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. 20 .................... X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 18 ................................... X
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) on _________, 199_
pursuant to paragraph (b) 60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
X 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
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CROSS REFERENCE SHEET
This Amendment to the Registration Statement of TOWER MUTAL FUNDS, which
consists of seven portfolios, (1) Tower Capital Appreciation Fund, (a)Class A
Shares and (b) Class B Shares; (2) Tower Louisiana Municipal Income Fund; (3)
Tower Total Return Bond Fund; (4) Tower U.S. Government Income Fund; (5) Tower
Cash Reserve Fund, (a)Class A Shares and (b) Class B Shares; (6) Tower U.S.
Treasury Money Market Fund; and (7) Tower Mid Cap Equity Fund, (a)Class A Shares
and (b) Class B Shares. This filing relates only to Tower Mid Cap Equity Fund
and is comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
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Prospectus Heading
(Rule 404(c) Cross Reference)
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Item 1. Cover Page....................(1-7) Cover Page.
Item 2. Synopsis......................(1-4) Summary of Fund Expenses - Equity and Income Funds; (5-6) Summary of Fund
Expenses - Money Market Funds; (7) Summary of Fund Expenses; (1-6) Financial Highlights
Item 3. Condensed Financial
Information (1-7) Performance Information.
Item 4. General Description of
Registrant...................(1-6) Synopsis; (1-6) Objective and Policies of Each Fund; (7) Objective and
Policies of the Fund; (1-6) 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.
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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..........(1-6) Financial Statements.(Incorporated by reference to Annual
Report of Registrant dated August 31, 1997, File Nos.811-5536 and
33-21321). (7) To be filed by Amendment.
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TOWER MID CAP EQUITY FUND
( A PORTFOLIO OF TOWER MUTUAL FUNDS)
CLASS A SHARES
The Class A Shares of Tower Mid Cap Equity Fund (the "Fund") offered by this
prospectus represent interests in a portfolio of Tower Mutual Funds (the
"Trust"), an open-end management investment company (a mutual fund). The Fund's
investment objective is total return. The Fund will pursue this objective by
investing primarily in a portfolio of equity securities comprising the mid-sized
capitalization sector of the United States equity market.
THE CLASS A SHARES OF THE FUND 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.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated June __,
1998, 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 the Fund by writing to the Fund or calling
toll-free 1-800-999-0124. The Statement, material incorporated by reference into
this document, and other information regarding the Fund 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 June __, 1998
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Table of Contents will be generated when document is complete.
<PAGE>
SUMMARY OF FUND EXPENSES-CLASS A SHARES
<PAGE>
GENERAL INFORMATION ABOUT THE FUND
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. The Fund currently offers two classes of shares,
Class A Shares and Class B Shares. This prospectus relates only to Class A
Shares of the Fund. The Fund is designed for institutions and individuals as a
convenient means of accumulating an interest in a professionally managed
portfolio of equity securities.
For information on how to purchase shares of the Fund, please refer to
"Investing in the Fund." A minimum initial investment of $1,000 is required for
the Fund. See "Minimum Investment Required." Class A Shares of the Fund are sold
at net asset value plus a maximum front-end sales charge of 4.50%. The front-end
sales charges may be reduced as discussed under "Reducing the Sales Charge."
Shares of the Fund are redeemed at net asset value. 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 Fund and receives compensation for these services.
OBJECTIVE AND POLICIES OF THE FUND
The investment objective of the Fund is total return. The investment objective
of the Fund cannot be changed without the approval of shareholders. While there
is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described below.
Unless indicated otherwise, the investment policies of the 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.
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 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:
o 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;
o investments in American Depositary Receipts (ADRs") of foreign companies
traded on the New York Stock Exchange or in the over-the-counter market;
o convertible securities rated at least BBB by Standard & Poor's ("S&P")
or Fitch IBCA, Inc. ("Fitch"), or at least Baa by Moody's Investors
Service, Inc. ("Moody's"), or if not rated, are determined by the
adviser to be of comparable quality;
o 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;
o 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;
o zero coupon convertible securities; and
o 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.
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.
INVESTMENT RISKS. As with other mutual funds that invest primarily in equity
securities, the Fund is 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 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 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 Fund may invest in fixed income securities. The prices of fixed income
securities fluctuate inversely in relation to the direction of interest rates.
The prices of longer-term fixed income securities fluctuate more widely in
response to market interest rate changes. Bonds rate "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. 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.
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, 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.
U.S. GOVERNMENT SECURITIES
The types of U.S. government securities in which the Fund 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.
FOREIGN SECURITIES
The Fund may invest in foreign securities which are traded publicly in the
United States. Investments in foreign securities, particularly those of
non-governmental issuers, involve considerations which are not ordinarily
associated with investments in domestic issuers. These considerations include
the possibility of expropriation, the unavailability of financial information or
the difficulty of interpreting financial information prepared under foreign
accounting standards, less liquidity and more volatility in foreign securities
markets, the impact of political, social or diplomatic developments, and the
difficulty of assessing economic trends in foreign countries, the difficulty of
obtaining or enforcing court judgments abroad, restrictions on foreign
investments in other jurisdictions, difficulties in repatriation of capital
invested abroad, and difficulties in transaction settlements and the effect of
delay on shareholder equity. It may also be more difficult to enforce
contractual obligations abroad than would be the case in the United States
because of differences in the legal systems. Transaction costs in foreign
securities may be higher.
The Fund's 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 Fund's standards and objectives. The
Fund will only purchase securities issued in U.S. dollar denominations and will
not invest more than 15% of its total assets in foreign securities.
PUT AND CALL OPTIONS
The Fund may engage in or reserve the right to engage in put and call options.
The Fund may purchase put and call options on its portfolio securities. These
options will be used as a hedge to attempt to protect securities which the Fund
holds or will be purchasing against decreases or increases in value. The Fund
may also write (sell) put and call options on all or any portion of its
portfolio to generate income for the Fund. The Fund will write call options on
securities either held in its portfolio or which it has 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 Fund will segregate cash or U.S. Treasury
obligations with a value equal to or greater than the exercise price on the
underlying securities. The Fund will limit its purchase of options so that not
more than 20% of its net assets will be invested in option premiums. The 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 Fund 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 the Fund are not traded on an
exchange. The Fund purchases and write options only with investment dealers and
other financial institutions (such as commercial banks or savings associations)
deemed creditworthy by the 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 Fund may engage in or reserve the right to engage in financial futures and
options on futures. The Fund may purchase and sell financial futures contracts
to hedge all or a portion of its portfolio of securities against changes in
interest rates or as a hedge to attempt to protect securities which the Fund
holds against decreases in value. The 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 Fund 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 the 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, the Fund is entitled (but not
obligated) to sell a futures contract at the fixed price during the life of the
option.
The 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
Fund will use these transactions to attempt to protect its ability to purchase
portfolio securities in the future at price levels existing at the time it
enters into the transactions. When the 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, the 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, the Fund is
entitled (but not obligated) to purchase a futures contract at a fixed price at
any time during the life of the option.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures position and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets. When the Fund purchases futures
contracts or writes put options on futures contracts, an amount of cash and cash
equivalents equal to the underlying commodity value of the futures contracts
(less any related margin deposits) or equal to the exercise price of the put
options will be deposited in a segregated account with the Fund's custodian (or
the broker, if legally permitted) to collateralize the position and thereby
insure that the use of such futures contracts is unleveraged.
RISKS. When the 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 the Fund writes a call option, it retains the risk of a market
decline in the price of the underlying security, but gives up the right to
capital appreciation of that security above the "strike price" of the option.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the 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 Fund's ability
to establish and close out futures and options positions depends on this
secondary market.
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.
Also, the Fund will not purchase options to the extent that more than 5% of the
value of the Fund's total assets would be invested in premiums on open put
option positions. 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.
There are several risks accompanying the utilization of futures contracts to
effectively anticipate market transactions. First, positions in futures
contracts may be closed only on an exchange or board of trade that furnishes a
secondary market for such contracts. While the Fund plans to utilize futures
contracts only if there exists an active market for such contracts, there is no
guarantee that a liquid market will exist for the contracts at a specified time.
Furthermore, because, by definition, futures contracts look to projected price
levels in the future and not to current levels of valuation, market
circumstances may result in there being a discrepancy between the price of the
stock index future and the movement in the stock index. The absence of a perfect
price correlation between the futures contract and its underlying stock index
could stem from investors choosing to close futures contracts by offsetting
transactions, rather than satisfying additional margin requirements. This could
result in a distortion of the relationship between the index and futures market.
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.
In view of these considerations, the Fund will comply with the following
restrictions when purchasing and selling futures contracts. First, the 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 Fund will not enter into
these contracts for speculative purposes. Third, since the Fund does not
constitute a commodity pool, it will not market itself as such, nor serve as a
vehicle for trading in the commodities futures or commodity options markets. In
this regard, the Fund 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 Fund intends to claim an exclusion from
registration as a commodity pool operator under the regulations promulgated by
the CFTC.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of other open-end investment companies, as
well as closed-end investment companies. The Fund, however, will not own more
than 3% of the total outstanding voting stock of any investment company, invest
more than 5% of its total assets in any one investment company, or invest more
than 10% of its total assets in investment companies in general, unless
permitted to do so by order of the SEC.
The Fund 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 the Fund in shares of another
investment company would be subject to such duplicate expenses. The Fund will
invest in other investment companies primarily for the purposes of investing
their short-term cash on a temporary basis. The Fund's investment adviser will
waive its investment advisory fee on assets invested in securities of other
investment companies.
BORROWING MONEY
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the 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, the Fund may borrow up to one-third of the value of its
total assets. The Fund may pledge up to 15%, of the value of its assets to
secure such borrowings. This policy cannot be changed without the approval of
holders of a majority of the Fund's shares.
LENDING OF PORTFOLIO SECURITIES
In order to generate income, the Fund may lend portfolio securities on a
short-term or long-term basis, or both, up to one-third of the value of its
total assets to broker/dealers, banks, or other institutional borrowers of
securities. The Fund 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 the Fund without the approval of holders of a majority
of the Fund's shares.
There is the risk that when lending portfolio securities, the securities may not
be available to the 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.
REPURCHASE AGREEMENTS
The Fund 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 the 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 Fund or its 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
the 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 the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions such as broker/dealers which are deemed by the Fund's investment
adviser to be creditworthy pursuant to guidelines established by the Trustees.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Trustees, certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid, the Fund will limit its purchase together with
other illiquid securities including non-negotiable time deposits and repurchase
agreements providing for settlement in more than seven days after notice to 15%
of its net assets.
TEMPORARY INVESTMENTS
During times of unusual market conditions, for defensive purposes and to
maintain liquidity, the Fund may invest in cash and money market instruments,
such as the following:
o prime commercial paper (rated A-2 or above by S&P, Prime-2 or above by
Moody's Investors Service, Inc. ("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;
o 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 Federal
Deposit Insurance Corporation ("FDIC") or the Savings Association
Insurance Fund ("SAIF"). These instruments include certificates of
deposit, demand and time deposits, savings shares, Eurodollar
Certificates of Deposits, Eurodollar Time Deposits, Canadian Time
Deposits, and bankers' acceptances;
o securities issued and/or guaranteed as to payment of principal and
interest by the U.S. government, its agencies or instrumentalities;
o repurchase agreements; and
o 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 Fund may invest.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. The Fund engages in when-issued and delayed
delivery transactions only for the purpose of acquiring portfolio securities
consistent with the 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, the Fund may pay more/less than the market
value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Fund's
investment adviser deems it appropriate to do so. In addition, the Fund may
enter into transactions to sell its purchase commitments to third parties at
current market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits or
losses upon the sale of such commitments.
