Fund may engage in when-issued and delayed delivery
transactions and invest in foreign securities, temporary investments, and
repurchase agreements. The Fund may also purchase put options on its portfolio
securities and on futures contracts and write call options on its portfolio
securities.

The Fund reserves the right to attempt to hedge the portfolio by entering into
financial futures contracts and to write calls on financial futures contracts.
The Fund will notify shareholders before it begins engaging in these
transactions. See "Portfolio Investments and Strategies."

INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Investing in Securities of Other Investment
Companies," "Lending of Portfolio Securities," and "Restricted and Illiquid
Securities."

<PAGE>

LOUISIANA MUNICIPAL INCOME FUND

The investment objective of Louisiana Municipal Income Fund is to provide
current income which is generally exempt from federal regular income tax and the
personal income taxes imposed by the state of Louisiana. (Federal regular income
tax does not include the federal individual alternative minimum tax or the
federal alternative minimum tax for corporations.)

ACCEPTABLE INVESTMENTS. The Fund attempts to achieve its investment objective by
investing in a professionally managed portfolio primarily limited to Louisiana
municipal securities. As a matter of fundamental investment policy, the Fund
will invest its assets so that, under normal circumstances, at least 80% of its
annual interest income is exempt from federal regular and Louisiana state income
taxes or at least 80% of its total assets are invested in obligations, the
interest income from which is exempt from federal regular and Louisiana state
income taxes.

MUNICIPAL SECURITIES. The municipal securities in which the Fund invests
are:

- debt obligations, including industrial development bonds, issued on
behalf of the state of Louisiana, its political subdivisions or agencies;

- debt obligations issued by or on behalf of any state, territory or
possession of the United States, including the District of Columbia, or
any political subdivision or agency of any of these; and

- participation interests, as described below, in any of the above
obligations;

the interest from which is, in the opinion of bond counsel for the issuers,
or in the opinion of officers of Hibernia Funds and/or the investment
adviser to the Fund, exempt from both federal regular income tax and the
personal income tax imposed by the state of Louisiana. (Municipal
securities not issued by the state of Louisiana, its political subdivisions
or agencies, which may generate interest income subject to the Louisiana
personal income tax, may also be purchased by the Fund.) As a matter of
investment policy which may be changed without shareholder approval, at
least 65% of the Fund's total assets will be invested in Louisiana
municipal securities. It is likely that shareholders will be required to
include interest from a portion of the municipal securities owned by the
Fund in calculating the federal individual alternative minimum tax or the
federal alternative minimum tax for corporations.

CHARACTERISTICS. The municipal securities which the Fund buys are:

- rated Baa or above by Moody's Investors Service, Inc. ("Moody's") or BBB
or above by Standard & Poor's ("S&P"). Bonds rated BBB by S&P or Baa by
Moody's have speculative characteristics. Changes in economic conditions
or other circumstances are more likely to lead to weakened capacity to
make principal and interest payments than higher rated bonds. A
description of the rating categories is contained in the Appendix to the
Statement of Additional Information;

- insured by a municipal bond insurance company which is rated AAA by S&P
or Aaa by Moody's;

- guaranteed at the time of purchase by the U.S. government as to the
payment of principal and interest; fully collateralized by an escrow of
U.S. government securities; or

- unrated if determined to be of comparable quality to one of the foregoing
rating categories by the Fund's investment adviser.

PARTICIPATION INTERESTS. The Fund may purchase participation interests from
financial institutions such as commercial banks, savings associations, and
insurance companies. These participation interests give the Fund an
undivided interest in Louisiana municipal securities.

<PAGE>

The municipal securities subject to the participation interests are not
limited to maturities of one year or less, so long as the participation
interests include the right to demand payment, typically within seven days,
from the issuers of those interests. The Fund will purchase only
participation interests which have such a demand feature or which mature in
less than one year. The financial institutions from which the Fund
purchases participation interests frequently provide or secure irrevocable
letters of credit or guarantees to assure that the participation interests
are of high quality. The Trustees will determine that participation
interests meet the prescribed quality standards for the Fund.

OTHER INVESTMENT TECHNIQUES. The Fund may purchase a right to sell a security
held by it back to the issuer or to another party at an agreed upon price at any
time during a stated period or on a certain date. These rights may be referred
to as "liquidity puts" or "standby commitments."

The Fund may also hedge all or a portion of its investments by entering into put
and call options and by entering into futures contracts or options on them. Any
gains realized on these futures contracts and options are taxable. Before the
Fund begins using these investment techniques, it will notify shareholders.

In addition, the Fund may concentrate certain of its investments, engage in
when-issued and delayed delivery transactions, and invest in temporary
investments and repurchase agreements. See "Portfolio Investments and
Strategies."

LOUISIANA MUNICIPAL SECURITIES. Louisiana municipal securities are generally
issued to finance public works, such as airports, bridges, highways, housing,
hospitals, mass transportation projects, schools, streets, and water and sewer
works. They are also issued to repay outstanding obligations, to raise funds for
general operating expenses, and to make loans to other public institutions and
facilities.

Louisiana municipal securities include industrial development and pollution
control bonds issued by or on behalf of public authorities to provide financing
aid to acquire sites or construct and equip facilities for privately or publicly
owned corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby increases
local employment.

The two principal classifications of municipal securities are "general
obligation bonds" and "revenue bonds." General obligation bonds are secured by
the issuer's pledge of its full faith and credit and taxing power for the
payment of principal and interest. Interest on and principal of revenue bonds,
however, are payable only from the revenue generated by the facility financed by
the bond or other specified sources of revenue or collateral. Revenue bonds do
not represent a pledge of credit or create any debt of or charge against the
general revenues of a municipality or public authority. Industrial development
bonds and pollution control bonds are typically classified as revenue bonds.

The Fund may invest more than 25% of the value of its total assets in industrial
development and pollution control bonds, which may result in more than 25% of
the Fund's total assets being invested in one industry. The Fund may also invest
more than 25% of its assets in housing bonds, which are revenue bonds.
Legislative actions at the state or federal level, changes in national or
regional economic conditions, or changes in the quality of mortgages securing
some housing bonds are some of the factors that could affect housing bonds.

MUNICIPAL BOND INSURANCE. The Fund may purchase municipal securities covered by
insurance which guarantee the timely payment of principal at maturity and
interest on such securities. These insured municipal securities are either (1)
covered by an insurance policy applicable to a particular

<PAGE>

security, whether obtained by the issuer of the security or by a third party
("Issuer-Obtained Insurance") or (2) insured under master insurance policies
issued by municipal bond insurers, which may be purchased by the Fund (the
"Policies").

The Fund will require or obtain municipal bond insurance when purchasing
municipal securities which would not otherwise meet the Fund's quality
standards. The Fund may also require or obtain municipal bond insurance when
purchasing or holding specific municipal securities when, in the opinion of the
Fund's investment adviser, such insurance would benefit the Fund, for example,
through improvement of portfolio quality or increased liquidity of certain
securities. The Fund's investment adviser anticipates that more than 50% of the
Fund's net assets will be invested in municipal securities which are insured.

Issuer-Obtained Insurance policies are noncancellable and continue in force as
long as the municipal securities are outstanding and their respective insurers
remain in business. If a municipal security is covered by Issuer-Obtained
Insurance, then such security need not be insured by the Policies purchased by
the Fund.

The Fund may purchase two types of Policies issued by municipal bond insurers.
One type of Policy covers certain municipal securities only during the period in
which they are in the Fund's portfolio. In the event that a municipal security
covered by such a Policy is sold from the Fund, the insurer of the relevant
Policy will be liable only for those payments of interest and principal which
are then due and owing.

The other type of Policy covers municipal securities not only while they remain
in the Fund's portfolio but also until their final maturity even if they are
sold out of the Fund's portfolio, so that the coverage may benefit all
subsequent holders of those municipal securities. The Fund will obtain insurance
which covers municipal securities until final maturity even after they are sold
out of the Fund's portfolio only if, in the judgment of the investment adviser,
the Fund would receive net proceeds from the sale of those securities, after
deducting the cost of such permanent insurance and related fees, significantly
in excess of the proceeds it would receive if such municipal securities were
sold without insurance.

The premiums for the Policies are paid by the Fund and the yield on the Fund's
portfolio is reduced thereby. Premiums for the Policies are paid by the Fund
monthly, and are adjusted for purchases and sales of municipal securities during
the month. Depending upon the characteristics of the municipal security held by
the Fund, the annual premium for the Policies are estimated to range from 0.1%
to 0.25% of the value of the municipal securities covered under the Policies,
with an average annual premium rate of approximately 0.175%.

The Fund may purchase Policies from MBIA Corp. ("MBIA"), AMBAC Indemnity
Corporation ("AMBAC"), Financial Guaranty Insurance Company ("FGIC"), Bond
Investors Guaranty Insurance Company ("BIG"), or any other municipal bond
insurer which is rated AAA by S&P or Aaa by Moody's. A more detailed description
of these insurers may be found in the Statement of Additional Information. Each
Policy guarantees the payment of principal and interest on the municipal
securities it insures. The Policies will have the same general characteristics
and features. A municipal security will be eligible for coverage if it meets
certain requirements set forth in a Policy. In the event interest or principal
on an insured municipal security is not paid when due, the insurer covering the
security will be obligated under its Policy to make such payment not later than
30 days after it has been notified by the Fund that such non-payment has
occurred. The insurance feature reduces financial risk, but the cost thereof and
the restrictions on investments imposed by the guidelines in the insurance
policies reduce the yield to shareholders. <PAGE>

MBIA, AMBAC, FGIC, and BIG will not have the right to withdraw coverage on
securities insured by their Policies so long as such securities remain in the
Fund's portfolio, nor may MBIA, AMBAC, FGIC, and BIG cancel their Policies for
any reason except failure to pay premiums when due. MBIA, AMBAC, FGIC, and BIG
will reserve the right at any time upon 90 days' written notice to the Fund to
refuse to insure any additional municipal securities purchased by the Fund after
the effective date of such notice. The Trustees will reserve the right to
terminate any policy if it determines that the benefits to the Fund of having
its portfolio insured under such policy are not justified by the expense
involved.

Under the Policies, municipal bond insurers unconditionally guarantee to the
Fund the timely payment of principal and interest on the insured municipal
securities when and as such payments shall become due but shall not be paid by
the issuer, except that in the event of any acceleration of the due date of the
principal by reason of mandatory or optional redemption (other than acceleration
by reason of mandatory sinking fund payment), default or otherwise, the payments
guaranteed will be made in such amounts and at such times as payments of
principal would have been due had there not been such acceleration. The
municipal bond insurers will be responsible for such payments less any amounts
received by the Fund from any trustee for the municipal bond issuers or from any
other source. The Policies do not guarantee payment on an accelerated basis, the
payment of any redemption premium, the value of the shares of the Fund, or
payments of any tender purchase price upon the tender of the municipal
securities. The Policies also do not insure against nonpayment of principal of
or interest on the securities resulting from the insolvency, negligence or any
other act or omission of the trustee or other paying agent for the securities.
However, with respect to small issue industrial development municipal bonds and
pollution control revenue municipal bonds covered by the Policies, the municipal
bond insurers guarantee the full and complete payments required to be made by or
on behalf of an issuer of such municipal securities, if there occurs any change
in the tax-exempt status of interest on such municipal securities, including
principal, interest or premium payments, if any, as and when required to be made
by or on behalf of the issuer pursuant to the terms of such municipal
securities. A "when-issued" municipal security will be covered under the
Policies upon the settlement date of the issuer of such "when-issued" municipal
security. In determining to insure municipal securities held by the Fund, each
municipal bond insurer has applied its own standards, which correspond generally
to the standards established for determining the insurability of new issues of
municipal securities. This insurance is intended to reduce financial risk, but
the cost thereof and compliance with investment restrictions imposed under the
Policies will reduce the yield to shareholders of the Fund.

If a Policy terminates as to municipal securities sold by the Fund on the date
of sale, in which event municipal bond insurers will be liable only for those
payments of principal and interest that are then due and owing, the provision
for insurance will not enhance the marketability of securities held by the Fund,
whether or not the securities are in default or subject to significant risk of
default, unless the option to obtain permanent insurance is exercised. On the
other hand, since Issuer-Obtained Insurance will remain in effect as long as the
insured municipal securities are outstanding, such insurance may enhance the
marketability of municipal securities covered thereby, but the exact effect, if
any, on marketability cannot be estimated. The Fund generally intends to retain
any securities that are in default or subject to significant risk of default and
to place a value on the insurance, which ordinarily will be the difference
between the market value of the defaulted security and the market value of
similar securities of minimum investment grade (i.e., rated "BBB") that are not
in default. To the extent that the Fund holds defaulted securities, it may be
limited in its ability to manage its investments and to

<PAGE>

purchase other municipal securities. Except as described above with respect to
securities that are in default or subject to significant risk of default, the
Fund will not place any value on the insurance in valuing the municipal
securities that it holds.

INVESTMENT RISKS. Yields on Louisiana municipal securities depend on a variety
of factors, including: the general conditions of the money market and the
taxable and municipal security markets; the size of the particular offering; the
maturity of the obligations; and the credit quality of the issue. The ability of
the Fund to achieve its investment objective also depends on the continuing
ability of the issuers of Louisiana municipal securities to meet their
obligations for the payment of interest and principal when due.

Further, any adverse economic conditions or developments affecting the state of
Louisiana or its municipalities could impact the Fund's portfolio. Investing in
Louisiana municipal securities which meet the Fund's quality standards may not
be possible if the state of Louisiana and its municipalities do not maintain
their current credit ratings. See "Investment Risks -- Fixed Income Securities."

NON-DIVERSIFICATION. The Fund is a non-diversified investment company. An
investment in the Fund, therefore, may entail greater risk than would exist in a
diversified investment company because the higher percentage of investments
across fewer issuers could result in greater fluctuation in the total market
value of the Fund's portfolio. Any economic, political, or regulatory
developments affecting the value of the securities in the Fund's portfolio could
have a greater impact on the total value of the portfolio than would be the case
if the portfolio were diversified among more issuers.

The Fund will attempt to minimize the risks associated with a non-diversified
portfolio by limiting, with respect to 75% of the Fund's total assets,
investments in one issuer to not more than 10% of the value of its total assets.
The total amount of the remaining 25% of the value of the Fund's total assets
could be invested in a single issuer, but only if the investment adviser
believes such a strategy to be prudent. In addition, the Fund intends to comply
with Subchapter M of the Internal Revenue Code. This undertaking requires that
at the end of each quarter of the taxable year, the aggregate value of all
investments in any one issuer (except U.S. government obligations, cash, and
money market instruments) which exceed 5% of the Fund's total assets not exceed
50% of the value of the Fund's total assets.

MID CAP EQUITY FUND

The investment objective of Mid Cap Equity Fund is total return.

ACCEPTABLE INVESTMENTS. The Fund will pursue its objective by investing
primarily in a portfolio of equity securities comprising the mid-sized
capitalization ("mid-cap") sector of the United States equity market. The Fund
attempts to select companies whose potential for capital appreciation exceeds
that of larger capitalization stocks commensurate with increased risk. Under
normal market conditions, the Fund intends to invest at least 65% of its total
assets in equity securities of companies that have a market value capitalization
ranging from $500 million to $10 billion. The Fund's adviser will invest
primarily in equity securities of companies with above-average earnings growth
prospects or in companies where significant fundamental changes are taking
place. These changes could include

<PAGE>

significant new products, services, or methods of distribution; restructuring or
reallocating business; or significant share price appreciation.

The securities in which the Fund invests include, but are not limited to:

- common stocks of U.S. companies which are either listed on the New York
or American Stock Exchanges or traded in the over-the-counter markets,
preferred stock of such companies, warrants, and preferred stock
convertible into common stock of such companies;

- investments in American Depositary Receipts of foreign companies traded
on the New York Stock Exchange or in the over-the-counter market;

- convertible securities rated at least BBB by S&P or Fitch IBCA, Inc.
("Fitch"), or at least Baa by Moody's , or if not rated, are determined
by the adviser to be of comparable quality;

- money market instruments rated A-1 or A-2 by S&P, Prime-1 or Prime-2 by
Moody's, or F-1 or F-2 by Fitch;

- fixed rate notes and bonds and adjustable and variable rate notes of
companies whose common stock it may acquire rated BBB or better by S&P or
Baa or better by Moody's;

- zero coupon convertible securities; and

- obligations, including certificates of deposit and bankers' acceptances,
of banks or savings associations, having at least $1 billion in deposits
as of the date of their most recently published financial statements and
which are insured by the Bank Insurance Fund ("BIF") or the Savings
Association Insurance Fund ("SAIF"), both of which are administered by
the Federal Deposit Insurance Corporation ("FDIC"), including U.S.
branches of foreign banks and foreign branches of U.S. banks.

CONVERTIBLE SECURITIES. Convertible securities are fixed income securities which
may be exchanged or converted into a predetermined number of the issuer's
underlying common stock at the option of the holder during a specified time
period. Convertible securities may take the form of convertible preferred stock,
convertible bonds or debentures, units consisting of "usable" bonds and
warrants, or a combination of the features of several of these securities. The
investment characteristics of each convertible security vary widely, which
allows convertible securities to be employed for different investment
objectives.

The Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock in instances in which, in
the adviser's opinion, the investment characteristics of the underlying common
shares will assist the Fund in achieving its investment objective. Otherwise,
the Fund may hold or trade convertible securities. In selecting convertible
securities for the Fund, the adviser evaluates the investment characteristics of
the convertible security as a fixed income instrument and the investment
potential of the underlying equity security for capital appreciation. In
evaluating these matters with respect to a particular convertible security, the
adviser considers numerous factors,

<PAGE>

including the economic and political outlook, the value of the security relative
to other investment alternatives, trends in the determinants of the issuer's
profits, and the issuer's management capability and practices.

STOCK INDEX FUTURES AND OPTIONS. The Fund may utilize stock index futures
contracts, options and options on stock index futures contracts, subject to the
limitation that the value of these futures contracts and options will not exceed
20% of the Fund's total assets. These futures contracts and options will be used
to handle cash flows into and out of the Fund and to potentially reduce
transactional costs, since transactional costs associated with futures and
options contracts can be lower than costs stemming from direct investments in
stocks. See "Portfolio Investments and Strategies--Financial Futures and Options
on Futures."

INVESTMENT LIMITATIONS. The Fund's other investment limitations are discussed
below under "Borrowing Money," "Investing in Securities of Other Investment
Companies," "Lending of Portfolio Securities," and "Restricted and Illiquid
Securities."

TOTAL RETURN BOND FUND

The investment objective of Total Return Bond Fund is to maximize total return.
The Fund manages its portfolio to achieve both income and capital appreciation.

ACCEPTABLE INVESTMENTS. The Fund pursues its investment objective by primarily
investing in U.S. government securities, mortgage-backed securities,
asset-backed securities and corporate bonds and other securities, as well as
collateralized mortgage obligations. Under normal market conditions, the Fund
will attempt to invest at least 65% of its assets in bonds. The securities in
which the Fund may invest are as follows:

- domestic issues of corporate debt obligations (rated Baa or better by
Moody's; or BBB or better by S&P or Fitch). Bonds rated BBB by S&P or
Fitch or Baa by Moody's have speculative characteristics. Changes in
economic conditions or other circumstances are more likely to lead to
weakened capacity to make principal and interest payments than higher
rated bonds. A description of the rating categories is contained in the
Appendix to the Statement of Additional Information;

- obligations of the United States;

- notes, bonds, and discount notes of the following U.S. government
agencies or instrumentalities: Federal Home Loan Banks, Federal National
Mortgage Association, Government National Mortgage Association, Farm
Credit System, including the National Bank for Cooperatives and Banks for
Cooperatives, Tennessee Valley Authority, Export-Import Bank of the
United States, Commodity Credit Corporation, Federal Financing Bank, The
Student Loan Marketing Association, Federal Home Loan Mortgage
Corporation, or National Credit Union Administration;

- commercial paper which matures in 270 days or less so long as at least
two ratings are high quality ratings by nationally recognized statistical
rating organizations ("NRSROs"). Such ratings would include: A-1 or A-2
by S&P, Prime-1 or Prime-2 by Moody's, or F-1 or F-2 by Fitch;

- time and savings deposits (including certificates of deposit) in
commercial or savings banks whose accounts are insured by the BIF, which
is administered by the FDIC, or in institutions whose accounts are
insured by the SAIF, which is also administered by the FDIC, including
certificates of deposit issued by and other time deposits in foreign
branches of BIF-insured banks;

- bankers' acceptances;

<PAGE>

- securities of other investment companies;

- repurchase agreements collateralized by eligible investments; and

- municipal securities.

If a security invested in by the Fund loses its rating or has its rating reduced
after the Fund has purchased it, the Fund is not required to sell or otherwise
dispose of the security, but may consider doing so.

The Fund may also purchase and sell put and call options on its portfolio
securities (including over-the-counter options), purchase and sell financial
futures contracts, and purchase and sell put and call options on financial
futures contracts.

In addition, the Fund may engage in when-issued and delayed delivery
transactions and invest in foreign securities, temporary investments, and
repurchase agreements. See "Portfolio Investments and Strategies."

MORTGAGE-BACKED SECURITIES. Some of the U.S. government securities in which the
Fund will invest can represent an undivided interest in a pool of residential
mortgages or may be collateralized by a pool of residential mortgages
("mortgage-backed securities"). Mortgage-backed securities have yield and
maturity characteristics corresponding to the underlying mortgages.
Distributions to holders of mortgage-backed securities include both interest and
principal payments. Principal payments represent the amortization of the
principal of the underlying mortgages and any prepayments of principal due to
prepayment, refinancing, or foreclosure of the underlying mortgages. Although
maturities of the underlying mortgage loans may range up to 30 years,
amortization and prepayments substantially shorten the effective maturities of
mortgage-backed securities. Due to these features, mortgage-backed securities
are less effective as a means of "locking-in" attractive long-term interest
rates than fixed-income securities which pay only a stated amount of interest
until maturity, when the entire principal amount is returned. This is caused by
the need to reinvest at lower interest rates both distributions of principal
generally and significant prepayments which become more likely as mortgage
interest rates decline. Since comparatively high interest rates cannot be
effectively "locked in," mortgage-backed securities may have less potential for
capital appreciation during periods of declining interest rates than other
non-callable fixed-income government securities of comparable stated maturities.
However, mortgage-backed securities may experience less pronounced declines in
value during periods of rising interest rates.

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs are bonds issued by
single-purpose stand-alone finance subsidiaries or trusts of financial
institutions, government agencies, investment bankers, or companies related to
the construction industry. Most of the CMOs in which the Fund would invest use
the same basic structure:

- Several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four classes of
securities: the first three (A, B, and C bonds) pay interest at their
stated rates beginning with the issue date; the final class (Z bond)
typically receives the residual income from the underlying investment
after payments are made to the other classes.

- The cash flows from the underlying mortgages are applied first to pay
interest and then to retire securities.

- The classes of securities are retired sequentially. All principal
payments are directed first to the shortest-maturity class (A bonds).
When those securities are completely retired, all principal

<PAGE>

payments are then directed to the next-shortest-maturity security (B
bond). This process continues until all of the classes have been paid
off.

Because the cash flow is distributed sequentially instead of pro rata as with
pass-through securities, the cash flows and average lives of CMOs are more
predictable, and there is a period of time during which the investors in the
longer-maturity classes receive no principal paydowns. The interest portion of
these payments is distributed by the Fund as income, and the capital portion is
reinvested. The prices of fixed income securities fluctuate inversely to the
direction of interest rates.

The Fund will invest only in CMOs which are rated AAA by an NRSRO and which may
be: (a) collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government; (b) collateralized by pools of mortgages
in which payment of principal and interest is guaranteed by the issuer and such
guarantee is collateralized by U.S. government securities; or (c) securities in
which the proceeds of the issuance are invested in mortgage securities and
payment of the principal and interest are supported by the credit of an agency
or instrumentality of the U.S. government.

U.S. GOVERNMENT INCOME FUND

The investment objective of U.S. Government Income Fund is to provide current
income. Current income includes, in general, discount earned on U.S. Treasury
bills and agency discount notes, interest earned on all other U.S. government
securities and mortgage-related securities, and short-term capital gains.

ACCEPTABLE INVESTMENTS. The Fund invests primarily in securities which are
guaranteed as to payment of principal and interest by the U.S. government or
U.S. government agencies or instrumentalities. The Fund may also invest in
certain privately issued mortgage-related securities, corporate bonds and
asset-backed securities, as defined below.

The Fund will invest, under normal circumstances, at least 65% of the value of
its total assets in U.S. government securities. The U.S. government securities
in which the Fund invests include:

- direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds;

- notes, bonds and discount notes issued or guaranteed by U.S. government
agencies and instrumentalities supported by the full faith and credit of
the United States;

- notes, bonds and discount notes of other U.S. government agencies or
instrumentalities which receive or have access to federal funding; and

- notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the instrumentalities.

The Fund may also invest in mortgage-related securities which are issued by
private entities such as investment banking firms and companies related to the
construction industry. The mortgage-related securities in which the Fund may
invest may be: (i) privately issued securities which are collateralized by pools
of mortgages in which each mortgage is guaranteed as to payment of principal and
interest by an agency or instrumentality of the U.S. government; (ii) privately
issued securities which are collateralized by pools of mortgages in which
payment of principal and interest are guaranteed by the issuer and such
guarantee is collateralized by U.S. government securities; and (iii) other
privately

<PAGE>

issued securities in which the proceeds of the issuance are invested in
mortgage-backed securities and payment of the principal and interest are
supported by the credit of any agency or instrumentality of the U.S. government.

The mortgage-related securities provide for a periodic payment consisting of
both interest and principal. The interest portion of these payments will be
distributed by the Fund as income, and the capital portion will be reinvested.

CORPORATE BONDS. The Fund may invest in domestic issues of corporate debt
obligations rated "A" or better by Moody's, S&P or Fitch, or which, if unrated,
are deemed to be of comparable quality by the investment adviser. If a debt
security's rating falls below "A" after the Fund had purchased it, the Fund is
not required to dispose of the security, but will consider appropriate action. A
description of the rating categories is contained in the Appendix to the
Statement of Additional Information. The prices of fixed income securities
fluctuate inversely to the direction of interest rates.

CASH RESERVE FUND

The investment objective of Cash Reserve Fund is current income consistent with
stability of principal.

The Fund pursues its investment objective by investing in a portfolio of money
market instruments maturing in one year or less. As a matter of fundamental
policy, the average maturity of the securities in the Fund's portfolio, computed
on a dollar-weighted basis, will be 120 days or less. As a matter of operating
policy, which may be changed without shareholder approval, the Fund will limit
the average maturity of its portfolio to 90 days or less, in order to meet
regulatory requirements.

ACCEPTABLE INVESTMENTS. The Fund invests in high quality money market
instruments that are either rated in the highest short-term rating category by
one or more NRSROs or of comparable quality to securities having such ratings.

Examples of acceptable investments include, but are not limited to:

- domestic issues of corporate debt obligations, including variable rate
demand notes;

- commercial paper (including Canadian Commercial Paper and Europaper);

- certificates of deposit, demand and time deposits, bankers' acceptances
and other instruments of domestic and foreign banks and other deposit
institutions ("Bank Instruments");

- short-term credit facilities, such as demand notes;

- asset-backed securities;

- obligations issued or guaranteed as to payment of principal and interest
by the U.S. government or one of its agencies or instrumentalities; and

- other money market instruments.

The Fund invests only in instruments denominated and payable in U.S. dollars.

In addition, the Fund may concentrate certain of its investments, engage in
when-issued and delayed delivery transactions, and invest in repurchase
agreements. See "Portfolio Investments and Strategies."

<PAGE>

VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
corporate debt instruments that have variable or floating interest rates
and provide the Fund with the right to tender the security for repurchase
at its stated principal amount plus accrued interest. Such securities
typically bear interest at a rate that is intended to cause the securities
to trade at par. The interest rate may float or be adjusted at regular
intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand
notes allow the Fund to demand the repurchase of the security on not more
than seven days prior notice. Other notes only permit the Fund to tender
the security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features." The Fund treats variable rate demand
notes as maturing on the later of the date of the next interest adjustment
or the date on which the Fund may next tender the security for repurchase.

BANK INSTRUMENTS. The Fund only invests in Bank Instruments either issued
by an institution having capital, surplus and undivided profits over $100
million or insured by BIF or SAIF. Bank Instruments may include Eurodollar
Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit, and
Eurodollar Time Deposits ("ETDs"). The Fund will treat securities credit
enhanced with a bank's letter of credit as Bank Instruments.

SHORT-TERM CREDIT FACILITIES. Demand notes are short-term borrowing
arrangements between a corporation and an institutional lender (such as the
Fund) payable upon demand by either party. The notice period for demand
typically ranges from one to seven days, and the party may demand full or
partial payment. The Fund may also enter into, or acquire participations
in, short-term revolving credit facilities with corporate borrowers. Demand
notes and other short-term credit arrangements usually provide for floating
or variable rates of interest.

CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit or insurance. Any bankruptcy,
receivership, default or change in the credit quality of the party providing the
credit enhancement will adversely affect the quality and marketability of the
underlying security and could cause losses to the Fund and affect its share
price. The Fund may have more than 25% of its total assets invested in
securities credit-enhanced by banks.

DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.

CONCENTRATION OF INVESTMENTS. Generally, in excess of 50% of the total assets of
the Fund will be invested in commercial paper and variable rate demand notes.
Commercial paper issued by finance companies will comprise more than 25% of the
Fund's total assets, unless the Fund is in a temporary defensive position as a
result of economic conditions. These policies may not be changed without

<PAGE>

shareholder approval. Concentration of the Fund's portfolio in such obligations
may entail additional risks which are not encountered by funds with more
diversified portfolios.

INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Investing in Securities of Other Investment
Companies," and "Restricted and Illiquid Securities."

U.S. TREASURY MONEY MARKET FUND

The investment objective of U.S. Treasury Money Market Fund is current income
consistent with stability of principal and liquidity. The Fund pursues its
investment objective by investing in a portfolio of short-term U.S. Treasury
obligations which are issued by the U.S. government and are fully guaranteed as
to payment of principal and interest by the United States.

ACCEPTABLE INVESTMENTS. The Fund invests only in short-term U.S. Treasury
obligations maturing in 397 days or less. The average maturity of the U.S.
Treasury obligations in the Fund's portfolio, computed on a dollar-weighted
basis, will be 90 days or less.

In addition, the Fund may engage in when-issued and delayed delivery
transactions and invest in repurchase agreements. See "Portfolio Investments and
Strategies."

PORTFOLIO INVESTMENTS AND STRATEGIES
- --------------------------------------------------------------------------------

BORROWING MONEY

The Funds will not borrow money directly or through reverse repurchase
agreements (arrangements in which a Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set date)
except, under certain circumstances, a Fund may borrow up to one-third of the
value of its total assets. Capital Appreciation Fund, Louisiana Municipal Income
Fund, Mid Cap Equity Fund, U.S. Government Income Fund and Cash Reserve Fund may
each pledge up to 15%, and Total Return Bond Fund may pledge up to 10%, of the
value of their respective assets to secure such borrowings. This policy cannot
be changed without the approval of holders of a majority of a Fund's shares.

FOREIGN SECURITIES

Capital Appreciation Fund, Mid Cap Equity Fund and Total Return Bond Fund may
invest in foreign securities which are traded publicly in the United States.
Investments in foreign securities, particularly those of non-governmental
issuers, involve considerations which are not ordinarily associated with
investments in domestic issuers. These considerations include the possibility of
expropriation, the unavailability of financial information or the difficulty of
interpreting financial information prepared under foreign accounting standards,
less liquidity and more volatility in foreign securities markets, the impact of
political, social or diplomatic developments, and the difficulty of assessing
economic trends in foreign countries, the difficulty of obtaining or enforcing
court judgments abroad, restrictions on foreign investments in other
jurisdictions, difficulties in repatriation of capital invested abroad, and
difficulties in transaction settlements and the effect of delay on shareholder
equity. It may also be more difficult to enforce contractual obligations abroad
than would be the case in the United States because of differences in the legal
systems. Transaction costs in foreign securities may be higher.

<PAGE>

The Funds' investment adviser will consider these and other factors before
investing in foreign securities and will not make such investments unless, in
its opinion, such investments will meet the Funds' standards and objectives. The
Funds will only purchase securities issued in U.S. dollar denominations and will
not invest more than 15% of its total assets in foreign securities.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Funds may invest in the securities of other open-end investment companies,
as well as closed-end investment companies. The Funds, however, will not own
more than 3% of the total outstanding voting stock of any investment company,
invest more than 5% of their respective total assets in any one investment
company, or invest more than 10% of their respective total assets in investment
companies in general, unless permitted to do so by order of the SEC.

The Funds will purchase securities of investment companies only in open-market
transactions involving only customary broker's commissions. However, these
limitations are not applicable if the securities are acquired in a merger,
consolidation, or acquisition of assets.

It should be noted that investment companies incur certain expenses, such as
custody fees, and, therefore, any investment by a Fund in shares of another
investment company would be subject to such duplicate expenses. The Funds will
invest in other investment companies primarily for the purposes of investing
their short-term cash on a temporary basis. The Funds' investment adviser will
waive its investment advisory fee on assets invested in securities of other
investment companies.

LENDING OF PORTFOLIO SECURITIES

In order to generate income, each of the Funds (except the Money Market Funds)
may lend portfolio securities on a short-term or long-term basis, or both, up to
one-third of the value of their respective total assets to broker/dealers,
banks, or other institutional borrowers of securities. The Funds will only enter
into loan arrangements with broker/dealers, banks, or other institutions which
the investment adviser has determined are creditworthy under guidelines
established by the Trustees and will receive collateral in the form of cash or
U.S. government securities equal to at least 100% of the value of the securities
loaned at all times. This policy cannot be changed with respect to any Fund
without the approval of holders of a majority of such Fund's shares.

There is the risk that when lending portfolio securities, the securities may not
be available to a Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.

