HIBERNIA FUNDS, 485APOS, 1999-10-29

HIBERNIA FUNDS
485APOS, 1999-10-29

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

Post-Effective Amendment No. 23 ........................... X
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and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
------

Amendment No. 21 ............................................ X
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HIBERNIA FUNDS
(formerly, Tower Mutual Funds)

(Exact Name of Registrant as Specified in Charter)

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

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

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

It is proposed that this filing will become effective:

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

If appropriate, check the following box:

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

Copies to:

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

Prospectus

HIBERNIA FUNDS

EQUITY AND INCOME FUNDS
Hibernia Capital Appreciation Fund - Class A Shares and Class B Shares

Hibernia Louisiana Municipal Income Fund

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

Hibernia Total Return Bond Fund

Hibernia U.S. Government Income Fund

MONEY MARKET FUNDS
Hibernia Cash Reserve Fund - Class A Shares and Class B Shares

Hibernia U.S. Treasury Money Market Fund

As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.

Contents
Fund Goals, Strategies, Performance and Risks
Principal Risks of Investing in a Fund
Risk/Return Summary
What Are the Funds' Fees and Expenses?
Principal Securities in Which the Fund Invest
What are the Specific Risks of Investing in a Fund?
What do Shares Cost?
How are the Funds Sold?
How to Purchase Shares
How to Redeem and Exchange Shares
Account and Share Information
Who Manages the Funds?
Financial Information

DECEMBEr , 1999

<PAGE>

Fund Goals, Strategies, performance and risks

Hibernia Funds offer seven portfolios, including two equity funds, three income
funds and two money market funds. The following describes the investment goals,
strategies and principal risks of each Fund. The investment goal of each Fund
described in this section may be changed only upon the approval of a majority of
the outstanding shares of the Fund which would be affected by the change. All
mutual funds take investment risks. Therefore, it is possible to lose money by
investing in a Fund and there can be no assurance that a Fund will achieve its
goal. The shares offered by this prospectus are not deposits or obligations of
any bank, are not endorsed or guaranteed by Hibernia National Bank or its
affiliates, and are not insured or guaranteed by the Federal Deposit Insurance
Corporation, or any other government agency. An investment in money market funds
is neither insured or guarantees by the Federal Deposit Insurance Corporation or
any government agency. Although money market funds seek to preserve the value of
your investment at $1.00 per share, it is possible to lose money by investing in
a money market fund.

Hibernia Capital Appreciation fund

Goal

The Fund's goal is to provide growth of capital and income.

Strategy

The Fund attempts to achieve its goal by investing primarily in a professionally
managed, diversified portfolio of common stocks. The Adviser selects companies
using traditional research techniques, including assessment of earnings and
dividend growth prospects of the companies. Ordinarily, these companies will be
in the top 30% of their industries with regard to revenues. However, other
factors such as product position, market share, potential earnings growth, or
asset values will be considered by the Adviser and may outweigh revenues. At
least 65% of the Fund's portfolio will be invested in common stocks, unless it
is in a defensive position.

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

Main Risks

The value of equity securities in the Fund's portfolio will rise and fall. These
fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline. The Adviser attempts to manage market risk by limiting the amount the
Fund invests in each company's equity securities. However, diversification will
not protect the Fund against widespread or prolonged declines in the stock
market. Other risks of investing in the Fund include the risks related to
investing for growth.

hibernia Louisiana municipal income FUND

Goal

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

Strategy

The Fund attempts to achieve its goal by investing in a portfolio primarily
limited to Louisiana municipal securities. As a matter of policy, which cannot
be changed without shareholder approval, the Fund will invest its assets so
that, under normal circumstances, at least 80% of its annual interest income is
exempt from federal regular and Louisiana state income taxes or at least 80% of
its net assets are invested in obligations, the interest income from which is
exempt from federal regular and Louisiana state income taxes.

As a matter of investment policy which may be changed without shareholder
approval, at least 65% of the Fund's total assets will be invested in Louisiana
municipal securities.