As a matter of operating policy, which may be changed without shareholder
approval, the 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 the Fund's net assets will not result in a violation
of any of the above restrictions.
PORTFOLIO TURNOVER. The Fund conducts portfolio transactions to accomplish its
investment objective, to invest new money obtained from selling its shares, and
to meet redemption requests. The Fund may dispose of portfolio securities at any
time if it appears that selling the securities will help the Fund achieve its
investment objective. The Fund's rate of portfolio turnover may exceed that of
certain other mutual funds with the same investment objective. A higher rate of
portfolio turnover involves correspondingly greater brokerage commissions and
other expenses which must be borne directly by the Fund and, thus, indirectly by
its shareholders. In addition, a high rate of portfolio turnover may result in
the realization of larger amounts of capital gains which, when distributed to
the Fund's shareholders, are taxable to them. Nevertheless, transactions for the
Fund's portfolio will be based only upon investment considerations and will not
be limited by any other considerations when the Fund's investment adviser deems
it appropriate to make changes in the Fund's portfolio.
TOWER MUTUAL FUNDS INFORMATION
MANAGEMENT OF TOWER MUTUAL FUNDS
BOARD OF TRUSTEES. Tower Mutual Funds is managed by a Board of Trustees. The
Trustees are responsible for managing the Trust's business affairs and for
exercising all of the Trust's powers except those reserved for the shareholders.
The Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with Tower
Mutual Funds, investment decisions for the Fund are made by Hibernia National
Bank, the Fund's investment adviser (the "Adviser"), subject to direction by the
Trustees. The Adviser continually conducts investment research and supervision
for the Fund and is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the assets of the Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee equal
to 0.75% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive a portion of its fee or reimburse the 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 the 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 Tower Mutual Funds.
As part of their regular banking operations, Hibernia National Bank may
make loans to public companies. Thus, it may be possible, from time to
time, for the 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 the Fund's portfolio manager since the Fund's inception
in _____ 1998. Mr. Cain is a Vice President and Trust Investment Officer
specializing in equity and balanced account management for Hibernia since May
1985. Mr. Cain is the investment manager of Hibernia Trust's Growth Stock Fund.
He has 38 years of investment management experience both in the brokerage and
trust industries. He earned his B.B.A. from the University of Mississippi.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for shares of the
Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is
the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan of adopted
by the Trust, 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 the Fund will
be reimbursed by the Fund or class up to 0.25% of average daily net assets of
Class A Shares.
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 the Fund or class relate
directly to the net asset value of the shares of the Fund or class, it is
possible that fees paid by the Fund or class may be used to provide similar
services for other of the Trust's funds. In addition, the 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.
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.
FUND ADMINISTRATION
ADMINISTRATIVE SERVICES. Federated Administrative Services ("FAS"), Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, provides the Fund with
certain administrative personnel and services necessary to operate the Fund,
such as legal and accounting services. FAS provides these at an annual rate as
specified below:
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$50,000 per Fund. FAS may voluntarily choose to waive a portion of its fee.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Trustees.
EXPENSES OF THE FUND AND CLASS A SHARES
Holders of Class A Shares of the Fund pay their allocable portion of Trust and
Fund expenses.
The Trust expenses for which holders of Class A 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 of the Fund pay their
allocable portion based on average daily net assets include, but are not limited
to: registering the Fund and shares of the 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 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; 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; legal fees
relating solely to Class A Shares; and Trustees fees incurred as a result of
issues relating solely to Class A Shares.
NET ASSET VALUE
The Fund's 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 the 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 the Fund may differ slightly due to the variability in daily net
income resulting from the different distribution charge.
On Monday through Friday, the Fund determines net asset value at the close of
the New York Stock Exchange, normally 3:00 p.m. (Central Standard Time), except
on: (i) days on which there are not sufficient changes in the value of the
Fund's portfolio securities that its net asset value might be materially
affected; (ii) days during which no shares are tendered for redemption and no
orders to purchase shares are received; and (iii) the following holidays: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
INVESTING IN THE FUND
SHARE PURCHASES
Shares of the Fund are sold on days on which the New York Stock Exchange is open
for business. Class A Shares of the 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. In connection with
the sale of shares of the Fund, the distributor may from time to time offer
certain items of nominal value to any shareholder or investor. The Fund reserves
the right to reject any purchase request.
THROUGH HIBERNIA NATIONAL BANK OR HISI. An investor may call Hibernia National
Bank to place an order to purchase Class A Shares of the Fund (Call toll-free
1-800-999-0124.) Investors may purchase shares through HISI, at 1-800-999-0426.
Orders purchased through Hibernia National Bank or HISI are considered received
when the Fund is notified of the purchase order. Purchase orders must be
received by Hibernia National Bank or HISI before 3:00 p.m. (Central Standard
Time) and must be transmitted by Hibernia National Bank or HISI to the 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.
THROUGH AUTHORIZED BROKER/DEALERS. An investor may place an order through
authorized brokers and dealers to purchase Class A Shares the Fund. Shares will
be purchased at the public offering price next determined after the Fund
receives the purchase request from Hibernia National Bank or HISI, which
forwards the request to the transfer agent. Purchase requests through registered
broker/dealers must be received by Hibernia National Bank or HISI and
transmitted to the Fund before 3:00 p.m. (Central Standard Time) in order for
shares to be purchased at that day's public offering price.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund, by an investor is $1,000. Subsequent
investments must be in amounts of at least $100. The Fund may choose to waive
these minimum investment requirements for Hibernia National Bank or its
affiliates and for directors and employees of Hibernia National Bank.
WHAT SHARES COST
Shares of the Fund are sold at net asset value next determined after an order is
received.
FRONT-END SALES CHARGE
Class A Shares of the Fund are sold with a sales charge as follows:
SALES CHARGE AS A SALES CHARGE AS A
AMOUNT OF PERCENTAGE OF PUBLIC PERCENTAGE OF NET
TRANSACTION INVESTED OFFERING PRICE AMOUNT INVESTED
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%
PURCHASES AT NET ASSET VALUE. Class A Shares of the Fund may be purchased at net
asset value, without a sales charge, by the Trust Division of Hibernia National
Bank or other affiliates of Hibernia for funds which are held in a fiduciary,
agency, custodial, or similar capacity. Trustees/Directors and employees of the
Trust, Hibernia National Bank, or their affiliates, retired Trustees/Directors
and retired employees of Hibernia National Bank, and the spouse, children,
parents and the parents of spouse of any such person, and any accounts for which
such an employee serves in a fiduciary, agency, custodial, or similar capacity,
may also buy shares at net asset value, without a sales charge.
Trustees/Directors and employees of Federated Securities Corp. or its
affiliates, retired Trustees/Directors and retired employees of any bank or
investment dealer who has a sales agreement with Federated Securities Corp. with
regard to the Fund, 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.
SALES CHARGE REALLOWANCE. For sales of Class A Shares of the Fund, Hibernia
National Bank and any authorized dealer will normally receive up to 100% of the
applicable sales charge. Any portion of the sales charge which is not paid to
Hibernia National Bank, 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 Fund, all or a portion of
the 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 Fund or other special events at
recreational facilities, or items of material value. In some instances, these
incentives will be made available only to dealers whose employees have sold or
may sell significant amounts of shares.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor, HISI, Hibernia
National Bank, or their affiliates may also offer to pay a fee from their own
assets to financial institutions as financial assistance for providing
substantial marketing and sales support. The support may include initiating
customer accounts, providing sales literature, or participating in sales,
educational and training seminars (including those held at recreational
facilities). Such assistance will be predicated upon the amount of shares the
financial institution sells or may sell and/or upon the type and nature of sales
or marketing support furnished by the financial institution. Any payments made
by the distributor may be reimbursed by Hibernia National Bank or its
affiliates.
REDUCING THE FRONT-END SALES CHARGE
The front-end sales charges imposed on the Fund can be reduced through:
o quantity discounts and accumulated purchases;
o signing a 13-month letter of intent;
o using the reinvestment privilege; or
o concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table on page 35,
larger purchases of Class A Shares of the 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 the Fund is made, the distributor
will consider the previous purchases still invested in Class A Shares of the
Fund. For example, if the shareholder already owns shares of Class A Shares of
the 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 3.75%,
not 4.50%.
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 the 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 the 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 4.50% of the total amount intended to be purchased in escrow
(in shares of Class A Shares of the Fund) until such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at the
end of the 13-month period unless the amount specified in the letter of intent
is not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. This letter may
be dated as of a prior date to include any purchases made within the past 90
days; however, these previous purchases will not receive the reduced sales
charge.
REINVESTMENT PRIVILEGE. If Class A Shares of the 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 the 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 the Fund
with a front end sales charge and $70,000 in another Fund in the Trust 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 the 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 the Fund
may apply for participation in this program through Hibernia National Bank or
HISI.
EXCHANGING SECURITIES FOR FUND SHARES
The Fund may accept securities in exchange for Fund shares. The 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 Fund, Federated Services Company, through its
subsidiary Federated Shareholder Services Company, maintains a share account for
each shareholder of record. Share certificates are not issued unless requested
by contacting Hibernia National Bank or HISI in writing. The Trust reserves the
right to discontinue the issuance of share certificates at its discretion.
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
DIVIDENDS
Dividends are declared and paid quarterly to all shareholders in the Fund on the
record date. Dividends are automatically reinvested in additional shares of the
Fund on payment dates at the ex-dividend date net asset value without a sales
charge, unless cash payments are requested by writing to the Fund, Hibernia
National Bank or HISI.
CAPITAL GAINS
Capital gains realized by the Fund, if any, will be distributed at least once
every 12 months.
EXCHANGE PRIVILEGE
Shareholders of the Fund are shareholders of Tower Mutual Funds. Shareholders of
Class A Shares of the Fund have easy access to each of the portfolios ("Funds")
of Tower Mutual Funds through a telephone exchange program.
EXCHANGING SHARES. Shares of those Funds with a front-end sales charge may be
exchanged at net asset value for shares of the same class of any of the other
Funds in the Trust with an equal front-end sales charge or no front end sales
charge. Shares of Funds with no front-end sales charge acquired by direct
purchase or reinvestment of dividends on such shares may be exchanged for shares
of the same class of any of the other Funds in the Trust with a front-end sales
charge at net asset value plus the applicable front-end sales charge.
Shareholders who exercise this exchange privilege must exchange shares having a
net asset value of at least $1,000.
When an exchange is made from a Fund with a front-end sales charge to a Fund
with no front-end sales charge, the shares exchanged and additional shares which
have been purchased by reinvesting dividends on such shares retain the character
of the exchanged shares for purposes of exercising further exchange privileges;
thus, an exchange of such shares for shares of a Fund with a front end sales
charge would be at net asset value.