PUT AND CALL OPTIONS

The Funds (except the Money Market Funds) may engage in or reserve the right to
engage in put and call options as discussed for those Funds under "Objective and
Policies of Each Fund." The Funds may purchase put and call options on their
portfolio securities. These options will be used as a hedge to attempt to
protect securities which the Funds hold or will be purchasing against decreases
or increases in value. The Funds may also write (sell) put and call options on
all or any portion of their portfolio to generate income for the Funds. The
Funds will write call options on securities either held in their portfolio or
which they have the right to obtain without payment of further consideration or
for which they have segregated cash or U.S. government securities in the amount
of any additional consideration. In the case of put options, the Funds will
segregate cash or U.S. Treasury obligations with a value equal to or greater
than the exercise price of the underlying securities. Each Fund will limit its
purchase of

<PAGE>

options so that not more than 20% of its net assets will be invested in option
premiums. Each Fund will limit its option writing activities so that the assets
underlying such options will not exceed 25% of its total net assets. (These
limits apply to both options on securities and options on futures contracts.)

The Funds will generally purchase and write over-the-counter options on
portfolio securities in negotiated transactions with the buyers or writers of
the options when options on the portfolio securities held by a Fund are not
traded on an exchange. The Funds purchase and write options only with investment
dealers and other financial institutions (such as commercial banks or savings
associations) deemed creditworthy by each Fund's investment adviser.

Over-the-counter options are two-party contracts with price and terms negotiated
between buyer and seller. In contrast, exchange-traded options are third-party
contracts with standardized strike prices and expiration dates and are purchased
from a clearing corporation. Exchange-traded options generally have a continuous
liquid market while over-the-counter options may not.

FINANCIAL FUTURES AND OPTIONS ON FUTURES

The Funds (except the Money Market Funds) may engage in or reserve the right to
engage in financial futures and options on futures as discussed for those Funds
under "Objective and Policies of Each Fund." The Funds may purchase and sell
financial futures contracts to hedge all or a portion of their portfolio of
securities against changes in interest rates or as a hedge to attempt to protect
securities which the Funds hold against decreases in value. (For the immediate
future, Capital Appreciation Fund and Mid Cap Equity Fund will enter into
futures contracts directly only when it desires to exercise a financial futures
put option in its portfolio rather than either closing out the option or
allowing it to expire.) Financial futures contracts call for the delivery of
particular debt instruments issued or guaranteed by the U.S. Treasury or by
specified agencies or instrumentalities of the U.S. government at a certain time
in the future. The seller of the contract agrees to make delivery of the type of
instrument called for in the contract, and the buyer agrees to take delivery of
the instrument at the specified future time.

The Funds may write call options and purchase put options on financial futures
contracts as a hedge to attempt to protect securities in their portfolio against
decreases in value resulting from anticipated increases in market interest
rates. When a Fund writes a call option on a futures contract, it is undertaking
the obligation of selling the futures contract at a fixed price at any time
during a specified period if the option is exercised. Conversely, as purchaser
of a put option on a futures contract, a Fund is entitled (but not obligated) to
sell a futures contract at the fixed price during the life of the option.

The Funds (except Capital Appreciation Fund) may also write put options and
purchase call options on financial futures contracts as a hedge against rising
purchase prices of portfolio securities resulting from anticipated decreases in
market interest rates. The Funds will use these transactions to attempt to
protect their ability to purchase portfolio securities in the future at price
levels existing at the time it enters into the transactions. When a Fund writes
a put option on a futures contract, it is undertaking to buy a particular
futures contract at a fixed price at any time during a specified period if the
option is exercised. If the anticipated rise in purchase prices of portfolio
securities occurs, a Fund may use the premiums it receives from writing put
options to offset such increased prices. As a purchaser of a call option on a
futures contract, a Fund is entitled (but not obligated) to purchase a futures
contract at a fixed price at any time during the life of the option.

<PAGE>

RISKS. When a Fund uses financial futures and options on futures as hedging
devices, there is a risk that the prices of the securities subject to the
futures contracts may not correlate perfectly with the prices of the
securities in the Fund's portfolio. This may cause the futures contracts
and any related options to react differently than the portfolio securities
to market changes. In addition, the Fund's investment adviser could be
incorrect in its expectations about the direction or extent of market
factors, such as interest rate movements. In these events, the Fund may
lose money on the futures contracts or options. When a Fund writes a call
option, it retains the risk of a market decline in the price of the
underlying security, but gives up the right to capital appreciation of that
security above the "strike price" of the option. In addition, because the
futures market imposes less burdensome margin requirements than the
securities market, an increased amount of participation by speculators in
the futures market could result in price fluctuations.

It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although a Fund's
investment adviser will consider liquidity before entering into options
transactions, there is no assurance that a liquid secondary market on an
exchange will exist for any particular futures contract or option at any
particular time. The Funds' ability to establish and close out futures and
options positions depends on this secondary market.

In view of these considerations, the Funds will comply with the following
restrictions when purchasing and selling futures contracts. First, a Fund will
not participate in futures transactions if the sum of its initial margin
deposits on open contracts will exceed 5% of the market value of the Fund's
total assets, after taking into account the unrealized profits and losses on
those contracts into which it has entered. Second, the Funds will not enter into
these contracts for speculative purposes. Third, since the Funds do not
constitute a commodity pool, they will not market as such, nor serve as vehicles
for trading in the commodities futures or commodity options markets. In this
regard, the Funds will disclose to all prospective investors the limitations on
its futures and options transactions, and will make clear that these
transactions are entered into only for bona fide hedging purposes or such other
purposes permitted under regulations promulgated by the Commodity Futures
Trading Commission ("CFTC"). Also, the Funds intend to claim an exclusion from
registration as a commodity pool operator under the regulations promulgated by
the CFTC. When a Fund purchases futures contracts or writes put options on
futures contracts, an amount of cash and cash equivalents equal to the
underlying commodity value of the futures contracts (less any related margin
deposits) or equal to the exercise price of the put options will be deposited in
a segregated account with the Fund's custodian (or the broker, if legally
permitted) to collateralize the position and thereby insure that the use of such
futures contracts is unleveraged.

REPURCHASE AGREEMENTS

Each of the Funds may invest in repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers and other recognized financial
institutions sell U.S. government securities or certificates of deposit or other
securities to a Fund and agree at the time of sale to repurchase them at a
mutually agreed upon time and price within one year from the date of
acquisition. The Funds or their custodian will take possession of the securities
subject to repurchase agreements and these securities will be marked to market
daily.

To the extent that the original seller does not repurchase the securities from a
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by a Fund might be

<PAGE>

delayed pending court action. The Funds believe that under the regular
procedures normally in effect for custody of the Funds' portfolio securities
subject to repurchase agreements, a court of competent jurisdiction would rule
in favor of the Funds and allow retention or disposition of such securities. The
Funds will only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are deemed by each Fund's
investment adviser to be creditworthy pursuant to guidelines established by the
Trustees.

RESTRICTED AND ILLIQUID SECURITIES

The Funds may invest up to 10% of their respective total assets in restricted
securities. Certain restricted securities which the Trustees deem to be liquid
will be excluded from this limitation. The restriction is not applicable to
commercial paper issued under Section 4(2) of the Securities Act of 1933.
Restricted securities are any securities in which a Fund may otherwise invest
pursuant to its investment objective and policies but which are subject to
restriction on resale under federal securities law.

Capital Appreciation Fund, Louisiana Municipal Income Fund, Mid Cap Equity Fund,
Total Return Bond Fund, and U.S. Government Income Fund will limit investments
in illiquid securities (including, as applicable, certain restricted securities
not determined by the Trustees to be liquid, non-negotiable time deposits,
repurchase agreements providing for settlement in more than seven days after
notice, and over-the-counter options) to 15% of their respective net assets. The
Money Market Funds will limit investments in illiquid securities to 10% of their
respective net assets.

TEMPORARY INVESTMENTS

During times of unusual market conditions, for defensive purposes and to
maintain liquidity, Capital Appreciation Fund, Mid Cap Equity Fund, Total Return
Bond Fund, and U.S. Government Income Fund may invest up to 100% of their assets
in cash and money market instruments, such as the following:

- prime commercial paper (rated A-2 or above by S&P, Prime-2 or above by
Moody's, or F-2 or above by Fitch) and Europaper (rated A-2 or above or
Prime-2 or above). In the case where commercial paper or Europaper has
received different ratings from different NRSROs, such commercial paper
or Europaper is an acceptable temporary investment so long as at least
one rating is one of the preceding high-quality ratings and provided the
investment adviser has determined that such investment presents minimal
credit risks;

- instruments of domestic and foreign banks and savings associations having
capital, surplus, and undivided profits of over $100 million or if the
principal amount of the instrument is insured by the FDIC or the SAIF.
These instruments include certificates of deposit, demand and time
deposits, savings shares, ECDs, ETDs, Canadian Time Deposits, and
bankers' acceptances;

- securities issued and/or guaranteed as to payment of principal and
interest by the U.S. government, its agencies or instrumentalities;

- repurchase agreements; and

- other short-term money market instruments which are not rated but are
determined by the investment adviser to be of comparable quality to the
other temporary obligations in which the Funds may invest.

Louisiana Municipal Income Fund may, from time to time, on a temporary basis, or
when the investment adviser determines that market conditions call for a
temporary defensive posture, invest in short-term tax-exempt or taxable
temporary investments. These temporary investments include: notes

<PAGE>

issued by or on behalf of municipal or corporate issuers; obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities; other debt
securities; commercial paper; certificates of deposit of banks; and repurchase
agreements.

Louisiana Municipal Income Fund has no rating requirements applicable to
temporary investments. However, the investment adviser will limit temporary
investments to those it considers to be of high quality. Although the Fund is
permitted to make taxable, temporary investments, there is no current intention
of generating income subject to federal regular income tax.

For defensive purposes only, Total Return Bond Fund may also invest in
acceptable investments of the Fund with short-term maturities.

U.S. GOVERNMENT SECURITIES

The types of U.S. government securities in which the Funds may invest generally
include direct obligations of the U.S. Treasury (such as U.S. Treasury bills,
notes, and bonds) and obligations issued or guaranteed by U.S. government
agencies or instrumentalities. These securities are backed in a variety of ways
by the U.S. government or its agencies or instrumentalities. Some of these
obligations, such as Government National Mortgage Association mortgage-backed
securities and obligations of the Farmers Home Administration, are backed by the
full faith and credit of the U.S. Treasury. Obligations of the Farmers Home
Administration are also backed by the issuer's right to borrow from the U.S.
Treasury. Obligations of Federal Home Loan Banks and the Farmers Home
Administration are backed by the discretionary authority of the U.S. government
to purchase certain obligations of agencies or instrumentalities. Obligations of
Federal Home Loan Banks, Farmers Home Administration, Farm Credit System,
including the National Bank for Cooperatives and Banks for Cooperatives,
Tennessee Valley Authority, Export-Import Bank of the United States, Commodity
Credit Corporation, Federal Financing Bank, Federal National Mortgage
Association, and Federal Home Loan Mortgage Corporation, National Credit Union
Administration, and Student Loan Marketing Association are backed by the credit
of the agency or instrumentality issuing the obligations.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

The Funds may purchase securities on a when-issued or delayed delivery basis.
(Cash Reserve Fund will limit the securities purchased on a when-issued and
delayed delivery basis to short-term U.S. government obligations.) These
transactions are arrangements in which a Fund purchases securities with payment
and delivery scheduled for a future time. The seller's failure to complete these
transactions may cause a Fund to miss a price or yield considered to be
advantageous. The Funds engage in when-issued and delayed delivery transactions
only for the purpose of acquiring portfolio securities consistent with each
Fund's investment objective and policies, not for investment leverage.
Settlement dates may be a month or more after entering into these transactions,
and the market values of the securities purchased may vary from the purchase
prices. Accordingly, a Fund may pay more/less than the market value of the
securities on the settlement date.

The Funds may dispose of a commitment prior to settlement if the Funds'
investment adviser deems it appropriate to do so. In addition, the Funds may
enter into transactions to sell their purchase commitments to third parties at
current market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Funds may realize short-term profits or
losses upon the sale of such commitments.

<PAGE>

As a matter of operating policy, which may be changed without shareholder
approval, each Fund will limit its purchase of securities on a when-issued or
delayed delivery basis to no more than 20% of the value of its total assets.

Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment a later increase or decrease in percentage resulting
from any change in value of a Fund's net assets will not result in a violation
of any of the above restrictions.

ASSET-BACKED SECURITIES

Asset-backed securities are obligations of trusts or special purpose
corporations that directly or indirectly represent a participation in, or are
secured by and payable from various types of assets. At the present time,
automobile and credit card receivables are the most common collateral supporting
asset-backed securities. In general, the collateral supporting asset-backed
securities is of shorter maturity than mortgage loans and is less likely to
experience substantial prepayments. As with mortgage-backed securities,
asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties and use similar credit enhancement
techniques.

Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same security interest in the related collateral. Credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most issuers of asset-backed securities backed by
automobile receivables permit the servicers of such receivables to retain
possession of the underlying obligations. If the servicer were to sell these
obligations to another party, there is a risk that the purchaser would acquire
an interest superior to that of the holders of the related asset-backed
securities. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of asset-backed securities backed by automobile receivables may not
have a proper security interest in all of the obligations backing such
receivables. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities.

In general, issues of asset-backed securities are structured to include
additional collateral and/or additional credit support to protect against the
risk that a portion of the collateral supporting the asset-backed securities may
default and/or may suffer from these defects. In evaluating the strength of
particular issues of asset-backed securities, the investment adviser considers
the financial strength of the guarantor or other provider of credit support, the
type and extent of credit enhancement provided as well as the documentation and
structure of the issue itself and the credit support.

INVESTMENT RISKS

EQUITY SECURITIES. As with other mutual funds that invest primarily in equity
securities, the Capital Appreciation and Mid Cap Equity Funds are subject to
market risks. First the possibility exists that common stocks will decline over
short or even extended periods of time. Second, the United States equity market
tends to be cyclical, experiencing both periods when stock prices generally
increase and periods when stock prices generally decrease. However, because the
Mid Cap Equity Fund invests primarily in medium capitalization stocks, there are
some additional risk factors associated with investments in the Fund. In
particular, stocks in the medium capitalization sector of the United States
equity market tend to be slightly more volatile in price than larger
capitalization stocks, such as those

<PAGE>

included in the Standard & Poor's 500 Composite Stock Price Index. This is
because, among other things, medium-sized companies have less certain growth
prospects than larger companies; have a lower degree of liquidity in the equity
market; and tend to have a greater sensitivity to changing economic conditions.
Further, in addition to exhibiting slightly higher volatility, the stocks of
medium-sized companies may, to some degree, fluctuate independently of the
stocks of large companies. That is, the stocks of medium-sized companies may
decline in price as the price of large company stocks rises or vice versa.
Therefore, investors should expect that the Fund will be more volatile than, and
may fluctuate independently of, broad stock market indices such as the Standard
& Poor's 500 Composite Stock Price Index.

FIXED INCOME SECURITIES. The Funds may invest in fixed income securities. The
prices of fixed income securities fluctuate inversely in relation to the
direction of interest rates. The amount of this fluctuation is dependent upon
the quality and maturity of the securities in the Fund's portfolio, as well as
on market conditions. Thus, if market interest rates have increased from the
time a security was purchased, the security, if sold, might be sold at a price
less than its cost. Similarly, if market interest rates have declined from the
time a security was purchased, the security, if sold, might be sold at a price
greater than its cost. (In either instance, if the security was held to
maturity, no loss or gain normally would be realized as a result of interim
market fluctuations.) The prices of longer-term fixed income securities
fluctuate more widely in response to market interest rate changes.

Bonds rated "BBB" by S&P or "Baa" by Moody's have speculative characteristics.
Changes in economic conditions or other circumstances are more likely to weaken
the capacity of issuers of lower-rated bonds to make principal and interest
payments than issuers of higher rated bonds. Downgraded securities will be
evaluated on a case-by-case basis by the adviser. The adviser will determine
whether or not the security continues to be an acceptable investment. If not,
the security will be sold.

PORTFOLIO TURNOVER. The Capital Appreciation Fund and Mid Cap Equity Fund
conduct portfolio transactions to accomplish the Funds' investment objective, to
invest new money obtained from selling shares, and to meet redemption requests.
The Funds may dispose of portfolio securities at any time if it appears that
selling the securities will help the Funds achieve their investment objective.
The Funds' rate of portfolio turnover may exceed that of certain other mutual
funds with the same investment objective. A higher rate of portfolio turnover
involves correspondingly greater brokerage commissions and other expenses which
must be borne directly by the Funds and, thus, indirectly by its shareholders.
In addition, a high rate of portfolio turnover may result in the realization of
larger amounts of capital gains which, when distributed to the Funds'
shareholders, are taxable to them. Nevertheless, transactions for each Fund's
portfolio will be based only upon investment considerations and will not be
limited by any other considerations when the Fund's investment adviser deems it
appropriate to make changes in the Fund's portfolio.

HIBERNIA FUNDS INFORMATION

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

MANAGEMENT OF HIBERNIA FUNDS

BOARD OF TRUSTEES. Hibernia Funds is managed by a Board of Trustees. The
Trustees are responsible for managing the Trust's business affairs and for
exercising all of the Trust's powers except those reserved for the shareholders.
The Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.

<PAGE>

INVESTMENT ADVISER. Pursuant to an investment advisory contract with Hibernia
Funds, investment decisions for the Funds are made by Hibernia National Bank,
the Funds' investment adviser (the "Adviser"), subject to direction by the
Trustees. The Adviser continually conducts investment research and supervision
for the Funds and is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the assets of each Fund.

ADVISORY FEES. The Adviser receives an annual investment advisory fee at
annual rates equal to percentages of the relevant Fund's average net
assets, as follows: Capital Appreciation Fund--0.75%; Louisiana Municipal
Income Fund--0.45%; Mid Cap Equity Fund--0.75%; Total Return Bond
Fund--0.70%; U.S. Government Income Fund--0.45%; and Cash Reserve Fund and
U.S. Treasury Money Market Fund--0.40%. The Adviser may voluntarily choose
to waive a portion of its fee or reimburse a Fund for certain operating
expenses. The Adviser may modify or terminate this voluntary waiver of its
advisory fee or reimbursement of expenses at any time with respect to a
Fund at its sole discretion.

ADVISER'S BACKGROUND. Hibernia National Bank, a national bank organized in
1890, is a wholly owned subsidiary of Hibernia Corporation ("Hibernia").
Hibernia National Bank has acted as investment adviser to the Trust since
its inception in 1988. Through its subsidiaries and affiliates, Hibernia
offers a full range of financial services to the public, including
commercial lending, depository services, cash management, retail banking,
mortgage banking, discount brokerage, investment counseling, international
banking, trust services, life and health insurance and property and
casualty insurance.

Hibernia National Bank has been ranked by the American Banker newspaper as
the 59th largest U.S. Bank according to December 31, 1997, total deposits.
The 1997 Money Market Directory of Pension Funds ranked Hibernia National
Bank among the top 28% of the largest of nearly 200 bank and trust company
managers of tax-exempt funds in the United States. As of December 31, 1997,
the Trust Group had $6.0 billion under administration of which it had
investment discretion over $2.8 billion. The Trust Group has managed pools
of commingled funds since 1966; as of December 31, 1997, the Trust Group
managed one such investment pool, as well as the six Hibernia Funds.

As part of their regular banking operations, Hibernia National Bank may
make loans to public companies. Thus, it may be possible, from time to
time, for a Fund to hold or acquire the securities of issuers which are
also lending clients of Hibernia National Bank. The lending relationship
will not be a factor in the selection of securities.

John A. Cain became Capital Appreciation Fund's portfolio manager in March
1995 and Mid Cap Equity Fund's portfolio manager in June 1998. Mr. Cain is
a Vice President and Trust Investment Officer specializing in equity and
balanced account management for Hibernia since May 1985. He has 39 years of
investment management experience both in the brokerage and trust
industries. He earned his B.B.A. from the University of Mississippi.

Jeffrey R. Tanguis has been Louisiana Municipal Income Fund's portfolio
manager since 1988 and portfolio manager of Total Return Bond Fund since
1995. Mr. Tanguis joined Hibernia in 1984 and is currently a Vice President
and Trust Investment Officer of Hibernia. Mr. Tanguis received a B.S. from
Louisiana State University.

<PAGE>

James L. Chassen became the portfolio manager of U.S. Government Income
Fund, Cash Reserve Fund and U.S. Treasury Money Market Fund in October
1996. Mr. Chassen is a Vice President and Trust Investment Officer of
Hibernia National Bank. Prior to joining Hibernia, he worked for an
investment advisory firm in Dallas, Texas. Previously, he was the
Investment Manager for J.C. Penney Company. Mr. Chassen earned his B.S.
from Florida State University and his M.B.A. from the University of Texas
at Austin.

DISTRIBUTION OF FUND SHARES

Federated Securities Corp. is the principal distributor for shares of the Funds.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors, Inc.

DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan of Hibernia
Funds, the distributor may select brokers and dealers to provide distribution
and administrative services. The distributor may also select administrators
(including depository institutions such as commercial banks and savings
associations) to provide administrative services. Fees paid by the distributor
for these services with respect to Class A Shares of Capital Appreciation Fund,
Mid Cap Equity Fund and Cash Reserve Fund and shares of Louisiana Municipal
Income Fund, Total Return Bond Fund, U.S. Government Income Fund and U.S.
Treasury Money Market Fund will be reimbursed by the relevant Fund or class up
to 0.25% of average daily net assets of the Fund. Fees paid by the distributor
for these services with respect to Class B Shares of Capital Appreciation Fund,
Mid Cap Equity Fund and Cash Reserve Fund will be reimbursed by the Fund up to
0.75% of the average daily net assets of Class B Shares of the Fund.

These services may include, but are not limited to, providing office space,
equipment, telephone facilities, and various personnel, including clerical,
supervisory, and computer, as necessary or beneficial to establish and maintain
shareholder accounts and records, processing purchase and redemption
transactions, and performing other services. Brokers, dealers, and
administrators will receive fees based upon shares owned by their clients or
customers. The formula for calculating the fees will be determined from time to
time by the Trustees. The fees are calculated as a percentage of the average
aggregate net asset value of shares added to shareholder accounts and held in
the accounts during the period for which the brokers, dealers, and
administrators provide services. Although fees paid by a Fund or class relate
directly to the net asset value of the shares of a Fund or class, it is possible
that fees paid by a Fund or class may be used to provide similar services for
other of the Trust's funds. In addition, a Fund or class may reimburse the
distributor for writing, printing and distributing prospectuses, statements of
additional information, and sales literature. Payments made to the distributor
under the distribution plan will be limited to reimbursement of actual expenses.

With respect to Class B Shares of Capital Appreciation Fund, Mid Cap Equity Fund
and Cash Reserve Fund, the distributor may sell, assign or pledge its right to
receive 12b-1 fees and contingent deferred sales charges to finance payments
made to brokers in connection with the sale of Class B Shares. Actual
distribution expenses for Class B Shares at any given time may exceed the Rule
12b-1 fees and payments received pursuant to contingent deferred sales charges.
These unrecovered amounts, plus interest thereon, will be carried forward and
paid from future 12b-1 fees and payments received through contingent deferred
sales charges. If a distribution plan were terminated or not continued, the

<PAGE>

Funds would not be contractually obligated to pay for any expenses not
previously reimbursed by the Funds or recovered through contingent deferred
sales charges.

The Glass-Steagall Act limits the ability of a depository institution (such as a
commercial bank or a savings association) to become an underwriter or
distributor of securities. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the capacities described above
or should Congress relax current restrictions on depository institutions, the
Trustees will consider appropriate changes in the services.

SHAREHOLDER SERVICING ARRANGEMENTS (CLASS B SHARES ONLY)

Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of Federated
Investors, Inc. is shareholder servicing agent (the "Shareholder Servicing
Agent") for Class B Shares of Capital Appreciation Fund, Mid Cap Equity Fund and
Cash Reserve Fund. The Funds may pay the Shareholder Servicing Agent a fee based
on the average daily net asset value of Class B Shares for which it provides
shareholder services. These shareholder services include, but are not limited
to, distributing prospectuses and other information, providing shareholder
assistance and communicating or facilitating purchases and redemptions of Class
B Shares. This fee will be computed at an annual rate equal to 0.25% of Class B
Shares' average daily net assets; however, the Shareholder Servicing Agent may
choose voluntarily to waive all or a portion of its fee at any time or pay all
or some of its fees to financial institutions or other financial service
providers.

FUND ADMINISTRATION

ADMINISTRATIVE SERVICES. Federated Administrative Services ("FAS"), Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, Inc., provides the Funds with
certain administrative personnel and services necessary to operate each Fund,
such as legal and accounting services. FAS provides these at an annual rate as
specified below:

<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
- ------------------ -----------------------------------
<S> <C>
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
</TABLE>

The administrative fee received during any fiscal year shall be at least $50,000
per Fund. FAS may voluntarily choose to waive a portion of its fee.

BROKERAGE TRANSACTIONS

<PAGE>

EXPENSES OF THE FUNDS AND CLASS A SHARES AND CLASS B SHARES

Holders of Class A Shares and Class B Shares of Capital Appreciation Fund, Mid
Cap Equity Fund and Cash Reserve Fund pay their allocable portion of Trust and
Fund expenses.

The Trust expenses for which holders of Class A Shares and Class B Shares pay
their allocable portion include, but are not limited to the cost of: organizing
the Trust and continuing its existence; registering the Trust; Trustees' fees;
auditors' fees; meetings of Trustees; legal fees of the Trust; association
membership dues and such non-recurring and extraordinary items as may arise.

Fund expenses for which holders of Class A Shares and Class B Shares of Capital
Appreciation Fund, Mid Cap Equity Fund and Cash Reserve Fund pay their allocable
portion based on average daily net assets include, but are not limited to:
registering a Fund and shares of a Fund; investment advisory services; taxes and
commissions; custodian fees; insurance premiums; auditors' fees; and such
non-recurring and extraordinary items as may arise.

At present, the only expenses allocated to Class A Shares are expenses under the
Distribution Plan. The only expenses allocated to Class B Shares at present are
expenses under the Distribution Plan and the Shareholder Servicing Arrangements.
The Trustees reserve the right to allocate certain expenses to holders of Shares
as they deem appropriate ("Class Expenses"). In any case, Class Expenses would
be limited to: transfer agent fees as identified by the transfer agent as
attributable to holders of Class A Shares and Class B Shares; printing and
postage expenses related to preparing and distributing materials such as
shareholder reports, prospectuses and proxies to current shareholders;
registration fees paid to the SEC; expenses related to administrative personnel
and services as required to support holders of Class A Shares and Class B
Shares; legal fees relating solely to Class A Shares and Class B Shares; and
Trustees fees incurred as a result of issues relating solely to Class A Shares
and Class B Shares.

NET ASSET VALUE
- --------------------------------------------------------------------------------

With respect to Capital Appreciation Fund, Louisiana Municipal Income Fund, Mid
Cap Equity Fund, Total Return Bond Fund, and U.S. Government Income Fund, net
asset value per share fluctuates. The net asset value per share of each class is
determined by dividing the sum of the interest of a class of shares in the
market value of all securities and other assets of a Fund, less liabilities
attributable to that class of shares, by the number of shares outstanding within
that class. The net asset value of Class A Shares and Class B Shares of Capital
Appreciation Fund and Mid Cap Equity Fund may differ slightly due to the
variability in daily net income resulting from the different distribution
charge.

With respect to the Money Market Funds, each Fund attempts to stabilize the net
asset value of its shares at $1.00 by valuing its portfolio securities using the
amortized cost method. The net asset value per share is determined by
subtracting total liabilities from total assets and dividing the remainder by
the number of shares outstanding. Of course, the Money Market Funds cannot
guarantee that their net asset value will always remain at $1.00 per share.

On Monday through Friday, the Money Market Funds calculate net asset value at
11:00 a.m. (Central Standard Time) and 3:00 p.m. (Central Standard Time), while
Capital Appreciation Fund, Louisiana Municipal Income Fund, Mid Cap Equity Fund,
Total Return Bond Fund, and U.S. Government Income Fund determine net asset
value at the close of the New York Stock Exchange, normally 3:00 p.m. (Central
Standard Time), except on: (i) days on which there are not sufficient changes in
the value of

<PAGE>

the Fund's portfolio securities that its net asset value might be materially
affected; (ii) days during which no shares are tendered for redemption and no
orders to purchase shares are received; and (iii) the following holidays: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.

INVESTING IN THE FUNDS
- --------------------------------------------------------------------------------

SHARE PURCHASES

Shares of the Funds are sold on days on which the New York Stock Exchange is
open for business. Class A Shares of Capital Appreciation Fund and Mid Cap
Equity Fund and shares of Louisiana Municipal Income Fund, Total Return Bond
Fund, and U.S. Government Income Fund may be purchased through Hibernia National
Bank, Hibernia Investment Securities, Inc. ("HISI") or through brokers or
dealers which have a sales agreement with the distributor. Class B Shares of
Capital Appreciation Fund, Mid Cap Equity Fund and Cash Reserve Fund may be
purchased through HISI or through brokers or dealers that have a sales agreement
with the distributor. Shares of the Money Market Funds may be purchased through
Hibernia National Bank, HISI or directly from the distributor. In connection
with the sale of shares of the Funds, the distributor may from time to time
offer certain items of nominal value to any shareholder or investor. The Funds
reserve the right to reject any purchase request.

THROUGH HIBERNIA NATIONAL BANK OR HISI. An investor may call Hibernia National
Bank to place an order (Call toll-free 1-800-999-0426.) Investors may also
purchase shares through HISI, at 1-800-999-0124. Texas residents may purchase
shares only through HISI. Orders purchased through Hibernia National Bank or
HISI are considered received when the appropriate Fund is notified of the
purchase order. Purchase orders for Funds (other than Money Market Funds) must
be received by Hibernia National Bank or HISI before 3:00 p.m. (Central Standard
Time) and must be transmitted by Hibernia National Bank or HISI to the
appropriate Fund before 3:00 p.m. (Central Standard Time) in order for shares to
be purchased at that day's public offering price. It is the responsibility of
Hibernia National Bank or HISI to transmit orders promptly.

Payment for shares of the Money Market Funds may be made either by check or
federal funds. Payment by check must be included with the order. Orders are
considered received after payment by check is converted into federal funds. When
payment is made with federal funds, the order is considered received
immediately. Payment by federal funds must be received before 12:00 p.m.
(Central Standard Time) on the same day as the order to earn dividends for that
day.

Federal funds should be wired as follows: Hibernia National Bank, New Orleans,
Louisiana; for Credit to: include name of Fund (if applicable, "Class A or B
Shares"), Title or name of account; and Wire Order Number. Shares cannot be
purchased by wire on holidays when wire transfers are restricted.

THROUGH AUTHORIZED BROKER/DEALERS. An investor may also place an order through
authorized brokers and dealers. Shares will be purchased at the public offering
price next determined after the Fund receives the purchase request. Purchase
requests through registered broker/dealers must be transmitted to the Fund
before 3:00 p.m. (Central Standard Time) (12:00 p.m. (Central Standard Time)
with respect to the Money Market Funds) in order for shares to be purchased at
that day's public offering price.

<PAGE>

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in each Fund by an investor is $1,000. With
respect to the Money Market Funds, if the investment is in a retirement plan,
the minimum initial investment is $250. Subsequent investments must be in
amounts of at least $100. The Funds may choose to waive these minimum investment
requirements for Hibernia National Bank or its affiliates and for directors and
employees and retired employees of Hibernia National Bank.

WHAT SHARES COST

Shares of the Funds are sold at their net asset value next determined after an
order is received.

FRONT-END SALES CHARGE

Class A Shares of Capital Appreciation Fund and Mid Cap Equity Fund are sold
with a sales charge as follows:

<TABLE>
<CAPTION>
SALES CHARGE AS A SALES CHARGE AS A
PERCENTAGE OF PUBLIC PERCENTAGE OF NET
AMOUNT OF TRANSACTION INVESTED OFFERING AMOUNT INVESTED
- ------------------------------ -------------------- ---------------
<S> <C> <C>
Less than $100,000 4.50% 4.71%
$100,000 but less than
$250,000 3.75% 3.90%
$250,000 but less than
$500,000 2.50% 2.56%
$500,000 but less than
$750,000 2.00% 2.04%
$750,000 but less than $1
million 1.00% 1.01%
$1 million but less than $2
million 0.50% 0.50%
$2 million or more 0.25% 0.25%
</TABLE>

Shares of Louisiana Municipal Income Fund, Total Return Bond Fund and U.S.
Government Income Fund are sold with a sales charge as follows:

<TABLE>
<CAPTION>
SALES CHARGE AS A SALES CHARGE AS A
PERCENTAGE OF PUBLIC PERCENTAGE OF NET
AMOUNT OF TRANSACTION INVESTED OFFERING AMOUNT INVESTED
- ------------------------------ -------------------- ---------------
<S> <C> <C>
Less than $100,000 3.00% 3.09%
$100,000 but less than
$250,000 2.75% 2.83%
$250,000 but less than
$500,000 2.00% 2.04%
$500,000 but less than
$750,000 1.00% 1.01%
$750,000 but less than $1
million 0.75% 0.76%
$1 million but less than $2
million 0.50% 0.50%
$2 million or more 0.25% 0.25%
</TABLE>

There is no sales charge imposed by the Money Market Funds.

PURCHASES AT NET ASSET VALUE. Class A Shares of Capital Appreciation Fund and
Mid Cap Equity Fund and shares of Louisiana Municipal Income Fund, Total Return
Bond Fund, and U.S. Government Income Fund may be purchased at net asset value,
without a sales charge, by the Trust Division of Hibernia National Bank or other
affiliates of Hibernia for funds which are held in a fiduciary, agency,
custodial, or similar capacity. Trustees/Directors and employees of the Trust,
Hibernia National Bank, or their affiliates, retired Trustees/Directors and
retired employees of Hibernia National Bank, and the spouse, children, parents
and the parents of spouse of any such person, and any accounts for which

<PAGE>

such an employee serves in a fiduciary, agency, custodial, or similar capacity,
may also buy shares at net asset value, without a sales charge.
Trustees/Directors and employees of Federated Securities Corp. or its
affiliates, retired Trustees/Directors and retired employees of any bank or
investment dealer who has a sales agreement with Federated Securities Corp. with
regard to the Funds, and their spouses and children may also buy shares at net
asset value, without a sales charge. In addition, shares may be purchased at net
asset value, without a sales charge, by investors who purchase shares through
The Personal Portfolio Manager(R), an investment program sponsored by HISI or
other similar asset allocation programs made available through financial
institutions who have established dealer agreements with Federated Securities
Corp.