Risks

Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed income securities, may cause the price of certain
fixed income securities to fall while the prices of other securities rise or
remain unchanged. Interest rate changes have a greater effect on the price of
fixed income securities with longer durations. Duration measures the price
sensitivity of a fixed income security to changes in interest rates. The Fund is
non-diversified. Compared to diversified mutual funds, it may invest a higher
percentage of its assets among fewer issuers of portfolio securities. This
increases the Fund's risk by magnifying the impact (positively or negatively)
that any one issuer has on the Fund's Share price and performance.

hibernia mid cap equity FUND

Goal

The Fund's goal is total return.

Strategy

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 attempts to
select companies whose potential for capital appreciation exceeds that of larger
capitalization stocks commensurate with increased risk. 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.

Risks

All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The value of equity securities in the Fund's portfolio
will rise and fall. These fluctuations could be a sustained trend or a drastic
movement. The Fund's portfolio will reflect changes in prices of individual
portfolio stocks or general changes in stock valuations. Consequently, the
Fund's share price may decline. The Adviser attempts to manage market risk by
limiting the amount the Fund invests in each company's equity securities.
However, diversification will not protect the Fund against widespread or
prolonged declines in the stock market. 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 Price Index (S&P 500). 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. You should expect that the Fund
will be more volatile than, and may fluctuate independently of, broad stock
market indices such as the S&P 500. Other risks of investing in the Fund include
the risks related to investing for growth.

hibernia total return bond FUND

Goal

The Fund's goal is to maximize total return. As a secondary goal, which may be
changed without shareholder approval, the Fund seeks to achieve both income and
capital appreciation.

Strategy

The Fund attempts to achieve its goal by investing in a diversified portfolio of
U.S. government, mortgage backed, asset backed and corporate securities, as well
as collateralized mortgage obligations. Under normal market conditions, the Fund
will attempt to invest at least 65% of its assets in bonds.

Risks

Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed income securities, may cause the price of certain
fixed income securities to fall while the prices of other securities rise or
remain unchanged. Interest rate changes have a greater effect on the price of
fixed income securities with longer durations. Duration measures the price
sensitivity of a fixed income security to changes in interest rates. Other
factors that may effect the Fund's returns include bond defaults or increase in
the risk of defaults, or early redemptions of portfolio securities. Risk of
prepayment on asset backed and mortgage backed securities will also effect Fund
returns.

hibernia u.s. government income FUND

Goal

The Fund's goal is to provide current income.

Strategy

Current income includes, in general, discount earned on U.S. Treasury bills and
agency discount notes, interest earned on all other U.S. government securities
and mortgage-related securities, and short-term capital gains. The Fund attempts
to achieve its investment objective by investing in securities which are
guaranteed as to payment of principal and interest by the U.S. government or
U.S. government agencies or instrumentalities. The Fund may also invest in
corporate bonds, asset backed securities and certain privately issued
mortgage-related securities, such as investment banking firms and companies
related to the construction industry. The mortgage-related securities in which
the Fund may invest may be: (i) privately issued securities which are
collateralized by pools of mortgages in which each mortgage is guaranteed as to
payment of principal and interest by an agency or instrumentality of the U.S.
government; (ii) privately issued securities which are collateralized by pools
of mortgages in which payment of principal and interest are guaranteed by the
issuer and such guarantee is collateralized by U.S. government securities; and
(iii) other privately issued securities in which the proceeds of the issuance
are invested in mortgage-backed securities and payment of the principal and
interest are supported by the credit of any agency or instrumentality of the
U.S. government. The mortgage-related securities provide for a periodic payment
consisting of both interest and principal. The interest portion of these
payments will be distributed by the Fund as income, and the capital portion will
be reinvested.

Risks

Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed income securities, may cause the price of certain
fixed income securities to fall while the prices of other securities rise or
remain unchanged. Interest rate changes have a greater effect on the price of
fixed income securities with longer durations. Duration measures the price
sensitivity of a fixed income security to changes in interest rates. Other
factors that may effect the Fund's returns include bond defaults or increase in
the risk of defaults, or early redemptions of portfolio securities. Risk of
prepayment on asset backed and mortgage backed securities will also effect Fund
returns.

hibernia cash reserve FUND

Goal

The Fund is a money market fund which seeks to maintain a stable net asset value
(NAV) of $1 per Share. The Fund's goal is to provide current income consistent
with stability of principal.