The exchange privilege is available to shareholders residing in any state in
which the Fund shares being acquired may legally be sold. Upon receipt of proper
instructions and all necessary supporting documents, shares submitted for
exchange will be redeemed at the next-determined net asset value. Written
exchange instructions may require a signature guarantee. Exercise of this
privilege is treated as a sale for federal income tax purposes and, depending on
the circumstances, a short or long-term capital gain or loss may be realized.
The exchange privilege may be terminated at any time. Prior to such termination,
shareholders will be notified of the termination of the exchange privilege at
least 60 days before the date of termination. A shareholder may obtain further
information on the exchange privilege by calling Hibernia National Bank.
EXCHANGE-BY-TELEPHONE. Instructions for exchanges between the Funds may be given
by telephone to Hibernia National Bank at 1-800-999-0124 or to the distributor.
Shares may be exchanged by telephone only between fund accounts having identical
shareholder registrations. Exchange instructions given by telephone may be
electronically recorded.
Any shares held in certificate form cannot be exchanged by telephone but must be
forwarded to the transfer agent by Hibernia National Bank and deposited to the
shareholder's mutual fund account before being exchanged.
Telephone exchange instructions must be received before 3:00 p.m. (Central
Standard Time) for shares to be exchanged the same day. The telephone exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of such modification or termination at least 60 days prior to the date
of modification or termination. Shareholders may have difficulty in making
exchanges by telephone through banks, brokers, and other financial institutions
during times of drastic economic or market changes. If a shareholder cannot
contact his bank, broker, or financial institution by telephone, it is
recommended that an exchange request be made in writing and sent by overnight
mail. If reasonable procedures are not followed by the Fund, it may be liable
for losses due to unauthorized or fraudulent telephone instructions.
WRITTEN EXCHANGE. A shareholder wishing to make an exchange by written request
may do so by sending a mail request to Hibernia National Bank, 313 Carondelet
Street, New Orleans, Louisiana 70130. In addition, an investor may exchange
shares by sending a written request to his or her authorized broker directly.
REDEEMING SHARES
The Fund redeems shares at net asset value, less any applicable sales charge,
next determined after the 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 Fund.
BY TELEPHONE. A shareholder may redeem shares of the Fund by calling Hibernia
National Bank or HISI to request the redemption. Shares will be redeemed at the
net asset value next determined after the Fund receives the redemption request
from Hibernia National Bank or HISI. Redemption instructions given by telephone
may be electronically recorded.
Redemption requests through Hibernia National Bank must be received by Hibernia
National Bank before 3:00 p.m. (Central Standard Time) and must be transmitted
by Hibernia National Bank to the Fund before 3:00 p.m. (Central Standard Time)
in order for shares to be redeemed at that day's net asset value. Redemption
requests through registered broker/dealers must be received by Hibernia National
Bank and transmitted to the 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 the
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.
An authorization form permitting the Fund 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 Fund, they may be liable for losses due to
unauthorized or fraudulent telephone instructions.
BY MAIL. Shareholders may redeem shares of the Fund by sending a written request
to Hibernia National Bank or HISI. The written request should include the
shareholder's name, the Fund name and Class designation, if applicable, the
account number, and the share or dollar amount requested. If share certificates
have been issued, they must be properly endorsed and should be sent by
registered or certified mail with the written request to Hibernia National Bank
or HISI. Shareholders should call Hibernia National Bank or HISI for assistance
in redeeming by mail.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than to
the shareholder of record must have signatures on written redemption requests
guaranteed by:
o a trust company or commercial bank whose deposits are insured by BIF,
which is administered by the FDIC;
o a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchanges;
o a savings bank or savings association whose deposits are insured by
SAIF, which is administered by the FDIC; or
o any other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed to the shareholder within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, shares of
the 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 the Fund. For this reason, payments
under this program should not be considered as yield or income on the
shareholder's investment in the 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 the Fund are sold
with a sales charge, it is not advisable for shareholders to be purchasing
shares of the Funds while participating in this program.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund 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 the Fund. Before
shares are redeemed to close an account, the shareholder is notified in writing
and allowed 30 days to purchase additional shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Shares of the Fund give the shareholder one vote in Trustee elections and other
matters submitted to shareholders for vote. All shares of each Fund in Tower
Mutual Funds have equal voting rights, except that in matters affecting only a
particular Fund or class, only shareholders of that Fund or class are entitled
to vote. As a Massachusetts business trust, Tower Mutual Funds is not required
to hold annual shareholder meetings. Shareholder approval will be sought only
for certain changes in the Trust's or a Fund's operation and for the election of
Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the Trust's outstanding
shares.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Bank Holding Company Act of 1956 or
any affiliate thereof from sponsoring, organizing, or controlling a registered,
open-end investment company continuously engaged in the issuance of its shares,
and from issuing, underwriting, selling or distributing securities in general.
Such banking laws and regulations do not prohibit such a holding company or
affiliate from acting as investment adviser, transfer agent or custodian to such
an investment company or from purchasing shares of such a company as agent for
and upon the order of such a customer.
Some entities providing services to the Fund are subject to such banking laws
and regulations. They believe, based on the advice of their counsel, that they
may perform those services for the Fund contemplated by any agreement entered
into with the Fund 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 Fund will pay no federal income tax because the 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.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
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.
PERFORMANCE INFORMATION
From time to time the Fund may advertise its total return and yield.
Total return represents the change, over a specified period of time, in the
value of an investment in the 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 the 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. Yield does not
necessarily reflect income actually earned by the Fund and, therefore, may not
correlate to the dividends or other distributions paid to shareholders.
With respect to the Fund, total return and yield will be calculated separately
for Class A Shares and Class B Shares. Expense differences between Class A
Shares and Class B Shares may affect the performance of each class.
For Class A Shares of the Fund, the performance information normally reflects
the effect of the maximum sales charge which, if excluded, would increase the
total return and yield. For Class B Shares of the Fund, the performance
information reflects the effect of non-recurring charges, such as the contingent
deferred sales charge which, if excluded, would increase the total return and
yield. Occasionally, performance information which does not reflect the effect
of the sales charge or contingent deferred sales charge may be quoted in
advertising.
From time to time, advertisements for the Trust may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Trust's performance to certain indices.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares, Class B Shares. Class B Shares of
the Fund are sold at net asset value and are subject to a contingent deferred
sales charge if Class B Shares of the Fund are redeemed within 6 years of
purchase. Class B Shares of the Fund are also subject to an initial investment
of $1,000.
Class A and B Shares are subject to certain of the same expenses.
Class B Shares of the Fund are distributed with a 12b-1 Distribution Plan fee of
0.75%, and are subject to a shareholder servicing fee of 0.25%. Class A Shares
of the Fund are distributed with a 12b-1 Distribution Plan fee of 0.25%, but are
not subject to a shareholder servicing fee.
Expense differences between classes may affect the performance of each class of
shares.
To obtain more information and a prospectus for Class B Shares, investors may
call 1-800-999-0124.
<PAGE>
ADDRESSES
Tower Mid Cap Equity 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: Tower Mutual Funds
P.O. Box 61540
New Orleans, Louisiana 70161
Custodian
Hibernia National Bank Attention: Tower Mutual Funds
P.O. Box 61540
New Orleans, Louisiana 70161
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder
Services Company P.O. Box 8609
Boston, Massachusetts 02266-8609
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
TOWER MID CAP EQUITY FUND
( A PORTFOLIO OF TOWER MUTUAL FUNDS)
CLASS B SHARES
The Class B Shares of Tower Mid Cap Equity Fund (the "Fund") offered by this
prospectus represent interests in a portfolio of Tower Mutual Funds (the
"Trust"), an open-end management investment company (a mutual fund). The Fund's
investment objective is total return. The Fund will pursue this objective by
investing primarily in a portfolio of equity securities comprising the mid-sized
capitalization sector of the United States equity market.
THE CLASS B SHARES OF THE FUND 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.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated June __,
1998, 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 the Fund by writing to the Fund or calling
toll-free 1-800-999-0124. The Statement, material incorporated by reference into
this document, and other information regarding the Fund 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 June __, 1998
<PAGE>
Table of Contents will be generated when document is complete.
<PAGE>
SUMMARY OF FUND EXPENSES-TOWER MID CAP EQUITY FUND
<PAGE>
GENERAL INFORMATION ABOUT THE FUND
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. The Fund currently offers two classes of shares,
Class A Shares and Class B Shares. This prospectus relates only to Class B
Shares of the Fund. The Fund is designed for institutions and individuals as a
convenient means of accumulating an interest in a professionally managed
portfolio of equity securities.
For information on how to purchase shares of the Fund, please refer to
"Investing in the Fund." A minimum initial investment of $1,000 is required for
the Fund. Class B Shares of the 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
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 Fund and receives compensation for
these services. OBJECTIVE AND POLICIES OF THE FUND
The investment objective of the Fund is total return. The investment objective
of the Fund cannot be changed without the approval of shareholders. While there
is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described below.
Unless indicated otherwise, the investment policies of the 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.
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 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:
o 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;
o investments in American Depositary Receipts (ADRs") of foreign companies
traded on the New York Stock Exchange or in the over-the-counter market;
o convertible securities rated at least BBB by Standard & Poor's ("S&P")
or Fitch IBCA, Inc. ("Fitch"), or at least Baa by Moody's Investors
Service, Inc. ("Moody's"), or if not rated, are determined by the
adviser to be of comparable quality;
o 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;
o 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;
o zero coupon convertible securities; and
o 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.
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.
INVESTMENT RISKS. As with other mutual funds that invest primarily in equity
securities, the Fund is 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 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 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 Fund may invest in fixed income securities. The prices of fixed income
securities fluctuate inversely in relation to the direction of interest rates.
The prices of longer-term fixed income securities fluctuate more widely in
response to market interest rate changes. Bonds rate "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. 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.
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, 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.
U.S. GOVERNMENT SECURITIES
The types of U.S. government securities in which the Fund 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.
FOREIGN SECURITIES
The Fund may invest in foreign securities which are traded publicly in the
United States. Investments in foreign securities, particularly those of
non-governmental issuers, involve considerations which are not ordinarily
associated with investments in domestic issuers. These considerations include
the possibility of expropriation, the unavailability of financial information or
the difficulty of interpreting financial information prepared under foreign
accounting standards, less liquidity and more volatility in foreign securities
markets, the impact of political, social or diplomatic developments, and the
difficulty of assessing economic trends in foreign countries, the difficulty of
obtaining or enforcing court judgments abroad, restrictions on foreign
investments in other jurisdictions, difficulties in repatriation of capital
invested abroad, and difficulties in transaction settlements and the effect of
delay on shareholder equity. It may also be more difficult to enforce
contractual obligations abroad than would be the case in the United States
because of differences in the legal systems. Transaction costs in foreign
securities may be higher.
The Fund's 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 Fund's standards and objectives. The
Fund will only purchase securities issued in U.S. dollar denominations and will
not invest more than 15% of its total assets in foreign securities.
PUT AND CALL OPTIONS
The Fund may engage in or reserve the right to engage in put and call options.