CONTINGENT DEFERRED SALES CHARGE

Class B Shares of Capital Appreciation Fund, Mid Cap Equity Fund and Cash
Reserve Fund are sold without an initial sales charge, but are subject to a
contingent deferred sales charge of up to 5.50% if redeemed within six full
years following the purchase date. Class B Shares also bear a Rule 12b-1 fee.
Class B Shares will automatically convert into Class A Shares, based on relative
net asset value, on or around the fifteenth of the month, eight full years after
the purchase date. Class B Shares provide an investor the benefit of putting all
of the investor's dollars to work from the time the investment is made, but,
until conversion, will have a higher expense ratio and pay lower dividends than
Class A Shares due to a higher Rule 12b-1 fee and shareholder services fee.

Class B Shares redeemed within six years of their purchase will be subject to a
contingent deferred sales charge. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
shares at the time of purchase or the net asset value of the redeemed shares at
the time of redemption according to the following schedule:

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR OF REDEMPTION AFTER PURCHASE SALES CHARGE
- --------------------------------- -------------------
<S> <C>
First 5.50%
Second 4.50%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
</TABLE>

Redemptions will be processed in a manner intended to maximize the amount of
redemption which will not be subject to a contingent deferred sales charge. In
computing the amount of the applicable contingent deferred sales charge,
redemptions are deemed to have occurred in the following order: (1) shares
acquired through the reinvestment of dividends and long-term capital gains; (2)
shares held for more than six full years from the date of purchase; and (3)
shares held for fewer than seven years on a first-in, first-out basis.

No contingent deferred sales charge will be imposed on: (1) the portion of
redemption proceeds attributable to increases in the value of the account due to
increases in the net asset value per share, (2) shares acquired through
reinvestment of dividends and capital gains, (3) shares held for more than six
years after the end of the calendar month of acquisition, (4) accounts following
the death or disability of a shareholder, (5) minimum required distributions to
a shareholder over the age of 70 1/2

<PAGE>

from an IRA or other retirement plan, or (6) involuntary redemptions by the
Funds of shares in shareholder accounts that do not comply with the minimum
balance requirements.

CONVERSION FEATURE. Class B Shares include all Class B Shares which have been
outstanding for less than the period ending eight years after the end of the
month in which the shareholder's order to purchase Class B Shares was accepted.
At the end of this eight year period, Class B Shares will automatically convert
to Class A Shares of Capital Appreciation Fund Mid Cap Equity Fund or Cash
Reserve Fund, in which case the shares will be subject to a lower Rule 12b-1
distribution fee which is assessed on Class A Shares. Such conversion will be on
the basis of the relative net asset values of the two classes, without the
imposition of any sales charge, fee or other charge. The purpose of the
conversion feature is to relieve the holders of the Class B Shares that have
been outstanding for a period of time sufficient for the distributor to have
been compensated for distribution expenses related to the Class B Shares from
most of the burden of such distribution-related expenses. For purposes of
conversion to Class A Shares, Class B Shares purchased through the reinvestment
of dividends and distributions paid on Class B Shares in a shareholder's Fund
account will be considered to be held in a separate sub-account. Each time any
Class B Shares in the shareholder's Fund account (other than those in the
sub-account) convert to Class A Shares, an equal pro rata portion of the Class B
Shares in the sub-account will also convert to Class A Shares.

SALES CHARGE REALLOWANCE. For sales of Class A Shares of Capital Appreciation
Fund and Mid Cap Equity Fund and shares of Louisiana Municipal Income Fund,
Total Return Bond Fund, and U.S. Government Income Fund, Hibernia National Bank
and any authorized dealer will normally receive up to 100% of the applicable
sales charge. For sales of Class B Shares of Capital Appreciation Fund, Mid Cap
Equity Fund and Cash Reserve Fund, HISI and any authorized dealer will normally
receive up to 100% of the contingent deferred sales charge. A portion of the
contingent deferred sales charge may be advanced to the dealer at the time of
purchase. Any portion of the sales charge which is not paid to Hibernia National
Bank, or contingent deferred sales charge which is not paid to HISI, or a dealer
will be retained by the distributor. However, the distributor, in its sole
discretion, may uniformly offer to pay to Hibernia National Bank, HISI or a
dealer selling shares of the Funds, all or a portion of the sales charge or
contingent deferred sales charge it normally retains. If accepted by Hibernia
National Bank, HISI or a dealer, such additional payments will be predicated
upon the amount of shares sold. Such payments may take the form of cash or
promotional incentives, such as payment of certain expenses of qualified
employees and their spouses to attend informational meetings about the Funds or
other special events at recreational facilities, or items of material value. In
some instances, these incentives will be made available only to dealers whose
employees have sold or may sell significant amounts of shares.

OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor, HISI, Hibernia
National Bank, or their affiliates may also offer to pay a fee from their own
assets to financial institutions as financial assistance for providing
substantial marketing and sales support. The support may include initiating
customer accounts, providing sales literature, or participating in sales,
educational and training seminars (including those held at recreational
facilities). Such assistance will be predicated upon the amount of shares the
financial institution sells or may sell and/or upon the type and nature of sales
or marketing support furnished by the financial institution. Any payments made
by the distributor may be reimbursed by Hibernia National Bank or its
affiliates.

<PAGE>

REDUCING THE FRONT-END SALES CHARGE

The front-end sales charges imposed on all Funds (with the exception of Class B
Shares of Capital Appreciation Fund and Mid Cap Equity Fund) can be reduced
through:

- quantity discounts and accumulated purchases;

- signing a 13-month letter of intent;

- using the reinvestment privilege; or

- concurrent purchases.

QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table on page 33,
larger purchases of Class A Shares of Capital Appreciation Fund and Mid Cap
Equity Fund and shares of Louisiana Municipal Income Fund, Total Return Bond
Fund, or U.S. Government Income Fund reduce the sales charge paid. The
distributor will combine purchases made on the same day by the investor, his
spouse, and his children under age 21 when it calculates the sales charge.

If an additional purchase of Class A Shares of Capital Appreciation Fund and Mid
Cap Equity Fund or shares of Louisiana Municipal Income Fund, Total Return Bond
Fund, or U.S. Government Income Fund is made, the distributor will consider the
previous purchases still invested in Class A Shares of Capital Appreciation Fund
and Mid Cap Equity Fund or shares of Louisiana Municipal Income Fund, Total
Return Bond Fund, or U.S. Government Income Fund. For example, if the
shareholder already owns shares of Louisiana Municipal Income Fund having a
current value at the public offering price of $90,000 and he purchases $10,000
more at the current public offering price, the sales charge on the additional
purchase according to the schedule now in effect would be 2.75%, not 3.00%.

To receive the sales charge reduction, Hibernia National Bank or the distributor
must be notified by the shareholder in writing at the time the purchase is made
that Class A Shares of Capital Appreciation Fund and Mid Cap Equity Fund or
shares of Louisiana Municipal Income Fund, Total Return Bond Fund, or U.S.
Government Income Fund are already owned or that purchases are being combined.
The distributor will reduce the sales charge after it confirms the purchases.

LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of
Class A Shares of Capital Appreciation Fund and Mid Cap Equity Fund and shares
of Louisiana Municipal Income Fund, Total Return Bond Fund, or U.S. Government
Income Fund over the next 13 months, the sales charge may be reduced by signing
a letter of intent to that effect. This letter of intent includes a provision
for a sales charge adjustment depending on the amount actually purchased within
the 13-month period and a provision for the Fund's custodian to hold 3.00%, in
the case of Louisiana Municipal Income Fund, Total Return Bond Fund and U.S.
Government Income Fund, and in the case of Class A Shares of Capital
Appreciation Fund and Mid Cap Equity Fund, 4.50% of the total amount intended to
be purchased in escrow (in shares of that Fund) until such purchase is
completed.

The amount held in escrow will be applied to the shareholder's account at the
end of the 13-month period unless the amount specified in the letter of intent
is not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales charge.

This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. This letter may
be dated as of a prior date to include any purchases made within the past 90
days; however, these previous purchases will not receive the reduced sales
charge.

<PAGE>

REINVESTMENT PRIVILEGE. If Class A Shares of Capital Appreciation Fund and Mid
Cap Equity Fund and shares of Louisiana Municipal Income Fund, Total Return Bond
Fund, or U.S. Government Income Fund have been redeemed, the shareholder has a
one-time right, within 30 days (within 120 days for IRA accounts), to reinvest
the redemption proceeds at the next-determined net asset value without any sales
charge. Hibernia National Bank or the distributor must be notified by the
shareholder in writing or by his financial institution of the reinvestment in
order to eliminate a sales charge. If the shareholder redeems his shares in a
Fund, there may be tax consequences.

CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction, a
shareholder has the privilege of combining concurrent purchases of two or more
funds in the Trust, the purchase price of which includes a front end sales
charge. For example, if a shareholder concurrently invested $30,000 in one of
the Funds with a front end sales charge and $70,000 in another Fund with a front
end sales charge, the sales charge would be reduced.

To receive this sales charge reduction, the distributor must be notified by the
shareholder in writing or by Hibernia National Bank at the time the concurrent
purchases are made. The sales charge will be reduced after the purchase is
confirmed.

SYSTEMATIC INVESTMENT PROGRAM

Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Fund shares at the net asset value next determined after an order is
received, plus the applicable sales charge, if any. A shareholder of a Fund may
apply for participation in this program through Hibernia National Bank or HISI.

EXCHANGING SECURITIES FOR FUND SHARES

The Funds may accept securities in exchange for Fund shares. A Fund will allow
such exchanges only upon the prior approval of the Fund and a determination by
the Fund and the Adviser that the securities to be exchanged are acceptable.

Any securities exchanged must meet the investment objective and policies of the
Fund, must have a readily ascertainable market value, must be liquid, and must
not be subject to restrictions on resale. The market value of any securities
exchanged in an initial investment, plus any cash, must be at least $25,000.

Shares purchased by exchange of securities cannot be redeemed by telephone for
five business days to allow time for the transfer to settle.

Securities accepted by the Fund will be valued in the same manner as the Fund
values its assets. The basis of the exchange will depend upon the net asset
value of Fund shares on the day the securities are valued. One share of the Fund
will be issued for each equivalent amount of securities accepted.

Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription or other rights
attached to the securities become the property of the Fund, along with the
securities.

CONFIRMATIONS AND ACCOUNT STATEMENTS

As transfer agent for the Funds, Federated Services Company, through its
subsidiary Federated Shareholder Services Company, maintains a share account for
each shareholder of record. Share certificates are not issued.

<PAGE>

Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.

DIVIDENDS

With respect to the Money Market Funds, dividends are declared daily and paid
monthly. Dividends are automatically reinvested on payment dates in additional
shares of the respective Fund unless cash payments are requested by writing to
one of these Funds or Hibernia National Bank. Share purchase orders received by
one of these Funds or HISI before 12:00 p.m. (Central Standard Time) earn
dividends that day.

Dividends are declared and paid monthly to all shareholders invested in
Louisiana Municipal Income Fund, Total Return Bond Fund, and U.S. Government
Income Fund and are declared and paid quarterly to all shareholders in Capital
Appreciation Fund and Mid Cap Equity Fund on the record date. Dividends are
automatically reinvested in additional shares of the respective Fund on payment
dates at the ex-dividend date net asset value without a sales charge, unless
cash payments are requested by writing to one of these Funds, Hibernia National
Bank or HISI.

CAPITAL GAINS

Capital gains realized by a Fund, if any, will be distributed at least once
every 12 months.

EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------

Shareholders of any of the Funds are shareholders of Hibernia Funds.
Shareholders of Class A Shares of Capital Appreciation Fund, Mid Cap Equity Fund
and Cash Reserve Fund or shares of Louisiana Municipal Income Fund, Total Return
Bond Fund, U.S. Government Income Fund and U.S. Treasury Money Market Fund have
easy access to each of the portfolios of Hibernia Funds through a telephone
exchange program. Shareholders of Class B Shares of Capital Appreciation Fund,
Mid Cap Equity Fund and Cash Reserve Fund may exchange Class B Shares through a
telephone exchange program.

EXCHANGING SHARES. Shares purchased with payment of a front end sales charge may
be exchanged at net asset value for shares of the same class of any of the other
Funds in the Trust with an equal front end sales charge or no front end sales
charge. Shareholders who exercise this exchange privilege must exchange shares
having a net asset value of at least $1,000.

When an exchange is made from a Fund with a front end sales charge to a Fund
with no front end sales charge, the shares exchanged and additional shares which
have been purchased by reinvesting dividends on such shares retain the character
of the exchanged shares for purposes of exercising further exchange privileges;
thus, an exchange of such shares for shares of a Fund with a front end sales
charge would be at net asset value.

An exchange of Class B Shares for Class B Shares of another Hibernia Fund will
not be subject to a contingent deferred sales charge. However, if the
shareholder redeems the exchanged-for shares within six years of the original
purchase of Class B Shares, a contingent deferred sales charge will be imposed.
For purposes of computing the contingent deferred sales charge, the length of
time the shareholder has owned Class B Shares will be measured from the date of
original purchase and will not be affected by the exchange. Prior to any
exchange, a shareholder should review a copy of the current prospectus of the
Fund into which an exchange is to be effected. Shareholders contemplating
exchanges into Hibernia Funds should consult their tax advisers, since the tax
advantage of each Fund may vary.

<PAGE>

The exchange privilege is available to shareholders residing in any state in
which the Fund shares being acquired may be legally sold. Upon receipt of proper
instructions and all necessary supporting documents, shares submitted for
exchange will be redeemed at the next-determined net asset value. Written
exchange instructions may require a signature guarantee. Exercise of this
privilege is treated as a sale for federal income tax purposes and, depending on
the circumstances, a short or long-term capital gain or loss may be realized.

The exchange privilege may be terminated at any time. Prior to such termination,
shareholders will be notified of the termination of the exchange privilege at
least 60 days before the date of termination. A shareholder may obtain further
information on the exchange privilege by calling Hibernia National Bank.

EXCHANGE-BY-TELEPHONE. Instructions for exchanges between the Funds may be
given by telephone to HISI at 1-800-999-0124 or to the distributor. Shares may
be exchanged by telephone only between fund accounts having identical
shareholder registrations. Exchange instructions given by telephone may be
electronically recorded.

Any shares held in certificate form cannot be exchanged by telephone but must be
forwarded to the transfer agent by Hibernia National Bank and deposited to the
shareholder's mutual fund account before being exchanged.

Telephone exchange instructions must be received before 3:00 p.m. (Central
Standard Time) for shares to be exchanged the same day. The telephone exchange
privilege may be notified or terminated at any time. Shareholders will be
notified of such modification or termination at least 60 days prior to the date
of modification or termination. Shareholders may have difficulty in making
exchanges by telephone through banks, brokers, and other financial institutions
during times of drastic economic or market changes. If a shareholder cannot
contact his bank, broker, or financial institution by telephone, it is
recommended that an exchange request be made in writing and sent by overnight
mail. If reasonable procedures are not followed by a Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.

WRITTEN EXCHANGE. A shareholder wishing to make an exchange by written request
may do so by sending a mail request to HISI, 313 Carondelet Street, New Orleans,
Louisiana 70130. In addition, an investor may exchange shares by sending a
written request to his or her authorized broker directly.

REDEEMING SHARES
- --------------------------------------------------------------------------------

The Funds redeem shares at their net asset value (less any applicable sales
charge with respect to Class B Shares of Capital Appreciation Fund, Mid Cap
Equity Fund and Cash Reserve Fund) next determined after the relevant Fund
receives the redemption request. Redemptions may be made on days on which the
Fund computes its net asset value. Telephone or written requests for redemption
must be received in proper form and can be made through Hibernia National Bank,
HISI or an authorized broker/dealer, or directed to the respective Fund.

BY TELEPHONE. A shareholder may redeem shares of a Fund by calling Hibernia
National Bank or HISI to request the redemption. Shares will be redeemed at the
net asset value next determined after the Fund receives the redemption request
from Hibernia National Bank or HISI. Redemption instructions given by telephone
may be electronically recorded.

<PAGE>

Redemption requests must be transmitted to the appropriate Fund before 3:00 p.m.
(Central Standard Time) in order for shares to be redeemed at that day's net
asset value. Hibernia National Bank, HISI or the broker/dealer is responsible
for promptly submitting redemption requests and providing proper written
redemption instructions to a Fund. Registered broker/dealers may charge
customary fees and commissions for this service.

For calls received after 3:00 p.m. (Central Standard Time), proceeds will
normally be wired the following business day. Proceeds from redemption requests
received on holidays when wire transfers are restricted will be wired the
following business day. In no event will proceeds be wired more than five days
after a proper request for redemption has been received.

With respect to the Money Market Funds, redemption requests must be transmitted
to the appropriate Fund before 10:00 a.m. (Central Standard Time) in order for
shares to be redeemed at that day's net asset value. HISI or the broker/dealer
is responsible for promptly submitting redemption requests and providing proper
written redemption instructions to the Fund. Registered broker/dealers may
charge customary fees and commissions for this service. For calls received
before 10:00 a.m. (Central Standard Time), proceeds will normally be wired the
same day to the shareholder's account at a domestic commercial bank that is a
member of the Federal Reserve Wire System or a check will be sent to the address
of record.

For calls received after 10:00 a.m. (Central Standard Time), proceeds will
normally be wired the following business day. Proceeds from redemption requests
received on holidays when wire transfers are restricted will be wired the
following business day. In no event will proceeds be wired more than five days
after a proper request for redemption has been received.

A daily dividend will be paid on shares of the Money Market Funds redeemed if
the redemption request is received after 10:00 a.m. (Central Standard Time).
However, the proceeds are normally not wired until the following business day.
Redemption requests received before 10:00 a.m. (Central Standard Time) will
normally be paid the same day but will not be entitled to that day's dividend.
If at any time, the Money Market Funds shall determine it necessary to terminate
or modify this method of redemption, shareholders would be promptly notified.

An authorization form permitting the Funds to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Hibernia National Bank, HISI or the distributor.

In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "By Mail," should be considered. If reasonable
procedures are not followed by the Funds, they may be liable for losses due to
unauthorized or fraudulent telephone instructions.

BY MAIL. Shareholders may redeem shares of a Fund by sending a written request
to Hibernia National Bank or HISI. The written request should include the
shareholder's name, the Fund name and Class designation, if applicable, the
account number, and the share or dollar amount requested. If share certificates
have been issued, they must be properly endorsed and should be sent by
registered or certified mail with the written request to Hibernia National Bank
or HISI.

Shareholders should call Hibernia National Bank or HISI for assistance in
redeeming by mail. Shareholders requesting a redemption of any amount to be sent
to an address other than that on record

<PAGE>

with a Fund, or a redemption payable other than to the shareholder of record
must have signatures on written redemption requests guaranteed by:

- a trust company or commercial bank whose deposits are insured by BIF,
which is administered by the FDIC;

- a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchanges;

- a savings bank or savings association whose deposits are insured by SAIF,
which is administered by the FDIC; or

- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.

The Funds do not accept signatures guaranteed by a notary public.

The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.

Normally, a check for the proceeds is mailed to the shareholder within three
business days, but in no event more than seven days, after receipt of a proper
written redemption request.

SYSTEMATIC WITHDRAWAL PROGRAM

Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, shares of a
Fund are redeemed to provide for periodic withdrawal payments in an amount
directed by the shareholder. Depending upon the amount of the withdrawal
payments, the amount of dividends paid and capital gains distributions with
respect to Fund shares, and the fluctuation of the net asset value of Fund
shares redeemed under this program, redemptions may reduce, and eventually
deplete, the shareholder's investment in a Fund. For this reason, payments under
this program should not be considered as yield or income on the shareholder's
investment in a Fund. To be eligible to participate in this program, a
shareholder must have an account value of at least $10,000, other than
retirement accounts subject to required minimum distributions. A shareholder may
apply for participation in this program through Hibernia National Bank or HISI.
Due to the fact that Class A Shares of Capital Appreciation Fund and Mid Cap
Equity Fund and shares of Louisiana Municipal Income Fund, Total Return Bond
Fund, and U.S. Government Income Fund are sold with a sales charge, it is not
advisable for shareholders to be purchasing shares of those Funds while
participating in this program. A contingent deferred sales charge may be imposed
on Class B Shares of Capital Appreciation Fund, Mid Cap Equity Fund and Cash
Reserve Fund.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the Funds may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum of $1,000 due to shareholder
redemptions. This requirement does not apply, however, if the balance falls
below $1,000 because of changes in the net asset value of a Fund. Before shares
are redeemed to close an account, the shareholder is notified in writing and
allowed 30 days to purchase additional shares to meet the minimum requirement.

<PAGE>

SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------

VOTING RIGHTS

Each share of a Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of each Fund in
Hibernia Funds have equal voting rights, except that in matters affecting only a
particular Fund or class, only shareholders of that Fund or class are entitled
to vote. As a Massachusetts business trust, Hibernia Funds is not required to
hold annual shareholder meetings. Shareholder approval will be sought only for
certain changes in the Trust's or a Fund's operation and for the election of
Trustees under certain circumstances. As of October 9, 1998, Bost & Co. may for
certain purposes be deemed to control Cash Reserve Fund (Class A Shares) and
U.S. Treasury Money Market Fund because they are owner of record of certain
shares of those Funds. As of October 9, 1998, Donaldson Lufkin Jenrette
Securities Corporation Inc. may for certain purposes be deemed to control Cash
Reserve Fund (Class B Shares) because they are owner of record of certain shares
of that Fund.

Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the Trust's outstanding
shares.

EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------

The Glass-Steagall Act and other banking laws and regulations presently
*******************************************************************************
y or from purchasing shares of such a company as agent for and upon the order of
such a customer.

Some entities providing services to the Funds are subject to such banking laws
and regulations. They believe, based on the advice of their counsel, that they
may perform those services for any Fund contemplated by any agreement entered
into with the Funds without violating those laws or regulations. Changes in
either federal or state statutes and regulations relating to the permissible
activities of banks and their subsidiaries or affiliates, as well as further
judicial or administrative decisions or interpretations of such or future
statutes and regulations, could prevent these entities from continuing to
perform all or a part of the above services. If this happens, the Trustees would
consider alternative means of continuing available services. It is not expected
that shareholders would suffer any adverse financial consequences as a result of
any of these occurrences.

TAX INFORMATION
- --------------------------------------------------------------------------------

FEDERAL INCOME TAX

The Funds will pay no federal income tax because each Fund expects to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.

<PAGE>

Each Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by a Fund
will not be combined for tax purposes with those realized by any of the other
Funds.

Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.

LOUISIANA MUNICIPAL INCOME FUND--ADDITIONAL TAX INFORMATION

Shareholders are not required to pay federal regular income tax on any dividends
received from Louisiana Municipal Income Fund that represent net interest on
tax-exempt municipal securities. However, under the Tax Reform Act of 1986,
dividends representing net interest earned on some municipal securities may be
included in calculating the federal individual alternative minimum tax or the
federal alternative minimum tax for corporations.

The alternative minimum tax, equal to up to 28% of alternative minimum taxable
income for individuals and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is equal to
the regular taxable income of the taxpayer increased by certain "tax-preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.

The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax-preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons, and other public facilities, private
activity bonds provide benefits to private parties. Louisiana Municipal Income
Fund may purchase all types of municipal securities, including private activity
bonds. Thus, in any tax year, a portion of the Fund's dividends may be treated
as a tax-preference item.

In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax-preference item.

"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, the difference will be included in the
calculation of the corporation's alternative minimum tax.

Dividends of Louisiana Municipal Income Fund representing net interest income
earned on some temporary investments and any realized net short-term gains are
taxed as ordinary income.

These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.

LOUISIANA TAXES. Under existing Louisiana laws, distributions made by the Fund
are not subject to Louisiana income taxes provided that such distributions
qualify as exempt-interest dividends, and represent interest from obligations
which are issued by the State of Louisiana or any of its political subdivisions,
which interest is exempt from federal income tax. Conversely, to the extent that

<PAGE>

distributions made by the Fund are attributable to other types of obligations,
such distributions will be subject to Louisiana income taxes.

OTHER STATE AND LOCAL TAXES

Income from Louisiana Municipal Income Fund is not necessarily free from state
income taxes in states other than Louisiana or from personal property taxes.
With respect to all the Funds, shareholders are urged to consult their own tax
advisers regarding the status of their accounts under state and local tax laws.

PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------

From time to time each Fund may advertise its total return and yield.
Additionally, Louisiana Municipal Income Fund may advertise its tax-equivalent
yield, and each Money Market Fund may also advertise its effective yield.

Total return represents the change, over a specified period of time, in the
value of an investment in a Fund after reinvesting all income and capital gains
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.

The yield for each Fund is calculated by dividing the net investment income per
share (as defined by the SEC) earned by such Fund over a thirty-day period by
the maximum offering price per share of the Fund on the last day of the period.
This number is then annualized using semi-annual compounding. With respect to
Louisiana Municipal Income Fund, the tax-equivalent yield is calculated
similarly to the yield, but is adjusted to reflect the taxable yield that that
Fund would have had to earn to equal its actual yield, assuming a specific tax
rate. Yield and tax-equivalent yield do not necessarily reflect income actually
earned by a Fund and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.

With respect to the Money Market Funds, the effective yield is calculated
similarly to the yield, but, when annualized, the income earned by an investment
in a Money Market Fund is assumed to be reinvested daily. The effective yield
will be slightly higher than the yield because of the compounding effect of this
assumed reinvestment.

With respect to Capital Appreciation Fund and Mid Cap Equity Fund, total return
and yield will be calculated separately for Class A Shares and Class B Shares.
With respect to Cash Reserve Fund, total return, yield and effective yield will
be calculated separately for Class A Shares and Class B Shares. Expense
differences between Class A Shares and Class B Shares may affect the performance
of each class.

For Class A Shares of Capital Appreciation Fund and Mid Cap Equity Fund and
shares of Louisiana Municipal Income Fund, Total Return Bond Fund and U.S.
Government Income Fund, the performance information normally reflects the effect
of the maximum sales charge which, if excluded, would increase the total return,
yield, and tax-equivalent yield. For Class B Shares of Capital Appreciation
Fund, Mid Cap Equity Fund and Cash Reserve Fund, the performance information
reflects the effect of non-recurring charges, such as the contingent deferred
sales charge which, if excluded, would increase the total return and yield.
Occasionally, performance information which does not reflect the effect of the
sales charge or contingent deferred sales charge may be quoted in advertising.

From time to time, advertisements for the Funds may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Funds' performance to certain indices.

<PAGE>

PERFORMANCE INFORMATION FOR PREDECESSOR COLLECTIVE TRUST FUND

The Mid Cap Equity Fund is the successor to the portfolio of a collective trust
fund managed by the Adviser. At the Mid Cap Equity Fund's commencement of
operations the assets from the collective trust fund were transferred to the Mid
Cap Equity Fund in exchange for Mid Cap Equity Fund shares. The Adviser has
represented that the Mid Cap Equity Fund's investment objective, policies and
limitations are in all respects equivalent to those of the collective trust
fund.

The Mid Cap Equity Fund's average annual compounded total returns for the one-,
three-, five- and ten-year periods ended September 30, 1998, reflecting the
maximum sales charge (i.e., 4.50%) were (5.09%), 14.35%, 13.31% and 14.34%,
respectively. The Mid Cap Equity Fund's average annual compounded total returns
for the one-, three-, five- and ten-year periods ended September 30, 1998,
without reflecting the sales charge, were (0.61%), 16.12%, 14.36% and 14.87%,
respectively. The quoted performance data includes the performance of the
collective trust fund for periods before the Mid Cap Equity Fund's registration
statement became effective, as adjusted to reflect Class A Shares' anticipated
expenses as set forth in the "Expenses of the Funds" section of this prospectus.
The past performance data shown above is not necessarily indicative of the Mid
Cap Equity Fund's future performance. The collective trust fund did not offer
separate classes of share and was not registered under the Investment Company
Act of 1940 ("1940 Act") and therefore was not subject to certain investment
restrictions that are imposed by the 1940 Act. If the collective trust fund had
been registered under the 1940 Act, the performance may have been adversely
affected.

<PAGE>

ADDRESSES
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
Hibernia Capital Appreciation Fund
Class A Shares and Class B Shares
Hibernia Louisiana Municipal Income Fund
Hibernia Mid Cap Equity Fund
Class A Shares and Class B Shares
Hibernia Total Return Bond Fund
Hibernia U.S. Government Income Fund
Hibernia Cash Reserve Fund
Class A Shares and Class B Shares
Hibernia U.S. Treasury Money Market Fund 5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7010
- --------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
- --------------------------------------------------------------------------------------------------------------------
Investment Adviser
Hibernia National Bank Attention: Hibernia Funds
P.O. Box 61540
New Orleans, Louisiana 70161
- --------------------------------------------------------------------------------------------------------------------
Custodian
Hibernia National Bank Attention: Hibernia Funds
P.O. Box 61540
New Orleans, Louisiana 70161
- --------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
- --------------------------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

FEDERATED SECURITIES CORP. IS DISTRIBUTOR OF THE FUNDS. 006584 (10/98)

HIBERNIA FUNDS
(formerly, Tower Mutual Funds)

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information relates to the following seven
portfolios (individually or collectively referred to as the "Fund" or
"Funds") of Hibernia Funds (the "Trust"):

Hibernia Capital Appreciation Fund
(formerly, Tower Capital Appreciation Fund);
Class A Shares, Class B Shares
Hibernia Louisiana Municipal Income Fund
(formerly, Tower Louisiana Municipal Income Fund);
Hibernia Mid Cap Equity Fund (formerly, Tower Mid Cap Equity Fund)
Class A Shares, Class B Shares
Hibernia Total Return Bond Fund (formerly, Tower Total Return Bond Fund);
Hibernia U.S. Government Income Fund
(formerly, Tower U.S. Government Income Fund);
Hibernia Cash Reserve Fund (formerly, Tower Cash Reserve Fund);
Class A Shares, Class B Shares, and
Hibernia U.S. Treasury Money Market Fund
(formerly, Tower U.S. Treasury Money Market Fund).

This Statement should be read with the prospectus of the Funds dated October
31, 1998. This Statement is not a prospectus. You may request a copy of a
prospectus, free of charge by calling 1-800-999-0124.

5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7010

Statement dated October 31, 1998

THE SHARES OF THE HIBERNIA FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF HIBERNIA
NATIONAL BANK OR ITS AFFILIATES, ARE NOT ENDORSED OR GUARANTEED BY HIBERNIA
NATIONAL BANK OR ITS AFFILIATES, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT
AGENCY.

INVESTMENT IN THE SHARES OF THE HIBERNIA FUNDS INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.

HIBERNIA CASH RESERVE FUND AND HIBERNIA U.S. TREASURY MONEY MARKET FUND
ATTEMPT TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE
CAN BE NO ASSURANCE THAT THESE FUNDS WILL BE ABLE TO DO SO.

[GRAPHIC OMITTED]

006897 (10/98)

<PAGE>

TABLE OF CONTENTS

GENERAL INFORMATION ABOUT THE FUNDS 1

INVESTMENT OBJECTIVE AND POLICIES OF THE FUNDS 1

When-Issued and Delayed Delivery Transactions 1
Lending of Portfolio Securities 1
Reverse Repurchase Agreements 1
Futures and Options Transactions 1
Restricted Securities 4
Warrants 5
Louisiana Municipal Bond Insurers 5
Corporate Debt Securities 6
Zero-Coupon Securities 6
Convertible Securities 6
Money Market Instruments 7
Ratings 7
Credit Enhancement 7
Portfolio Turnover 7

INVESTMENT LIMITATIONS 8

Regulatory Compliance 12

HIBERNIA FUNDS MANAGEMENT 13

Officers and Trustees 13
Fund Ownership 14
Trustees Compensation 16
Trustee Liability 16

INVESTMENT ADVISORY SERVICE 16

Adviser to the Trust 16
Advisory Fees 16

BROKERAGE TRANSACTIONS 17

OTHER SERVICES 17
Trust Administration 17
Transfer Agent, Dividend Disbursing Agent, and Portfolio
Accounting Services 18
Custodian 18
Independent Auditors 18

PURCHASING SHARES 18
- ----------------------------------------------------------------------
Distribution Plan 18
Shareholder Services (Class B Shares only) 18
Conversion To Federal Funds 19

DETERMINING NET ASSET VALUE 19
- -------------------------------------------------------------------------
Determining Market Value of Securities19
Use of the Amortized Cost Method 19
Monitoring Procedures 20
Investment Restrictions 20

EXCHANGE PRIVILEGE 20
- -------------------------------------------------------------------------
Requirements for Exchange 20
Making an Exchange 21

REDEEMING SHARES 21
- -------------------------------------------------------------------------
Redemption in Kind 21
Massachusetts Partnership Law 21

TAX STATUS 21
- -------------------------------------------------------------------------
The Funds' Tax Status 21
Shareholders' Tax Status 21
Capital Gains 22

TOTAL RETURN 22
- -------------------------------------------------------------------------

YIELD 22
- -------------------------------------------------------------------------

EFFECTIVE YIELD 23
- -------------------------------------------------------------------------

TAX-EQUIVALENT YIELD 23

PERFORMANCE INFORMATION 24
Economic and Market Information 25

FINANCIAL STATEMENTS 25
- -------------------------------------------------------------------------

APPENDIX 26

<PAGE>

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

GENERAL INFORMATION ABOUT THE FUNDS
- -------------------------------------------------------------------------

The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated April 8, 1988. As of the date of this Statement, the
Trust consists of seven separate portfolios of securities, which are as follows:
Hibernia Capital Appreciation Fund ("Capital Appreciation Fund"), Hibernia
Louisiana Municipal Income Fund ("Louisiana Municipal Income Fund"), Hibernia
Mid Cap Equity Fund ("Mid Cap Equity Fund"), Hibernia Total Return Bond Fund
("Total Return Bond Fund"), Hibernia U.S. Government Income Fund ("U.S.
Government Income Fund"), Hibernia Cash Reserve Fund ("Cash Reserve Fund"), and
Hibernia U.S. Treasury Money Market Fund ("U.S. Treasury Money Market Fund" and
together with Cash Reserve Fund, the "Money Market Funds").