Strategy

The Fund's portfolio consists of high quality money market instruments maturing
in one year or less. As a matter of policy, which cannot be changed without
shareholder approval, the average maturity of the securities in the Fund's
portfolio, computed on a dollar-weighted basis, will be 120 days or less. As a
matter of operating policy, which may be changed without shareholder approval,
the Fund will limit the average maturity of its portfolio to 90 days or less, in
order to meet regulatory requirements. The Fund invests in high quality money
market instruments that are either rated in the highest short-term rating
category by one or more nationally recognized statistical rating organizations
(NRSROs) or of comparable quality to securities having such ratings. The Fund
invests only in instruments denominated and payable in U.S. dollars. Risks

Even though the Fund is a money market fund that seeks to maintain a stable NAV
it is possible to lose money by investing in the Fund. Generally, in excess of
50% of the total assets of the Fund will be invested in commercial paper and
variable rate demand notes. Commercial paper issued by finance companies will
comprise more than 25% of the Fund's total assets, unless the Fund is in a
temporary defensive position as a result of economic conditions. These policies
may not be changed without shareholder approval. Concentration of the Fund's
portfolio in such obligations may entail additional risks which are not
encountered by funds with more diversified portfolios.

hibernia u.s.treasury money market FUND

Goal

The Fund is a money market fund which seeks to maintain a stable NAV of $1 per
Share. The Fund's goal is to provide current income consistent with stability of
principal and liquidity by investing in a portfolio limited to short-term U.S.
Treasury obligations.

Strategy

The Fund pursues its goal by investing in a portfolio of short-term U.S.
Treasury obligations which are issued by the U.S. government and are fully
guaranteed as to payment of principal and interest by the United States. The
Fund invests only in short-term U.S. Treasury obligations maturing in 397 days
or less. The average maturity of the U.S. Treasury obligations in the Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less.

Risks

Even though the Fund is a money market fund that seeks to maintain a stable NAV,
it is possible to lose money by investing in the Fund.

Although the Fund invests in U.S. Treasury securities that are backed by the
full faith and credit of the United States, Fund Shares, themselves, are not
guaranteed or supported by the U.S. government.

While there is no assurance that the Cash Reserve Fund and U.S. Treasury Money
Market Fund (together, the Money Market Funds) will achieve their respective
investment goals, they endeavor to do so by following the strategies and
policies described in this prospectus and by complying with the diversification
and other requirements of Rule 2a-7 under the Investment Act of 1940, which
regulates money market funds.

<PAGE>

Principal Risks of Investing in a Fund

In addition to the risks set forth below that are specific to an investment in a particular Fund, there are
risks common to all mutual funds.
For example, a Fund's share price may decline and an investor could lose money. It is possible to lose
money by investing in any of the Hibernia Funds. Also there is no assurance that a fund will achieve its
investment goal.

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

Capital Louisiana Mid Cap Total U.S. Cash U.S.
Appreciation Municipal Equity Return Government Reserve Treasury
Fund Income Fund Fund Bond Fund Income Fund Fund Money
Market Fund

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

Stock Market Risk(1) X X

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

Sector Risk(2) X X X X

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

Liquidity Risk(3) X X X X

Investing for Growth(4) X X

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

Company Size Risk(5) X

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

Currency Risk(6) X X X

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

Foreign Investing Risk(7) X X X X

Credit Risks(8) X X X X X

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

Interest Rate Risk(9) X X X

Prepayment Risk(10) X X

Call Risk(11) X X

Tax Risks(12) X

Risks of Investing in X
Louisiana(13)

Risks Related to X X X X X X X
Hedging(14)