The Fund may purchase put and call options on its portfolio securities. These
options will be used as a hedge to attempt to protect securities which the Fund
holds or will be purchasing against decreases or increases in value. The Fund
may also write (sell) put and call options on all or any portion of its
portfolio to generate income for the Fund. The Fund will write call options on
securities either held in its portfolio or which it has 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 Fund will segregate cash or U.S. Treasury
obligations with a value equal to or greater than the exercise price on the
underlying securities. The Fund will limit its purchase of options so that not
more than 20% of its net assets will be invested in option premiums. The 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 Fund 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 the Fund are not traded on an
exchange. The Fund purchases and write options only with investment dealers and
other financial institutions (such as commercial banks or savings associations)
deemed creditworthy by the 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 Fund may engage in or reserve the right to engage in financial futures and
options on futures. The Fund may purchase and sell financial futures contracts
to hedge all or a portion of its portfolio of securities against changes in
interest rates or as a hedge to attempt to protect securities which the Fund
holds against decreases in value. The 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 Fund 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 the 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, the Fund is entitled (but not
obligated) to sell a futures contract at the fixed price during the life of the
option.
The 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
Fund will use these transactions to attempt to protect its ability to purchase
portfolio securities in the future at price levels existing at the time it
enters into the transactions. When the 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, the 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, the Fund is
entitled (but not obligated) to purchase a futures contract at a fixed price at
any time during the life of the option.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures position and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets. When the Fund purchases futures
contracts or writes put options on futures contracts, an amount of cash and cash
equivalents equal to the underlying commodity value of the futures contracts
(less any related margin deposits) or equal to the exercise price of the put
options will be deposited in a segregated account with the Fund's custodian (or
the broker, if legally permitted) to collateralize the position and thereby
insure that the use of such futures contracts is unleveraged.
RISKS. When the 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 the Fund writes a call option, it retains the risk of a market
decline in the price of the underlying security, but gives up the right to
capital appreciation of that security above the "strike price" of the option.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the 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 Fund's ability
to establish and close out futures and options positions depends on this
secondary market.
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.
Also, the Fund will not purchase options to the extent that more than 5% of the
value of the Fund's total assets would be invested in premiums on open put
option positions. 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.
There are several risks accompanying the utilization of futures contracts to
effectively anticipate market transactions. First, positions in futures
contracts may be closed only on an exchange or board of trade that furnishes a
secondary market for such contracts. While the Fund plans to utilize futures
contracts only if there exists an active market for such contracts, there is no
guarantee that a liquid market will exist for the contracts at a specified time.
Furthermore, because, by definition, futures contracts look to projected price
levels in the future and not to current levels of valuation, market
circumstances may result in there being a discrepancy between the price of the
stock index future and the movement in the stock index. The absence of a perfect
price correlation between the futures contract and its underlying stock index
could stem from investors choosing to close futures contracts by offsetting
transactions, rather than satisfying additional margin requirements. This could
result in a distortion of the relationship between the index and futures market.
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.
In view of these considerations, the Fund will comply with the following
restrictions when purchasing and selling futures contracts. First, the 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 Fund will not enter into
these contracts for speculative purposes. Third, since the Fund does not
constitute a commodity pool, it will not market itself as such, nor serve as a
vehicle for trading in the commodities futures or commodity options markets. In
this regard, the Fund 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 Fund intends to claim an exclusion from
registration as a commodity pool operator under the regulations promulgated by
the CFTC.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of other open-end investment companies, as
well as closed-end investment companies. The Fund, however, will not own more
than 3% of the total outstanding voting stock of any investment company, invest
more than 5% of its total assets in any one investment company, or invest more
than 10% of its total assets in investment companies in general, unless
permitted to do so by order of the SEC.
The Fund 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 the Fund in shares of another
investment company would be subject to such duplicate expenses. The Fund will
invest in other investment companies primarily for the purposes of investing
their short-term cash on a temporary basis. The Fund's investment adviser will
waive its investment advisory fee on assets invested in securities of other
investment companies.
BORROWING MONEY
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the 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, the Fund may borrow up to one-third of the value of its
total assets. The Fund may pledge up to 15%, of the value of its assets to
secure such borrowings. This policy cannot be changed without the approval of
holders of a majority of the Fund's shares.
LENDING OF PORTFOLIO SECURITIES
In order to generate income, the Fund may lend portfolio securities on a
short-term or long-term basis, or both, up to one-third of the value of its
total assets to broker/dealers, banks, or other institutional borrowers of
securities. The Fund 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 the Fund without the approval of holders of a majority
of the Fund's shares.
There is the risk that when lending portfolio securities, the securities may not
be available to the 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.
REPURCHASE AGREEMENTS
The Fund 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 the 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 Fund or its 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
the 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 the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions such as broker/dealers which are deemed by the Fund's investment
adviser to be creditworthy pursuant to guidelines established by the Trustees.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Trustees, certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid, the Fund will limit its purchase together with
other illiquid securities including non-negotiable time deposits and repurchase
agreements providing for settlement in more than seven days after notice to 15%
of its net assets.
TEMPORARY INVESTMENTS
During times of unusual market conditions, for defensive purposes and to
maintain liquidity, the Fund may invest in cash and money market instruments,
such as the following:
o prime commercial paper (rated A-2 or above by S&P, Prime-2 or above by
Moody's Investors Service, Inc. ("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;
o 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 Federal
Deposit Insurance Corporation ("FDIC") or the Savings Association
Insurance Fund ("SAIF"). These instruments include certificates of
deposit, demand and time deposits, savings shares, Eurodollar
Certificates of Deposits, Eurodollar Time Deposits, Canadian Time
Deposits, and bankers' acceptances;
o securities issued and/or guaranteed as to payment of principal and
interest by the U.S. government, its agencies or instrumentalities;
o repurchase agreements; and
o 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 Fund may invest.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. The Fund engages in when-issued and delayed
delivery transactions only for the purpose of acquiring portfolio securities
consistent with the 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, the Fund may pay more/less than the market
value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Fund's
investment adviser deems it appropriate to do so. In addition, the Fund may
enter into transactions to sell its purchase commitments to third parties at
current market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits or
losses upon the sale of such commitments.
As a matter of operating policy, which may be changed without shareholder
approval, the 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 the Fund's net assets will not result in a violation
of any of the above restrictions.
PORTFOLIO TURNOVER. The Fund conducts portfolio transactions to accomplish its
investment objective, to invest new money obtained from selling its shares, and
to meet redemption requests. The Fund may dispose of portfolio securities at any
time if it appears that selling the securities will help the Fund achieve its
investment objective. The Fund's rate of portfolio turnover may exceed that of
certain other mutual funds with the same investment objective. A higher rate of
portfolio turnover involves correspondingly greater brokerage commissions and
other expenses which must be borne directly by the Fund and, thus, indirectly by
its shareholders. In addition, a high rate of portfolio turnover may result in
the realization of larger amounts of capital gains which, when distributed to
the Fund's shareholders, are taxable to them. Nevertheless, transactions for the
Fund's portfolio will be based only upon investment considerations and will not
be limited by any other considerations when the Fund's investment adviser deems
it appropriate to make changes in the Fund's portfolio.
TOWER MUTUAL FUNDS INFORMATION
MANAGEMENT OF TOWER MUTUAL FUNDS
BOARD OF TRUSTEES. Tower Mutual Funds is managed by a Board of Trustees. The
Trustees are responsible for managing the Trust's business affairs and for
exercising all of the Trust's powers except those reserved for the shareholders.
The Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with Tower
Mutual Funds, investment decisions for the Fund are made by Hibernia National
Bank, the Fund's investment adviser (the "Adviser"), subject to direction by the
Trustees. The Adviser continually conducts investment research and supervision
for the Fund and is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the assets of the Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee equal
to 0.75% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive a portion of its fee or reimburse the 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 the 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 Tower Mutual Funds.
As part of their regular banking operations, Hibernia National Bank may
make loans to public companies. Thus, it may be possible, from time to
time, for the 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 the Fund's portfolio manager since the Fund's inception
in _____ 1998. Mr. Cain is a Vice President and Trust Investment Officer
specializing in equity and balanced account management for Hibernia since May
1985. Mr. Cain is the investment manager of Hibernia Trust's Growth Stock Fund.
He has 38 years of investment management experience both in the brokerage and
trust industries. He earned his B.B.A. from the University of Mississippi.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for shares of the
Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is
the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan of Tower
Mutual Funds, the distributor may select brokers and dealers to provide
distribution and administrative services. The distributor may also select
administrators (including depository institutions such as commercial banks and
savings associations) to provide administrative services. Fees paid by the
distributor for these services with respect to Class B Shares of the 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 the Fund or class relate
directly to the net asset value of the shares of the Fund or class, it is
possible that fees paid by the Fund or class may be used to provide similar
services for other of the Trust's funds. In addition, the 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 the Fund, the distributor may sell, assign or
pledge its right to receive 12b-1 fees and contingent deferred sales charges to
finance payments made to brokers in connection with the sale of Class B Shares.
Actual distribution expenses for Class B Shares at any given time may exceed the
Rule 12b-1 fees and payments received pursuant to contingent deferred sales
charges. These unrecovered amounts, plus interest thereon, will be carried
forward and paid from future 12b-1 fees and payments received through contingent
deferred sales charges. If a distribution plan were terminated or not continued,
the Fund would not be contractually obligated to pay for any expenses not
previously reimbursed by the Fund or recovered through contingent deferred sales
charges.
The Glass-Steagall Act limits the ability of a depository institution (such as a
commercial bank or a savings association) to become an underwriter or
distributor of securities. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the capacities described above
or should Congress relax current restrictions on depository institutions, the
Trustees will consider appropriate changes in the services.
SHAREHOLDER SERVICING ARRANGEMENTS
Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of Federated
Investors is shareholder servicing agent (the "Shareholder Servicing Agent") for
Class B Shares of the Fund. The Fund may pay the Shareholder Servicing Agent a
fee based on the average daily net asset value of Class B Shares for which it
provides shareholder services. These shareholder services include, but are not
limited to, distributing prospectuses and other information, providing
shareholder assistance and communicating or facilitating purchases and
redemptions of Class B Shares. This fee will be computed at an annual rate equal
to 0.25% of Class B Shares' average daily net assets; however, the Shareholder
Servicing Agent may choose voluntarily to waive all or a portion of its fee at
any time or pay all or some of its fees to financial institutions or other
financial service providers.
FUND ADMINISTRATION
ADMINISTRATIVE SERVICES. Federated Administrative Services ("FAS"), Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, provides the Fund with
certain administrative personnel and services necessary to operate the Fund,
such as legal and accounting services. FAS provides these at an annual rate as
specified below:
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$50,000 per Fund. FAS may voluntarily choose to waive a portion of its fee.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling shares of the Funds and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Trustees.
EXPENSES OF THE FUND AND CLASS B SHARES
Holders of Class B Shares of the Fund pay their allocable portion of Trust and
Fund expenses.
The Trust expenses for which holders of Class B Shares pay their allocable
portion include, but are not limited to the cost of: organizing the Trust and
continuing its existence; registering the Trust; Trustees' fees; auditors' fees;
meetings of Trustees; legal fees of the Trust; association membership dues and
such non-recurring and extraordinary items as may arise.
Fund expenses for which holders of Class B Shares of the Fund pay their
allocable portion based on average daily net assets include, but are not limited
to: registering the Fund and shares of the Fund; investment advisory services;
taxes and commissions; custodian fees; insurance premiums; auditors' fees; and
such non- recurring and extraordinary items as may arise.