Capital Appreciation Fund, Mid Cap Equity Fund and Cash Reserve Fund
currently offer two classes of shares, which are designated as Class A Shares
and
Class B Shares .

INVESTMENT OBJECTIVE AND POLICIES OF THE FUNDS

The Prospectus discusses the objective of each Fund and the policies it employs
to achieve those objectives. The following discussion supplements the
description of the Funds' investment policies in the Prospectus.

The Funds' respective investment objectives cannot be changed without approval
of shareholders. The investment policies described below may be changed by the
Board of Trustees (the "Trustees") without shareholder approval. Shareholders
will be notified before any material change in these policies becomes effective.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

These transactions are made to secure what is considered to be an advantageous
price or yield for a Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of a Fund sufficient to
make payment for the securities to be purchased are segregated on the Fund's
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled.

LENDING OF PORTFOLIO SECURITIES

The Funds (except the Money Market Funds) may lend portfolio securities. The
collateral received when a Fund lends portfolio securities must be valued daily
and, should the market value of the loaned securities increase, the borrower
must furnish additional collateral to the Fund. During the time portfolio
securities are on loan, the borrower pays the Fund or the borrower. A Fund may
pay reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or equivalent
collateral to the borrower or placing broker. The Fund does not have the right
to vote securities on loan, but would terminate the loan and regain the right to
vote if that were considered important with respect to the investment.

REVERSE REPURCHASE AGREEMENTS

The Funds (except U.S. Treasury Money Market Fund) may invest in reverse
repurchase agreements. These transactions are similar to borrowing cash. In a
reverse repurchase agreement, a Fund transfers possession of a portfolio
instrument to another person, such as a financial institution, broker, or
dealer, in return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future such Fund will repurchase the
portfolio instrument by remitting the original consideration plus interest at an
agreed upon rate. The use of reverse repurchase agreements may enable a Fund to
avoid selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that a Fund will be able to avoid selling portfolio instruments
at a disadvantageous time.

When effecting reverse repurchase agreements, liquid assets of a Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.

FUTURES AND OPTIONS TRANSACTIONS

The Funds (except the Money Market Funds) may engage in or reserve the
right to engage in put and call options, financial futures, and options on
futures as discussed for those Funds in the prospectus. For purposes of
Capital Appreciation Fund and Mid Cap Equity Fund, financial futures may
include stock index futures.

The Funds will maintain positions in securities, option rights, and
segregated cash subject to puts and calls until the options are exercised,
closed, or have expired. An option position may be closed out only on an
exchange which provides a secondary market for an option of the same
series.

FINANCIAL FUTURES CONTRACTS
A futures contract is a firm commitment by two parties: the seller who
agrees to make delivery of the specific type of security called for in the
contract ("going short") and the buyer who agrees to take delivery of the
security ("going long") at a certain time in the future. Financial futures
contracts call for the delivery of particular debt securities issued or
guaranteed by the U.S. Treasury or by specified agencies or
instrumentalities of the U.S. government.

In the fixed income securities market, price moves inversely to interest
rates. A rise in rates means a drop in price. Conversely, a drop in rates
means a rise in price. In order to hedge their holdings of securities, the
Funds could enter into contracts to deliver securities at a predetermined
price (i.e., "go short") to protect themselves against the possibility that
the prices of their securities may decline during the Funds' anticipated
holding period. The Funds would "go long" (agree to purchase securities in
the future at a predetermined price) to hedge against a decline in market
interest rates.

PURCHASING PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
Unlike entering directly into a futures contract, which requires the
purchaser to buy a financial instrument on a set date at a specified price,
the purchase of a put option on a futures contract entitles (but does not
obligate) its purchaser to decide on or before a future date whether to
assume a short position at the specified price.

A Fund could purchase put options on futures to protect portfolio securities
against decreases in value resulting from an anticipated increase in market
interest rates or as a means of reducing fluctuations in the net asset value
of shares of the Fund. Generally, if the hedged portfolio securities
decrease in value during the term of an option, the related futures
contracts will also decrease in value and the option will increase in value.
In such an event, a Fund will normally close out its option by selling an
identical option. If the hedge is successful, the proceeds received by a
Fund upon the sale of the second option will be large enough to offset both
the premium paid by such Fund for the original option plus the realized
decrease in value of the hedged securities.

Alternately, a Fund may exercise its put to close out the position. To do
so, it would simultaneously enter into a futures contract of the type
underlying the option (for a price less than the strike price of the option)
and exercise the option. The Fund would then deliver the futures contract in
return for payment of the strike price. If a Fund neither closes out nor
exercises an option, the option will expire on the date provided in the
option contract, and only the premium paid for the contract will be lost.

WRITING CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
In addition to purchasing put options on futures, a Fund may write listed
call options on futures contracts for U.S. government securities to hedge
its portfolio against an increase in market interest rates. When a Fund
writes a call option on a futures contract, it is undertaking the obligation
of assuming a short futures position (selling a futures contract) at the
fixed strike price at any time during the life of the option if the option
is exercised. As market interest rates rise, causing the prices of futures
to go down, a Fund's obligation under a call option on a future (to sell a
futures contact) costs less to fulfill, causing the value of such Fund's
call option position to increase.

In other words, as the underlying futures price goes down below the strike
price, the buyer of the option has no reason to exercise the call, so that
Fund keeps the premium received for the option. This premium can offset the
drop in value of such Fund's fixed income securities which is occurring as
interest rates rise.

Prior to the expiration of a call written by a Fund, or exercise of it by
the buyer, such Fund may close out the option by buying an identical option.
If the hedge is successful, the cost of the second option will be less than
the premium received by the Fund for the initial option. The new premium
income of the Fund will then offset the decrease in value of the hedged
securities.

WRITING PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Funds may write listed put options on financial futures contracts for
U.S. government securities to hedge its portfolio against a decrease in
market interest rates. When a Fund writes a put option on a futures
contract, it receives a premium for undertaking the obligation to assume a
long futures position (buying a futures contract) at a fixed price at any
time during the life of the option. As market interest rates decrease, the
market price of the underlying futures contract increases.

As the market value of the underlying futures contract increases, the buyer
of the put option has less reason to exercise the put because the buyer can
sell the same futures contract at a higher price in the market. The premium
received by the Fund can then be used to offset the higher prices of
portfolio securities to be purchased in the future due to the decrease in
market interest rates.

Prior to the expiration of the put option, or its exercise by the buyer, a
Fund may close out the option by buying an identical option. If the hedge is
successful, the cost of buying the second option will be less than the
premium received by such Fund for the initial option.

PURCHASING CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
When a Fund purchases a call option on a futures contract, it is purchasing
the right (not the obligation) to assume a long futures position (buy a
futures contract) at a fixed price at any time during the life of the
option. As market interest rates fall, the value of the underlying futures
contract will normally increase, resulting in an increase in value of such
Fund's option position. When the market price of the underlying futures
contract increases above the strike price plus premium paid, a Fund could
exercise its option and buy the futures contract below market price.

LIMITATION ON OPEN FUTURES POSITION
A Fund will not maintain open positions in futures contracts it has sold or
call options it has written on futures contracts if, in the aggregate, the
value of the open positions (marked to market) exceeds the current market
value of its portfolio plus or minus the unrealized gain or loss on those
open positions, adjusted for the correlation of volatility between the
hedged securities and the futures contracts. If this limitation is exceeded
at any time, a Fund will take prompt action to close out a sufficient number
of open contracts to bring its open futures and options positions within
this limitation.

MARGIN IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, a Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, the Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury
bills with its custodian (or the broker, if legally permitted). The nature
of initial margin in futures transactions is different from that of margin
in securities transactions in that futures contract initial margin does not
involve the borrowing of funds by the Fund to finance the transactions.
Initial margin is in the nature of a performance bond or good-faith deposit
on the contract which is returned to the Fund upon termination of the
futures contract, assuming all contractual obligations have been satisfied.

A futures contract held by a Fund is valued daily at the official settlement
price of the exchange on which it is traded. Each day the Fund pays or
receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is know as "marking to market."
Variation margin does not represent a borrowing or loan by the Fund but is
instead settlement between the Fund and the broker of the amount one would
owe the other if the futures contract expires. In computing its daily net
asset value, a Fund will mark-to-market its open futures positions.

The Funds are also required to deposit and maintain margin when they write
call options on futures contracts.

PURCHASING PUT AND CALL OPTIONS ON PORTFOLIO SECURITIES
The Funds may purchase put and call options on portfolio securities to
protect against price movements in particular securities. A put option gives
a Fund, in return for a premium, the right to sell the underlying security
to the writer (seller) at a specified price during the term of the option. A
call option gives a Fund, in return for a premium, the right to buy the
underlying security from the seller.

Capital Appreciation Fund and Mid Cap Equity Fund may only buy put options
which are listed on a recognized options exchange.

WRITING COVERED PUT AND CALL OPTIONS ON PORTFOLIO SECURITIES
As writer of a call option, a Fund has the obligation, upon exercise of the
option during the option period, to deliver the underlying security upon
payment of the exercise price. As a writer of a put option, a Fund has the
obligation to purchase a security from the purchaser of the option upon the
exercise of the option.

A Fund may only write call options either on securities held in it portfolio
or on securities which it has the right to obtain without payment of further
consideration (or has segregated cash in the amount of any additional
consideration). In the case of put options, a Fund will segregate cash or
U.S. Treasury obligations with a value equal to or greater than the exercise
price of the underlying securities.

STOCK INDEX FUTURES AND OPTIONS

The Mid Cap Equity Fund may utilize stock index futures contracts and
options on stocks, stock indices, and stock index futures contracts for the
purposes of managing cash flows into and out of the Fund's portfolio and
potentially reducing transactional costs. The Fund may not use stock index
futures contracts and options for speculative purposes. As a means of
reducing fluctuations in the net asset value of shares of the Fund, the Fund
may attempt to hedge all or a portion of its portfolio through the purchase
of listed put options on stocks, stock indices, and stock index futures
contracts. These options will be used only as a form of forward pricing to
protect portfolio securities against decreases in value resulting from
market factors such as an anticipated increase in interest rates. A put
option gives the Fund, in return for a premium, the right to sell the
underlying security to the writer (seller) at a specified price during the
term of the option. Put options on stock indices are similar to put options
on stocks except for the delivery requirements. Instead of giving the Fund
the right to make delivery of stock at a specified price, a put option on a
stock index gives the Fund, as holder, the right to receive an amount of
cash upon exercise of the option.

The Fund may also write covered call options. As the writer of a call
option, the Fund has the obligation upon exercise of the option during the
option period to deliver the underlying security upon payment of the
exercise price.

The Fund may only: (1) buy listed put options on stock indices and stock
index futures contracts; (2) buy listed put options on securities held in
its portfolio; and (3) sell listed call options either on securities held in
its portfolio or on securities which it has the right to obtain without
payment of further consideration (or has segregated cash in the amount of
any such additional consideration). The Fund will maintain its positions in
securities, option rights, and segregated cash subject to puts and calls
until the options are exercised, closed, or expired.

The Fund may also enter into stock index futures contracts. A stock index
futures contract is a bilateral agreement which obligates the seller to
deliver (and the purchaser to take delivery of) an amount of cash equal to a
specific dollar amount times the difference between the value of a specific
stock index at the close of trading of the contract and the price at which
the agreement is originally made. There is no physical delivery of the
stocks constituting the index, and no price is paid upon entering into a
futures contract. In general, contracts are closed out prior to their
expiration. The Fund, when purchasing or selling a futures contract, will
initially be required to deposit in a segregated account in the broker's
name with the Fund's custodian an amount of cash or U.S. government
securities approximately equal to 5%-10% of the contract value. This amount
is known as "initial margin," and it is subject to change by the exchange or
board of trade on which the contract is traded. Subsequent payments to and
from the broker are made on a daily basis as the price of the index or the
securities underlying the futures contract fluctuates. These payments are
known as "variation margins," and the fluctuation in value of the long and
short positions in the futures contract is a process referred to as "marking
to market." The Fund may decide to close its position on a contract at any
time prior to the contract's expiration. This is accomplished by the Fund
taking an opposite position at the then prevailing price, thereby
terminating its existing position in the contract. Because the initial
margin resembles a performance bond or good faith deposit on the contract,
it is returned to the Fund upon the termination of the contract, assuming
that all contractual obligations have been satisfied. Therefore, the margin
utilized in futures contracts is readily distinguishable from the margin
employed in security transactions, since the margin employed in futures
contracts does not involve the borrowing of funds to finance the
transaction.

RESTRICTED SECURITIES

The Funds may invest in restricted securities. Restricted securities are any
securities in which a Fund may otherwise invest pursuant to its investment
objective and policies but which are subject to restriction on resale under
federal securities law.

The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission ("SEC")
Staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive,
safe-harbor for certain secondary market transactions involving securities
subject to restrictions on resale under federal securities laws. The Rule
provides an exemption from registration for resales of otherwise restricted
securities to qualified institutional buyers. The Rule was expected to
further enhance the liquidity of the secondary market for securities
eligible for resale under Rule 144A. The Fund believes that the Staff of the
SEC has left the question of determining the liquidity of all restricted
securities to the Trustees. The Trustees consider the following criteria in
determining the liquidity of certain restricted securities:

o the frequency of trades and quotes for the security;

o the number of dealers willing to purchase or sell the security and the
number of potential buyers;

o dealer undertakings to make a market in the security; and

o the nature of the security and the nature of the marketplace trades.

The Funds may invest in commercial paper issued in reliance on an exemption
from registration afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) paper is restricted as to disposition under federal securities
law, and is generally sold to institutional investors, such as a Fund, who
agree that they are purchasing the paper for investment purposes and not
with a view to public distribution. Any resale by the purchaser must be in
an exempt transaction. Section 4(2) paper is normally resold to other
institutional investors, like the Funds, through or with the assistance of
the issuer or investment dealers who make a market in Section 4(2), thus
providing liquidity.

WARRANTS

Capital Appreciation Fund and Mid Cap Equity Fund may invest in warrants.
Warrants are basically options to purchase common stock at a specific price
(usually at a premium above the market value of the optioned common stock at
issuance) valid for a specific period of time. Warrants may have a life
ranging from less than a year to twenty years or may be perpetual. However,
most warrants have expiration dates after which they are worthless. In
addition, if the market price of the common stock does not exceed the
warrant's exercise price during the life of the warrant, the warrant will
expire worthless. Warrants have no voting rights, pay no dividends, and have
no rights with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the market price of the warrant may tend
to be greater than the percentage increase or decrease in the market price
of the optioned common stock.

LOUISIANA MUNICIPAL BOND INSURERS

If a high-rated security loses its rating or has its rating reduced after
Louisiana Municipal Income Fund has purchased it, the Fund is not required
to drop the security from its portfolio, but may consider doing so. If
ratings made by Moody's Investors Services, Inc. ("Moody's") or Standard &
Poor's ("S&P") change because of changes in those organizations or in their
rating systems, the Fund will try to use comparable ratings as standards in
accordance with the investment policies described in the Fund's prospectus.

Municipal bond insurance may be provided by one or more of the following
insurers or any other municipal bond insurer which is rated Aaa by Moody's
or AAA by S&P.

MUNICIPAL BOND INVESTORS ASSURANCE CORP.
Municipal Bond Investors Assurance Corp. ("MBIA") is a wholly owned
subsidiary of MBIA, Inc., a Connecticut insurance company, which is owned by
The Aetna Life and Casualty, Credit Local DeFrance CAECL, S.A., The Fund
American Companies, and the public. The investors of MBIA, Inc., are not
obligated to pay the obligations of MBIA. MBIA, domiciled in New York, is
regulated by the New York State Insurance Department and licensed to do
business in various states. The address of MBIA is 113 King Street, Armonk,
New York 10504, and its telephone number is (914) 273-4345. S&P has rated
the claims-paying ability of MBIA "AAA."

AMBAC INDEMNITY CORPORATION
AMBAC Indemnity Corporation ("AMBAC") is a Wisconsin-domiciled stock
insurance company, regulated by the Insurance Department of Wisconsin, and
licensed to do business in various states. AMBAC is a wholly-owned
subsidiary of AMBAC, Inc., a financial holding company which is owned by the
public. Copies of certain statutorily required filings of AMBAC can be
obtained from AMBAC. The address of AMBAC's administrative offices is One
State Street Plaza, 17th Floor, New York, New York 10004, and its telephone
number is (212)668-0340. S&P has rated the claims-paying ability of AMBAC
"AAA."

FINANCIAL GUARANTY INSURANCE COMPANY
Financial Guaranty Insurance Company ("Financial Guaranty") is a
wholly-owned subsidiary of FGIC Corporation, a Delaware holding company.
FGIC Corporation is wholly-owned by General Electric Capital Corporation.
The investors of FGIC Corporation are not obligated to pay the debts of or
the claims against Financial Guaranty. Financial Guaranty is subject to
regulation by the state of New York Insurance Department and is licensed to
do business in various states. The address of Financial Guaranty is 115
Broadway, New York, New York 10006, and its telephone number is (212)
312-3000. S&P has rated the claims-paying ability of Financial Guaranty
"AAA."

FINANCIAL SECURITY ASSURANCE INC.
Financial Security Assurance Inc. (FSA) insures municipal, asset-backed and
residential mortgage-backed obligations. FSA is a majority-owned subsidiary
of US West Capital Corp. US West is attempting to find a buyer for FSA. The
address of FSA is 350 Park Avenue, New York, New York 10022, and its
telephone number is (212) 826-0100. The claims-paying ability for FSA holds
the highest available ratings from Moody's (Aaa) and S&P (AAA).

CORPORATE DEBT SECURITIES

The Funds may invest in corporate debt securities. Corporate debt securities may
bear fixed, fixed and contingent, or variable rates of interest. They may
involve equity features such as conversion or exchange rights, warrants for the
acquisition of common stock of the same or different issuer, participations
based on revenues, sales, or profits, or the purchase of common stock in a unit
transaction (where corporate debt securities and common stock are offered as a
unit).

ZERO-COUPON SECURITIES

The Funds may invest in Zero-coupon securities. Zero-coupon securities are
debt obligations which are generally issued at a discount and payable in
full at maturity, and which do not provide for current payments of interest
prior to maturity. Zero-coupon securities usually trade at a deep discount
from their face or par value and are subject to greater market value
fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest. As a
result, the net asset value of shares of a Fund investing in zero-coupon
securities may fluctuate over a greater range than shares of other Funds and
other mutual funds investing in securities making current distributions of
interest and having similar maturities.

Zero-coupon securities may include U.S. Treasury bills issued directly by
the U.S. Treasury or other short-term debt obligations, and longer-term
bonds or notes and their unmatured interest coupons which have been
separated by their holder, typically a custodian bank or investment
brokerage firm. A number of securities firms and banks have stripped the
interest coupons from the underlying principal (the "corpus") of U.S.
Treasury securities and resold them in custodial receipt programs with a
number of different names, including Treasury Income Growth Receipts and
Certificates of Accrual on Treasuries. The underlying U.S. Treasury bonds
and notes themselves are held in book-entry form at the Federal Reserve Bank
or, in the case of bearer securities (i.e., unregistered securities which
are owned ostensibly by the bearer of holder thereof), in trust on behalf of
the owners thereof.

In addition, the Treasury has facilitated transfers of ownership of
zero-coupon securities by accounting separately for the beneficial ownership
of particular interest coupons and corpus payments on Treasury securities
through the Federal Reserve book-entry record-keeping system. The Federal
Reserve program as established by the Treasury Department is known as
"STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities." Under the STRIPS program, a Fund will be able to have its
beneficial ownership of U.S. Treasury zero-coupon securities recorded
directly in the book-entry record-keeping system in lieu of having to hold
certificated or other evidence of ownership of the underlying U.S.
Treasury securities.

When debt obligations have been stripped of their unmatured interest coupons
by the holder, the stripped coupons are sold separately. The principal or
corpus is sold at a deep discount because the buyer receives only the right
to receive a future fixed payment on the security and does not receive any
rights to periodic cash interest payments. Once stripped or separated, the
corpus and coupons may be sold separately. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold
in such bundled form. Purchasers of stripped obligations acquire, in effect,
discount obligations that are economically identical to the zero-coupon
securities issued directly by the obligor.

CONVERTIBLE SECURITIES

Convertible securities are fixed income securities which may be exchanged or
converted into a predetermined number of the issuer's underlying common stock at
the option of the holder during a specified time period. Convertible securities
may take the form of convertible preferred stock, convertible bonds or
debentures, units consisting of "usable" bonds and warrants, or a combination of
the features of several of these securities. The investment characteristics of
each convertible security vary widely, which allows convertible securities to be
employed for different investment objectives.

The Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock in instances in which, in
the adviser's opinion, the investment characteristics of the underlying common
shares will assist the Fund in achieving its investment objective. Otherwise,
the Fund may hold or trade convertible securities. In selecting convertible
securities for the Funds, the adviser evaluates the investment characteristics
of the convertible security as a fixed income instrument and the investment
potential of the underlying equity security for capital appreciation. In
evaluating these matters with respect to a particular convertible security, the
adviser considers numerous factors, including the economic and political
outlook, the value of the security relative to other investment alternatives,
trends in the determinants of the issuer's profits, and the issuer's management
capability and practices.

MONEY MARKET INSTRUMENTS

The Funds may invest in money market instruments of domestic and foreign banks
and savings associations if they have capital, surplus, and undivided profits of
over $100,000,000, or if the principal amount of the instrument is insured in
full by the Bank Insurance Fund or the Savings Association Insurance Fund, both
of which are administered by the Federal Deposit Insurance Corporation.

RATINGS

A nationally recognized statistical rating organization's ("NRSROs") highest
rating category is determined without regard for sub-categories and gradations.
For example, securities rated A-1 or A-1+ by S&P, Prime-1 by Moody's, or F-1 (+
or -) by Fitch IBCA, Inc. ("Fitch") are all considered to be rated in the
highest short-term rating category. Cash Reserve Fund will follow applicable
regulations in determining whether a security rated by more than one NRSRO can
be treated as being in the highest short-term rating category; currently, such
securities must be rated by two NRSROs in their highest rating category. See
"Regulatory Compliance."

CREDIT ENHANCEMENT

Cash Reserve Fund typically evaluates the credit quality and ratings of
credit-enhanced securities based upon the financial condition and ratings of the
party providing the credit-enhancement (the "credit enhancer"), rather than the
issuer. However, the credit-enhanced securities will not be treated as having
been issued by the credit enhancer for diversification purposes unless the Fund
has invested more than 10% of its assets in securities issued, guaranteed or
otherwise credit enhanced by the credit enhancer, in which case the securities
will be treated as having been issued by both the issuer and the credit
enhancer. The Fund may have more than 25% of its total assets invested in
securities credit enhanced by banks.

PORTFOLIO TURNOVER

Capital Appreciation Fund's portfolio turnover rate for the fiscal years ended
August 31, 1998 and 1997 were 62% and 62%, respectively.

Louisiana Municipal Income Fund conducts portfolio transactions to accomplish
its investment objective as interest rates change, to invest new money obtained
from selling its shares, and to meet redemption requests. The Fund may trade or
dispose of portfolio securities at any time if it appears that trading or
selling the securities will help the Fund achieve its investment objective. For
fiscal years ended August 31, 1998 and 1997, the portfolio turnover rates were
24% and 17%, respectively.

Mid Cap Equity Fund normally holds or disposes of portfolio securities in order
to achieve its investment objectives. Securities held by the Fund are selected
because they are considered to represent real value and will be held or disposed
of accordingly. The adviser will not generally seek profits through short-term
trading. The Fund will not attempt to set or meet a portfolio turnover rate
since any turnover would be incidental to transactions undertaken in an attempt
to achieve the Fund's investment objectives. For the period from July 13, 1998
to August 31, 1998, the portfolio turnover rate was 1%.

Total Return Bond Fund may trade or dispose of portfolio securities as
considered necessary to meet its investment objective. For the fiscal years
ended August 31, 1998 and 1997, the portfolio turnover rates were 31% and 65%,
respectively.

Although U.S. Government Income Fund does not intend to invest for the purpose
of seeking short-term profits, securities in its portfolio will be sold whenever
the Fund's investment adviser believes it is appropriate to do so in light of
the Fund's investment objective, without regard to the length of time a
particular security may have been held. For the fiscal years ended August 31,
1998 and 1997, the portfolio turnover rates were 44% and 72%, respectively.

INVESTMENT LIMITATIONS

DIVERSIFICATION OF INVESTMENTS

With respect to 75% of the value of its total assets, Capital Appreciation
Fund and Mid Cap Equity Fund will not purchase securities of any one issuer,
except cash and cash items and securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities, if as
a result more than 5% of the value of its total assets would be invested in
the securities of that issuer.

Capital Appreciation Fund and Mid Cap Equity Fund will not acquire more than
10% of the outstanding voting securities of any one issuer.

With respect to 75% of the value of Total Return Bond Fund's total assets,
the Fund will not invest more than 5% of the value of its total assets in
any one issuer (except cash and cash items, repurchase agreements, and U.S.
government obligations). The Fund will not acquire more than 10% of the
outstanding voting securities of any one issuer.

Cash Reserve Fund will not purchase securities issued by any one issuer
having a value of more than 5% of the value of its total assets except cash
or cash items, repurchase agreements, and U.S. government obligations.

With respect to securities comprising 75% of the value of its total assets,
U.S. Treasury Money Market Fund will not purchase securities of any one
issuer (other than cash, cash items or securities issued or guaranteed by
the government of the United States or its agencies or instrumentalities and
repurchase agreements collateralized by U.S. Treasury securities) if as a
result more than 5% of the value of its total assets would be invested in
the securities of that issuer.

(For purposes of the foregoing limitations, the Funds consider instruments
issued by a U.S. branch of a domestic bank having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment to be
"cash items.")
CONCENTRATION OF INVESTMENTS
Capital Appreciation Fund and Mid Cap Equity Fund will not invest 25% or
more of its total assets in securities of issuers having their principal
business activities in the same industry. Total Bond Fund will not invest
25% or more of the value of its total assets in any one industry. However,
investing in U.S. government obligations shall not be considered investments
in any one industry.

Cash Reserve Fund will not invest more than 25% of the value of its total
assets in any one industry except commercial paper of finance companies.
However, investing in bank instruments (such as time and demand deposits and
certificates of deposit), U.S. government obligations or instruments secured
by these money market instruments, such as repurchase agreements, shall not
be considered investments in any one industry.

ACQUIRING SECURITIES
Cash Reserve Fund will not acquire the voting securities of any issuer. It
will not invest in securities issued by any other investment company. It
will not invest in securities of a company for the purpose of exercising
control or management.

INVESTING IN COMMODITIES
Capital Appreciation Fund and Mid Cap Equity Fund will not purchase or sell
commodities, commodity contracts, or commodity futures contracts. However,
the Fund may purchase put options on portfolio securities and on financial
futures contracts as a hedging strategy and not for speculative purposes. In
addition, the Fund reserves the right to hedge the portfolio by entering
into financial futures contracts and to sell calls on financial futures
contracts. The Fund will notify shareholders before such a change in its
operating policies is implemented.

Louisiana Municipal Income Fund will not purchase or sell commodities,
commodity contracts, or commodity futures contracts. The Fund may, however,
enter into future contracts on financial instruments or financial indexes
and may purchase or sell options on such futures contracts. Such investments
will be used as a hedging strategy only and not for speculative purposes and
will not exceed 5% of the Fund's total net assets.

Total Return Bond Fund will not purchase or sell commodities or commodities
futures contracts. However, the Fund may purchase put and call options on
portfolio securities and on financial futures contracts. In addition, the
Fund reserves the right to hedge the portfolio by entering into financial
futures contracts and to sell puts and calls on financial futures contracts.

U.S. Government Income Fund will not purchase or sell commodities, except
that the Fund may purchase or sell financial futures contracts and related
options.

Cash Reserve Fund will not invest in commodities or commodity contracts.

U.S. Treasury Money Market Fund will not buy or sell commodities, commodity
contracts, or commodities futures contracts.

ISSUING SENIOR SECURITIES AND BORROWING
Capital Appreciation Fund, Louisiana Municipal Income Fund, Mid Cap Equity
Fund, U.S. Government Income Fund, and Cash Reserve Fund will not issue
senior securities except that each Fund may borrow money and engage in
reverse repurchase agreements in amounts up to one-third of the value of its
total assets (net assets in the case of U.S. Government Income Fund)
including the amount borrowed. A Fund will not borrow money or engage in
reverse repurchase agreements for investment leverage, but rather as
temporary, extraordinary, or emergency measure or to facilitate management
of the portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolios securities is deemed to be inconvenient or
disadvantageous. A Fund will not purchase any securities while any
borrowings in excess of 5% of its total assets are outstanding. During the
period any reverse repurchase agreements are outstanding, a Fund will
restrict the purchase of portfolio securities to money market instruments
maturing on or before the expiration date of the reverse repurchase
agreements, but only to the extent necessary to assure completion of the
reverse repurchase agreements. With respect to Cash Reserve Fund, if a
percentage limit is adhered to at the time of investment, a later increase
or decrease in percentage resulting from any change in value of net assets
will not result in a violation of such restriction.

Total Return Bond Fund will not issue senior securities except that the Fund
may borrow money and engage in reverse repurchase agreements in amounts up
to one-third of the value of its net assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while borrowings in excess of 5% of its total
assets are outstanding.

U.S. Treasury Money Market Fund will not issue senior securities except that
the Fund may borrow money in amounts up to one-third of the value of its
total assets, including the amount borrowed. The Fund will not borrow money
except as a temporary, extraordinary, or emergency measure or to facilitate
management of the portfolio by enabling the Fund to meet redemption requests
when the liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous.

PLEDGING ASSETS
Capital Appreciation Fund, Louisiana Municipal Income Fund, Mid Cap Equity
Fund and Cash Reserve Fund will not mortgage, pledge, or hypothecate
securities, except to secure permissible borrowings. In those cases, a Fund
may pledge assets having a value of 15% of its assets taken at cost.

Total Return Bond Fund will not mortgage, pledge, or hypothecate any assets
except to secure permitted borrowings. In those cases, it may pledge assets
having a market value not exceeding the lesser of the dollar amounts
borrowed or 10% of the value of total assets at the time of the borrowing.

U.S. Government Income Fund will not mortgage, pledge, or hypothecate any
assets except to secure permitted borrowings. In these cases, it may pledge
assets having a market value not exceeding the lesser of the dollar amounts
borrowed or 15% of the value of total assets as the time of the borrowing.

Neither the deposit of underlying securities and other assets in escrow in
connection with the writing of put or call options on U.S. government
securities nor margin deposits for the purchase and sale of financial
futures contracts and related options are deemed to be a pledge.

SELLING SHORT AND BUYING ON MARGIN
Capital Appreciation Fund and Mid Cap Equity Fund will not purchase any
securities on margin but may obtain such short-term credits as may be
necessary for the clearance of purchases and sales of securities.

Louisiana Municipal Income Fund will not sell securities short or purchase
any securities on margin but may obtain such short-term credits as may be
necessary for the clearance of purchases and sales of securities.

Total Return Bond Fund and U.S. Government Income Fund will not sell
securities short or purchase any securities on margin but may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities. The deposit or payment by a Fund of initial or
variation margin in connection with financial futures contracts or related
options transactions is not considered the purchase of a security on margin.

Cash Reserve Fund will not sell any money market instruments short or
purchase any money market instruments on margin but may obtain such
short-term credits as may be necessary for clearance of purchases and sales
of money market instruments.

UNDERWRITING
Capital Appreciation Fund, Louisiana Municipal Income Fund and Mid Cap
Equity Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the disposition of its portfolio securities.

Total Return Bond Fund, U.S. Government Income Fund, and U.S. Treasury Money
Market Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objectives,
policies, and limitations.

Cash Reserve Fund will not engage in underwriting of securities issued by
others.

INVESTING IN REAL ESTATE
Capital Appreciation Fund, Louisiana Municipal Income Fund and Mid Cap
Equity Fund will not purchase or sell real estate although a Fund may invest
in securities secured by real estate or interest in real estate or issued by
companies, including real estate investment trusts, which invest in real
estate or interests therein.

Total Return Bond and U.S. Government Income Fund will not buy or sell real
estate, including limited partnership interests, although a Fund may invest
in the securities of companies whose business involves the purchase or sale
of real estate or in securities which are secured by real estate or
interests in real estate.

Cash Reserve Fund will not invest in real estate, except that it may
purchase money market instruments issued by companies that invest in real
estate or sponsor such interests.

U.S. Treasury Money Market Fund will not purchase or sell real estate,
including limited partnership interests.

LENDING CASH OR SECURITIES
Capital Appreciation Fund and Mid Cap Equity Fund will not lend any of its
assets, except portfolio securities . This shall not prevent the purchase or
holding of bonds, debentures, notes, certificates of indebtedness, or other
debt securities of an issuer, repurchase agreements or other transactions
which are permitted by its investment objective and policies or the
declaration of trust.

Louisiana Municipal Income will not lend any assets except portfolio
securities up to one-third of the value of its total assets. The Fund may
acquire publicly or non-publicly issued municipal bonds or temporary
investments or enter into repurchase agreements in accordance with its
investment objective, policies, and limitations.