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

</TABLE>

(1) The value of equity securities rise and fall.
(2) Because companies providing credit enhancement with regard to a Fund's
securities may be concentrated in certain industry sectors, the
creditworthiness of the Fund's securities may be adversely affected by
developments which adversely affect such sectors.
(3) Limited trading opportunities for certain securities and the inability to
sell a security at will could result in losses to a Fund.
(4) Growth stocks in particular may experience a larger decline on a forecast
of lower earnings, a negative fundamental development or an adverse market
development.
(5) The smaller the capitalization of a company, the less liquid its stock and
the more volatile its price. Companies with smaller market capitalizations
also tend to have unproven track records and are more likely to fail than
companies with larger market capitalizations.
(6) Exchange rates for currencies flucuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets
more volitile than securities traded exclusively in the U.s.
(7) Foreign economic, political or regulatory conditions may be less favorable
than those of the United States. (8) The possibility that an issuer will default
on a security by failing to pay interest or principal when
due.
(9) Prices of fixed income securities rise and fall in response to interest rate
changes. (10) When interest rates decline, unscheduled prepayments of principal
could accelerate and require the Fund
to reinvest the proceeds of the prepayments at lower interest rates.
(11) A Fund's performance may be adversely affected by the possibility that an
issuer of a security held by a Fund may redeem the security prior to
maturity at a price below its current market value.
(12) Any failure of municipal securities invested in by a Fund to meet certain
applicable legal requirements, or any proposed or actual changes in the
federal or a state's tax law, could adversely affect shareholders of a
Fund.
(13) Any economic, political, or regulatory developments affecting the value of
the securities in the Fund's portfolio could have a greater impact on the
total value of the portfolio than would be the case if the portfolio were
diversified among more issuers.;'
(14) When a Fund uses financial futures and options on futures as hedging
devices, there is a risk that the prices of the securities subject to the
futures contracts may not correlate perfectly with the prices of the
securities in the Fund's portfolio.

<PAGE>

Risk/Return Bar Chart and Table

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Class A Shares of Hibernia Capital Appreciation Fund as
of the calendar year-end for each of 10 years.

The `y' axis reflects the "% Total Return" beginning with "-5.00%" and
increasing in increments of 5% up to 40.00%.

The `x' axis represents calculation periods: from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1998. The light gray shaded chart features 10 distinct
vertical bars, each shaded in charcoal, and each visually representing by height
the total return percentages for the calendar year stated directly at its base.
The calculated total return percentage for the Class for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1989
through 1998. The percentages noted are: 1989/31.91%, 1990/-1.98%, 1991/31.25%,
1992/0.22%, 1993/14.38%, 1994/-2.64%,1995/37.69%, 1996/23.18%, 1997/31.57%, and
1998/26.32%.

The total returns displayed for the Class A Shares of the Fund do not reflect
the payment of any sales charges or recurring shareholder account fees. If these
charges or fees had been included, the returns shown would have been lower.

The Fund's total return from January 1, 1999 to June 30, 1999 was 9.15%.

Within the period shown in the Chart, the Fund's Class A Shares' highest
quarterly return was 23.22% (quarter ended December 31, 1998). Its lowest
quarterly return was (13.37%) (quarter ended September 30, 1990).

Average Annual Total Return Table
The following table represents the Fund's Average Annual Total Returns, reduced
to reflect applicable sales charges, for the calendar periods December 31, 1998.
The table shows the Fund's total returns averaged over a period of years
relative to Standard and Poor's 500 Composite Index (S&P 500), a broad-based
market index. The S&P 500 Index is an unmanaged capitalization-weighted Index of
500 stocks designed to measure performance of the broad domestic economy through
changes in the aggregate market value of 500 stocks representing all major
industries. Total returns for the index shown do not reflect sales charges,
expenses or other fees that the SEC requires to be reflected in the Fund's
performance. Indexes are unmanaged, and it is not possible to invest directly in
an index.

Calendar Period Class A Class B S&P 500
1 Year 20.66% 19.87%
5 Years 21.26% N/A
10 Years 17.69% N/A
Start of Performance1 17.52% 23.84%
1 The Fund's Class A and Class B Shares start of performance dates were October
14, 1988 and December 2, 1996, respectively. Past performance does not
necessarily predict future performance. This information provides you with
historical performance so that you can analyze whether the Fund's investment
risks are balanced by its
potential rewards.