At present, the only expenses allocated to Class B Shares are expenses under the
Distribution Plan and the Shareholder Servicing Arrangements. The Trustees
reserve the right to allocate certain expenses to holders of Shares as they deem
appropriate ("Class Expenses"). In any case, Class Expenses would be limited to:
transfer agent fees as identified by the transfer agent as attributable to
holders of Class B Shares; printing and postage expenses related to preparing
and distributing materials such as shareholder reports, prospectuses and proxies
to current shareholders; registration fees paid to the SEC; expenses related to
administrative personnel and services as required to support holders of Class B
Shares; legal fees relating solely to Class B Shares; and Trustees fees incurred
as a result of issues relating solely to Class B Shares.
NET ASSET VALUE
The Fund's 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 the 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 the Fund may differ slightly due to the variability in daily net
income resulting from the different distribution charge.
On Monday through Friday, the Fund determines net asset value at the close of
the New York Stock Exchange, normally 3:00 p.m. (Central Standard Time), except
on: (i) days on which there are not sufficient changes in the value of the
Fund's portfolio securities that its net asset value might be materially
affected; (ii) days during which no shares are tendered for redemption and no
orders to purchase shares are received; and (iii) the following holidays: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
INVESTING IN THE FUND
SHARE PURCHASES
Shares of the Fund are sold on days on which the New York Stock Exchange is open
for business. Class B Shares of the Fund may be purchased through Hibernia
Investment Securities, Inc. ("HISI") or through brokers or dealers that have a
sales agreement with the distributor. In connection with the sale of shares of
the Fund, the distributor may from time to time offer certain items of nominal
value to any shareholder or investor. The Fund reserves the right to reject any
purchase request.
THROUGH HISI. Investors may purchase shares through HISI, at 1-800-999-0426.
Orders purchased through HISI are considered received when the Fund is notified
of the purchase order. Purchase orders must be received by HISI before 3:00 p.m.
(Central Standard Time) and must be transmitted by HISI to the Fund before 3:00
p.m. (Central Standard Time) in order for shares to be purchased at that day's
public offering price. It is the responsibility of HISI to transmit orders
promptly.
When payment is made with federal funds, the order is considered received
immediately. Federal funds should be wired as follows: Hibernia National Bank,
New Orleans, Louisiana; for Credit to: include name of Fund (if applicable,
"Class A or B Shares"), Title or name of account; and Wire Order Number. Shares
cannot be purchased by wire on holidays when wire transfers are restricted.
THROUGH AUTHORIZED BROKER/DEALERS. An investor may place an order through
authorized brokers and dealers to purchase Class B Shares of the Fund. Shares
will be purchased at the public offering price next determined after the Fund
receives the purchase request from HISI, which forwards the request to the
transfer agent. Purchase requests through registered broker/dealers must be
received by HISI and transmitted to the Fund before 3:00 p.m. (Central Standard
Time) in order for shares to be purchased at that day's public offering price.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund, by an investor is $1,000. Subsequent
investments must be in amounts of at least $100. The Fund may choose to waive
these minimum investment requirements for Hibernia National Bank or its
affiliates and for directors and employees of Hibernia National Bank.
WHAT SHARES COST
Shares of the Fund are sold at net asset value next determined after an order is
received.
CONTINGENT DEFERRED SALES CHARGE
Class B Shares of the 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:
YEAR OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
First 5.50%
Second 4.50%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
Redemptions will be processed in a manner intended to maximize the amount of
redemption which will not be subject to a contingent deferred sales charge. In
computing the amount of the applicable contingent deferred sales charge,
redemptions are deemed to have occurred in the following order: (1) shares
acquired through the reinvestment of dividends and long-term capital gains; (2)
shares held for more than six full years from the date of purchase; and (3)
shares held for fewer than seven years on a first-in, first-out basis.
No contingent deferred sales charge will be imposed on: (1) the portion of
redemption proceeds attributable to increases in the value of the account due to
increases in the net asset value per Share, (2) Shares acquired through
reinvestment of dividends and capital gains, (3) Shares held for more than six
years after the end of the calendar month of acquisition, (4) accounts following
the death or disability of a shareholder, (5) minimum required distributions to
a shareholder over the age of 70 1/2 from an IRA or other retirement plan, or
(6) involuntary redemptions by the Fund 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 the 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 B Shares of the Fund, HISI and any
authorized dealer will normally receive up to 100% of the contingent deferred
sales charge. A portion of this charge may be advanced to the dealer at the time
of purchase. Any portion of the 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 Fund, 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
Fund 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.
SYSTEMATIC INVESTMENT PROGRAM
Once the 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 the Fund
may apply for participation in this program through Hibernia National Bank or
HISI.
EXCHANGING SECURITIES FOR FUND SHARES
The Fund may accept securities in exchange for Fund shares. The 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 Fund, Federated Services Company, through its
subsidiary Federated Shareholder Services Company, maintains a share account for
each shareholder of record. Share certificates are not issued unless requested
by contacting Hibernia National Bank or HISI in writing. The Trust reserves the
right to discontinue the issuance of share certificates at its discretion.
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
DIVIDENDS
Dividends are declared and paid quarterly to all shareholders in the Fund on the
record date. Dividends are automatically reinvested in additional shares of the
Fund on payment dates at the ex-dividend date net asset value without a sales
charge, unless cash payments are requested by writing to the Fund, Hibernia
National Bank or HISI.
CAPITAL GAINS
Capital gains realized by the Fund, if any, will be distributed at least once
every 12 months.
EXCHANGE PRIVILEGE
Shareholders of any of the portfolios in the Trust are shareholders of Tower
Mutual Funds. Shareholders of Class B Shares may only exchange between
portfolios of the Trust which offer Class B Shares. Presently, the only
portfolios in the Trust which offer Class B Shares are Tower Capital
Appreciation Fund, Tower Cash Reserve Fund and the Fund. Shareholders of Class B
Shares of the Fund may exchange shares for Class B Shares of Tower Capital
Appreciation Fund and Tower Cash Reserve Fund through a telephone exchange
program.
EXCHANGING SHARES. Exchanges are made at net asset value without being assessed
a contingent deferred sales charge on the exchanged shares. To the extent that a
shareholder exchanges shares for Class B Shares of other Tower Funds, the time
for which the exchanged-for shares are to be held will be added to the time for
which exchanged-from shares were held for purposes of satisfying the applicable
holding period.
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 HISI.
EXCHANGE-BY-TELEPHONE. Instructions for exchanges between the Funds may be
given by telephone to HISI at 1-800-999-0426 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. 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 the 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, 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 net asset value, less any applicable sales charge
next determined after the 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 HISI or an authorized broker/dealer, or directed to the Fund.
BY TELEPHONE. A shareholder may redeem shares of the Fund by calling HISI to
request the redemption. Shares will be redeemed at the net asset value next
determined after the Fund receives the redemption request from HISI. Redemption
instructions given by telephone may be electronically recorded.
Redemption requests must be transmitted to the Fund before 3:00 p.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 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.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from 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 Fund, they may be liable for losses due to
unauthorized or fraudulent telephone instructions.
BY MAIL. Shareholders may redeem shares of the Fund by sending a written request
to 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 HISI. Shareholders should call HISI for assistance in
redeeming by mail.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than to
the shareholder of record must have signatures on written redemption requests
guaranteed by:
o a trust company or commercial bank whose deposits are insured by BIF,
which is administered by the FDIC;
o a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchanges;
o a savings bank or savings association whose deposits are insured by
SAIF, which is administered by the FDIC; or
o any other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed to the shareholder within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, shares of
the 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 the Fund. For this reason, payments
under this program should not be considered as yield or income on the
shareholder's investment in the 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 HISI. A
contingent deferred sales charge may be imposed on Class B Shares of the Fund.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund 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 the Fund. Before
shares are redeemed to close an account, the shareholder is notified in writing
and allowed 30 days to purchase additional shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Shares of the Fund give the shareholder one vote in Trustee elections and other
matters submitted to shareholders for vote. All shares of each Fund in Tower
Mutual Funds have equal voting rights, except that in matters affecting only a
particular Fund or class, only shareholders of that Fund or class are entitled
to vote. As a Massachusetts business trust, Tower Mutual Funds is not required
to hold annual shareholder meetings. Shareholder approval will be sought only
for certain changes in the Trust's or a Fund's operation and for the election of
Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the Trust's outstanding
shares.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Bank Holding Company Act of 1956 or
any affiliate thereof from sponsoring, organizing, or controlling a registered,
open-end investment company continuously engaged in the issuance of its shares,
and from issuing, underwriting, selling or distributing securities in general.
Such banking laws and regulations do not prohibit such a holding company or
affiliate from acting as investment adviser, transfer agent or custodian to such
an investment company or from purchasing shares of such a company as agent for
and upon the order of such a customer.
Some entities providing services to the Fund are subject to such banking laws
and regulations. They believe, based on the advice of their counsel, that they
may perform those services for the Fund contemplated by any agreement entered
into with the Fund 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 Fund will pay no federal income tax because the 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.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
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.
PERFORMANCE INFORMATION
From time to time the Fund may advertise its total return and yield.
Total return represents the change, over a specified period of time, in the
value of an investment in the 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 the 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. Yield does not
necessarily reflect income actually earned by the Fund and, therefore, may not
correlate to the dividends or other distributions paid to shareholders.
With respect to the Fund, total return and yield will be calculated separately
for Class A Shares and Class B Shares. Expense differences between Class A
Shares and Class B Shares may affect the performance of each class.
For Class A Shares of the Fund, the performance information normally reflects
the effect of the maximum sales charge which, if excluded, would increase the
total return and yield. For Class B Shares of the Fund, the performance
information reflects the effect of non-recurring charges, such as the contingent
deferred sales charge which, if excluded, would increase the total return and
yield. Occasionally, performance information which does not reflect the effect
of the sales charge or contingent deferred sales charge may be quoted in
advertising.
From time to time, advertisements for the Trust may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Trust's performance to certain indices.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares, Class A Shares. Class A Shares of
the Fund are sold at net asset value, plus an applicable front-end sales charge.
Class A Shares of the Fund are also subject to an initial investment of $1,000.
Class A and B Shares are subject to certain of the same expenses.
Class A Shares of the Fund are distributed with a 12b-1 Distribution Plan fee of
0.25%, but are not subject to a shareholder servicing fee. Class B Shares of the
Fund are distributed with a 12b-1 Distribution Plan fee of 0.75%, and are
subject to a shareholder servicing fee of 0.25%.
Expense differences between classes may affect the performance of each class of
shares.
To obtain more information and a prospectus for Class A Shares, investors may
call 1-800-999-0124.