Total Return Bond Fund will not lend any of its assets except portfolio
securities. This shall not prevent the purchase or holding of corporate
bonds, debentures, notes, certificates of indebtedness or other debt
securities of an issuer, repurchase agreements or other transactions which
are permitted by the Fund's investment objective and policies.

U.S. Government Income Fund will not lend any of its assets except
portfolio securities up to one-third of the value of its total assets.

Cash Reserve Fund will not lend any of its assets, except that it may
purchase or hold money market instruments, including repurchase agreements
and variable amount demand master notes, permitted by its investment
objective and policies.

U.S. Treasury Money Market Fund will not lend any of its assets, except that
it may purchase or hold U.S. Treasury obligations, permitted by its
investment objective, policies and limitations or the declaration of trust.

INVESTING IN MINERALS
Capital Appreciation Fund and Louisiana Municipal Income Fund will not
invest in interests in oil, gas, or other mineral exploration or development
programs, other than debentures or equity stock interests.

U.S. Government Income Fund will not purchase or sell oil, gas, or other
mineral exploration or development programs.

INVESTING IN RESTRICTED SECURITIES

Louisiana Municipal Income Fund will not invest more than 10% of its total
assets in securities subject to restrictions on resale under the Securities Act
of 1933.

Except as noted, the above investment limitations cannot be changed without
shareholder approval. The following limitations, however, may be changed by the
Trustees without shareholder approval. Except as noted, shareholders will be
notified before any material change in these limitations becomes effective.

INVESTING IN MINERALS
Mid Cap Equity Fund will not invest in interests in oil, gas, or other
mineral exploration or development programs, other than debentures or equity
stock interests.

PURCHASING SECURITIES TO EXERCISE CONTROL
The Funds will not purchase securities of a company for the purpose of
exercising control or management.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Funds will limit their investment in other investment companies to no
more than 3% of the total outstanding voting stock of any investment
company, invest no more than 5% of its total assets in any investment
company, or invest no more than 10% of its total assets in investment
companies in general, unless permitted to do so by order of the SEC. The
Funds will purchase securities of investment companies only in open-market
transactions involving only customary broker's commissions. However, these
limitations are not applicable if the securities are acquired in a merger,
consolidation, or acquisition of assets. It should be noted that investment
companies incur certain expenses, such as management fees, and, therefore,
any investment by a Fund in shares of another investment company would be
subject to such duplicate expenses. The Funds will invest in other
investment companies primarily for the purposes of investing its short-term
cash on a temporary basis. The investment adviser will waive its investment
advisory fee on assets invested in securities of open-end investment
companies.

WRITING COVERED CALL OPTIONS AND PURCHASING PUT OPTIONS
Capital Appreciation Fund and Mid Cap Equity Fund will not write call
options on securities unless the securities are held in the Fund's portfolio
or unless the Fund is entitled to them in deliverable form without further
payment or after segregating cash in the amount of any further payment. The
Fund will not purchase put options on securities, other than put options on
stock indices, unless the securities are held in the Fund's portfolio and
not more than 5% of the value of the Fund's net assets would be invested in
premiums on open put option positions.

Total Return Bond Fund will not purchase put options on securities unless
the securities are held in the Fund's portfolio. The Fund will not write put
or call options or purchase put or call options in excess of 5% of the value
of its total assets.

U.S. Government Income Fund will not write covered put and call options on
securities unless the securities are held in the Fund's portfolio or unless
the Fund is entitled to them in deliverable form without further payment or
after segregating cash or U.S. Treasury obligations with a value equal to or
greater than the exercise price of the underlying securities. The Fund will
not purchase put options on securities unless the securities are held in the
Fund's portfolio.

INVESTING IN RESTRICTED AND ILLIQUID SECURITIES
Mid Cap Equity Fund will not invest more than 15% of the value of its net
assets in illiquid securities including certain restricted securities not
determined to be liquid under criteria established by the Trustees
non-negotiable time deposits and repurchase agreements providing for
settlement in more than seven days after notice.
Capital Appreciation Fund did not borrow money, pledge securities or invest in
illiquid securities in excess of 5% of the value of its net assets in the last
fiscal year and has no present intent to do so during the coming fiscal year.

Louisiana Municipal Income Fund did not borrow money or pledge securities
in excess of 5% of the value of its net assets during the last fiscal year and
has no present intent to do so during the coming fiscal year.

Mid Cap Equity Fund did not borrow money, pledge securities or invest in
illiquid securities in excess of 5% of the value of its net assets since its
inception and has no present intent to do so during the coming fiscal year. U.S.
Government Income Fund did not engage in reverse repurchase agreements, borrow
money, or invest in illiquid securities in excess of 5% of the value of its net
assets in the last fiscal year and has no present intent to do so during the
coming year.

Cash Reserve Fund did not borrow money or engage in when-issued and delayed
delivery transactions in excess of 5% of the value of its net assets during the
last fiscal year and has no present intent to do so during the coming year.

U.S. Treasury Money Market Fund does not expect to borrow money in excess
of 5% of the value of its net assets during the coming fiscal year.

REGULATORY COMPLIANCE

The Money Market Funds may follow non-fundamental operational policies that are
more restrictive than their fundamental investment limitations, as set forth in
the prospectus and this Statement of Additional Information, in order to comply
with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940. In particular, the Funds
will comply with the various requirements of Rule 2a-7, which regulates money
market mutual funds. For example, with limited exceptions, Rule 2a-7 prohibits
the investment of more than 5% of a Fund's total assets in the securities of any
one issuer, although a Fund's investment limitations only requires such 5%
diversification with respect to 75% of its assets. The Funds will invest more
than 5% of their respective assets in any one issuer only under circumstances
permitted by Rule 2a-7. The Funds will also determine the effective maturity of
their investments, as well as their ability to consider a security as having
received the requisite short-term ratings by NRSROs, according to Rule 2a-7.
Except as otherwise noted, the Funds may change these operational policies to
reflect changes in the laws and regulations without the approval of their
shareholders.

<PAGE>

HIBERNIA FUNDS MANAGEMENT

OFFICERS AND TRUSTEES

Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Hibernia National Bank,
Hibernia Corporation, Federated Investors, Inc., Federated Securities Corp., and
Federated Administrative Services.

Edward C. Gonzales*+
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930

President, Trustee and Treasurer

Trustee or Director of some of the Funds; President, Executive Vice President
and Treasurer of some of the Funds; Vice Chairman, Federated Investors, Inc.;
Vice President, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company.

Robert L. diBenedetto, M.D.
781 Colonial Drive
Baton Rouge, LA
Birthdate: April 14, 1928

Trustee

Gynecologist; President/CEO, Louisiana Medical Mutual Insurance Company;
Chairman of Board of Directors and Medical Director, LAMMICOPractice Management,
L.L.C.; Medical Director Emeritus, Women's Hospital.

James A. Gayle, Sr.
613 Turtle Creek Drive
Shreveport, LA
Birthdate: September 27, 1923

Trustee

Vice President of Government Affairs and Community Development and Director,
Shreveport Chamber of Commerce; Director, Louisiana Forestry Association;
Director, Anthony Forest Products Company, Inc.; Retired from International
Paper Company in August 1985.

J. Gordon Reische +
20 Dogwood Drive
Covington, LA
Birthdate: September 11, 1931

Trustee

Retired Managing Partner, New Orleans office, KPMG - Peat Marwick.

<PAGE>

Jeffrey W. Sterling
Federated Investors Tower
Pittsburgh, PA
Birthdate: February 5, 1947

Vice President and Assistant Treasurer

Vice President and Director, Private Label Management, Federated
Administrative Services.

Peter J. Germain
Federated Investors Tower
Pittsburgh, PA
Birthdate: September 3, 1959

Secretary

Senior Vice President and Director of Proprietary Funds Services, Federated
Services Company; formerly, Senior Corporate Counsel, Federated Investors, Inc.

*This Trustee is deemed to be an "interested person" of the Fund or Hibernia
Funds as defined in the Investment Company Act of 1940.

+Members of Hibernia Funds' Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of Trustees between
meetings of the Board.

FUND OWNERSHIP

Officers and Trustees of the Trust own less than 1% of each Fund's outstanding
shares.

As of October 9, 1998, the following shareholders are the beneficial owners
of more than 5% of the outstanding shares of the Class A Shares of Hibernia
Capital Appreciation Fund: Bost & Co. A/C HTUF0009662, Pittsburgh, PA, owned
approximately 1,289,760 shares (10.01%); and Hibernia National Bank, New
Orleans, LA, owned approximately 1,066,812 shares (8.28%).

As of October 9, 1998, the following shareholders are the beneficial owners of
more than 5% of the outstanding shares of the Class A Shares of Hibernia Cash
Reserve Fund: Bost & Co. c/o Mellon Bank N.A., Pittsburgh, PA, owned
approximately 78,575,486 shares (45.63%); Bost & Co. A/C 80998810733,
Pittsburgh, PA, owned approximately 50,897,275 shares (29.56%); and Hibernia
National Bank, New Orleans, LA, owned approximately 13,461,950 shares (7.82%).

As of October 9, 1998, the following shareholders are the beneficial owners of
more than 5% of the outstanding shares of the Class B Shares of Hibernia Cash
Reserve Fund: Donaldson Lufkin Jenrette Securities Corp., Inc., Jersey City, NJ
8413120002-5 owned approximately 86,997 shares (45.48%); Donaldson Lufkin
Jenrette Securities Corp., Inc., Jersey City, NJ 8413120001-2 owned
approximately 50,328 shares (26.31%); Donaldson Lufkin Jenrette Securities
Corp., Inc., Jersey City, NJ 6090464534-9 owned approximately 24,243 shares
(12.68%); Donaldson Lufkin Jenrette Securities Corp., Inc., Jersey City, NJ
8413120005-4 owned approximately 11,273 shares (5.89%); and Donaldson Lufkin
Jenrette Securities Corp., Inc., Jersey City, NJ 8413120003-8 owned
approximately 9,965 shares (5.21%).

As of October 9, 1998, the following shareholders are the beneficial owners of
more than 5% of the outstanding shares of the Class A Shares of Hibernia Mid Cap
Equity Fund: Bost & Co. A/C 80901029017, Pittsburgh, PA, owned approximately
124,740 shares (7.68%); and Bost & Co. A/C 80900011016, Pittsburgh, PA, owned
approximately 112,729 shares (6.94%).

As of October 9, 1998, the following shareholders are the beneficial owners of
more than 5% of the outstanding shares of the Class B Shares of Hibernia Mid Cap
Equity Fund: Donaldson Lufkin Jenrette Securities Corp., Inc., Jersey City, NJ
8412930006-3 owned approximately 9,960 shares (13.00%); Donaldson Lufkin
Jenrette Securities Corp., Inc., Jersey City, NJ 8412930036-4 owned
approximately 4,357 shares (5.69%); and Donaldson Lufkin Jenrette Securities
Corp., Inc., Jersey City, NJ 8412930013-1 owned approximately 4,128 shares
(5.39%).

As of October 9, 1998, the following shareholder is the beneficial owner of
more than 5% of the outstanding shares of Hibernia U.S. Government Income Fund:
Bost & Co. A/C 80901029017, Pittsburgh, PA, owned approximately 604,468 shares
(7.59%).

As of October 9, 1998, the following shareholders are the beneficial owners of
more than 5% of the outstanding shares of Hibernia Total Return Bond Fund: Bost
& Co. A/C HTUF0009662, Pittsburgh, PA, owned approximately 1,386,303 shares
(18.06%); Hibernia National Bank, New Orleans, LA, owned approximately 481,552
shares (6.27%); and Hibernia National Bank Trust Division, New Orleans, LA,
owned approximately 466,409 shares (6.08%).

As of October 9, 1998, the following shareholders are the beneficial owners
of more than 5% or the outstanding shares of Hibernia U.S. Treasury Money Market
Fund: Bost & Co. c/o Mellon Bank N.A., Pittsburgh, PA, owned approximately
78,573,182 shares (40.32%); and Bost & Co. A/C 80998810741 FBO Hibernia National
Bank, Pittsburgh, PA, owned approximately 50,776,064 shares (26.06%).

<PAGE>

TRUSTEES COMPENSATION

AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM
TRUST THE TRUST*+

Edward C. Gonzales $0
President, Treasurer and Trustee
Robert L. di Benedetto, $12,000
Trustee
James A. Gayle, Sr., $12,000
Trustee
J. Gordon Reische, $12,000
Trustee

*Information is furnished for the fiscal year ended August 31, 1998. The Trust
is the only investment company in the complex.

+The aggregate compensation is provided for the Trust which is comprised of
7 portfolios.

TRUSTEE LIABILITY

The Trust's Declaration of Trust provides that the Trustees are not liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.

INVESTMENT ADVISORY SERVICE

ADVISER TO THE TRUST

The Trust's investment adviser is Hibernia National Bank (the "Adviser"). It
provides investment advisory services through its Trust Division. Hibernia
National Bank is a wholly owned subsidiary of Hibernia Corporation.

The Adviser shall not be liable to the Trust, a Fund, or any shareholder of any
Fund for any losses that may be sustained in the purchase, holding, or sale of
any security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.

Because of the internal controls maintained by Hibernia National Bank to
restrict the flow of non-public information, Fund investments are typically made
without any knowledge of Hibernia National Bank's or its affiliates' lending
relationships with an issuer.

ADVISORY FEES

For its advisory services, Hibernia National Bank receives an annual investment
advisory fee as described in the prospectus. The following shows all investment
advisory fees incurred by the Funds and the amounts of those fees that were
voluntarily waived by the Adviser:

Fund Name Year Ended Amount Year Ended Amount Year Ended Amount
Aug 31, 1998 Waived-1998Aug 31, 1997 Waived-1997 Aug 31, 1996 Waived-1996

Capital Appreciation
Fund $2,417,253 $0 $1,674,455 $0 $1,204,309 $0

Louisiana Municipal
Income Fund $450,310 $80,055 $346,773 $61,649 $298,550 $53,076

Total Return Bond Fund $532,051 $131,063 $488,596 $0 $501,491 $0

U.S. Government
Income Fund $289,526 $38,603 $190,313 $25,375 $183,788 $24,505

Cash Reserve Fund $658,507 $0 $682,458 $0 $778,592 $0

U.S. Treasury Money
Market Fund $718,045 $0 $598,805 $214,099 $500,504 $275,277

For the period from July 13, 1998 (date of initial public offering) to August
31, 1998, the Adviser earned advisory fees from Mid Cap Equity Fund of $15,872,
none of which was waived.

BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Trustees. The Adviser may select brokers and
dealers who offer brokerage and research services. These services may be
furnished directly to the Funds or to the Adviser and may include; advice as to
the advisability of investing in securities; security analysis and reports;
economic studies; industry studies; receipt of quotations for portfolio
evaluations; and similar services. Research services provided by brokers may be
used by the Adviser or its affiliates in advising the Funds and other accounts.
To the extent that receipt of these services may supplant services for which the
Adviser or its affiliates might otherwise have paid, it would tend to reduce
their expenses. The Adviser and its affiliates exercise reasonable business
judgment in selecting brokers who offer brokerage and research services to
execute securities transactions. They determine in good faith that commissions
charged by such persons are reasonable in relationship to the value of the
brokerage and research services provided. For the fiscal years ended August 31,
1998, 1997 and 1996, Capital Appreciation Fund paid $488,045, $294,766, and
$238,669, respectively, in brokerage commissions on brokerage transactions. For
the fiscal year ended August 31, 1998, Mid Cap Equity Fund paid no brokerage
commissions.

Although investment decisions for the Funds are made independently from those of
other accounts managed by the Adviser, investments of the type the Funds may
make may also be made by those other accounts. When the Funds and one or more
other accounts managed by the Adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the Adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Funds or the size of the position obtained or disposed of by the Funds. In
some cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Funds.

OTHER SERVICES

TRUST ADMINISTRATION

Federated Administrative Services, which is a subsidiary of Federated Investors,
Inc. provides administrative personnel and services to the Funds for a fee
described in the prospectus. The following shows all fees earned by Federated
Administrative Services and the amounts of those fees that were voluntarily
waived:

Fund Name Year Ended Amount Year Ended Amount Year Ended Amount
Aug 31, 1998 Waived-1998Aug 31, 1997 Waived-1997 Aug 31, 1996 Waived-1996

Capital Appreciation
Fund $374,710 $0 $277,600 $0 $206,816 $0

Louisiana Municipal
Income Fund $116,480 $0 $95,787 $0 $85,488 $0

Total Return Bond Fund $88,402 $0 $87,209 $0 $92,287$0

U.S. Government
Income Fund $74,793 $0 $52,512 $0 $52,624 $0

Cash Reserve Fund $191,658 $0 $213,586 $0 $250,721 $0

U.S. Treasury Money
Market Fund $208,245 $0 $186,989 $0 $161,067 $0

For the period from July 13, 1998 (date of initial public offering) to August
31, 1998, Federated Administrative Services earned administrative fees from Mid
Cap Equity Fund of $6,713, of which $4,293 was waived.

TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING SERVICES

Federated Shareholder Services Company, Pittsburgh, Pennsylvania, a subsidiary
of Federated Services Company, is transfer agent for the shares of the Funds and
dividend disbursing agent for the Funds. It also provides certain accounting and
recordkeeping services with respect to the Funds' portfolios of investments.

Federated Shareholder Services Company receives a fee based on the size, type,
and number of accounts and transactions made by shareholders. Federated
Shareholder Services Company also maintains the Funds' accounting records. The
fee is based on the level of a Fund's average net assets for the period plus
out-of-pocket expenses.

CUSTODIAN

For its services as custodian, Hibernia National Bank, New Orleans, Louisiana,
may receive an annual fee, payable monthly based on a percentage of each Fund's
average aggregate daily net assets, plus out-of-pocket expenses.

INDEPENDENT AUDITORS

The independent auditors for the Funds are Ernst & Young LLP, Pittsburgh,
Pennsylvania.

PURCHASING SHARES

Class A Shares of Capital Appreciation Fund and Mid Cap Equity Fund and
shares of Louisiana Municipal Income Fund, Total Return Bond Fund, and U.S.
Government Income Fund are sold at their net asset value with a front end sales
charge. Class B Shares of Capital Appreciation Fund, Mid Cap Equity Fund and
Cash Reserve Fund are sold at net asset value and are subject to a contingent
deferred sales charge if redeemed within six full years of purchase. Class A
Shares of Cash Reserve Fund and shares of Tower U.S. Treasury Money Market Fund
are sold at net asset value without a sales charge. Shares of the Funds are sold
on days the New York Stock Exchange is open for business. The procedure for
purchasing shares is explained in the prospectus under "Investing in the Funds."

DISTRIBUTION PLAN

Hibernia Funds has adopted a Distribution Plan pursuant to Rule 12b-1 (the
"Plan") which was promulgated by the SEC pursuant to the Investment Company Act
of 1940. The Plan permits the payment of fees to brokers for distribution and
administrative services and to administrators for administrative services. The
Plan is designed to (i) stimulate brokers to provide distribution and
administrative support services to shareholders and (ii) stimulate
administrators to render administrative support services to shareholders. The
administrative services are provided by a representative who has knowledge of
the shareholder's particular circumstances and goals. By adopting the Plan, the
Trustees expect that the Funds will be able to achieve a more predictable flow
of cash for investment purposes and to meet redemptions. This will facilitate
more efficient portfolio management and assist the Funds in seeking to achieve
their investment objectives. By identifying potential investors whose needs are
served by a Fund's objective, and properly servicing these accounts, a Fund may
be able to curb sharp fluctuations in rates of redemptions and sales. Other
benefits may include: (1) an efficient and effective administrative system; (2)
a more efficient use of shareholder assets by having them rapidly invested with
a minimum of delay and administrative detail; and (3) an efficient and reliable
shareholder records system and prompt responses to shareholder requests and
inquiries concerning their accounts.

For the fiscal year ended August 31, 1998, payments in the amount of $784,161,
$64,769, $190,018, and $411,566 were made pursuant to the distribution plans for
Capital Appreciation Fund (Class A Shares), Capital Appreciation Fund (Class B
Shares), Total Return Bond Fund, and Cash Reserve Fund, respectively, all of
which were paid to financial institutions. For the period from July 13, 1998
(date of initial public offering) to August 31, 1998, payments in the amount of
$5,143 and $444 were made pursuant to the distribution plan for Mid Cap Equity
Fund (Class A Shares) and Mid Cap Equity Fund (Class B Shares), respectively,
all of which were paid to financial institutions.

SHAREHOLDER SERVICES (CLASS B SHARES ONLY)

The Shareholder Services Agreement permits the payment of fees to Federated
Shareholder Services to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities may include, but are not limited to: marketing
efforts; providing office space, equipment, telephone facilities, and various
clerical, supervisory, computer, and other personnel as necessary or beneficial
to establish and maintain shareholder accounts and records; processing purchase
and redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses. Other benefits, which may
be realized under either arrangement, may include: (1) providing personal
services to shareholders; (2) investing shareholder assets with a minimum of
delay and administrative detail; (3) enhancing shareholder recordkeeping
systems; and (4) responding promptly to shareholders' requests and inquiries
concerning their accounts. For the fiscal year ended August 31, 1998, payment in
the amount of $21,590 was made pursuant to the Shareholder Services Agreement
for Capital Appreciation Fund (Class B Shares), none of which was waived. For
the period from July 13, 1998 (date of initial public offering) to August 31,
1998, payment in the amount of $148, none of which was waived, was made pursuant
to the Shareholder Services Agreement for Mid Cap Equity Fund (Class B Shares).

CONVERSION TO FEDERAL FUNDS

It is the Funds' policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. Hibernia National Bank or its
affiliates act as the shareholder's agent in depositing checks and converting
them to federal funds.

DETERMINING NET ASSET VALUE

Net asset value of the Funds (except the Money Market Funds) generally changes
each day. The Money Market Funds attempt to stabilize the value of a share at
$1.00. The days on which the net asset value is calculated by a Fund are
described in the prospectus.

DETERMINING MARKET VALUE OF SECURITIES
Market values of the Equity and Income Funds' portfolio securities are
determined as follows:

o for equity securities, according to the last sale price on a national
securities exchange, if applicable;

o in the absence of recorded sales for listed equity securities, according
to the mean between the last closing bid and asked prices;

o for unlisted equity securities, the latest bid prices;

o for bonds and other fixed income securities, as determined by an
independent pricing service;

o for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service or for short-term
obligations with remaining maturities of less than 60 days, at the time
of purchase, at amortized cost; or

o for all other securities, at fair value as determined in good faith by
the Trustees.

Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.

The Funds will value futures contracts, options, and put options on futures and
at their market values established by the exchanges at the close of option
trading on such exchanges unless the Trustees determine in good faith that
another method of valuing option positions is necessary to appraise their fair
value.

USE OF THE AMORTIZED COST METHOD

With respect to the Money Market Funds, the Trustees have decided that the best
method for determining the value of portfolio instruments is amortized cost.
Under this method, portfolio instruments are valued at the acquisition cost as
adjusted for amortization of premium or accumulation of discount rather than at
current market value.

The Funds' use of the amortized cost method of calling portfolio instruments
depends on its compliance with Rule 2a-7 (the "Rule") promulgated by the SEC
under the Investment Company Act of 1940. Under the Rule, the Trustees must
establish procedures reasonably designed to stabilize the net asset value per
share, as computed for purposes of distribution and redemption, at $1.00 per
share, taking into account current market conditions and a Fund's investment
objective.

Under the Rule, a Fund is permitted to purchase instruments which are subject to
demand features or standby commitments. As defined by the Rule, a demand feature
entitles the Fund to receive the principal amount of the instrument from the
issuer or a third party on (1) no more than 30 days' notice or (2) at specified
intervals not exceeding 397 days on no more than 30 days' notice. A standby
commitment entitles the Fund to achieve same day settlement and to receive an
exercise price equal to the amortized cost of the underlying instrument plus
accrued interest at the time of exercise.

The Fund acquires instruments subject to demand features and standby commitments
to enhance the instrument's liquidity. The Fund treats demand features and
standby commitments as a part of the underlying instruments, because the Fund
does not acquire then for speculative purposes and cannot transfer them
separately from the underlying instruments. Therefore, although the Rule defines
demand features and standby commitments as "puts," the Fund does not consider
them to be separate investments for the purposes of its investment policies.

MONITORING PROCEDURES

The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based upon
available indications of market value. The Trustees will decide what, if
any, steps should be taken if there is a difference of more than .5% between
the two values. The Trustees will take any steps they consider appropriate
(such as redemption in kind or shortening the average portfolio maturity) to
minimize any material dilution or other unfair results arising from
differences between the two methods of determining net asset value.

INVESTMENT RESTRICTIONS

The Rule requires that a Fund limit its investments to instruments that, in
the opinion of the Trustees, present minimal credit risks and have received
the requisite rating from one or more nationally recognized statistical
rating organizations. The Rule also requires a Fund to maintain a dollar
weighted average portfolio maturity (not more than 90 days) appropriate to
the objective of maintaining a stable net asset value of $1.00 per share. In
addition, no instruments with a remaining maturity of more than 397 days can
be purchased by the Fund.

Should the disposition of a portfolio security result in a dollar weighted
average portfolio maturity of more than 90 days, a Fund will invest its
available cash to reduce the average maturity to 90 days or less as soon as
possible. Shares of investment companies purchased by a Fund will meet the
same criteria and will have investment policies consistent with Rule 2a-7.

A Fund may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations. This policy may, from time to
time, result in high portfolio turnover. Under the amortized cost method of
valuation, neither the amount of daily income nor the net asset value is
affected by normal unrealized appreciation or depreciation of the portfolio.

In periods of declining interest rates, the indicated daily yield on shares
of a Fund computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above may tend to be higher
than a similar computation made by using a method of valuation based upon
market prices and estimates.

In periods of rising interest rates, the indicated daily yield on shares of
a Fund computed the same way may tend to be lower than a similar computation
made by using a method of calculation based upon market prices and
estimates.

EXCHANGE PRIVILEGE

REQUIREMENTS FOR EXCHANGE

Shareholders using the exchange privilege must exchange shares having a net
asset value of at least $1,000. Before the exchange, the shareholder must
receive a prospectus of the fund for which the exchange is being made. Class B
Shares of Capital Appreciation Fund, Mid Cap Equity Fund and Cash Reserve Fund
are only eligible for exchange into other funds which offer Class B Shares.

This privilege is available to shareholders residing in any state in which the
fund shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, shares submitted for exchange are redeemed and
the proceeds invested in shares of the other fund.

Further information on the exchange privilege and prospectuses may be obtained
by calling the Fund at the number on the cover of this Statement.

MAKING AN EXCHANGE

Instructions for exchanges may be given in writing. Written instructions may
require a signature guarantee. Shares may also be exchanged by telephone, but
only between fund accounts that have identical shareholder registrations.

REDEEMING SHARES

A Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Shareholder redemptions for Class B Shares of
Capital Appreciation Fund, Mid Cap Equity Fund and Cash Reserve Fund may be
subject to a contingent deferred sales charge. Redemption procedures are
explained in the combined prospectus under "Redeeming Shares." Although the Fund
does not charge for telephone redemptions, it reserves the right to charge a fee
for the cost of wire-transferred redemptions of less than $5,000.

REDEMPTION IN KIND

A Fund is obligated to redeem shares solely in cash up to $250,000, or 1%
of the Fund's net asset value, whichever is less, for any one shareholder within
a 90-day period.

Any redemption beyond this amount will also be in cash unless the Trustees
determine that payments should be in kind. In such a case, the Trust will pay
all or a portion of the remainder of the redemption in portfolio instruments,
valued in the same way as net asset value is determined. The portfolio
instruments will be selected in a manner that the Trustees deem fair and
equitable.

Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur transaction costs.

Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.

MASSACHUSETTS PARTNERSHIP LAW

Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument the Trust or its Trustees
enter into or sign.

In the unlikely event a shareholder is held personally liable for obligations of
the Trust, Hibernia Funds is required to use its property to protect or to
compensate the shareholder. On request, the Trust will defend any claim made and
pay any judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust cannot meet its obligations to indemnify shareholders and to
pay judgments against them from its assets.

TAX STATUS

THE FUNDS' TAX STATUS

The Funds will pay no federal income tax because they expect to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, a Fund must, among other
requirements:

o derive at least 90% of its gross income from dividends, interest, and
gain from the sale of securities;

o invest in securities within certain statutory limits; and

o distribute to its shareholders at least 90% of its net income earned
during the year.

SHAREHOLDERS' TAX STATUS

Shareholders are subject to federal income tax on dividends and capital gains
reviewed as cash or additional shares. No portion of any income dividend paid by
the Fund is eligible for the dividends received deduction available to
corporations. These dividends, and any short-term capital gains, are taxable as
ordinary income.

CAPITAL GAINS

Long-term capital gains distributed to Fund shareholders (except the Money
Market Funds) will be treated as long-term capital gains regardless of how long
shareholders have held Fund shares.

Capital gains experienced by a Money Market Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If, for some
extraordinary reason, a Fund realized net long-term capital gains, it will
distribute them at least once every 12 months.

TOTAL RETURN

Average annual total return is the average compounded rate of return for a given
period that would equate a $1,000 initial investment to the ending redeemable
value of that investment. The ending redeemable value is computed by multiplying
the number of shares owned at the end of the period by the maximum offering
price per share at the end of the period. The number of shares owned at the end
of the period is based on the number of shares purchased at the beginning of the
period with $1,000, adjusted over the period by any additional shares, assuming
the monthly reinvestment of all dividends and distributions.

Capital Appreciation Fund's average annual total returns for Class A Shares for
the one-year and five-year periods ended August 31, 1998 and for the period from
October 14, 1988 (date of initial public investment) to August 31, 1998 were
0.41%, 15.79% and 15.08%, respectively. Capital Appreciation Fund's average
annual total returns for Class B Shares for the one-year period ended August 31,
1998 and for the period from December 2, 1996 (date of initial public
investment) to August 31, 1998 were (1.36%) and 10.22%, respectively.

Louisiana Municipal Income Fund's average annual total returns for the one-year
and five-year periods ended August 31, 1998, and, for the period from October
14, 1988 (date of initial public investment) to August 31, 1998, were 4.77%,
5.06% and 7.18%, respectively.

For the period from July 13, 1998 (date of initial public offering) to August
31, 1998, the cumulative total return for Class A Shares of Mid Cap Equity Fund
was (22.25%). For the period from July 13, 1998 (date of initial public
offering) to August 31, 1998, the cumulative total return for Class B Shares of
Mid Cap Equity Fund was (23.20%). Cumulative total return reflects the total
performance over a specific period of time. These total returns are
representative of only 50 days of activity since the date of initial public
investment for Class A Shares and Class B Shares of Mid Cap Equity Fund.

Total Return Bond Fund's average annual total returns for the one-year and
five-year periods ended August 31, 1998 and for the period from November 2, 1992
(date of initial public investment) to August 31, 1998, were 6.21%, 5.02% and
6.10%, respectively.

U.S. Government Income Fund's average annual total returns for the one-year and
five-year periods ended August 31, 1998 and for the period from October 14, 1988
(date of initial public investment) to August 31, 1998 were 6.43%, 5.23% and
7.57%, respectively.

Cash Reserve Fund's average annual total returns for Class A Shares for the
one-year and five-year periods ended August 31, 1998 and for the period from
October 14, 1988 (date of initial public investment) to August 31, 1998 were
4.82%, 4.40% and 5.20%, respectively.

U.S. Treasury Money Market Fund's average annual total returns for the one-year
and five-year periods ended August 31, 1998 and the period from July 19, 1993
(date of initial public investment) to August 31, 1998 were 4.89%, 4.57% and
4.53%, respectively.

YIELD

The yield for a Fund (except the Money Market Funds) is determined by dividing
the net investment income per share (as defined by the SEC) earned by a Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This value is then annualized using semi-annual
compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a twelve month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by the Fund because of certain adjustments
required by the SEC and therefore, may not correlate to the dividends or other
distributions paid to shareholders.

To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in a Fund,
the performance will be reduced for those shareholders paying those fees.

Capital Appreciation Fund's yields for Class A Shares and Class B Shares
for the thirty-day period ended August 31, 1998 were 0.29% and (0.53%),
respectively.

Louisiana Municipal Income Fund's yield for the thirty-day period ended August
31, 1998 was 4.15%.

Mid Cap Equity Fund's yields for Class A Shares and Class B Shares for the
thirty-day period ended August 31, 1998 were 0.00% and (0.82%), respectively.

Total Return Bond Fund's yield for the thirty-day period ended August 31, 1998
was 4.89%.

U.S. Government Income Fund's yield for the thirty-day period ended
August 31, 1998 was 5.35%.

The Money Market Funds calculate yield based upon the seven days ending on the
day of the calculation, called the "base period." This yield is computed by:
determining the net change in the value of a hypothetical account with a balance
of one share at the beginning of the base period, with the net change excluding
capital changes but including the value of any additional shares purchased with
dividends earned from the original one share and all dividends declared on the
original and any purchased shares; dividing the net change in the account's
value by the value of the account at the beginning of the base period to
determine the base period return; and multiplying the base period return by
365/7.

Cash Reserve Fund's yield for Class A Shares for the seven-day period ended
August 31, 1998 was 4.71%.

U.S. Treasury Money Market Fund's yield for the seven-day period ended
August 31, 1998 was 4.78%.

EFFECTIVE YIELD

The effective yield is calculated by compounding the unannualized base
period return by: adding 1 to the base period return; raising the sum to the
365/7th power; and subtracting 1 from the result.

For the seven-day period ended August 31, 1998, the effective yield for the Cash
Reserve Fund's Class A Shares was 4.82%.

For the seven-day period ended August 31, 1998, the effective yield for the U.S.
Treasury Money Market Fund was 4.89%.

TAX-EQUIVALENT YIELD

Louisiana Municipal Income Fund's tax-equivalent yield is calculated similarly
to the yield, but is adjusted to reflect the taxable yield that the Fund would
have had to earn to equal its actual yield, assuming a combined federal and
state marginal tax rate of 45.60% and assuming that the income is 100%
tax-exempt.

The Fund's tax-equivalent yield for the thirty-day period ended August 31, 1998
was 7.63%.