<PAGE>

Risk/Return Bar Chart and Table

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of of Hibernia Louisiana Municipal Income Fund as of the
calendar year-end for each of 10 years.

The `y' axis reflects the "% Total Return" beginning with "-5.00%" and
increasing in increments of 5% up to 20.00%.

The `x' axis represents calculation periods: for the 10-year period ended
December 31, 1998. The light gray shaded chart features 10 distinct vertical
bars, each shaded in charcoal, and each visually representing by height the
total return percentages for the calendar year stated directly at its base. The
calculated total return percentage for the Fund for each calendar year is stated
directly at the top of each respective bar, for the calendar years 1989 through
1998. The percentages noted are: 1989/8.28%, 1990/6.56%, 1991/11.26%,
1992/9.54%, 1993/11.41%, 1994/-4.64%,1995/15.94%, 1996/4.15%, 1997/8.42%, and
1998/5.94%.

The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges or fees had been
included, the returns shown would have been lower.

The Fund's total return from January 1, 1999 to June 30, 1999 was (1.08%).

Within the period shown in the Chart, the Fund's highest quarterly return was
6.51% (quarter ended March 31, 1995). Its lowest quarterly return was (4.86%)
(quarter ended March 31, 1994).

Average Annual Total Return Table
The following table represents the Fund's Average Annual Total Returns, reduced
to reflect applicable sales charges, for the calendar periods December 31, 1998.
The table shows the Fund's total returns averaged over a period of years
relative to Lehman Ten Year Insured Index (LTYII), a broad-based market index.
The LTYII is a total return performance benchmark for the general obligations
sector of the tax-exempt bond market. Total returns for the index shown do not
reflect sales charges, expenses or other fees that the SEC requires to be
reflected in the Fund's performance. Indexes are unmanaged, and it is not
possible to invest directly in an index.

Calendar Period Fund LTYII
1 Year 2.78%
5 Years 5.13%
10 Years 7.24%
Past performance does not necessarily predict future performance. This
information provides you with historical performance so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.

<PAGE>

Risk/Return Bar Chart and Table

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Class A Shares of Hibernia Mid Cap Equity Fund as of the
calendar year-end for each of 10 years.

The `y' axis reflects the "% Total Return" beginning with "-10.00%" and
increasing in increments of 5% up to 35.00%.

The `x' axis represents calculation periods :for the 10-year period through the
calendar year ended December 31, 1998. The light gray shaded chart features 10
distinct vertical bars, each shaded in charcoal, and each visually representing
by height the total return percentages for the calendar year stated directly at
its base. The calculated total return percentage for the Class for each calendar
year is stated directly at the top of each respective bar, for the calendar
years 1989 through 1999. The percentages noted are: 1989/33.57%, 1990/-0.37%,
1991/30.44%, 1992/2.97%, 1993/12.66%, 1994/-6.23%,1995/33.43%, 1996/18.83%,
1997/30.87%, and 1998/22.47%.

The Fund's total return from January 1, 1999 to June 30, 1999 was 5.17%.

Within the period shown in the Chart, the Fund's Class A Shares' highest
quarterly return was 47.40% (quarter ended Marchr 31, 1998). Its lowest
quarterly return was (6.23%) (quarter ended December 31, 1994).

Average Annual Total Return Table
The following table represents the Fund's Average Annual Total Returns, reduced
to reflect applicable sales charges, for the calendar periods December 31, 1998.
The table shows the Fund's total returns averaged over a period of years
relative to Standard and Poor's 400 Composite Index (S&P 400), a broad-based
market index. The S&P 400 Index is an unmanaged capitalization-weighted Index of
stocks in the S&P Midcap 400 Index having the highest book to price ratios. The
index consists of approximately half of the S&P 400 on a market capitalization
basis. Total returns for the index shown do not reflect sales charges, expenses
or other fees that the SEC requires to be reflected in the Fund's performance.
Indexes are unmanaged, and it is not possible to invest directly in an index.