<PAGE>
ADDRESSES
Tower Mid Cap Equity 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: Tower Mutual Funds
P.O. Box 61540
New Orleans, Louisiana 70161
Custodian
Hibernia National Bank Attention: Tower Mutual Funds
P.O. Box 61540
New Orleans, Louisiana 70161
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder
Services Company P.O. Box 8609
Boston, Massachusetts 02266-8609
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
TOWER MID CAP EQUITY FUND
(A PORTFOLIO OF THE TOWER MUTUAL FUNDS)
CLASS A SHARES
CLASS B SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus
of Tower Cash Reserve Fund (the "Fund"), a portfolio of Tower Mutual Funds
(the "Trust") dated June __, 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 June __, 1998
SHARES OF THE FUND 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 FUND INVOLVES INVESTMENT RISKS, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED. [GRAPHIC OMITTED]
Cusip
________ (6/98)
<PAGE>
TABLE OF CONTENTS
I
GENERAL INFORMATION ABOUT THE FUND 1
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND 1
When-Issued and Delayed Delivery Transactions 1
Lending of Portfolio Securities 1
Reverse Repurchase Agreements 1
Futures and Options Transactions 2
Ratings 6
Portfolio Turnover 6
INVESTMENT LIMITATIONS 6
TOWER MUTUAL FUNDS MANAGEMENT 8
Officers and Trustees 8
Fund Ownership 9
Trustees Compensation 10
Trustee Liability 10
INVESTMENT ADVISORY SERVICE 10
Adviser to the Trust 10
Advisory Fees 10
BROKERAGE TRANSACTIONS 10
OTHER SERVICES 11
Trust Administration 11
Transfer Agent, Dividend Disbursing Agent, and
Portfolio Accounting Services 11
Custodian 11
Independent Auditors 11
PURCHASING SHARES 11
Distribution Plan 11
Shareholder Services (Class B Shares Only) 12
Conversion To Federal Funds 12
DETERMINING NET ASSET VALUE 12
Determining Market Value of Securities12
EXCHANGE PRIVILEGE 12
Requirements for Exchange 12
Making an Exchange 13
REDEEMING SHARES 13
Redemption in Kind 13
Massachusetts Partnership Law 13
TAX STATUS 13
The Funds' Tax Status 13
Shareholders' Tax Status 13
Capital Gains 14
TOTAL RETURN 14
YIELD 14
PERFORMANCE INFORMATION 14
Economic and Market Information 15
APPENDIX 16
<PAGE>
GENERAL INFORMATION ABOUT THE FUND
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 (the "Funds") which are as
follows: Tower Capital Appreciation Fund ("Capital Appreciation Fund"), Tower
Louisiana Municipal Income Fund ("Louisiana Municipal Income Fund"), Tower Total
Return Bond Fund ("Total Return Bond Fund"), Tower U.S. Government Income Fund
("U.S. Government Income Fund"), Tower Cash Reserve Fund ("Cash Reserve Fund"),
Tower U.S. Treasury Money Market Fund ("U.S.
Treasury Money Market Fund") and Tower Mid Cap Equity Fund ("Mid Cap Equity
Fund").
Capital Appreciation Fund, Cash Reserve Fund and Mid Cap Equity Fund currently
offer two classes of shares, which are designated as Class A Shares and Class B
Shares. This Statement relates only to Class A Shares and Class B Shares of
Tower Mid Cap Equity Fund (the "Fund").
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND
The Prospectus discusses the objective of the Fund and the policies it employs
to achieve its objective. The following discussion supplements the description
of the Fund's investment policies in the Prospectus.
The Fund's investment objective 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.
TYPES OF INVESTMENTS
Acceptable investments for the Fund include but are not limited to: convertible
securities, money market instruments, common stocks, preferred stocks, corporate
bonds, notes and put options on stocks.
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 CONVERTIBLE SECURITIES
The Fund 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 the 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 ("TIGRS") and Certificates of Accrual on
Treasuries ("CATS"). The underlying U.S. Treasury bonds and notes themselves are
held in book-entry form at the Federal Reserve Bank or, in the case of bearer
securities (i.e., unregistered securities which are owned ostensibly by the
bearer of holder thereof), in trust on behalf of the owners thereof.
In addition, the Treasury has facilitated transfers of ownership of zero-coupon
securities by accounting separately for the beneficial ownership of particular
interest coupons and corpus payments on Treasury securities through the Federal
Reserve book-entry record-keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program,
the 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 Fund 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.
WARRANTS
The 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.
FUTURES AND OPTIONS TRANSACTIONS
The Fund may engage in or reserve the right to engage in put and call
options, financial futures, and options on futures as discussed in the
prospectus. Financial futures may include stock index futures.
The Fund 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
Fund 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 Fund 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.
The 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, the Fund will normally close out its option by
selling an identical option. If the hedge is successful, the proceeds
received by the Fund upon the sale of the second option will be large enough
to offset both the premium paid by the Fund for the original option plus the
realized decrease in value of the hedged securities.
Alternately, the 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 the 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, the 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 the 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, the Fund's obligation under a call option on a future (to sell a
futures contact) costs less to fulfill, causing the value of the 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 the Fund's fixed income securities which is occurring as
interest rates rise.
Prior to the expiration of a call written by the Fund, or exercise of it by
the buyer, the 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 Fund 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 the 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, the
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 the Fund for the initial option.
PURCHASING CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
When the 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 the
Fund's option position. When the market price of the underlying futures
contract increases above the strike price plus premium paid, the Fund could
exercise its option and buy the futures contract below market price.
LIMITATION ON OPEN FUTURES POSITION
The 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, the 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, the 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 the 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, the Fund will mark-to-market its open futures positions.
The Fund is also required to deposit and maintain margin when they write
call options on futures contracts.
PURCHASING PUT AND CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may purchase put and call options on portfolio securities to
protect against price movements in particular securities. 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. A
call option gives the Fund, in return for a premium, the right to buy the
underlying security from the seller.
The 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, 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. As a writer of a put option, the Fund has the
obligation to purchase a security from the purchaser of the option upon the
exercise of the option.
The 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, the 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 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.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the 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 Fund may lend portfolio securities. The collateral received when the 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. The 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 Fund may invest in reverse repurchase agreements. These transactions are
similar to borrowing cash. In a reverse repurchase agreement, the 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 the
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 the 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 the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the 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.
RESTRICTED SECURITIES
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission staff
position set forth in the adopting release for Rule 144A under the Securities
Act of 1933. 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 other 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.
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.
PORTFOLIO TURNOVER
The 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. The Adviser does not anticipate
that the Fund's portfolio turnover rate will exceed 100%.
INVESTMENT LIMITATIONS
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the value of its total assets, the 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.
The Fund will not acquire more than 10% of the outstanding voting securities
of any one issuer.
(For purposes of the foregoing limitations, the Fund considers 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
The Fund will not invest 25% or more of its total assets in securities of
issuers having their principal business activities in the same industry.
However, investing in U.S. government obligations shall not be considered
investments in any one industry.
INVESTING IN COMMODITIES
The 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.
ISSUING SENIOR SECURITIES AND BORROWING
The 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 total assets including the amount borrowed. The 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. The 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, the 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.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate securities, except to
secure permissible borrowings. In those cases, the Fund may pledge assets
having a value of 15% of its assets taken at cost.
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
The 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.
UNDERWRITING
The 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.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate although the 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.
LENDING CASH OR SECURITIES
The 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.
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
The 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 Fund will not purchase securities of a company for the purpose of
exercising control or management.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its 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 Fund 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 the Fund in shares of another investment company would be
subject to such duplicate expenses. The Fund 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
The 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.
INVESTING IN RESTRICTED AND ILLIQUID SECURITIES
The 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.
The Fund has no present intent to borrow money, pledge securities or invest
in illiquid securities in excess of 5% of the value of its net assets in the
coming fiscal year.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment a later increase or decrease in percentage resulting
from any change in value of the Fund's net assets will not result in a violation
of any of the above restrictions.
TOWER MUTUAL FUNDS MANAGEMENT
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Hibernia National Bank,
Hibernia Corporation, Federated Investors, Federated Securities Corp., and
Federated Administrative Services.
Edward C. Gonzales*+
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President, Trustee and Treasurer
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds;
President, Executive Vice President and Treasurer of some of the Funds.
Robert L. diBenedetto, M.D.
781 Colonial Drive
Baton Rouge, LA
Birthdate: April 14, 1928
Trustee
Gynecologist; President/CEO, Louisiana Medical Mutual Insurance Company;
Chairman of Board of Directors and Medical Director, LAMMICO Practice
Management, L.L.C.; Medical Director Emeritus, Women's Hospital.
<PAGE>
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.
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.
*This Trustee is deemed to be an "interested person" of the Fund or Tower Mutual
Funds as defined in the Investment Company Act of 1940.
+Members of Tower Mutual Funds' Executive Committee. The Executive
Committee of the Board of Trustees handles the responsibilities of the Board of
Trustees between meetings of the Board.
FUND OWNERSHIP
Officers and Trustees of the Trust own less than 1% of each Fund's outstanding
shares.
<PAGE>
TRUSTEES COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM
TRUST THE TRUST*+
Edward C. Gonzales $0
President, Treasurer and Trustee
Robert L. di Benedetto, $12,000
Trustee
James A. Gayle, Sr., $12,000
Trustee
J. Gordon Reische, $12,000
Trustee
*Information is furnished for the fiscal year ended August 31, 1997. The Trust
is the only investment company in the complex.
+The aggregate compensation is provided for the Trust which is comprised of
6 portfolios.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees are not liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICE
ADVISER TO THE TRUST
The Fund'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, the Fund, or any shareholder of
the 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.
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 Fund 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 Fund 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.
Although investment decisions for the Fund are made independently from those of
other accounts managed by the Adviser, investments of the type the Fund may make
may also be made by those other accounts. When the Fund 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
Fund or the size of the position obtained or disposed of by the Fund. In some
cases, however, it is believed that coordination and the ability to participate
in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
TRUST ADMINISTRATION
Federated Administrative Services, which is a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee described
in the prospectus.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING SERVICES
Federated Shareholder Services Company, Boston, Massachusetts, a subsidiary of
Federated Services Company, is registered transfer agent for the shares of the
Fund and dividend disbursing agent for the Fund. It also provides certain
accounting and recordkeeping services with respect to the Fund's portfolio 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 Fund's accounting records. The
fee is based on the level of the 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 the Fund's
average aggregate daily net assets, plus out-of-pocket expenses.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, Pittsburgh,
Pennsylvania.
PURCHASING SHARES
Class A Shares of the Fund are sold at its net asset value with a front end
sales charge. Class B Shares of the Fund are sold at net asset value and are
subject to a contingent deferred sales charge if redeemed within six full years
of purchase. Shares of the Fund 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 Fund."
DISTRIBUTION PLAN
Tower Mutual Funds has adopted a Plan pursuant to Rule 12b-1 which was
promulgated by the Securities and Exchange Commission pursuant to the Investment
Company Act of 1940. The Plan permits the payment of fees to brokers for
distribution and administrative services and to administrators for
administrative services. The Plan is designed to (i) stimulate brokers to
provide distribution and administrative support services to shareholders and
(ii) stimulate administrators to render administrative support services to
shareholders. The administrative services are provided by a representative who
has knowledge of the shareholder's particular circumstances and goals. By
adopting the Plan, the Trustees expect that the Fund 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 Fund in
seeking to achieve their investment objectives. By identifying potential
investors whose needs are served by the Fund's objective, and properly servicing
these accounts, the 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.
<PAGE>
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.
CONVERSION TO FEDERAL FUNDS
It is the Fund's 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 Fund generally changes each day. The days on which the
net asset value is calculated by the Fund is described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's 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 Fund 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.
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 the Fund may exchange into Class B Shares of Capital Appreciation
Fund.