TAXABLE YIELD EQUIVALENT FOR 1998

STATE OF LOUISIANA

COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
19.00% 34.00% 37.00% 42.00% 45.60%

JOINT $1- $42,351- $102,301- $155,951- OVER
RETURN 42,350 102,300 155,950 278,450 $278,450

SINGLE $1- $25,351- $61,401- $128,101- OVER
RETURN 25,350 61,400 128,100 278,450 $278,450

TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT

2.00% 2.47% 3.03% 3.17% 3.45% 3.68%
2.50% 3.09% 3.79% 3.97% 4.31% 4.60%
3.00% 3.70% 4.55% 4.76% 5.17% 5.51%
3.50% 4.32% 5.30% 5.56% 6.03% 6.43%
4.00% 4.94% 6.06% 6.35% 6.90% 7.35%
4.50% 5.56% 6.82% 7.14% 7.76% 8.27%
5.00% 6.17% 7.58% 7.94% 8.62% 9.19%
5.50% 6.79% 8.33% 8.73% 9.48% 10.11%
6.00% 7.41% 9.09% 9.52% 10.34% 11.03%
6.50% 8.02% 9.85% 10.32% 11.21% 11.95%

Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional state
and local taxes paid on comparable taxable investments were not used to
increase federal deductions.

PERFORMANCE INFORMATION

Performance depends upon such variables as: portfolio quality; average portfolio
maturity; type of instruments in which the portfolio is invested; changes in
interest rates and market value of portfolio securities; changes in expenses;
and the relative amount of cash flow.

The Funds' (except the Money Market Funds) performance fluctuates on a daily
basis largely because net earnings and offering price per share fluctuate daily.
Both net earnings and offering price per share are factors in the computation of
yield and total return.

Investors may use financial publications and/or indices to obtain a more
complete view of the Funds' performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Funds use in advertising may include:

oLIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all income dividends and capital gains
distributions, if any. From time to time, the Fund will quote its Lipper
ranking in the "money market instruments funds" category in advertising
and sales literature.

OBANK RATE MONITOR NATIONAL INDEX, Miami Beach, Florida, is a financial
reporting service which publishes weekly average rates of 50 leading bank
and thrift institution money market deposit accounts. The rates published
in the index are averages of the personal account rates offered on the
Wednesday prior to the date of publication by ten of the largest banks and
thrifts in each of the five largest Standard Metropolitan Statistical
Areas. Account minimums range upward from $2,500 in each institution, and
compounding methods vary. If more than one rate is offered, the lowest
rate is used. Rates are subject to change at any time specified by the
institution.

ODOW JONES INDUSTRIAL AVERAGE ("DJIA") represents share prices of selected
blue-chip industrial corporations as well as public utility and
transportation companies. The DJIA indicates daily changes in the average
price of stocks in any of its categories. It also reports total sales for
each group of industries. Because it represents the top corporations of
America, the DJIA index is a leading economic indicator for the stock
market as a whole.

S&P 400 MID CAP INDEX is an unmanaged capitalization weighted index that
measures the performance of the mid-range of the U.S. stock market.

OSTANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a
composite index of common stocks in industry, transportation, and
financial and public utility companies, compares total returns of funds
whose portfolios are invested primarily in common stocks. In addition, the
S&P index assumes reinvestment of all dividends paid by stock listed on
the index. Taxes due on any of these distributions are not included, nor
are brokerage or other fees calculated in the S&P figures.

oLEHMAN BROTHERS GOVERNMENT/CORPORATE TOTAL INDEX is compromised of
approximately 5,000 issues which include: non-convertible bonds publicly
issued by the U.S. government or its agencies; corporate bonds guaranteed
by the U.S. government and quasi-federal corporations; and publicly
issued, fixed rate, non-convertible domestic bonds of companies in
industry, public utilities, and finance. The average maturity of these
bonds approximates nine years. Tracked by Lehman Brothers, Inc., the index
calculates total returns for one-month, three-months, twelve months, and
ten-year periods and year-to-date.

OSALOMON BROTHERS AAA-AA CORPORATE INDEX calculates total returns of
approximately 775 issues which include long-term, high grade domestic
corporate taxable bonds, rated AAA-AA with maturities of twelve years or
more and companies in industry, public utilities, and finance.

OMERRILL LYNCH CORPORATE & GOVERNMENT MASTER INDEX is an unmanaged index
comprised of approximately 4,821 issues which include corporate debt
obligations rated BBB or better and publicly issued, non-convertible
domestic debt of the U.S. government or any agency thereof. These quality
parameters are based on composite of rating assigned by S&P and Moody's
Investors Service, Inc. Only notes and bonds with a minimum maturity of
one year are included.

OMERRILL LYNCH CORPORATE MASTER INDEX is an unmanaged index comprised of
approximately 4,356 corporate debt obligations rated BBB or better. These
quality parameters are based on composites of ratings assigned by S&P and
Moody's Investors Service, Inc. Only bonds with a minimum maturity of one
year are included.

OSALOMON BROTHERS BROAD INVESTMENT-GRADE ("BIG") BOND INDEX is designed to
provide the investment-grade bond manager with an all-inclusive universe
of institutionally traded U.S. Treasury, agency, mortgage and corporate
securities which can be used as a benchmark. The BIG Index is market
capitalization-weighted and includes all fixed rate bonds with a maturity
of one year or longer and a minimum of $50-million amount outstanding at
entry ($200 million for mortgage coupons) and remain in the index until
their amount falls below $25 million.

OMORNINGSTAR, INC., an independent rating service , is the publisher of
the bi-weekly MUTUAL FUNDS VALUES. MUTUAL FUNDS VALUES rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings are
effective for two weeks.

Advertising and other promotional literature may include charts, graphs and
other illustrations using the Trust's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Trust can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.

ECONOMIC AND MARKET INFORMATION

Advertising and sales literature for the Trust may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by the Trust's portfolio managers and their views and analysis on
how such developments could affect the Funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute ("ICI"). For example, according to the ICI,
thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4.4 trillion to the more than 6,700 funds available.

FINANCIAL STATEMENTS

The financial statements for the fiscal year ended August 31, 1998, are
incorporated herein by reference to the Funds' Annual Report dated August 31,
1998 . A copy of the Annual Report may be obtained without charge by contacting
the Funds at the address located on the back cover of the prospectus or by
calling the Funds toll-free 1-800-999-0124.

<PAGE>

APPENDIX

STANDARD AND POOR'S MUNICIPAL BOND RATING DEFINITIONS

AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.

A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effect of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

BB, B, CCC, CC - Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties of major risk exposures to adverse
conditions.

C - The rating C is reserved for income bonds on which no interest is being
paid.

D - Debt rated D is in default, and payments of interest and/or repayment of
principal is in arrears.

MOODY'S INVESTORS SERVICE, INC., MUNICIPAL BOND RATING DEFINITIONS

AAA - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

AA - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they compromise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.

A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.

BAA - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

BA - Bonds which are Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.

B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

CAA - Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.

CA - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default of have other marked shortcomings.

C - Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

<PAGE>

FITCH IBCA, INC., BOND RATING DEFINITIONS

AAA bonds (highest quality) - the obligator has an extraordinary ability to pay
interest and repay principal which is unlikely to be affected by reasonably
foreseeable events.

AA bonds (high quality) - the obligor's ability to pay interest and repay
principal, while very strong, is some-what less than for AAA rated securities or
more subject to possible change over the term of the issue.

MOODY'S INVESTORS SERVICE, INC. SHORT-TERM DEBT RATING DEFINITIONS

PRIME-1 - Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. PRIME-1
repayment capacity will normally be evidenced by the following characteristics:

- - Leading market positions in well established industries.

- - High rates of return on funds employed.

- - Conservative capitalization structure with moderate reliance on debt and ample
asset protection.

- - Broad margins in earning coverage of fixed financial charges and high internal
cash generation.

- - Well-established access to a range of financial markets and assured sources
of alternate liquidity

PRIME-2 - Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.

PRIME-3 - Issuers rated PRIME-3 (or related supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.

NOT PRIME- Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.

FITCH IBCA, INC. SHORT-TERM DEBT RATING DEFINITIONS

F-1+- EXCEPTIONALLY STRONG CREDIT QUALITY. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.

F-1- VERY STRONG CREDIT QUALITY. Issues assigned this rating reflect an
assurance for timely payment only slightly less in degree than issues rated
F-1+.

F-2- GOOD CREDIT QUALITY. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.

F-3- FAIR CREDIT QUALITY. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse changes could cause these securities to be rated below
investment grade.

F-S- WEAK CREDIT QUALITY. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are vulnerable
to near-term adverse changes in financial and economic conditions.

D- DEFAULT. Issues assigned this rating are in actual or imminent payment
default.

LOC- The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.

PART C. OTHER INFORMATION.

Item 24. Financial Statements and Exhibits:
(a) (1-7) Financial Statements (Incorporated by reference to the
Annual Report of the Registrant dated August 31, 1998, File
Nos. 811-5536 and 33-21321).
(b) Exhibits:
(1) (i) Conformed copy of Declaration of Trust of the
Registrant; (5.)
(ii) Conformed copy of Amendment No. 7 of Articles
Supplementary; +
(2) Copy of By-Laws of the Registrant; (1.)
(3) Not applicable;
(4) (i) Copy of Specimen Certificate for Shares of
Beneficial Interest of the Registrant; (3.) (ii) Copy of
Specimen Certificates for Shares of Beneficial Interest
of the Registrant;(5.)
(5) (i) Conformed copy of Investment Advisory Contract of
the Registrant; (5.) (ii) Conformed copy of Exhibit G to
Investment Advisory Contract; +
(6) (i) Conformed copy of Administrative Support and
Distributor's Contract of the Registrant;(5.)
(ii) Amendments No. 1,2,3 and 4 to Exhibit A to
Administrative Support and Distributor's Contract of the
Registrant; (10.) (iii) Exhibit B to Administrative
Support and Distributor's Contract of the Registrant;
(10.) (iv) Conformed copy of Mutual Funds Sales and
Service Agreement among Federated Securities Corp.,
Federated Shareholder Services and Hibernia Investment
Securities, Inc.; + (v) Conformed copy of Mutual Funds
Sales and Service Agreement among Federated Securities
Corp., Federated Shareholder Services and Hibernia
National Bank; + (vi) Amendment No. 1 to Exhibit B to
the Administrative Support and Distributor's Contract of
the Registrant; +
(7) Not applicable;

+ All exhibits have been filed electronically.

1. Response is incorporated by reference to Registrant's Registration
Statement on Form N-1A filed April 15, 1988. (File Nos. 33-21321 and
811-5536)

3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed April 27, 1989. (File Nos. 33-21321 and
811-5536)

5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 11 filed October 28, 1993. (File Nos. 33-21321 and 811-5536)

10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 filed March 25, 1998. (File Nos. 33-21321 and 811-5536)

<PAGE>

(8) (i) Conformed copy of Custodian Agreement of the
Registrant; (6.) (ii) Conformed copy of Transfer Agency
and Service Agreement of the Registrant; (5.) (iii)
Conformed copy of Administrative Services Agreement of
the Registrant; (5.)
(iv) Conformed copy of Assignment of Administrative
Services Agreement of the Registrant to
Federated Administrative Services; (5.)
(v) Copy of Schedule A to Custodian Contract;(8.)
(vi) Conformed copy of Sub-Transfer Agency
Agreement;(9.)
(9) (i) Conformed copy of Agreement for Fund Accounting,
Shareholder Recordkeeping, and Custody Services
Procurement; (6.) (ii) Exhibit 1 to the Agreement for
Fund Accounting, Shareholder Recordkeeping, and Custody
Services Procurement; (10.)
(10) Conformed copy of Opinion and Consent of Counsel as to
legality of shares being registered;(7.) (11) (i) Conformed
copy of Consent of Independent Auditors; +
(ii) Conformed copy of Opinion and Consent of Special
Counsel;(7.) (12) Not applicable; (13) Conformed copy of
Initial Capital Understanding;(7.)
(14) Not applicable;
(15) (i) Conformed copy of Present Distribution Plan; (5.)
(ii) Form of Rule 12b-1 Agreement;(10.)
(iii) Amendments No. 1,2,3 and 4 to Exhibit A to the
Distribution Plan;(10.)

+ All exhibits have been filed electronically.

5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 11 filed October 28, 1994. (File Nos. 33-21321 and 811-5536)

6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 filed December 28, 1994. (File Nos. 33-21321 and 811-5536)

7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 filed October 28, 1996. (File Nos. 33-21321 and 811-5536)

8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 17 filed October 22, 1997. (File Nos. 33-21321 and 811-5536)

9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 filed February 25, 1998. (File Nos. 33-21321 and 811-5536)

10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 filed March 25, 1998. (File Nos. 33-21321 and 811-5536)

<PAGE>

(iv) Copy of Sales Agreement with Federated
Securities Corp.; (3.)
(v) Conformed copy of Shareholder Services
Agreement;(7.)
(vi) Conformed copy of Shareholder Services Agreement
through and Exhibit A which relates to Class B
Shares of Capital Appreciation Fund; (8.)
(vii) Exhibit B Shareholder Services Agreement which
relates to Class B Shares for Cash Reserve Fund and Mid-Cap
Equity Fund;(10.) (16) (i) Copy of Schedule for Computation of
Performance Data for Tower Capital Appreciation Fund;(7.)
(ii) Copy of Schedule for Computation of Performance
Data for Tower Cash Reserve Fund;(7.)
(iii) Copy of schedule for Computation of Performance
Data for Tower Louisiana Municipal Income
Fund;(7.)
(iv) Copy of schedule for Computation of Performance
Data for Tower U.S. Government Income Fund;(7.)
(v) Copy of schedule for Computation of Performance
Data for Tower Total Return Bond Fund;(7.)
(vi) Copy of Schedule for Computation of Performance
Data for Tower U.S. Treasury Money Market
Fund;(5.)
(17) Financial Data Schedules; + (18) (i) Conformed copy of
Multiple Class
Plan;(7.)
(ii) Conformed copy of Exhibit B to the
Multiple Class Plan; +
(19) Conformed copy of Power of Attorney (5.);

- ------------------
+ All exhibits have been filed electronically.

3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed April 27, 1989. (File Nos. 33-21321 and
811-5536)

5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 11 filed October 28, 1994. (File Nos. 33-21321 and 811-5536)

7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 filed October 28, 1996. (File Nos. 33-21321 and 811-5536)

8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 17 filed October 22, 1997. (File Nos. 33-21321 and 811-5536)

10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 filed March 25, 1998. (File Nos. 33-21321 and 811-5536)

Item 25. Persons Controlled by or Under Common Control with Registrant:

None.

Item 26. Number of Holders of Securities:

Number of Record Holders
TITLE OF CLASS AS OF OCTOBER 9, 1998
-------------- -----------------------

Shares of beneficial interest

Tower Capital Appreciation Fund
Class A Shares 1,806
Class B Shares 1,126
Tower U.S. Government Income
Fund 1,054
Tower Louisiana Municipal Income
Fund 1,186
Tower Total Return Bond Fund 271
Tower Cash Reserve Fund
Class A Shares 1,538
Class B Shares 14
Tower U.S. Treasury Money Market
Fund 2,862
Tower Mid Cap Equity Fund
Class A Shares 148
Class B Shares 75

Item 27. Indemnification: (1)

- ------------------
+ All exhibits have been filed electronically.

1. Response is incorporated by reference to Registrant's Registration
Statement on Form N-1A filed April 15, 1988. (File Nos. 33-21321
and 811-5536)

<PAGE>

Item 28. Business and Other Connections of Investment Adviser:

A. Investment Adviser

Hibernia National Bank is a national bank with its principal place
of business at 313 Carondelet Street, New Orleans, Louisiana 70130.
Hibernia National Bank, a national bank organized in 1933, is a
wholly-owned subsidiary of Hibernia Corporation ("Hibernia"), a
Louisiana Corporation. Through its subsidiaries and affiliates,
Hibernia offers a full range of financial services to the public
including commercial and consumer lending and depository services,
cash management, retail banking, mortgage banking, brokerage,
investment counseling, international banking, trust services, life
and health insurance and property and casualty insurance. Hibernia
National Bank has been ranked by the American Banker newspaper as
the 59th largest U.S. Bank according to December 31, 1997 deposits.
As of December 31, 1997, the Trust Group had $6.0 billion under
administration of which it had investment discretion over $2.8
billion. The Trust Group has managed pools of commingled funds since
1966; as of December 31, 1997, the Trust Group manages one such
investment pool along with the six Hibernia Funds. The executive
officers and directors of the Adviser and any other business,
profession, vocation or employment of a substantial nature in which
each such officer and director is or has been engaged during the
past two years is set forth below. Unless otherwise noted, the
position listed under Other Business, Profession, Vocation or
Employment is with Hibernia National Bank.

Other Substantial
Position with Business, Profession,
NAME THE ADVISER VOCATION, EMPLOYMENT

Robert H. Boh Chairman and Director Chairman, Boh
Brothers Construction
Co. L.L.C.

Paul J. Bonitatibus Executive Vice President

J. Herbert Boydstun Chairman-Southwest Louisiana Region and Director

E.R. Campbell Vice Chairman and Director -
Hibernia Corporation and Hibernia
National Bank; Chairman and Director
Hibernia National Bank of
Texas

Cindy S. Collins Executive Vice President

K. Kirk Domingos III Senior Executive Vice President

B. D. Flurry Chairman-Northern Louisiana
Region and Director, Hibernia
National Bank of Texas

Marsha M. Gassan Senior Executive Vice President and Chief
Financial Officer

Michael G. Gretchen Executive Vice President

Stephen A. Hansel President, Chief
Executive Officer,
and Director

Russell S. Hoadley Executive Vice President

Linda A. Hoffman Executive Vice President

Randall E. Howard Chairman, Southeast
Louisiana Region

Scott P. Howard Senior Executive Vice President

Patricia C. Meringer Senior Vice President, Corporate Counsel and
Secretary

Susan Johnson Executive Vice President

Suzette J. Prechter Executive Vice President

Kenneth A. Rains Executive Vice President

Ron E. Samford, Jr. Executive Vice President
and Controller

John E. Smith Executive Vice President

Willie L. Spears Executive Vice President

Walter P. Walker Executive Vice President

Richard G. Wright Senior Executive Vice President and Chief
Credit Officer

Mike Zainey Executive Vice President

Directors

Robert H. Boh Robert T. Holleman William C. O'Malley
J. Herbert Boydstun Elton R. King Robert T. Ratcliff
J. Terrell Brown Sidney W. Lassen Janee M. Tucker
E. R. Campbell Donald J. Nalty Virginia E. Weinmann
Richard W. Freeman, Jr. Robert E. Zetzmann
Stephen A. Harsel
Dick H. Hearin

<PAGE>

ITEM 29. PRINCIPAL UNDERWRITERS:

(a) Federated Securities Corp. the Distributor for shares of the
Registrant, acts as principal underwriter for the following
open-end investment companies, including the Registrant:

Automated Government Money Trust; Cash Trust Series II; Cash Trust Series, Inc.;
CCB Funds; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders
Fund, Inc.; Federated ARMs Fund; Federated Core Trust; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated
Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust;
Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free
Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government
Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10
Years; Federated Utility Fund, Inc.; Fixed Income Securities, Inc.; Independence
One Mutual Funds; Intermediate Municipal Trust; International Series, Inc.;
Investment Series Funds, Inc.; Liberty U.S. Government Money Market Trust;
Liquid Cash Trust; Managed Series Trust; Marshall Funds, Inc.; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Obligations Trust
II; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds;
Regions Funds; RIGGS Funds; SouthTrust Funds; Tax-Free Instruments Trust; The
Planters Funds; The Wachovia Funds; The Wachovia Municipal Funds; Tower Mutual
Funds; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; Vision Group of Funds, Inc.;
World Investment Series, Inc.; Blanchard Funds; Blanchard Precious Metals Fund,
Inc.; High Yield Cash Trust; Investment Series Trust; Peachtree Funds; Star
Funds; Targeted Duration Trust; The Virtus Funds; Trust for Financial
Institutions;

Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.

<PAGE>

(b)

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT

Richard B. Fisher Director, Chairman, Chief
Federated Investors Tower Executive Officer, Chief
1001 Liberty Avenue Operating Officer, Asst.
Pittsburgh, PA 15222-3779 Secretary and Asst.
Treasurer, Federated
Securities Corp.

Edward C. Gonzales Director, Executive Vice
Federated Investors Tower President, Federated,
1001 Liberty Avenue
Pittsburgh, PA 15222-3779 Securities Corp.

Thomas R. Donahue Director, Assistant Secretary
Federated Investors Tower and Assistant Treasurer
1001 Liberty Avenue
Pittsburgh, PA 15222-3779 Federated Securities Corp

James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Ronald Petnuch Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

David J. Callahan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Raymond Hanley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Robert M. Rossi Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Matthew S. Hardin Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Item 30. Location of Accounts and Records:

All accounts and records required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and Rules 31a-1 through 31a-3
promulgated thereunder are maintained at one of the following
locations:

Registrant 5800 Corporate Drive
Pittsburgh, PA 15237-7010

Federated Shareholder Services Company P.O. Box 8600
("Transfer Agent, Dividend Boston, MA 02266-8600
Disbursing Agent and Portfolio
Recordkeeper")

Federated Administrative Federated Investors Tower
Services 1001 Liberty Avenue
("Administrator") Pittsburgh, PA 15222-3779

Hibernia National Bank 313 Carondelet Street
("Adviser") New Orleans, LA 70130

Hibernia National Bank 313 Carondelet Street
("Custodian") New Orleans, LA 70130

Item 31. Management Services: Not applicable.

Item 32. Undertakings:

Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholder meetings by
shareholders.

Registrant hereby undertakes to furnish each person to whom a
prospectus for Tower Mutual Funds is delivered a copy of the
Registrant's latest annual report to shareholders, upon request and
without charge.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, HIBERNIA FUNDS, certifies that
it meets all of the requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of
Pittsburgh and Commonwealth of Pennsylvania, on the 27th day of October, 1998.

HIBERNIA FUNDS

BY: /s/ Gail Cagney
Gail Cagney, Assistant Secretary
Attorney in Fact for Edward C. Gonzales
October 27, 1998

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:

NAME TITLE DATE

By: /s/Gail Cagney
ASSISTANT SECRETARY Attorney In Fact October 27, 1998
For the Persons
Listed Below

NAME TITLE

Edward C. Gonzales* President, Treasurer
and Trustee
(Chief Executive Officer,
Principal Financial and
Accounting Officer)

Robert L. diBenedetto, M.D.* Trustee

James A. Gayle, Sr.* Trustee

J. Gordon Reische* Trustee

* By Power of Attorney

Exhibit 1(ii) under Form N-1A
Exhibit 3(i) under Item 601/Reg. S-K

TOWER MUTUAL FUNDS

Amendment No. 7
to
DECLARATION OF TRUST
dated April 8, 1988

THIS Declaration of Trust is amended as follows:

Strike the first paragraph of Section 5 of Article III from the
Declaration of Trust and substitute in its place the following:

"SECTION 5. ESTABLISHMENT AND DESIGNATION OF SERIES OR CLASS.
Without limiting the authority of the Trustees set forth in Article
XII, Section 8, inter alia, to establish and designate any
additional series or class or to modify the rights and preferences
of any existing Series or Class, Tower Capital Appreciation Fund -
Class A Shares, Tower Capital Appreciation Fund Class B Shares,
Tower Cash Reserve Fund - Class A Shares, Tower Cash Reserve Fund -
Class B Shares, Tower Louisiana Municipal Income Fund, Tower Mid Cap
Equity Fund - Class A Shares, Tower Mid Cap Equity Fund - Class B
Shares, Tower Total Return Bond Fund, Tower U.S. Government Income
Fund and Tower U.S. Treasury Money Market Fund shall be and are
established and designated as Classes and Series of the Trust.

The undersigned hereby certify that the above stated amendment is a true
and correct Amendment to the Declaration of Trust, as adopted by the Board of
Trustees on March 10, 1998.

WITNESS the due execution hereof this 10th day of March, 1998.

/S/ ROBERT L. DIBENEDETTO /S/ EDWARD C. GONZALES
Robert L. diBenedetto Edward C. Gonzales

/S/ JAMES A. GAYLE, SR. /S/ J. GORDON REISCHE
James A. Gayle, Sr. J. Gordon Reische

TOWER MUTUAL FUNDS

INVESTMENT ADVISORY CONTRACT

This Contract is made between Hibernia National Bank, a national banking
association having its principal place of business in New Orleans, Louisiana and
which is a wholly owned subsidiary of Hibernia Corporation, a Louisiana
corporation (the "Adviser"), and Tower Mutual Funds, a Massachusetts business
trust having its principal place of business in Pittsburgh, Pennsylvania (the
"Trust").

WHEREAS, the Trust is an open-end management investment company as that
term is defined in the Investment Company Act of 1940 and is registered as
such with the Securities and Exchange Commission; and

WHEREAS, the Adviser is engaged in the business of rendering investment
advisory and management services.

NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as
follows:

1. The Trust hereby appoints Adviser as Investment Adviser for each of the
portfolios ("Funds") of the Trust on whose behalf the Trust executes an exhibit
to this Contract, and Adviser, by its execution of each such exhibit, accepts
the appointments. Subject to the direction of the Trustees of the Trust, Adviser
shall provide investment research and supervision of the investments of each of
the Funds and conduct a continuous program of investment evaluation and of
appropriate sale or other disposition and reinvestment of each Fund's assets.

2. Adviser, in its supervision of the investments of each of the Fund will
be guided by each of the Fund's fundamental investment policies and the
provisions and restrictions contained in the Declaration of Trust and By-Laws of
the Trust and as set forth in the Registration Statement and exhibits as may be
on file with the Securities and Exchange Commission.

3. The Trust shall pay or cause to be paid, on behalf of each Fund, all of
the Fund's expenses and the Fund's allocable share of Trust expenses, including
without limitation, the expenses of organizing the Trust and continuing its
existence; fees and expenses of officers and Trustees of the Trust; fees for
investment advisory services and administrative services; fees and expenses of
preparing and printing amendments to its Registration Statement under the
Securities Act of 1933 and the Investment Company Act of 1940; expenses of
registering and qualifying the Trust, the Funds and shares of the Funds
("Shares") under Federal and state laws and regulations; expenses of preparing,
printing and distributing prospectuses (and any amendments thereto) and sales
literature; expenses of registering, licensing, or other authorization of the
Trust as a broker-dealer and of its officers as agents and salesmen under
federal and state laws and regulations; interest expense, taxes, fees and
commissions of every kind; expenses of issue (including cost of Share
certificates), purchase, repurchase and redemption of Shares, including expenses
attributable to a program of periodic issue; charges and expenses of custodians,
transfer agents, dividend disbursing agents, shareholder servicing agents and
registrars; printing and mailing costs, auditing, accounting and legal expenses;
reports to shareholders and governmental officers and commissions; expenses of
meetings of Trustees and shareholders and proxy solicitations therefor;
insurance expenses; association membership dues; and such nonrecurring items as
may arise, including all losses and liabilities incurred in administering the
Trust and the Funds. The Trust will also pay each Fund's allocable share of such
extraordinary expenses as may arise, including expenses incurred in connection
with litigation, proceedings, and claims and the legal obligations of the Trust
to indemnify its officers and Trustees and agents with respect thereto.

4. The Trust, on behalf of each of the Funds shall pay to Adviser, for all
services rendered to such Fund by Adviser hereunder, the fees set forth in the
exhibits attached hereto.

5. The Adviser may from time to time and for such periods as it deems
appropriate reduce its compensation (and, if appropriate, assume expenses of one
or more of the Funds) to the extent that any Fund's expenses exceed such lower
expense limitation as the Adviser may, by notice to the Fund, voluntarily
declare to be effective.

6. This Contract shall begin for each Fund on the date that the Trust
executes an exhibit to this Contract relating to such Fund. This Contract shall
remain in effect for each Fund until the first meeting of Shareholders held
after the execution date of an exhibit relating to the respective Fund, and if
approved at such meeting by the shareholders of a particular Fund, shall
continue in effect for such Fund for two years from the date of its execution
and from year to year thereafter, subject to the provisions for termination and
all of the other terms and conditions hereof if: (a) such continuation shall be
specifically approved at least annually by the vote of a majority of the
Trustees of the Trust, including a majority of the Trustees who are not parties
to this Contract or interested persons of any such party (other than as Trustees
of the Trust) cast in person at a meeting called for that purpose; and (b)
Adviser shall not have notified the Trust in writing at least sixty (60) days
prior to the anniversary date of this Contract in any year thereafter that it
does not desire such continuation with respect to that Fund.

7. Notwithstanding any provision in this Contract, it may be terminated at
any time with respect to any Fund, without the payment of any penalty, by the
Trustees of the Trust or by a vote of the shareholders of that Fund on sixty
(60) days' written notice to Adviser.

8. This Contract may not be assigned by Adviser and shall automatically
terminate in the event of any assignment. Adviser may employ or contract with
such other person, persons, corporation or corporations at its own cost and
expense as it shall determine in order to assist it in carrying out this
Contract.

9. In the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of obligations or duties under this Contract on the part of
Adviser, Adviser shall not be liable to the Trust or to any of the Funds or to
any shareholder for any act or omission in the course of or connected in any way
with rendering services or for any losses that may be sustained in the purchase,
holding or sale of any security.

10. (a) Subject to the conditions set forth below, the Trust agrees to
indemnify and hold harmless the Adviser and each person, if any, who controls
the Adviser within the meaning of Section 15 of the 1933 Act and Section 20 of
the Securities Exchange Act of 1934, as amended, against any and all loss,
liability, claim, damage and expense whatsoever, (including but not limited to
any and all expense whatsoever reasonably incurred in investigating, preparing
or defending against any litigation, commenced or threatened, or any claim
whatsoever) arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or the
Prospectus (as from time to time amended and supplemented) or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make statements therein not misleading, unless such statement or
omission was made in reliance upon and conformity with written information
furnished to the Trust with respect to the Adviser by or on behalf of the
Adviser expressly for use in the Registration Statement or Prospectus, or any
amendment or supplement thereof.

If any action is brought against the Adviser or any controlling person
thereof in respect of which indemnity may be sought against the Trust pursuant
to the foregoing paragraph, the Adviser shall promptly notify the Trust in
writing of the institution of such action and the Trust shall assume the defense
of such action, including the employment of counsel selected by the Trust and
payment of expenses. The Adviser or any such controlling person thereof shall
have the right to employ separate counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of the Adviser or such
controlling person unless the employment of such counsel shall have been
authorized in writing by the Trust in connection with the defense of such action
or the Trust shall not have employed counsel to have charge of the defense of
such action, in any of which events such fees and expenses shall be borne by the
Trust. Anything in this paragraph to the contrary notwithstanding, the Trust
shall not be liable for any settlement of any such claim or action effected
without its written consent. The Trust agrees promptly to notify the Adviser of
the commencement of any litigation or proceedings against the Trust or any of
its officers or Trustees or controlling persons in connection with the issue and
sale of shares or in connection with such Registration Statement or Prospectus.

(b) The Adviser agrees to indemnify and hold harmless the Trust, each of its
Trustees, each of its officers who have signed the Registration Statement and
each other person, if any, who controls the Trust within the meaning of Section
15 of the 1933 Act, to the same extent as the foregoing indemnity from the Trust
to the Adviser but only with respect to statements or omissions, if any, made in
the Registration Statement or Prospectus or any amendment or supplement thereof
in reliance upon, and in conformity with, information furnished to the Trust
with respect to the Adviser by or on behalf of the Adviser expressly for use in
the Registration Statement or Prospectus or any amendment or supplement thereof.
In case any action shall be brought against the Trust or any other person so
indemnified based on the Registration Statement or Prospectus, or any amendment
or supplement thereof, and in respect of which indemnity may be sought against
the Adviser, the Adviser shall have the rights and duties given to the Trust,
and the Trust and each other person so indemnified shall have the rights and
duties given to the Adviser by the provisions of subsection (a) above.

(c) Nothing herein contained shall be deemed to protect any person against
liability to the Trust or its shareholders to which such person would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of the duties of such person or by reason of the reckless
disregard by such person of the obligations and duties of such person under this
Contract.

11. This Contract may be amended at any time by agreement of the parties
provided that the amendment shall be approved both by the vote of a majority of
the Trustees of the Trust, including a majority of Trustees who are not parties
to this Contract or interested persons of any such party to this Contract (other
than as Trustees of the Trust), cast in person at a meeting called for that
purpose, and on behalf of a Fund by a majority of the outstanding voting
securities of such Fund.

12. The Adviser acknowledges that all sales literature for investment
companies (such as the Trust) are subject to strict regulatory oversight. The
Adviser agrees to submit any proposed sales literature for the Trust (or any
Fund) or for itself or its affiliates which mentions the Trust (or any Fund) to
the Trust's distributor for review and filing with the appropriate regulatory
authorities prior to the public release of any such sales literature. The Trust
agrees to cause its distributors to promptly review all such sales literature to
ensure compliance with relevant requirements, to promptly advise Adviser of any
deficiencies contained in such sales literature, to promptly file complying
sales literature with the relevant authorities, and to cause such sales
literature to be distributed to prospective investors in the Trust.

13. Adviser is hereby expressly put on notice of the limitation of liability
as set forth in Article XI of the Declaration of Trust and agrees that the
obligations pursuant to this Contract of a particular Fund and of the Trust with
respect to that particular Fund be limited solely to the assets of that
particular Fund, and Adviser shall not seek satisfaction of any such obligation
from the assets of any other Fund, the shareholders of any Fund, the Trustees,
officers, employees or agents of the Trust, or any of them.

14. This Contract shall be construed in accordance with and governed by the
laws of the Commonwealth of Pennsylvania.

15. This Contract will become binding on the parties hereto upon their
execution of the attached exhibits to this Contract.

<PAGE>

EXHIBIT A

TOWER CAPITAL APPRECIATION FUND

For all services rendered by Adviser hereunder, the Trust shall pay to
Adviser and Adviser agrees to accept as full compensation for all services
rendered hereunder, an annual investment advisory fee equal to .75 of 1% of the
average daily net assets of the Fund.