Calendar Period Class A Class B S&P 400
1 Year 16.95% N/A% 19.09%
5 Years 17.87% N/A 18.84%
10 Years 16.44% N/A 19.29%
Start of Performance1 14.01% 4.58% N/A
1 The Fund's Class A and Class B Shares start of performance dates were May 1,
1986 and September 13, 1998, respectively. Past performance does not necessarily
predict future performance. This information provides you with historical
performance so that you can analyze whether the Fund's investment risks are
balanced by its
potential rewards.

<PAGE>

Risk/Return Bar Chart and Table

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Hibernia Total Return Bond Fund as of the calendar
year-end for each of 6 years.

The `y' axis reflects the "% Total Return" beginning with "-4.00%" and
increasing in increments of 2% up to 18.00%.

The `x' axis represents calculation periods: from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1998. The light gray shaded chart features 6 distinct
vertical bars, each shaded in charcoal, and each visually representing by height
the total return percentages for the calendar year stated directly at its base.
The calculated total return percentage for the Fund for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1993
through 1998. The percentages noted are: 1993/8.18%, 1994/-2.65%,1995/16.97%,
1996/2.41%, 1997/7.32%, and 1998/7.63%.

The Fund's total return from January 1, 1999 to June 30, 1999 was (1.72%).

Within the period shown in the Chart, the Fund's highest quarterly return was
6.10% (quarter ended June 30, 1995). Its lowest quarterly return was (2.67%)
(quarter ended March 31, 1996).

Average Annual Total Return Table
The following table represents the Fund's Average Annual Total Returns, reduced
to reflect applicable sales charges, for the calendar periods ended December 31,
1998. The table shows the Fund's total returns averaged over a period of years
relative to Salomon Brothers Broad Investment Grade Bond Index (SBBIGBI), a
broad-based market index., is designed to provide the investment-grade manager
with an all-inclusive universe of institutionally traded U.S. Treasury, agency,
mortgage and corporate securities which can be used as a benchmark. Total
returns for the index shown do not reflect sales charges, expenses or other fees
that the SEC requires to be reflected in the Fund's performance. Indexes are
unmanaged, and it is not possible to invest directly in an index.

Calendar Period Fund SBBIGBI
1 Year 4.43%
5 Years 5.50%
Start of Performance1 6.10%
1 The Fund's start of performance date was November 2, 1992.

Past performance does not necessarily predict future performance. This
information provides you with historical performance so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.

<PAGE>

Risk/Return Bar Chart and Table

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of of Hibernia U.S. Government Income Fund as of the
calendar year-end for each of 10 years.

The `y' axis reflects the "% Total Return" beginning with "-4.00%" and
increasing in increments of 2% up to 16.00%.

The `x' axis represents calculation periods: for the 10-year period ended
December 31, 1998. The light gray shaded chart features 10 distinct vertical
bars, each shaded in charcoal, and each visually representing by height the
total return percentages for the calendar year stated directly at its base. The
calculated total return percentage for the Fund for each calendar year is stated
directly at the top of each respective bar, for the calendar years 1989 through
1998. The percentages noted are: 1989/11.59%, 1990/9.03%, 1991/14.71%,
1992/4.88%, 1993/7.74%, 1994/-3.31%,1995/15.49%, 1996/3.73%, 1997/8.18%, and
1998/7.89%.

The Fund's total return from January 1, 1999 to June 30, 1999 was (1.23%).

Within the period shown in the Chart, the Fund's highest quarterly return was
5.93% (quarter ended June 30, 1989). Its lowest quarterly return was (2.57%)
(quarter ended March 31, 1994).

Average Annual Total Return Table
The following table represents the Fund's Average Annual Total Returns, reduced
to reflect applicable sales charges, for the calendar periods December 31, 1998.
The table shows the Fund's total returns averaged over a period of years
relative to Salomon Brothers Medium Term Broad Index (SBMTBI), a broad-based
market index. The SBMTBI is an unmanaged index comprised of all publicly issued,
non-convertible domestic debt of the U.S. government or any agency thereof, or
any quasi-federal corporation and of corporate debt guaranteed by the U.S.
government. Total returns for the index shown do not reflect sales charges,
expenses or other fees that the SEC requires to be reflected in the Fund's
performance. Indexes are unmanaged, and it is not possible to invest directly in
an index.