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
The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Shareholder redemptions for Class B Shares of
the Fund may be subject to a contingent deferred sales charge. Redemption
procedures are explained in the 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
The Fund is obligated to redeem shares solely in cash up to $250,000, or 1%
of the Fund's net asset value, whichever is less, for any one shareholder within
a 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that payments should be in kind. In such a case, the Trust will pay
all or a portion of the remainder of the redemption in portfolio instruments,
valued in the same way as net asset value is determined. The portfolio
instruments will be selected in a manner that the Trustees deem fair and
equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur transaction costs.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument the Trust or its Trustees
enter into or sign.
In the unlikely event a shareholder is held personally liable for obligations of
the Trust, Tower Mutual Funds is required to use its property to protect or to
compensate the shareholder. On request, the Trust will defend any claim made and
pay any judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust cannot meet its obligations to indemnify shareholders and to
pay judgments against them from its assets.
TAX STATUS
THE FUND'S TAX STATUS
The Fund 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, the 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 will be treated as
long-term capital gains regardless of how long shareholders have held Fund
shares.
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.
YIELD
The yield for the Fund is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This value is then annualized using semi-annual
compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a twelve month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by the Fund because of certain adjustments
required by the Securities and Exchange Commission and therefore, may not
correlate to the dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
the performance will be reduced for those shareholders paying those fees.
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 Fund's 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 Fund's 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 Fund uses 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.
OSTANDARDS & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a
composite index of common stocks in industry, transportation, and
financial and public utility companies, compares total returns of funds
whose portfolios are invested primarily in common stocks. In addition, the
Standard & Poor's index assumes reinvestment of all dividends paid by
stock listed on the index. Taxes due on any of these distributions are not
included, nor are brokerage or other fees calculated in the Standard &
Poor's figures.
oLEHMAN BROTHERS GOVERNMENT/CORPORATE TOTAL INDEX is compromised of
approximately 5,000 issues which include: non-convertible bonds publicly
issued by the U.S. government or its agencies; corporate bonds guaranteed
by the U.S. government and quasi-federal corporations; and publicly
issued, fixed rate, non-convertible domestic bonds of companies in
industry, public utilities, and finance. The average maturity of these
bonds approximates nine years. Tracked by Lehman Brothers, Inc., the index
calculates total returns for one-month, three-months, twelve months, and
ten-year periods and year-to-date.
OSALOMON BROTHERS AAA-AA CORPORATE INDEX calculates total returns of
approximately 775 issues which include long-term, high grade domestic
corporate taxable bonds, rated AAA-AA with maturities of twelve years or
more and companies in industry, public utilities, and finance.
OMERRILL LYNCH CORPORATE & GOVERNMENT MASTER INDEX is an unmanaged index
comprised of approximately 4,821 issues which include corporate debt
obligations rated BBB or better and publicly issued, non-convertible
domestic debt of the U.S. government or any agency thereof. These quality
parameters are based on composite of rating assigned by Standard and
Poor's Ratings Group and Moody's Investors Service, Inc. Only notes and
bonds with a minimum maturity of one year are included.
OMERRILL LYNCH CORPORATE MASTER INDEX is an unmanaged index comprised of
approximately 4,356 corporate debt obligations rated BBB or better. These
quality parameters are based on composites of ratings assigned by Standard
and Poor's Ratings Group and Moody's Investors Service, Inc. Only bonds
with a minimum maturity of one year are included.
OSALOMON BROTHERS BROAD INVESTMENT-GRADE ("BIG") BOND INDEX is designed to
provide the investment-grade bond manager with an all-inclusive universe
of institutionally traded U.S. Treasury, agency, mortgage and corporate
securities which can be used as a benchmark. The BIG Index is market
capitalization-weighted and includes all fixed rate bonds with a maturity
of one year or longer and a minimum of $50-million amount outstanding at
entry ($200 million for mortgage coupons) and remain in the index until
their amount falls below $25 million.
OMORNINGSTAR, INC., an independent rating service , is the publisher of
the bi-weekly MUTUAL FUNDS VALUES. MUTUAL FUNDS VALUES rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings are
effective for two weeks.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund'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 Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Trust may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by the Trust's portfolio managers and their views and analysis on
how such developments could affect the Funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute ("ICI"). For example, according to the ICI,
thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrust over $4.4 trillion to the more than 6,700 funds available.
<PAGE>
APPENDIX
STANDARD AND POOR'S BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated
AA has a very strong capacity to pay interest and repay principal and differs
from the higher rated issues only in small degree. A--Debt rated A has a strong
capacity to pay interest and repay principal although it is somewhat more
susceptible to the adverse effects 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. NR--Indicates that no public rating has been requested, that there
is insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy. PLUS (+) OR
MINUS (-):--The ratings from AA to BBB may be modified by the addition of a plus
or minus sign to show relative standing within the major rating categories.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS 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 comprise 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 sometime 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. NR--Not rated by Moody's. FITCH IBCA, INC. LONG-TERM
DEBT RATINGS AAA--Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events. AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds rated in
the AAA and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F-1+. A--Bonds
considered to be investment grade and of high credit quality. The obligor's
ability to pay interest and repay principal is considered to be strong, but may
be more vulnerable to adverse changes in economic conditions and circumstances
than bonds with higher ratings. BBB--Bonds considered to be investment grade and
of satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse impact on these
bonds, and therefore, impair timely payment. NR--NR indicates that Fitch does
not rate the specific issue. STANDARD AND POOR'S COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. The issues determined to possess
overwhelming safety characteristics are denoted with a plus (+) sign
designation. A-2--Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1. MOODY'S INVESTORS SERVICES, INC. COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (for 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:
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earning coverage of fixed financial charges
and high internal cash generation; and well-established access to a range of
financial markets and assured sources of alternate liquidity. P-2--Issuers rated
PRIME-2 (for 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. FITCH IBCA, INC.
SHORT-TERM RATINGS 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 to this rating
reflect an assurance of 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 the F-1+ and F-1 categories.
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) (1-6) Financial Statements (Incorporated by reference to
the Annual Report of the Registrant dated August 31, 1997,
File Nos. 811-5536 and 33-21321). (7) To be filed by
Amendment.
(b) Exhibits:
(1) (i) Conformed copy of Declaration of Trust of the
Registrant (5.);
(ii) Form 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) Form 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;+ (iii) Exhibit B to Administrative Support
and Distributor's Contract of the Registrant;+ (iv) Form
of Mutual Funds Sales and Service Agreement;+
(7) Not applicable;
(8) (i) Conformed copy of Custodian Agreement of the
Registrant (6.); (ii) Conformed copy of Transfer Agency
and Service Agreement of the Registrant (5.); (iii)
Conformed copy of Administrative Services Agreement of
the Registrant (5.);
+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Registration
Statement on Form N-1A filed April 15, 1988. (File Nos. 33-21321 and
811-5536)
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed April 27, 1989. (File Nos. 33-21321 and
811-5536)
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 11 filed October 28, 1993. (File Nos. 33-21321 and 811-5536)
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 filed December 28, 1994. (File Nos. 33-21321 and 811-5536)
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 filed October 28, 1996. (File Nos. 33-21321 and 811-5536)
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)
<PAGE>
(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) 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;(8.)
(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 Distribution Plan;+
(iii) Amendments No. 1,2,3 and 4 to Distribution Plan;+
(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;+
Item 25. Persons Controlled by or Under Common Control with Registrant:
None.
+ 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)
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 10 on form N-1A filed April 23, 1993. (File Nos. 33-21321 and
811-5536)
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 11 filed October 28, 1994. (File Nos. 33-21321 and 811-5536)
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 filed October 28, 1996. (File Nos. 33-21321 and 811-5536)
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)
(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.(8.) (18) Conformed Copy of
Multiple Class Plan;(7.) (19) Conformed copy of Power of
Attorney (5.);
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of March 17, 1998
Shares of beneficial interest
Tower Capital Appreciation Fund
Class A Shares 1,813
Class B Shares 713
Tower U.S. Government Income
Fund 1,091
Tower Louisiana Municipal Income
Fund 1,355
Tower Total Return Bond Fund 358
Tower Cash Reserve Fund
Class A Shares 1,674
Class B Shares 1
Tower U.S. Treasury Money Market
Fund 2,870
Tower Mid Cap Equity Fund
Class A Shares Not Currently Effective
Class B Shares Not Currently Effective
Item 27. Indemnification: (1)
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)
<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 Tower Mutual Funds. The executive
officers and directors of the Adviser and any other business,
profession, vocation or employment of a substantial nature in which
each such officer and director is or has been engaged during the
past two years is set forth below. Unless otherwise noted, the
position listed under Other Business, Profession, Vocation or
Employment is with Hibernia National Bank.
Other Substantial
Position with Business, Profession,
Name the Adviser Vocation, Employment
Robert H. Boh Chairman and Director Chairman, 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; 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
Donald J. Nalty Vice Chairman and Director
Gerald F. Pavlas 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 H. Duke Shackelford
E. R. Campbell Laura A. Leach Janee M. Tucker
Richard W. Freeman, Jr. James R. Murphy Virginia E. Weinmann
Stephen A. Harsel Donald J. Nalty Robert E. Zetzmann
Dick H. Hearin
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:
<PAGE>
111 Corcoran Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund,
Inc.; Federated ARMs Fund; Federated 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 Investment Portfolios; Federated Investment Trust; Federated
Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond
Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; High Yield Cash Trust; Independence One Mutual Funds; Intermediate
Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Marshall Funds, Inc.; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market Obligations Trust II; Money
Market Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree
Funds; RIMCO Monument Funds; SouthTrust Vulcan Funds; Star Funds; Targeted
Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The Virtus
Funds; The Wachovia Funds; The Wachovia Municipal Funds; Tower Mutual Funds;
Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations;
Vision Group of Funds, Inc.; and World Investment Series, Inc.
Federated Securities Corp. also acts as principal underwriter for the following
closed-end investment company: Liberty Term Trust, Inc.- 1999.
<PAGE>
(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
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice President,
Federated Investors Tower President, Federated, Treasurer, and
Pittsburgh, PA 15222-3779 Securities Corp. Trustee
Thomas R. Donahue Director, Assistant Secretary
Federated Investors Tower and Assistant Treasurer
Pittsburgh, PA 15222-3779 Federated Securities Corp
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Raymond Hanley Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Brian G. Kelly Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert M. Rossi Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(c) Not applicable.
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and Rules 31a-1 through 31a-3
promulgated thereunder are maintained at one of the following
locations:
Registrant 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 Pittsburgh, PA 15222-3779
("Administrator")
Hibernia National Bank 313 Carondelet Street
("Adviser") New Orleans, LA 70130
Hibernia National Bank 313 Carondelet Street
("Custodian") New Orleans, LA 70130
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.
Registrant hereby undertakes to file a post-effective amendment on
behalf of Tower Mid Cap Equity Fund, using financial statements for
Tower Mid Cap Equity Fund, which need not be certified, within four
to six months from the effective date of Post-Effective Amendment
No. 20.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, TOWER MUTUAL FUNDS, certifies
that it 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 25th day of March, 1998.
TOWER MUTUAL FUNDS
BY: /s/ Gail Cagney
Gail Cagney, Assistant Secretary
Attorney in Fact for Edward C. Gonzales
March 25, 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 March 25, 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 under Item 601/Reg. S-K
FORM OF
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.