The fee shall be accrued daily at the rate of 1/365th of .75 of 1% applied
to the daily net assets of the Fund.

The advisory fee so accrued shall be paid to Adviser daily.

Witness the due execution hereof this 14th day of October, 1988.

Attest: HIBERNIA NATIONAL BANK

/S/ JUDITH A. CION By:/S/ RODNEY J. ABELE, JR.
Secretary Executive Vice President

TOWER MUTUAL FUNDS

/S/ BYRON F. BOWMAN By:/S/ J. CHRISTOPHER DONAHUE
Secretary President

<PAGE>

EXHIBIT B

TOWER CASH RESERVE FUND

For all services rendered by Adviser hereunder, the Trust shall pay to
Adviser and Adviser agrees to accept as full compensation for all services
rendered hereunder, an annual investment advisory fee equal to .40 of 1% of the
average daily net assets of the Fund.

The fee shall be accrued daily at the rate of 1/365th of .40 of 1% applied
to the daily net assets of the Fund.

The advisory fee so accrued shall be paid to Adviser daily.

Witness the due execution hereof this 14th day of October, 1988.

Attest: HIBERNIA NATIONAL BANK

/S/ JUDITH A. CION By:/S/ RODNEY J. ABELE, JR.
Secretary Executive Vice President

TOWER MUTUAL FUNDS

/S/ BYRON F. BOWMAN By:/S/ J. CHRISTOPHER DONAHUE
Secretary President

<PAGE>

EXHIBIT C

TOWER U.S. GOVERNMENT INCOME FUND

For all services rendered by Adviser hereunder, the Trust shall pay to
Adviser and Adviser agrees to accept as full compensation for all services
rendered hereunder, an annual investment advisory fee equal to .45 of 1% of the
average daily net assets of the Fund.

The fee shall be accrued daily at the rate of 1/365th of .45 of 1% applied
to the daily net assets of the Fund.

The advisory fee so accrued shall be paid to Adviser daily.

Witness the due execution hereof this 14th day of October, 1988.

Attest: HIBERNIA NATIONAL BANK

/S/ JUDITH A. CION By:/S/ RODNEY J. ABELE, JR.
Secretary Executive Vice President

TOWER MUTUAL FUNDS

/S/ BYRON F. BOWMAN By:/S/ J. CHRISTOPHER DONAHUE
Secretary President

<PAGE>

EXHIBIT D

TOWER LOUISIANA MUNICIPAL INCOME FUND

For all services rendered by Adviser hereunder, the Trust shall pay to
Adviser and Adviser agrees to accept as full compensation for all services
rendered hereunder, an annual investment advisory fee equal to .45 of 1% of the
average daily net assets of the Fund.

The fee shall be accrued daily at the rate of 1/365th of .45 of 1% applied
to the daily net assets of the Fund.

The advisory fee so accrued shall be paid to Adviser daily.

Witness the due execution hereof this 14th day of October, 1988.

Attest: HIBERNIA NATIONAL BANK

/S/ JUDITH A. CION By:/S/ RODNEY J. ABELE, JR.
Secretary Executive Vice President

TOWER MUTUAL FUNDS

/S/ BYRON F. BOWMAN By:/S/ J. CHRISTOPHER DONAHUE
Secretary President

<PAGE>

EXHIBIT E

TOWER TOTAL RETURN BOND FUND

For all services rendered by Adviser hereunder, the Trust shall pay to
Adviser and Adviser agrees to accept as full compensation for all services
rendered hereunder, an annual investment advisory fee equal to .70 of 1% of the
average daily net assets of the Fund.

The fee shall be accrued daily at the rate of 1/365th of .70 of 1% applied
to the daily net assets of the Fund.

The advisory fee so accrued shall be paid to Adviser daily.

Witness the due execution hereof this 15th day of September, 1992.

Attest: HIBERNIA NATIONAL BANK

/S/ PATRICIA C. MERINGER By:/S/ KENNETH A. RAINS
Assistant Secretary Senior Vice President

TOWER MUTUAL FUNDS

/S/ C. GRANT ANDERSON By:/S/ EDWARD C. GONZALES
Secretary President

<PAGE>

EXHIBIT F

TOWER U.S. TREASURY MONEY MARKET FUND

For all services rendered by Adviser hereunder, the Trust shall pay to
Adviser and Adviser agrees to accept as full compensation for all services
rendered hereunder, an annual investment advisory fee equal to .40 of 1% of the
average daily net assets of the Fund.

The fee shall be accrued daily at the rate of 1/365th of .40 of 1% applied
to the daily net assets of the Fund.

The advisory fee so accrued shall be paid to Adviser daily.

Witness the due execution hereof this 1st day of June, 1993.

Attest: HIBERNIA NATIONAL BANK

/S/ K. KIRK DOMINGOS By:/S/ KENNETH A. RAINS
Secretary Executive Vice President

TOWER MUTUAL FUNDS

/S/ C. GRANT ANDERSON By:/S/ E. C. GONZALES
Secretary President

<PAGE>

Exhibit 5(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K

EXHIBIT G

TOWER MID CAP EQUITY FUND

The fee shall be accrued daily at the rate of 1/365th of .75 of 1% applied
to the daily net assets of the Fund.

The advisory fee so accrued shall be paid to Adviser daily.

Witness the due execution hereof this 10th day of March, 1998.

HIBERNIA NATIONAL BANK

By: /S/ JAMES C. MCELROY
Name: James C. McElroy
Title: Senior Vice President
Chief Investment Officer

TOWER MUTUAL FUNDS

By: /S/ JEFFREY W. STERLING
Name: Jeffrey W. Sterling
Title: Vice President

Exhibit 6(iv) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K

MUTUAL FUNDS
SALES AND SERVICE
AGREEMENT

This Agreement is entered into among the financial institution executing
this Agreement ("Financial Institution"), Federated Securities Corp.
("FSC"), and Federated Shareholder Services ("FSS"), with respect to those
investment companies listed in Exhibit A hereto (referred to individually as
the "Fund" and collectively as the "Funds") for whose shares of beneficial
interest or capital stock ("Shares") FSC serves as Distributor and for whom FSS
provides or coordinates shareholder services.
A. FINANCIAL INSTITUTION.

1. STATUS OF FINANCIAL INSTITUTION AS "BANK" OR REGISTERED BROKER-DEALER.

Financial Institution represents and warrants to FSC and FSS:

(a)(i)that it is a broker or dealer as defined in Section 3(a)(4) or
3(a)(5) of the Securities Exchange Act of 1934 ("Exchange Act");
that it is registered with the Securities and Exchange Commission
pursuant to Section 15 of the Exchange Act; that it is a member of
the National Association of Securities Dealers, Inc.; and that,
during the term of this Agreement, it will abide by all of the rules
and regulations of the NASD including, without limitation, the NASD
Rules of Fair Practice. Financial Institution agrees to notify FSC
immediately in the event of (1) the termination of its coverage by
the SIPC; (2) its expulsion or suspension from the NASD, or (3) its
being found to have violated any applicable federal or state law,
rule or regulation arising out of its activities as a broker-dealer
or in connection with this Agreement, or which may otherwise affect
in any material way its ability to act in accordance with the terms
of this Agreement. Financial Institution's expulsion from the NASD
will automatically terminate this Agreement immediately without
notice. Suspension of Financial Institution from the NASD for
violation of any applicable federal or state law, rule or regulation
will terminate this Agreement effective immediately upon FSC's
written notice of termination to Financial Institution; or
(a)(ii) that it is a "bank," as that term is defined in Section 3(a)(6) of
the Exchange Act and that, during the term of this Agreement, it
will abide by the rules and regulations of those state and federal
banking authorities with appropriate jurisdiction over the Financial
Institution, especially those regulations dealing with the
activities of the Institution as described under this Agreement.
Financial Institution agrees to notify FSC or FSS immediately of any
action by or communication from state or federal banking
authorities, state securities authorities, the Securities and
Exchange Commission, or any other party which may affect its status
as a bank, or which may otherwise affect in any material

<PAGE>

way its ability to act in accordance with the terms of this Agreement.
Any action or decision of any of the foregoing regulatory
authorities or any court of appropriate jurisdiction which affects
Financial Institution's ability to act in accordance with the terms
of this agreement, including the loss of its exemption from
registration as a broker or dealer, will terminate this Agreement
effective upon FSC's written notice of termination to Financial
Institution; AND
(b) that Financial Institution is registered with the appropriate
securities authorities in all states in which its activities make
such registration necessary.
2. FINANCIAL INSTITUTION ACTS AS AGENT FOR ITS CUSTOMERS.

The parties agree that in each transaction in the Shares of any Fund and
with regard to any services rendered pursuant to this Agreement: (a) Financial
Institution is acting as agent for the customer; (b) each transaction is
initiated solely upon the order of the customer; (c) as between Financial
Institution and its customer, the customer will have full beneficial ownership
of all Shares of the Funds; (d) each transaction shall be for the account of the
customer and not for Financial Institution's account; and (e) each transaction
shall be without recourse to Financial Institution provided that Financial
Institution acts in accordance with the terms of this Agreement. Financial
Institution shall not have any authority in any transaction to act as FSC's
agent or as agent for the Funds. B. SALES OF FUND SHARES.

3. EXECUTION OF ORDERS FOR PURCHASE AND REDEMPTION OF SHARES.

(a) All orders for the purchase of any Shares shall be executed at the
then-current public offering price per share (i.e., the net asset value per
share plus the applicable initial sales load, if any) and all orders for the
redemption of any Shares shall be executed at the net asset value per share,
in each case as described in the prospectus of the Fund. Any applicable
redemption fee or deferred sales charge will be deducted by the Fund prior
to the transmission of the redemption proceeds to Financial Institution or
its customer. FSC and the Funds reserve the right to reject any purchase
request in their sole discretion . If required by law, each transaction
shall be confirmed in writing on a fully disclosed basis and, if confirmed
by FSC, a copy of each confirmation shall be sent simultaneously to
Financial Institution if Financial Institution so requests.
(b) The procedures relating to all orders will be subject to the terms of the
prospectus of each Fund and FSC's written instructions to Financial
Institution from time to time.
(c) Payments for Shares shall be made as specified in the applicable Fund
prospectus. If payment for any purchase order is not received in accordance
with the terms of the applicable Fund prospectus, FSC reserves the right,
without notice, to cancel the sale and to hold Financial Institution
responsible for any loss sustained as a result thereof.
4. INITIAL SALES LOADS PAYABLE TO FINANCIAL INSTITUTION.

(a) On each order accepted by FSC, in exchange for the performance of sales
and/or distribution services, Financial Institution will be entitled to
receive the applicable percentage of the initial sales load, if any, as
established by FSC from the amount paid by Financial Institution's customer
. The initial sales loads for any Fund shall be those set forth in its
prospectus. The portion of the initial sales load payable to Financial
Institution may be changed at any time at FSC's sole discretion upon written
notice to Financial Institution.
(b) Transactions may be settled by Financial Institution: (1) by payment of the
full purchase price less an amount equal to Financial Institution's
applicable percentage of the initial sales load, or (2) by payment of the
full purchase price, in which case Financial Institution shall receive, not
less frequently than monthly, the aggregate fees due it on orders received
and settled.
(c) It shall be the obligation of the Financial Institution either: (i) to
provide FSC with all necessary information regarding the application of the
appropriate initial sales load to each transaction, or (ii) to assess the
appropriate initial sales load for each transaction and to forward the
public offering price, net of the amount of the initial sales load to be
reallocated to the Financial Institution, to the appropriate Fund. Neither
the Fund nor FSC shall have any responsibility to correct the payment or
assessment of an incorrect initial sales load due to the failure of the
Financial Institution to fulfill the foregoing obligation.
5. ADVANCE COMMISSIONS PAYABLE TO FINANCIAL INSTITUTION.

Upon the purchase of certain Shares, as described in the applicable
prospectuses, FSC will pay Financial Institution an advance commission as set
forth on Exhibit A (or, if more recently published, the Fund's current
prospectus). This amount is not to be considered an initial sales load and
should not be deducted from the public offering price of the Shares which shall
be forwarded to the Fund. Generally, a contingent deferred sales charge ("CDSC")
will be assessed upon the redemption of Shares with regard to which an advance
commission is paid by FSC; in the event that Financial Institution notifies FSC
in writing that Financial Institution elects to waive such advance commission,
and if the Fund's prospectus permits such a waiver, the CDSC will not be charged
upon the redemption of the relevant Shares. To receive advance commission from
FSC on Shares that are subject to a CDSC, Financial Institution must open
investor accounts with the Fund on a fully-disclosed basis or be able to account
for share ownership periods used in calculating the CDSC. Furthermore, should
the custody (or record ownership) of the shares of the investor account(s) be
transferred during the applicable CDSC holding period (as described in the Fund
prospectus) to a financial institution which does not maintain investor accounts
on a fully disclosed basis and does not account for share ownership periods, the
Financial Institution agrees to reimburse FSC prior to such transfer for advance
commissions paid to it by FSC.

C. DISTRIBUTION SERVICES.

6. AGREEMENT TO PROVIDE DISTRIBUTION SERVICES.

(a) With regard to those Funds which pay asset-based sales charges (pursuant to
Distribution Plans adopted under Investment Company Act Rule 12b-1), as
noted on Exhibit A hereto (or, if more recently published, the Fund's
current prospectus), FSC hereby appoints Financial Institution to render or
cause to be rendered distribution and sales services to the Funds and their
shareholders.
(b) The services to be provided under this Paragraph (a) may include, but are
not limited to, the following: (i) reviewing the activity in Fund accounts;
(ii)providing training and supervision of its personnel; (iii) maintaining
and distributing current copies of prospectuses and shareholder reports;
(iv)advertising the availability of its services and products; (v)
providing assistance and review in designing materials to send to customers
and potential customers and developing methods of making such
materials accessible to customers and potential customers; and
(vi)responding to customers' and potential customers' questions about the
Funds.
7. ASSET-BASED SALES LOADS PAYABLE TO FINANCIAL INSTITUTION.

During the term of this Agreement, FSC will pay Financial Institution
asset-based sales charges (also known as "Rule 12b-1 Fees") for each Fund as
set forth in Exhibit A to this Agreement (or, if more recently published, the
Fund's current prospectus). For the payment period in which this
Agreement becomes effective or terminates, there shall be an appropriate
proration of the fee on the basis of the number of days that this Agreement is
in effect during the quarter.
D. SHAREHOLDER SERVICES.

8. AGREEMENT TO PROVIDE SHAREHOLDER AND ACCOUNT MAINTENANCE SERVICES.

With regard to those Funds which pay a Shareholder Services Fee to
Financial Institutions, as noted on Exhibit A hereto (or, if more recently
published, the Fund's current prospectus), Financial Institution agrees to
render or cause to be rendered personal services to shareholders of the Funds
and/or the maintenance of accounts of shareholders of the Funds ("Shareholder
Services"). Financial Institution agrees to provide Shareholder Services which,
in its best judgment, are necessary or desirable for its customers who are
investors in the Funds. Financial Institution further agrees to provide FSS,
upon request, a written description of the Shareholder Services which Financial
Institution is providing hereunder.
9. SHAREHOLDER SERVICE FEES PAYABLE TO FINANCIAL INSTITUTION.

During the term of this Agreement, FSS will pay Financial Institution
Shareholder Service Fees as set forth in Exhibit A to this Agreement (or, if
more recently published, the Fund's current prospectus). For the payment period
in which this Agreement becomes effective or terminates, there shall be an
appropriate proration of the fee on the basis of the number of days that this
Agreement is in effect during the quarter.
E. SUPPLEMENTAL PAYMENTS.

10. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTION.

During the term of this Agreement, FSC, FSS, or their affiliates will make
Supplemental Payments to Financial Institution as set forth in Exhibit
A to this Agreement (or, if more recently published, the Fund's current
prospectus) as additional compensation for services described in Paragraphs 6 or
8, above; such payments will be made from the assets of FSC, FSS, or their
affiliates, and not from assets of the Funds nor from fees payable under
applicable Distribution (Rule 12b-1) Plans or Shareholder Services Agreement.
For the payment period in which this Agreement becomes effective or
terminates, there shall be an appropriate proration of the payments on the basis
of the number of days that this Agreement is in effect during the quarter.
F. MISCELLANEOUS.

11. DELIVERY OF PROSPECTUSES TO CUSTOMERS.

Financial Institution will deliver or cause to be delivered to each
customer, at or prior to the time of any purchase of Shares, a copy of the
current prospectus of the Fund and, upon request by a customer or shareholder, a
copy of the Fund's current Statement of Additional Information. Financial
Institution shall not make any representations concerning any Shares other than
those contained in the prospectus or Statement of Additional Information of the
Fund or in any promotional materials or sales literature furnished to Financial
Institution by FSC or the Fund.
12. ERISA ASSETS.

(a) Financial Institution understands that the Department of Labor views ERISA
as prohibiting fiduciaries of discretionary ERISA assets from receiving
administrative service fees or other compensation from funds in which the
fiduciary's discretionary ERISA assets are invested. To date, the Department
of Labor has not issued any exemptive order or advisory opinion that would
exempt fiduciaries from this interpretation. Without specific authorization
from the Department of Labor, fiduciaries should carefully avoid investing
discretionary assets in any fund pursuant to an arrangement where the
fiduciary is to be compensated by the fund for such investment. Receipt of
such compensation could violate ERISA provisions against fiduciary
self-dealing and conflict of interest and could subject the fiduciary to
substantial penalties.
(b) Financial Institution will not perform or provide any duties which would
cause it to be a fiduciary under Section 4975 of the Internal Revenue Code,
as amended. For purposes of that Section, Financial Institution understands
that any person who exercises any discretionary authority or discretionary
control with respect to any individual retirement account or its assets, or
who renders investment advice for a fee, or has any authority or
responsibility to do so, or has any discretionary authority or discretionary
responsibility in the administration of such an account, is a fiduciary.
13. INDEMNIFICATION.

(a) Financial Institution shall indemnify and hold harmless FSC, FSS, each Fund,
the transfer agents of the Funds, and their respective subsidiaries,
affiliates, officers, directors, agents and employees from all direct or
indirect liabilities, losses or costs (including attorneys fees) arising
from, related to or otherwise connected with: (1) any breach by Financial
Institution of any provision of this Agreement; or (2) any actions or
omissions of FSC, FSS, any Fund, the transfer agents of the Funds, and their
subsidiaries, affiliates, officers, directors, agents and employees in
reliance upon any oral, written or computer or electronically transmitted
instructions REASONABLY believed to be genuine and to have been given by or
on behalf of Financial Institution.
(b) FSC shall indemnify and hold harmless Financial Institution and its
subsidiaries, affiliates, officers, directors, agents and employees from and
against any and all direct or indirect liabilities, losses or costs
(including attorneys fees) arising from, related to or otherwise connected
with: (1) any breach by FSC of any provision of this Agreement; or (2) any
alleged untrue statement of a material fact contained in any Fund's
Registration Statement or Prospectus, or as a result of or based upon any
alleged omission to state a material fact required to be stated therein or
necessary to make the statements contained therein not misleading.
(c) FSS shall indemnify and hold harmless Financial Institution and its
subsidiaries, affiliates, officers, directors, agents and employees from and
against any and all direct or indirect liabilities, losses or costs
(including attorneys fees) arising from, related to or otherwise connected
with any breach by FSS of any provision of this Agreement.
(d) The agreement of the parties in this Paragraph to indemnify each other is
conditioned upon the party entitled to indemnification (Indemnified Party)
giving notice to the party required to provide indemnification (Indemnifying
Party) promptly after the summons or other first legal process for any claim
as to which indemnity may be sought is served on the Indemnified Party. The
Indemnified Party shall permit the Indemnifying Party to assume the defense
of any such claim or any litigation resulting from it, provided that counsel
for the Indemnifying Party who shall conduct the defense of such claim or
litigation shall be approved by the Indemnified Party (which approval shall
not unreasonably be withheld), and that the Indemnified Party may
participate in such defense at its expense. The failure of the Indemnified
Party to give notice as provided in this subparagraph (c) shall not relieve
the Indemnifying Party from any liability other than its indemnity
obligation under this Paragraph. No Indemnifying Party, in the defense of
any such claim or litigation, shall, without the consent of the Indemnified
Party, consent to entry of any judgment or enter into any settlement that
does not include as an unconditional term the giving by the claimant or
plaintiff to the Indemnified Party of a release from all liability in
respect to such claim or litigation.
(e) The provisions of this Paragraph 13 shall survive the termination of this
Agreement. 14. CUSTOMER NAMES PROPRIETARY TO FINANCIAL INSTITUTION.

(a) The names of Financial Institution's customers are and shall remain
Financial Institution's sole property and shall not be used by FSC, FSS, or
their affiliates for any purpose except the performance of their respective
duties and responsibilities under this Agreement and except for servicing
and informational mailings relating to the Funds. Notwithstanding the
foregoing, this Paragraph 14 shall not prohibit FSC, FSS, or any of their
affiliates from utilizing the names of Financial Institution's customers for
any purpose if the names are obtained in any manner other than from
Financial Institution pursuant to this Agreement.
(b) Neither party shall use the name of the other party in any manner without
the other party's written consent, except as required by any applicable
federal or state law, rule or regulation, and except pursuant to any
mutually agreed upon promotional programs.
(c) The provisions of this Paragraph 14 shall survive the termination of this
Agreement. 15. SECURITY AGAINST UNAUTHORIZED USE OF FUNDS' RECORDKEEPING
SYSTEMS.

Financial Institution agrees to provide such security as is necessary to
prevent any unauthorized use of the Funds' recordkeeping system, accessed via
any computer hardware or software provided to Financial Institution by FSC or
FSS.
16. SOLICITATION OF PROXIES.

Financial Institution agrees not to solicit or cause to be solicited
directly, or indirectly, at any time in the future, any proxies from the
shareholders of any or all of the Funds in opposition to proxies solicited by
management of the Fund or Funds, unless a court of competent jurisdiction shall
have determined that the conduct of a majority of the Board of Directors or
Trustees of the Fund or Funds constitutes willful misfeasance, bad faith, gross
negligence or reckless disregard of their duties. This Paragraph 16 will survive
the term of this Agreement.
17. CERTIFICATION OF CUSTOMERS' TAXPAYER IDENTIFICATION NUMBERS.

Financial Institution agrees to obtain any taxpayer identification number
certification from its customers required under Section 3406 of the Internal
Revenue Code, and any applicable Treasury regulations, and to provide FSC, FSS,
or their respective designee with timely written notice of any failure to obtain
such taxpayer identification number certification in order to enable the
implementation of any required backup withholding.
18. NOTICES.

Except as otherwise specifically provided in this Agreement, all notices
required or permitted to be given pursuant to this Agreement shall be given in
writing and delivered by personal delivery or by postage prepaid, registered or
certified United States first class mail, return receipt requested, overnight
courier services, or by facsimile or similar electronic means of delivery (with
a confirming copy by mail as provided herein). Unless otherwise notified in
writing, all notices to FSC or FSS shall be given or sent to FSC or FSS at their
offices located at Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779, and all notices to Financial Institution shall be given or sent to
it at its address shown below.
19. TERMINATION AND AMENDMENT.

(a) This Agreement shall become effective in this form as of the date set forth
below or as of the first date thereafter upon which Financial Institution
executes any transaction, performs any service, or receives any payment
pursuant hereto. This Agreement supersedes any prior sales, distribution,
shareholder service, or administrative service agreements between the
parties.
(b) With respect to each Fund, this Agreement shall continue in effect for one
year from the date of its execution, and thereafter for successive periods
of one year if the form of this Agreement is approved at least annually by
the Directors or Trustees of the Fund, including a majority of the members
of the Board of Directors or Trustees of the Fund who are not interested
persons of the Fund and have no direct or indirect financial interest in the
operation of the Fund's Distribution Plan or in any related documents to
such Plan ("Independent Directors or Trustees") cast in person at a meeting
called for that purpose.
(c) This Agreement, including Exhibit A hereto, may be amended by FSC and/or FSS
from time to time by the following procedure. FSC or FSS will mail a copy of
the amendment to Financial Institution's address, as shown below. If
Financial Institution does not object to the amendment within thirty (30)
days after its receipt, the amendment will become part of the Agreement.
Financial Institution's objection must be in writing and be received by FSC
or FSS within such thirty days.
(d) Notwithstanding subparagraph 19(b) and in addition to subparagraph 1(a),
this Agreement may be terminated as follows:
(i) at any time, without the payment of any penalty, by the vote of a
majority of the Independent Directors or Trustees of the Fund or by a
vote of a majority of the outstanding voting securities of the Fund as
defined in the Investment Company Act of 1940 on not more than sixty
(60) days' written notice to the parties to this Agreement;
(ii) automatically in the event of the Agreement's assignment as defined in
the Investment Company Act of 1940, upon the termination of the
"Distributor's Contract" between the Fund and FSC, upon termination of
the "Shareholder Services Agreement" between the Fund and FSS, or upon
the termination of the Distribution Plan to which this Agreement is
related; and
(iii) by any party to the Agreement without cause by giving the other party
at least sixty (60) days' written notice of its intention to terminate. (e) The
termination of this Agreement with respect to any one Fund will not cause the
Agreement's termination with respect to any other Fund.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]

<PAGE>

20. GOVERNING LAW.

This Agreement shall be construed in accordance with the laws of the
Commonwealth of Pennsylvania.

FEDERATED SECURITIES CORP.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

By: /S/ BYRON F. BOWMAN Date: MARCH 10, 1998
--------------------------------- ----------------
Name: Byron F. Bowman
Title: Vice President

FEDERATED SHAREHOLDER SERVICES
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

By: /S/ BYRON F. BOWMAN Date: MARCH 10, 1998
--------------------------------- ----------------
Name: Byron F. Bowman
Title: Vice President

HIBERNIA INVESTMENT SECURITIES, INC.
Financial Institution Name
(Please Print or Type)
P.O. BOX 61540
Address
NEW ORLEANS, LA 70161
City State Zip Code

By: /S/ ANTHONY P. PSILOS _
Authorized Signature
Title: PRESIDENT
Name: ANTHONY P. PSILOS
Dated: MAY 21, 1998

<PAGE>

EXHIBIT A TO MUTUAL FUND SALES AND SERVICE AGREEMENT

TOWER MUTUAL FUNDS

Tower Capital Appreciation Fund ("TCAF")
Class A Shares October 14, 1988
Class B Shares November 28, 1996
Tower Cash Reserve Fund ("TCRF")
Class A SharesOctober 14, 1988
Class B SharesMarch 10, 1998
Tower Louisiana Municipal Income Fund ("TLMIF") October 14, 1988
Tower U.S. Government Income Fund ("TUSGIF") October 14, 1988
Tower Total Return Bond Fund ("TTRBF") September 15, 1992
Tower U.S. Treasury Money Market Fund ("TUSTMMF") June 01, 1993
Tower Mid-Cap Equity Fund ("TMCEF")
Class A SharesMarch 10, 1998
Class B SharesMarch 10, 1998

Initial Sales Loads, Advance Commissions, CDSCs, Asset-Based Sales Loads,
Shareholder Service Fees, Supplemental Payments (in each case, if applicable)
shall be paid in the amounts set forth in the Tower Funds' current prospectus.

Exhibit 6(v) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K

MUTUAL FUNDS
SALES AND SERVICE
AGREEMENT

Financial Institution represents and warrants to FSC and FSS:

<PAGE>

The parties agree that in each transaction in the Shares of any Fund and
with regard to any services rendered pursuant to this Agreement: (a)
Financial Institution is acting as agent for the customer; (b) each transaction
is initiated solely upon the order of the customer; (c) as between
Financial Institution and its customer, the customer will have full beneficial
ownership of all Shares of the Funds; (d) each transaction shall be for
the account of the customer and not for Financial Institution's account; and
(e) each transaction shall be without recourse to Financial Institution
provided that Financial Institution acts in accordance with the terms of this
Agreement. Financial Institution shall not have any authority in any transaction
to act as FSC's agent or as agent for the Funds.
B. SALES OF FUND SHARES.

3. EXECUTION OF ORDERS FOR PURCHASE AND REDEMPTION OF SHARES.

During the term of this Agreement, FSC will pay Financial Institution
asset-based sales charges (also known as "Rule 12b-1 Fees") for each Fund as set
forth in Exhibit A to this Agreement (or, if more recently published, the Fund's
current prospectus). For the payment period in which this Agreement becomes
effective or terminates, there shall be an appropriate proration of the fee on
the basis of the number of days that this Agreement is in effect during the
quarter. D. SHAREHOLDER SERVICES.

8. AGREEMENT TO PROVIDE SHAREHOLDER AND ACCOUNT MAINTENANCE SERVICES.

10. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTION.

11. DELIVERY OF PROSPECTUSES TO CUSTOMERS.

(a) Financial Institution shall indemnify and hold harmless FSC, FSS, each Fund,
the transfer agents of the Funds, and their respective subsidiaries,
affiliates, officers, directors, agents and employees from all direct or
indirect liabilities, losses or costs (including attorneys fees) arising
from, related to or otherwise connected with: (1) any breach by Financial
Institution of any provision of this Agreement; or (2) any actions or
omissions of FSC, FSS, any Fund, the transfer agents of the Funds, and their
subsidiaries, affiliates, officers, directors, agents and employees in
reliance upon any oral, written or computer or electronically transmitted
instructions reasonably believed to be genuine and to have been given by or
on behalf of Financial Institution.
(b) FSC shall indemnify and hold harmless Financial Institution and its
subsidiaries, affiliates, officers, directors, agents and employees from and
against any and all direct or indirect liabilities, losses or costs
(including attorneys fees) arising from, related to or otherwise connected
with: (1) any breach by FSC of any provision of this Agreement; or (2) any
alleged untrue statement of a material fact contained in any Fund's
Registration Statement or Prospectus, or as a result of or based upon any
alleged omission to state a material fact required to be stated therein or
necessary to make the statements contained therein not misleading.
(c) FSS shall indemnify and hold harmless Financial Institution and its
subsidiaries, affiliates, officers, directors, agents and employees from and
against any and all direct or indirect liabilities, losses or costs
(including attorneys fees) arising from, related to or otherwise connected
with any breach by FSS of any provision of this Agreement.
(d) The agreement of the parties in this Paragraph to indemnify each other is
conditioned upon the party entitled to indemnification (Indemnified Party)
giving notice to the party required to provide indemnification (Indemnifying
Party) promptly after the summons or other first legal process for any claim
as to which indemnity may be sought is served on the Indemnified Party. The
Indemnified Party shall permit the Indemnifying Party to assume the defense
of any such claim or any litigation resulting from it, provided that counsel
for the Indemnifying Party who shall conduct the defense of such claim or
litigation shall be approved by the Indemnified Party (which approval shall
not unreasonably be withheld), and that the Indemnified Party may
participate in such defense at its expense. The failure of the Indemnified
Party to give notice as provided in this subparagraph (c) shall not relieve
the Indemnifying Party from any liability other than its indemnity
obligation under this Paragraph. No Indemnifying Party, in the defense of
any such claim or litigation, shall, without the consent of the Indemnified
Party, consent to entry of any judgment or enter into any settlement that
does not include as an unconditional term the giving by the claimant or
plaintiff to the Indemnified Party of a release from all liability in
respect to such claim or litigation.
(e) The provisions of this Paragraph 13 shall survive the termination of this
Agreement. 14. CUSTOMER NAMES PROPRIETARY TO FINANCIAL INSTITUTION.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]

<PAGE>

20. GOVERNING LAW.

This Agreement shall be construed in accordance with the laws of the
Commonwealth of Pennsylvania.

FEDERATED SECURITIES CORP.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

By: /S/ BYRON F. BOWMAN Date: MARCH 10, 1998
--------------------------------- ----------------
Name: Byron F. Bowman
Title: Vice President

FEDERATED SHAREHOLDER SERVICES
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

By: /S/ BYRON F. BOWMAN Date: MARCH 10, 1998
--------------------------------- ----------------
Name: Byron F. Bowman
Title: Vice President

HIBERNIA NATIONAL BANK
Financial Institution Name
(Please Print or Type)
313 CARONDELET STREET
Address
NEW ORLEANS, LA 70130
City State Zip Code

By: /S/ JAMES C. MCELROY _
Authorized Signature
Title: SR. VICE PRESIDENT - C.I.O.
Name: JAMES C. MCELROY
Dated: JUNE 5, 1998

<PAGE>

EXHIBIT A TO MUTUAL FUND SALES AND SERVICE AGREEMENT

TOWER MUTUAL FUNDS

ADMINISTRATIVE SUPPORT AND DISTRIBUTOR'S CONTRACT

AGREEMENT made this 1st day of August, 1989, by and between Tower Mutual
Funds (the "Trust"), a Massachusetts business trust, on behalf of the portfolios
(the "Funds") of the Trust set forth in Exhibit A hereto, and FEDERATED
SECURITIES CORP. ("FSC"), a Pennsylvania Corporation.

In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:

1. The Trust hereby appoints FSC to act as Distributor of the shares
("Shares") and to select a group of brokers ("Brokers") to sell Shares, at the
current offering price thereof as described and set forth in the prospectus of
the each Fund, and to render administrative support services to the Funds and
its shareholders. In addition, the Trust hereby appoints FSC to select a group
of Administrators ("Administrators") to render administrative support services
to the Funds and its shareholders.

2. Administrative support services may include, but are not limited to,
the following eleven functions: (1) account openings: the Broker or
Administrator communicates account openings via computer terminals located on
the Broker or Administrator's premises; 2) account closings: the Broker or
Administrator communicates account closings via computer terminals; 3) enter
purchase transactions: purchase transactions are entered through the Broker or
Administrator's own personal computer or through the use of a toll-free
telephone number; 4) enter redemption transactions: Broker or Administrator
enters redemption transactions in the same manner as purchases; 5) account
maintenance: Broker or Administrator provides or arranges to provide accounting
support for all transactions. Broker or Administrator also wires funds and
receives funds for Fund share purchases and redemptions, confirms and reconciles
all transactions, reviews the activity in the Funds accounts, and provides
training and supervision of its personnel; 6) interest posting: Broker or
Administrator posts and reinvests dividends to the Funds accounts; 7) prospectus
and shareholder reports: Broker or Administrator maintains and distributes
current copies of prospectuses and shareholder reports; 8) advertisements: the
Broker or Administrator continuously advertises the availability of its services
and products; 9) customer lists: the Broker or Administrator continuously
provides names of potential customers; 10) design services: the Broker or
Administrator continuously designs material to send to customers and develops
methods of making such materials accessible to customers; and 11) consultation
services: the Broker or Administrator continuously provides information about
the product needs of customers.

3. FSC accepts such appointment and will enter into separate written
agreements with various firms to provide the services set forth in Paragraph 1
herein. The Funds will pay FSC a monthly fee computed at the annual rate of up
to .25% of the average aggregate net asset value of the shares held in the Funds
during the month. Subject to the limitation set forth in the preceding sentence,
such fee shall be in an amount equal to the aggregate amount of periodic fees
paid by FSC to Brokers and Administrators pursuant to Paragraph 4 herein.

4. FSC, in its sole discretion, may pay Brokers and Administrators a
periodic fee in respect of Shares of the Funds owned from time to time by their
clients or customers. The schedules of such fees and the basis upon which such
fees will be paid shall be determined from time to time by the Trust's Board of
Trustees.

5. FSC will prepare reports to the Board of Trustees of the Trust on a
quarterly basis showing amounts paid to the various firms and the purpose for
such payments.

6. The sale of Shares may be suspended without prior notice whenever in the
judgment of the Trust it is in its best interest to do so.

7. Neither FSC nor any other person is authorized by the Trust to give any
information or to make any representation relative to the Shares other than
those contained in the Registration Statement or Prospectus filed with the
Securities and Exchange Commission as the same may be amended from time to time
or in any supplemental information to said Prospectus approved by the Fund. FSC
agrees that any other information or representations other than those specified
above which it or any dealer or other person who purchases Shares through FSC
may make in connection with the offer or sale of Shares, shall be made entirely
without liability on the part of the Trust or Funds. FSC agrees that in offering
or selling Shares as agent of the Funds, it will, in all respects, duly conform
to all applicable State and Federal laws and the rules and regulations of the
National Association of Securities Dealers, Inc., including its Rules of Fair
Practice. FSC will submit to the Trust copies of all sales literature before
using the same and will not use such sales literature if disapproved by the
Trust.

8. This Agreement shall continue in effect for one year from the date of
its execution and thereafter for successive periods of one year if such
continuance is approved at least annually by the Trustees of the Trust including
a majority of the members of the Board of Trustees of the Trust who are not
interested persons of the Trust and have no direct or indirect financial
interest in the operation of the Plan or in any related documents to the Plan
("Disinterested Trustees") cast in person at a meeting for that purpose.

9. This Agreement may be terminated at any time, without the payment of
any penalty by the vote of a majority of the Disinterested Trustees or by a
majority of the outstanding voting securities of the particular Fund on not more
than sixty (60) days' written notice to any other party to this Agreement. This
Agreement may be terminated by FSC on sixty (60) days' written notice to the
particular Fund.

10. This Agreement may not be assigned by FSC and shall automatically
terminate in the event of an assignment by FSC as defined in the Investment
Company Act of 1940, provided, however, that FSC may employ such other person,
persons, corporation or corporations as it shall determine in order to assist it
in carrying out its duties under this Agreement.

11. FSC shall not be liable to the Trust or to any of the Funds or to any
shareholder of the Funds for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed by this Agreement.

12. This Agreement may be amended at any time by mutual agreement in
writing of all the parties hereto, provided that such amendment is approved by
the Trustees of the Trust including a majority of the Disinterested Trustees of
the Trust cast in person at a meeting called for that purpose, and provided
further, that in the event any amendment materially increases the fees set forth
in Paragraph 3, such amendment is also approved by a vote of a majority of the
outstanding voting securities of the particular Fund.

13. This Agreement shall be construed in accordance with and governed by
the laws of the Commonwealth of Pennsylvania.

14. (a) Subject to the conditions set forth below, the Trust agrees to
indemnify and hold harmless FSC and each person, if any, who controls FSC within
the meaning of Section 15 of the Securities Act of 1933 and Section 20 of the
Securities Act of 1934, as amended, against any and all loss, liability, claim,
damage and expense whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever) arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or the Prospectus (as from time to
time amended and supplemented) or the omission or alleged omission therefrom of
a material fact required to be stated therein or necessary to make the
statements therein not misleading, unless such statement or omission was made in
reliance upon and in conformity with written information furnished to the Trust
with respect to FSC by or on behalf of FSC expressly for use in the Registration
Statement or Prospectus, or any amendment or supplement thereof.

If any action is brought against FSC or any controlling person thereof in
respect of which indemnity may be sought against the Trust pursuant to the
foregoing paragraph, FSC shall promptly notify the Trust in writing of the
institution of such action and the Trust shall assume the defense of such
action, including the employment of counsel selected by the Fund and payment of
expenses. FSC or any such controlling person thereof shall have the right to
employ separate counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of FSC or such controlling person unless the
employment of such counsel shall have been authorized in writing by the Trust in
connection with the defense of such action or the Trust shall not have employed
counsel to have charge of the defense of such action, in any of which events
such fees and expenses shall be borne by the Trust and allocated to the Funds,
as appropriate. Anything in this paragraph to the contrary notwithstanding, the
Trust or any of the Funds shall not be liable for any settlement of any such
claim of action effected without its written consent. The Trust agrees promptly
to notify FSC of the commencement of any litigation or proceedings against the
Trust or any of its Funds or any of its Officers or Trustees or controlling
persons in connection with the issue and sale of Shares or in connection with
such Registration Statement or Prospectus.

(b) FSC agrees to indemnify and hold harmless the Trust, each of the
Funds, each of its Trustees, each of its Officers who have signed the
Registration Statement and each other person, if any, who controls the Trust
within the meaning of Section 15 of the Securities Act of 1933, but only with
respect to statements or omissions, if any, made in the Registration Statement
or Prospectus or any amendment or supplement thereof in reliance upon, and in
conformity with, information furnished to the Trust with respect to FSC by or on
behalf of FSC expressly for use in the Registration Statement or Prospectus or
any amendment or supplement thereof. In case any action shall be brought against
the Trust or any of the Funds or any other person so indemnified based on the
Registration Statement or Prospectus, or any amendment or supplement thereof,
and in respect of which indemnity may be sought against FSC, FSC shall have the
rights and duties given to the Trust, and the Trust and each other person so
indemnified shall have the rights and duties given to FSC by the provisions of
subsection (a) above.

(c) Nothing herein contained shall be deemed to protect any person against
liability to the Trust or any of the Funds or its shareholders to which such
person would otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of the duties of such person or by reason of
the reckless disregard by such person of the obligations and duties of such
person under this Agreement.

(d) Insofar as indemnification for liabilities may be permitted pursuant
to Section 17 of the Investment Company Act of 1940 for Directors, Officers, FSC
and controlling persons of the Trust by the Trust pursuant to this Agreement,
the Trust is aware of the position of the Securities and Exchange Commission as
set forth in the Investment Company Act Release No. IC-11330. Therefore, the
Trust undertakes that in addition to complying with the applicable provisions of
this Agreement, in the absence of a final decision on the merits by a court or
other body before which the proceeding was brought, that an indemnification
payment will not be made unless in the absence of such a decision, a reasonable
determination based upon factual review has been made (i) by a majority vote of
a quorum of non-party directors who are not interested persons of the Trust, or
(ii) by independent legal counsel in a written opinion that the indemnitee was
not liable for an act of willful misfeasance, bad faith, gross negligence or
reckless disregard of duties. The Trust further undertakes that advancement of
expenses incurred in the defense of a proceeding (upon undertaking for repayment
unless it is ultimately determined that indemnification is appropriate) against
an Officer, Trustee, FSC or controlling person of the Trust will not be made
absent the fulfillment of at least one of the following conditions: (i) the
indemnitee provides security for his undertaking; (ii) the Trust is insured
against losses arising by reason of any lawful advances; or (iii) a majority of
a quorum of disinterested non-party directors or independent legal counsel in a
written opinion makes a factual determination that there is reason to believe
the indemnitee will be entitled to indemnification.

15. FSC is hereby expressly put on notice of the limitation of liability
as set forth in Article XI of the Declaration of Trust and agrees that the
obligations assumed by the Trust pursuant to this agreement shall be limited in
any case to the Trust and its assets and FSC shall not seek satisfaction of any
such obligation from the shareholders of the Trust, the Trustees, officers,
employees or agents of the Trust, or any of them.

IN WITNESS WHEREOF, this Agreement has been executed for FSC and the Trust
and their respective seals affixed hereto by their duly authorized officers,
hereto this 1st day of August, 1989.

ATTEST: TOWER MUTUAL FUNDS

/S/ BYRON F. BOWMAN By:/S/ J. CHRISTOPHER DONAHUE
Secretary President
(SEAL)

ATTEST: FEDERATED SECURITIES CORP.

/S/ S. ELLIOTT COHAN By:/S/ RICHARD B. FISHER
Secretary President
(SEAL)

<PAGE>

Exhibit A

PORTFOLIOS OF TOWER MUTUAL FUNDS

Tower Mutual Funds (the "Trust") consists of the following portfolios (the
"Funds") effective as of the dates set forth below:

NAME DATE

Tower Capital Appreciation Fund October 14, 1988

Tower U.S. Government Income Fund October 14, 1988

Tower Louisiana Municipal Income Fund October 14, 1988

Tower Cash Reserve Fund October 14, 1988

<PAGE>

Amendment No. 1 to

Exhibit A

PORTFOLIOS OF TOWER MUTUAL FUNDS

Tower Mutual Funds (the "Trust") consists of the following portfolios (the
"Funds") effective as of the dates set forth below:

NAME DATE

Tower Capital Appreciation Fund October 14, 1988

Tower U.S. Government Income Fund October 14, 1988

Tower Louisiana Municipal Income Fund October 14, 1988

Tower Cash Reserve Fund October 14, 1988

Tower Total Return Bond Fund September 15, 1992

<PAGE>

Amendment No. 2 to

Exhibit A

PORTFOLIOS OF TOWER MUTUAL FUNDS

Tower Mutual Funds (the "Trust") consists of the following portfolios (the
"Funds") effective as of the dates set forth below:

NAME DATE

Tower Capital Appreciation Fund October 14, 1988

Tower U.S. Government Income Fund October 14, 1988

Tower Louisiana Municipal Income Fund October 14, 1988

Tower Cash Reserve Fund October 14, 1988

Tower Total Return Bond Fund September 15, 1992

Tower U.S. Treasury Money Market Fund June 01, 1993

<PAGE>

Amendment No. 3 to

Exhibit A of the
Administrative Support and Distributor's Contract

TOWER MUTUAL FUNDS

Tower Mutual Funds consists of the following, effective as of the dates
set forth below:

Tower Capital Appreciation Fund - Class A Shares* October 14, 1988

Tower Capital Appreciation Fund - Class B Shares November 28, 1996

Tower Cash Reseerve Fund October 14, 1988

Tower Louisiana Municipal Income Fund October 14, 1988

Tower U.S. Government Income Fund October 14, 1988

Tower Total Return Bond Fund September 15, 1992

Tower U.S. Treasury Money Market Fund June 1, 1993

*Existing shares were redesignated as Class A Shares on September 11, 1996

<PAGE>

Amendment No. 4 to

Exhibit A of the
Administrative Support and Distributor's Contract

TOWER MUTUAL FUNDS

Tower Mutual Funds consists of the following, effective as of the dates
set forth below:

Tower Capital Appreciation Fund - Class A Shares October 14, 1988

Tower Capital Appreciation Fund - Class B Shares November 28, 1996

Tower Cash Reserve Fund - Class A Shares* October 14, 1988

Tower Cash Reserve Fund - Class B Shares March 10, 1998

Tower Louisiana Municipal Income Fund October 14, 1988

Tower Mid-Cap Equity Fund - Class A Shares March 10, 1998

Tower Mid-Cap Equity Fund - Class B Shares March 10, 1998

Tower U.S. Government Income Fund October 14, 1988

Tower Total Return Bond Fund September 15, 1992

Tower U.S. Treasury Money Market Fund June 1, 1993

*Existing shares were redesignated as Class A Shares on March 10, 1998

<PAGE>

Amendment No. 1
dated September 11, 1996

Administrative Support and Distributor's Contract

The second sentence of Paragraph 3 of the Administrative Support and
Distributor's Contract, dated August 1, 1989, between Tower Mutual Funds and
Federated Securities Corp. is hereby deleted and replaced with the following:

"The Funds will pay FSC a monthly fee computed at an annual rate as set forth
on Exhibit B of this Agreement."

ATTEST: TOWER MUTUAL FUNDS

/S/ PETER J. GERMAIN By: /S/ EDWARD C. GONZALES
Secretary President

FEDERATED SECURITIES CORP.

/S/ BYRON F. BOWMAN By: RICHARD B. FISHER
Secretary President

<PAGE>

Exhibit B

Administrative Support and Distributor's Contract

Tower Mutual Funds
Tower Capital Appreciation Fund
Class A Shares
Tower U.S. Government Income Fund
Tower Louisiana Municipal Income Fund
Tower Cash Reserves Fund
Tower Total Return Fund
Tower U.S. Treasury Money Market Fund

In compensation for the services provided pursuant to this Agreement, FSC will
be paid a monthly fee computed at an annual rate of 0.25 of 1% of the average
aggregate net asset value of the above-named fund or class held during the
month.

Tower Capital Appreciation Fund
Class B Shares

In compensation for the services provided pursuant to this Agreement, FSC will
be paid a monthly fee computed at an annual rate of 0.75 of 1% of the average
aggregate net asset value of the above-named class of shares held during the
month.

<PAGE>

Exhibit 6(vi) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K

Amendment #1
to Exhibit B
to
Administrative Support and Distributor's Contract

TOWER MUTUAL FUNDS
Tower Capital Appreciation Fund
Class A Shares
Tower Cash Reserves Fund
Class A Shares
Tower Louisiana Municipal Income Fund
Tower Mid-Cap Equity Fund
Class A Shares
Tower Total Return Fund
Tower U.S. Government Income Fund
Tower U.S. Treasury Money Market Fund

Tower Capital Appreciation Fund
Class B Shares
Tower Cash Reserve Fund
Class B Shares
Tower Mid-Cap Equity Fund
Class B Shares

Dated: March 10, 1998

Exhibit 11 under Form N-1A
Exhibit 23 under Item 601/Reg S-K

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Financial Highlights"
in Post-Effective Amendment Number 22 to the Registration Statement (Form N-1A
No. 33-21321) and the related Prospectus of Hibernia Funds (comprising
respectively, Hibernia Capital Appreciation Fund, Hibernia Louisiana Municipal
Income Fund, Hibernia Mid Cap Equity Fund, Hibernia Total Return Bond Fund,
Hibernia U.S. Government Income Fund, Hibernia Cash Reserve Fund and Hibernia
U.S. Treasury Money Market Fund) dated October 31, 1998 and to the incorporation
by reference therein of our report dated October 14, 1998 on the financial
statements and financial highlights of Hibernia Funds (previously Tower Mutual
Funds) included in its Annual Report to Shareholders for the year ended August
31, 1998.

/s/ Ernst & Young LLP
Ernst & Young LLP

Pittsburgh, Pennsylvania
October 27, 1998

TOWER MUTUAL FUNDS
MULTIPLE CLASS PLAN

This Multiple Class Plan (the "Plan") is adopted by Tower Mutual Funds
(the "Trust"), a Massachusetts Business Trust, with respect to the
classes of shares (the "Classes") of the portfolio of the Trust (the
"Funds") set forth in exhibits hereto.

1. PURPOSE

This Plan is adopted pursuant to Rule 18f-3 under the Investment Company
Act of 1940, as amended (the "Rule"), so as to allow the Trust to issue
more than one class of shares of any or all of the Funds in reliance on
the Rule and to make payments as contemplated herein.

2. SEPARATE ARRANGEMENTS / CLASS DIFFERENCES

(a) DESIGNATION OF CLASSES: The Funds set forth on Amendments to Exhibit
A offer two classes of shares: Class A Shares and Class B Shares.

(b) EXPENSES: The only expenses allocated to Class B Shares as a class
are the expenses incurred under the distribution plan adopted pursuant
to Rule 12b-1 and shareholder service fees.

(c) DISTRIBUTION OF SHARES: Class A and B Shares may be purchased
through Hibernia National Bank, Hibernia Investment Securities, Inc. or
through other service organizations (as defined in the applicable
prospectus), as well as from the distributor.

(d) VOTING RIGHTS: Shareholders of each class are entitled to one vote
for each share held on the record date for any action requiring a vote
by the shareholders and a proportionate fractional vote for each
fractional share held. Shareholders of the Trust will vote in the
aggregate and not by Fund or class except (i) as otherwise expressly
required by law or when the Trustees determine that the matter to be
voted upon affects only the interests of the shareholders of a
particular Fund or class, and (ii) only holders of Class B Shares will
be entitled to vote on matters submitted to shareholder vote with
respect to the Rule 12b-1 Plan applicable to such class.

3. EXPENSE ALLOCATIONS

The expenses incurred pursuant to the Rule 12b-1 Plan and Shareholder
Services will be borne solely by the Class B Shares of the applicable
Fund, and constitute the only expenses allocated to one class and not
the other.

4. EXCHANGE FEATURES

Shareholders of Class A Shares and Class B Shares may exchange such
shares in any Tower Mutual Fund for the same class of shares in any
other Tower Mutual Fund offering such class provided the fund does not
assess a sales charge. Exchanges will be made on the respective net
asset value of the shares being exchanged as next determined after
receipt of the request in good order.

5. CONVERSION FEATURE

Shares of Class B Shares will convert to Class A Shares after such Class
B Shares have been outstanding for a period of eight years. Such
conversion will occur on the basis of the relative net asset value of
the two classes without the imposition of any sales load or other
charge.

6. EFFECTIVENESS

This Plan shall become effective with respect to each Class, (i) to the
extent required by the Rule, after approval by a majority vote of: (a)
the Trust's Board of Trustees; (b) the members of the Board of the Trust
who are not interested persons of the Trust and have no direct or
indirect financial interest in the operation of the Trust's Plan ,
and/or (ii) upon execution of an exhibit adopting the Plan with respect
to such class.

<PAGE>

EXHIBIT A
to the
Multiple Class Plan
TOWER MUTUAL FUNDS
TOWER CAPITAL APPRECIATION FUND
CLASS A SHARES
CLASS B SHARES

This Multiple Class Plan is adopted by TOWER MUTUAL FUNDS with respect to
the Class(es) of Shares of the portfolios of TOWER MUTUAL FUNDS set forth above.

Witness the due execution here of this October 1, 1996.

TOWER MUTUAL FUNDS

By: /S/E.C. GONZALES
Title: PRESIDENT
Date:OCTOBER 1, 1996

<PAGE>

Exhibit 18(ii) under Form N-1A
Exhibit 99 under Item 601/Reg. S-K

EXHIBIT B
to the
Multiple Class Plan
TOWER MUTUAL FUNDS
TOWER CASH RESERVE FUND
CLASS A SHARES
CLASS B SHARES
TOWER MID-CAP EQUITY FUND
CLASS A SHARES
CLASS B SHARES

This Multiple Class Plan is adopted by Tower Mutual Funds with respect to
the Class(es) of Shares of the portfolios of Tower Mutual Funds set forth above.

Witness the due execution here of this 10th day of March, 1998.

Tower Mutual Funds

By:./s/ JEFFREY W. STERLING
Name: Jeffrey W. Sterling
Title: Vice President

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> Tower Mutual Funds
Tower Capital Appreciation Fund
Class A Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1998
<PERIOD-END> Aug-31-1998
<INVESTMENTS-AT-COST> 221,946,588
<INVESTMENTS-AT-VALUE> 290,021,534
<RECEIVABLES> 760,502
<ASSETS-OTHER> 114,524
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 290,896,570
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 279,071
<TOTAL-LIABILITIES> 279,071
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 185,668,737
<SHARES-COMMON-STOCK> 13,236,570
<SHARES-COMMON-PRIOR> 12,648,630
<ACCUMULATED-NII-CURRENT> 22,270
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 36,851,536
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 68,074,946
<NET-ASSETS> 279,777,713
<DIVIDEND-INCOME> 4,772,233
<INTEREST-INCOME> 172,095
<OTHER-INCOME> 0
<EXPENSES-NET> 3,976,620
<NET-INVESTMENT-INCOME> 967,708
<REALIZED-GAINS-CURRENT> 41,697,078
<APPREC-INCREASE-CURRENT> (27,300,391)
<NET-CHANGE-FROM-OPS> 15,364,395
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 935,011
<DISTRIBUTIONS-OF-GAINS> 30,066,368
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,944,199
<NUMBER-OF-SHARES-REDEEMED>2,499,674
<SHARES-REINVESTED> 1,143,415
<NET-CHANGE-IN-ASSETS> 2,942,963
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 25,830,431
<OVERDISTRIB-NII-PRIOR> (10,427)
<OVERDIST-NET-GAINS-PRIOR>0
<GROSS-ADVISORY-FEES> 2,417,253
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,976,620
<AVERAGE-NET-ASSETS> 317,070,142
<PER-SHARE-NAV-BEGIN> 22.380
<PER-SHARE-NII> 0.080
<PER-SHARE-GAIN-APPREC> 1.090
<PER-SHARE-DIVIDEND> 0.070
<PER-SHARE-DISTRIBUTIONS> 2.340
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 21.140
<EXPENSE-RATIO> 1.21
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> Tower Mutual Funds
Tower Capital Appreciation Fund
Class B Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1998
<PERIOD-END> Aug-31-1998
<INVESTMENTS-AT-COST> 221,946,588
<INVESTMENTS-AT-VALUE> 290,021,534
<RECEIVABLES> 760,502
<ASSETS-OTHER> 114,524
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 290,896,570
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 279,071
<TOTAL-LIABILITIES> 279,071
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 185,668,737
<SHARES-COMMON-STOCK> 516,474
<SHARES-COMMON-PRIOR> 207,623
<ACCUMULATED-NII-CURRENT> 22,270
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 36,851,536
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 68,074,946
<NET-ASSETS> 10,839,776
<DIVIDEND-INCOME> 4,772,233
<INTEREST-INCOME> 172,095
<OTHER-INCOME> 0
<EXPENSES-NET> 3,976,620
<NET-INVESTMENT-INCOME> 967,708
<REALIZED-GAINS-CURRENT> 41,697,078
<APPREC-INCREASE-CURRENT> (27,300,391)
<NET-CHANGE-FROM-OPS> 15,364,395
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 609,605
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 311,166
<NUMBER-OF-SHARES-REDEEMED>30,789
<SHARES-REINVESTED> 28,474
<NET-CHANGE-IN-ASSETS> 2,942,963
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 25,830,431
<OVERDISTRIB-NII-PRIOR> (10,427)
<OVERDIST-NET-GAINS-PRIOR>0
<GROSS-ADVISORY-FEES> 2,417,253
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,976,620
<AVERAGE-NET-ASSETS> 317,070,142
<PER-SHARE-NAV-BEGIN> 22.320
<PER-SHARE-NII> (0.060)
<PER-SHARE-GAIN-APPREC> 1.070
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 2.340
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 20.990
<EXPENSE-RATIO> 1.96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> Tower Mutual Funds
Tower Cash Reserve Fund

<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1998
<PERIOD-END> Aug-31-1998
<INVESTMENTS-AT-COST> 149,493,187
<INVESTMENTS-AT-VALUE> 149,493,187
<RECEIVABLES> 7,205,579
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 156,698,766
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,479,417
<TOTAL-LIABILITIES> 7,479,417
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 149,219,349
<SHARES-COMMON-STOCK> 149,219,349
<SHARES-COMMON-PRIOR> 150,377,368
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 149,219,349
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,232,687
<OTHER-INCOME> 0
<EXPENSES-NET> 1,472,134
<NET-INVESTMENT-INCOME> 7,760,553
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,760,553
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,760,553
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 506,085,291
<NUMBER-OF-SHARES-REDEEMED>509,140,899
<SHARES-REINVESTED> 1,897,589
<NET-CHANGE-IN-ASSETS> (1,158,019)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR>0
<GROSS-ADVISORY-FEES> 658,507
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,472,134
<AVERAGE-NET-ASSETS> 164,584,799
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.050
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> Tower Mutual Funds
Tower Louisiana Municipal Income
Fund

<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1998
<PERIOD-END> Aug-31-1998
<INVESTMENTS-AT-COST> 92,276,897
<INVESTMENTS-AT-VALUE> 98,982,186
<RECEIVABLES> 1,349,287
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 100,331,473
<PAYABLE-FOR-SECURITIES> 1,206,065
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 414,150
<TOTAL-LIABILITIES> 1,620,215
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 91,401,291
<SHARES-COMMON-STOCK> 8,604,069
<SHARES-COMMON-PRIOR> 9,052,425
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (25,155)
<ACCUMULATED-NET-GAINS> 629,833
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,705,289
<NET-ASSETS> 98,711,258
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,601,004
<OTHER-INCOME> 0
<EXPENSES-NET> 662,319
<NET-INVESTMENT-INCOME> 4,938,685
<REALIZED-GAINS-CURRENT> 860,440
<APPREC-INCREASE-CURRENT> 2,003,434
<NET-CHANGE-FROM-OPS> 7,802,559
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,957,912
<DISTRIBUTIONS-OF-GAINS> 460,469
<DISTRIBUTIONS-OTHER> 25,155
<NUMBER-OF-SHARES-SOLD> 767,090
<NUMBER-OF-SHARES-REDEEMED>1,379,228
<SHARES-REINVESTED> 163,782
<NET-CHANGE-IN-ASSETS> (2,730,205)
<ACCUMULATED-NII-PRIOR> 19,227
<ACCUMULATED-GAINS-PRIOR> 229,862
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR>0
<GROSS-ADVISORY-FEES> 450,310
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 742,374
<AVERAGE-NET-ASSETS> 99,956,025
<PER-SHARE-NAV-BEGIN> 11.210
<PER-SHARE-NII> 0.560
<PER-SHARE-GAIN-APPREC> 0.320
<PER-SHARE-DIVIDEND> 0.570
<PER-SHARE-DISTRIBUTIONS> 0.050
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.470
<EXPENSE-RATIO> 0.66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 071
<NAME> Tower Mutual Funds
Tower Mid-Cap Equity Fund
Class A Shares
<PERIOD-TYPE> 2-mos
<FISCAL-YEAR-END> Aug-31-1998
<PERIOD-END> Aug-31-1998
<INVESTMENTS-AT-COST> 17,073,275
<INVESTMENTS-AT-VALUE> 13,941,941
<RECEIVABLES> 21,135
<ASSETS-OTHER> 35,099
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13,998,175
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9,798
<TOTAL-LIABILITIES> 9,798
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,119,711
<SHARES-COMMON-STOCK> 1,648,740
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3,131,334)
<NET-ASSETS> 13,421,824
<DIVIDEND-INCOME> 20,776
<INTEREST-INCOME> 9,178
<OTHER-INCOME> 0
<EXPENSES-NET> 40,596
<NET-INVESTMENT-INCOME> (10,642)
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> (3,131,334)
<NET-CHANGE-FROM-OPS> (3,141,976)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 88,819
<NUMBER-OF-SHARES-REDEEMED>32,017
<SHARES-REINVESTED> 1,591,938
<NET-CHANGE-IN-ASSETS> 13,988,377
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR>0
<GROSS-ADVISORY-FEES> 15,872
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 44,889
<AVERAGE-NET-ASSETS> 15,226,230
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> (0.010)
<PER-SHARE-GAIN-APPREC> (1.850)
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 8.140
<EXPENSE-RATIO> 1.89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 072
<NAME> Tower Mutual Funds
Tower Mid-Cap Equity Fund
Class B Shares
<PERIOD-TYPE> 2-mos
<FISCAL-YEAR-END> Aug-31-1998
<PERIOD-END> Aug-31-1998
<INVESTMENTS-AT-COST> 17,073,275
<INVESTMENTS-AT-VALUE> 13,941,941
<RECEIVABLES> 21,135
<ASSETS-OTHER> 35,099
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13,998,175
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9,798
<TOTAL-LIABILITIES> 9,798
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,119,711
<SHARES-COMMON-STOCK> 69,652
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3,131,334)
<NET-ASSETS> 566,553
<DIVIDEND-INCOME> 20,776
<INTEREST-INCOME> 9,178
<OTHER-INCOME> 0
<EXPENSES-NET> 40,596
<NET-INVESTMENT-INCOME> (10,642)
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> (3,131,334)
<NET-CHANGE-FROM-OPS> (3,141,976)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 69,657
<NUMBER-OF-SHARES-REDEEMED>5
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 13,988,377
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR>0
<GROSS-ADVISORY-FEES> 15,872
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 44,889
<AVERAGE-NET-ASSETS> 15,226,230
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> (0.010)
<PER-SHARE-GAIN-APPREC> (1.860)
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 8.130
<EXPENSE-RATIO> 2.76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 05
<NAME> Tower Mutual Funds
Tower Total Return Bond Fund

<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1998
<PERIOD-END> Aug-31-1998
<INVESTMENTS-AT-COST> 77,331,890
<INVESTMENTS-AT-VALUE> 79,664,992
<RECEIVABLES> 1,209,419
<ASSETS-OTHER> 73
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 80,874,484
<PAYABLE-FOR-SECURITIES> 714,159
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 203,049
<TOTAL-LIABILITIES> 917,208
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 77,453,581
<SHARES-COMMON-STOCK> 7,787,517
<SHARES-COMMON-PRIOR> 7,190,338
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (10,481)
<ACCUMULATED-NET-GAINS> 181,074
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,333,102
<NET-ASSETS> 79,957,276
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,126,398
<OTHER-INCOME> 0
<EXPENSES-NET> 821,445
<NET-INVESTMENT-INCOME> 4,304,953
<REALIZED-GAINS-CURRENT> 588,562
<APPREC-INCREASE-CURRENT> 1,899,586
<NET-CHANGE-FROM-OPS> 6,793,101
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,306,667
<DISTRIBUTIONS-OF-GAINS> 472,991
<DISTRIBUTIONS-OTHER> 10,481
<NUMBER-OF-SHARES-SOLD> 1,917,601
<NUMBER-OF-SHARES-REDEEMED>1,660,779
<SHARES-REINVESTED> 340,357
<NET-CHANGE-IN-ASSETS> 8,090,457
<ACCUMULATED-NII-PRIOR> 1,714
<ACCUMULATED-GAINS-PRIOR> 65,503
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR>0
<GROSS-ADVISORY-FEES> 532,051
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 952,508
<AVERAGE-NET-ASSETS> 75,826,797
<PER-SHARE-NAV-BEGIN> 9.990
<PER-SHARE-NII> 0.580
<PER-SHARE-GAIN-APPREC> 0.350
<PER-SHARE-DIVIDEND> 0.580
<PER-SHARE-DISTRIBUTIONS> 0.070
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.270
<EXPENSE-RATIO> 1.08
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> Tower Mutual Funds
Tower U.S. Government Income Fund

<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1998
<PERIOD-END> Aug-31-1998
<INVESTMENTS-AT-COST> 80,647,606
<INVESTMENTS-AT-VALUE> 83,079,868
<RECEIVABLES> 773,365
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 83,853,233
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 318,032
<TOTAL-LIABILITIES> 318,032
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 84,440,906
<SHARES-COMMON-STOCK> 8,085,229
<SHARES-COMMON-PRIOR> 5,958,120
<ACCUMULATED-NII-CURRENT> 26,452
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,364,419)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,432,262
<NET-ASSETS> 83,535,201
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,319,256
<OTHER-INCOME> 0
<EXPENSES-NET> 471,157
<NET-INVESTMENT-INCOME> 3,848,099
<REALIZED-GAINS-CURRENT> 528,099
<APPREC-INCREASE-CURRENT> 1,756,003
<NET-CHANGE-FROM-OPS> 6,132,201
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,791,842
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,009,055
<NUMBER-OF-SHARES-REDEEMED>947,489
<SHARES-REINVESTED> 65,543
<NET-CHANGE-IN-ASSETS> 24,097,328
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (3,892,518)
<OVERDISTRIB-NII-PRIOR> (29,805)
<OVERDIST-NET-GAINS-PRIOR>0
<GROSS-ADVISORY-FEES> 289,526
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 509,760
<AVERAGE-NET-ASSETS> 64,710,528
<PER-SHARE-NAV-BEGIN> 9.980
<PER-SHARE-NII> 0.610
<PER-SHARE-GAIN-APPREC> 0.340
<PER-SHARE-DIVIDEND> 0.600
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.330
<EXPENSE-RATIO> 0.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 06
<NAME> Tower Mutual Funds
Tower U.S. Treasury Money Market
Fund

<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1998
<PERIOD-END> Aug-31-1998
<INVESTMENTS-AT-COST> 175,136,107
<INVESTMENTS-AT-VALUE> 175,136,107
<RECEIVABLES> 801,437
<ASSETS-OTHER> 9,645
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 175,947,189
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 814,269
<TOTAL-LIABILITIES> 814,269
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 175,132,920
<SHARES-COMMON-STOCK> 175,132,920
<SHARES-COMMON-PRIOR> 154,624,147
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 175,132,920
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,706,745
<OTHER-INCOME> 0
<EXPENSES-NET> 1,128,710
<NET-INVESTMENT-INCOME> 8,578,035
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 8,578,035
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,578,035
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 858,263,159
<NUMBER-OF-SHARES-REDEEMED>840,690,877
<SHARES-REINVESTED> 2,936,491
<NET-CHANGE-IN-ASSETS> 20,508,773
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR>0
<GROSS-ADVISORY-FEES> 718,045
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,128,710
<AVERAGE-NET-ASSETS> 179,511,165
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.050
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.63
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>