Robert L. diBenedetto Edward C. Gonzales
James A. Gayle, Sr. J. Gordon Reische
Exhibit 5(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
FORM OF
EXHIBIT G
TOWER MID CAP EQUITY 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 10th day of March, 1998.
HIBERNIA NATIONAL BANK
By:
Name:
Title:
TOWER MUTUAL FUNDS
By:
Name:
Title:
Exhibit 6(ii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
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 #4
to Exhibit A
to
Administrative Support and Distributor's Contract
TOWER MUTUAL FUNDS
Tower Cash Reserves Fund
Class A Shares
Tower Mid-Cap Equity Fund
Class A Shares
In compensation for the services provided pursuant to this Agreement, FSC will
be paid a monthly fee computed at an annual rate of 0.25 of 1% of the average
aggregate net asset value of the above-named fund or class held during the
month.
Tower Cash Reserve Fund
Class B Shares
Tower Mid-Cap Equity 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.
Dated: March 10, 1998
Exhibit 6(iii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
Exhibit B
to
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.
Exhibit 6(iv) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
FORM OF
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.; that its
customers' accounts are insured by the Securities Investors
Protection Corporation ("SIPC"); 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 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 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: Date:
Name:
Title:
FEDERATED SHAREHOLDER SERVICES
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
By: Date:
Name:
Title:
---------------------------------------
Financial Institution Name
(Please Print or Type)
---------------------------------------
Address
---------------------------------------
City State Zip Code
By:______________________________
Authorized Signature
---------------------------------------
Title
---------------------------------------
Print Name or Type Name
Dated:_____________________
<PAGE>
EXHIBIT 1 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
Exhibit 9(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
EXHIBIT 1 TO THE
AGREEMENT
FOR
FUND ACCOUNTING,
SHAREHOLDER RECORDKEEPING,
AND
CUSTODY SERVICES PROCUREMENT
FUND
Tower Capital Appreciation Fund
Class A Shares
Class B Shares
Tower Cash Reserve Fund
Class A Shares
Class B Shares
Tower Louisiana Municipal Income Fund
Tower Mid-Cap Equity Fund
Class A Shares
Class B Shares
Tower Total Return Bond Fund
Tower U.S. Government Income Fund
Tower U.S. Treasury Money Market Fund
AS REVISED: MARCH 10, 1998
Exhibit 15(ii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
FORM OF
RULE 12B-1 AGREEMENT
This Agreement is made between the Financial Institution executing this
Agreement ("Administrator") and Federated Securities Corp. ("FSC") for the
mutual funds (referred to individually as the "Fund" and collectively as the
"Funds") for which FSC serves as Distributor of shares of beneficial interest or
capital stock ("Shares") and which have adopted a Rule 12b-1 Plan ("Plan") and
approved this form of agreement pursuant to Rule 12b-1 under the Investment
Company Act of 1940. In consideration of the mutual covenants hereinafter
contained, it is hereby agreed by and between the parties hereto as follows:
1. FSC hereby appoints Administrator to render or cause to be rendered
sales and administrative support services to the Funds with respect to the
Classes thereof and their shareholders.
2. The services to be provided under Paragraph 1 may include, but are
not limited to, the following:
(a) communicating account openings through computer terminals located on
the Administrator's premises ("computer terminals"), through a
toll-free telephone number or otherwise;
(b) communicating account closings via the computer terminals, through a
toll-free telephone number or otherwise;
(c) entering purchase transactions through the computer terminals, through
a toll-free telephone number or otherwise;
(d) entering redemption transactions through the computer terminals,
through a toll-free telephone number or otherwise;
(e) electronically transferring and receiving funds for Fund Share
purchases and redemptions, and confirming and reconciling all such
transactions;
(f) reviewing the activity in Fund accounts;
(g) providing training and supervision of its personnel;
(h) maintaining and distributing current copies of prospectuses and
shareholder reports;
(i) advertising the availability of its services and products;
(j) 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
(k) responding to customers' and potential customers' questions about the
Funds.
The services listed above are illustrative. The Administrator is not required to
perform each service and may at any time perform either more or fewer services
than described above.
3. During the term of this Agreement, FSC will pay the Administrator fees
for each Fund as set forth in a written schedule delivered to the Administrator
pursuant to this Agreement. FSC's fee schedule for Administrator may be changed
by FSC sending a new fee schedule to the Administrator pursuant to Paragraph 12
of this Agreement. For the payment period in which this Agreement becomes
effective or terminates, there shall be an appropriate proration of the fee on
the basis of the number of days that the Rule 12b-1 Agreement is in effect
during the quarter.
4. The Administrator 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, the Administrator 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.
5. The Administrator 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.
6. The Administrator 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 Trustees of the
Fund or Funds constitutes willful misfeasance, bad faith, gross negligence or
reckless disregard of their duties. This paragraph 6 will survive the term of
this Agreement.
<PAGE>
7. 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
Trustees of the Fund, including a majority of the members of the Board of
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 Plan or in
any related documents to the Plan ("Disinterested Trustees") cast in person at a
meeting called for that purpose.
8. Notwithstanding paragraph 7, this Agreement may be terminated as
follows:
(a) at any time, without the payment of any penalty, by the vote of a
majority of the Disinterested 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;
(b) automatically in the event of the Agreement's assignment as defined
in the Investment Company Act of 1940 or upon the termination of the
"Administrative Support and Distributor's Contract" or
"Distributor's Contract" between the Fund and FSC; and
(c) by either party to the Agreement without cause by giving the other
party at least sixty (60) days' written notice of its intention to terminate.
9. The termination of this Agreement with respect to any one Fund will not
cause the Agreement's termination with respect to any other Fund.
10. The Administrator 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 or its
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.
11. This Agreement supersedes any prior service agreements between the
parties for the Funds.
12. This Agreement may be amended by FSC from time to time by the
following procedure. FSC will mail a copy of the amendment to the
Administrator's address, as shown below. If the Administrator does not object to
the amendment within thirty (30) days after its receipt, the amendment will
become part of the Agreement. The Administrator's objection must be in writing
and be received by FSC within such thirty days.
<PAGE>
13. This Agreement shall be construed in accordance with the Laws of the
Commonwealth of Pennsylvania.
ADMINISTRATOR
Address
City State Zip Code
Dated:
By:
Authorized Signature
Title
Print Name of Authorized Signature
FEDERATED SECURITIES CORP.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
By:
Name:
Title:
<PAGE>
Amendment No. 1
to
Schedule A to Rule 12b-1 Agreement with
Federated Securities Corp. ("FSC")
TOWER MUTUAL FUNDS
Portfolios
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 ("TCAF")
Class A Shares October 14, 1988
Class B Shares November 28, 1996
Tower Cash Reserve Fund ("TCRF")
Class A Shares October 14, 1988
Class B Shares March 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
Administrative Fees
1. During the term of this Agreement, FSC will pay Administrator a
quarterly fee in respect of each Fund. With respect to TCAF Class A Shares, TCRF
Class A Shares, TLMIF, TUSGIF, TTRBF, and TUSTMMF, this fee will be computed at
the annual rate of .25 of 1% and, with respect to TCAF Class B Shares, at an
annual rate of .75 of 1% of the average net asset value of Shares held during
the quarter in accounts for which the Administrator provides services under this
Agreement, so long as the average net asset value of Shares in each Fund during
the quarter equals or exceeds such minimum amount as FSC shall from time to time
determine and communicate in writing to the Administrator.
2. For the quarterly period in which the Administrative Agreement becomes
effective or terminates, there shall be an appropriate proration of any fee
payable on the basis of the number of days that the Agreement is in effect
during the quarter.
Dated: March 10, 1998
<PAGE>
Amendment No. 2
to
Schedule A to Rule 12b-1 Agreement with
Federated Securities Corp. ("FSC")
TOWER MUTUAL FUNDS
Portfolios
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 ("TCAF")
Class A Shares October 14, 1988
Class B Shares November 28, 1996
Tower Cash Reserve Fund ("TCRF")
Class A Shares October 14, 1988
Class B Shares March 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 Shares March 10, 1998
Class B Shares March 10, 1998
Administrative Fees
1. During the term of this Agreement, FSC will pay Administrator a
quarterly fee in respect of each Fund. With respect to TCAF Class A Shares, TCRF
Class A Shares, TMCEF Class A Shares, TLMIF, TUSGIF, TTRBF, and TUSTMMF, this
fee will be computed at the annual rate of .25 of 1% and, with respect to TCAF
Class B Shares, TCRF Class B Shares and TMCEF Class B Shares, at an annual rate
of .75 of 1% of the average net asset value of Shares held during the quarter in
accounts for which the Administrator provides services under this Agreement, so
long as the average net asset value of Shares in each Fund during the quarter
equals or exceeds such minimum amount as FSC shall from time to time determine
and communicate in writing to the Administrator.
2. For the quarterly period in which the Administrative Agreement becomes
effective or terminates, there shall be an appropriate proration of any fee
payable on the basis of the number of days that the Agreement is in effect
during the quarter.
Dated: March 10, 1998
Exhibit 15(iii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
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 Cash Reserve 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
<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 Cash Reserve 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 01, 1993
<PAGE>
Amendment No. 3 to
Exhibit A
of the Plan
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 Plan
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 September 11, 1996.
**Existing shares were redesignated as Class A Shares on March 10, 1998.
Dated: March 10, 1998
Exhibit 15(iv) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
Amendment No. 1
to
TOWER MUTUAL FUNDS
Schedule A to Rule 12b-1 Agreement with
Federated Securities Corp. ("FSC")
Portfolios
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 ("TCAF")
Class A Shares1 October 14, 1988
Class B Shares November 28, 1996
Tower Cash Reserve Fund ("TCRF") October 14, 1988
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
Administrative Fees
1. During the term of this Agreement, FSC will pay Administrator a
quarterly fee in respect of each Fund. With respect to TCAF Class A Shares,
TCRF, TLMIF, TUSGIF, TTRBF, and TUSTMMF, this fee will be computed at the annual
rate of .25 of 1% and, with respect to TCAF Class B Shares, at an annual rate of
.75 of 1% of the average net asset value of Shares held during the quarter in
accounts for which the Administrator provides services under this Agreement, so
long as the average net asset value of Shares in each Fund during the quarter
equals or exceeds such minimum amount as FSC shall from time to time determine
and communicate in writing to the Administrator.
2. For the quarterly period in which the Administrative Agreement becomes
effective or terminates, there shall be an appropriate proration of any fee
payable on the basis of the number of days that the Agreement is in effect
during the quarter.
Exhibit 15(viii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
EXHIBIT B
TO THE
SHAREHOLDER SERVICES AGREEMENT
Tower Cash Reserve Fund
Class B Shares
Tower Mid-Cap Equity Fund
Class B Shares
Shareholder Service Fees
1. During the term of this Agreement, the Funds will pay Provider a
quarterly fee. This fee will be computed at the annual rate of 0.25 of 1% of the
average net asset value of shares of the Funds held during the quarter in
accounts for which the Provider provides Services under this Agreement, so long
as the average net asset value of Shares in the Funds during the quarter equals
or exceeds such minimum amount as the Funds shall from time to time determine
and communicate in writing to the Provider.
2. For the quarterly period in which the Shareholder Services Agreement
becomes effective or terminates, there shall be an appropriate proration of any
fee payable on the basis of the number of days that this Agreement is in effect
during the quarter.
Dated: March 10, 1998