Calendar Period Fund SBMTBI
1 Year 4.69%
5 Years 5.57%
10 Years 7.54%
Past performance does not necessarily predict future performance. This
information provides you with historical performance so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.

<PAGE>

Risk/Return Bar Chart and Table

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Class A Shares of Hibernia Cash Reserve Fund as of the
calendar year-end for each of 10 years.

The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 1% up to 9.00%.

The `x' axis represents calculation periods: from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1998. The light gray shaded chart features 10 distinct
vertical bars, each shaded in charcoal, and each visually representing by height
the total return percentages for the calendar year stated directly at its base.
The calculated total return percentage for the Class for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1989
through 1998. The percentages noted are: 1989/8.87%, 1990/7.74%, 1991/5.48%,
1992/3.06%, 1993/2.38%, 1994/3.41%,1995/5.22%, 1996/4.64%, 1997/4.77%, and
1998/4.71%.

Historically, the Fund has maintained a constant $1.00 net asset value per
Share. The bar chart shows the variability of the Fund's Class A Shares total
returns on a calendar year-end basis.

Class A Shares of the Fund are not sold subject to a sales charge (load). The
total returns displayed above are based upon net asset value.

The Fund's Class A Shares' total return from January 1, 1999 to June 30, 1999
was 1.98%.

Within the period shown in the Chart, the Fund's Class A Shares' highest
quarterly return was 2.28% (quarter ended June 30, 1989). Its lowest quarterly
return was 0.57% (quarter ended December 31, 1993).

Average Annual Total Return Table
The following table represents the Fund's Average Annual Total Returns, reduced
to reflect applicable sales charges, for the calendar periods December 31, 1998.

Calendar Period Class A Class B
1 Year 4.71% N/A
5 Years 4.55% N/A
10 Years 5.01% N/A
Start of Performance1 5.18% 1.16%
1 The Fund's Class A and Class B Shares start of performance dates were October
14, 1988 and September 4, 1998respectively. The Fund's Class A Shares 7-Day Net
Yield as of December 31, 1998 was 4.29%. Investors may call the Fund at
1-800-341-7400 to acquire the current 7-Day Net Yield.

<PAGE>

Risk/Return Bar Chart and Table

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Class A Shares of Hibernia U.S. Treasury Money Market
Fund as of the calendar year-end for each of 5 years.

The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 1% up to 9.00%.

The `x' axis represents calculation periods: from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1998. The light gray shaded chart features 5 distinct
vertical bars, each shaded in charcoal, and each visually representing by height
the total return percentages for the calendar year stated directly at its base.
The calculated total return percentage for the Fund for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1994
through 1998. The percentages noted are: 1994/3.55%,1995/5.44%, 1996/4.95%,
1997/4.88%, and 1998/4.75%.

Historically, the Fund has maintained a constant $1.00 net asset value per
Share. The bar chart shows the variability of the Fund's total returns on a
calendar year-end basis.

The Fund is not sold subject to a sales charge (load). The total returns
displayed above are based upon net asset value.

The Fund's total return from January 1, 1999 to June 30, 1999 was 2.00%.

Within the period shown in the Chart, the Fund's highest quarterly return was
1.37% (quarter ended June 30, 1995). Its lowest quarterly return was 0.61%
(quarter ended March 31, 1994).

Average Annual Total Return Table
The following table represents the Fund's Average Annual Total Returns, reduced
to reflect applicable sales charges, for the calendar periods December 31, 1998.

Calendar Period Fund
1 Year 4.75%
5 Years 4.71%
Start of Performance1 4.52%
1 The Fund's start of performance date was July 16, 1993.

The Fund's Class A Shares 7-Day Net Yield as of December 31, 1998 was 4.09%.
Investors may call the Fund at 1-800-341-7400 to acquire the current 7-Day Net
Yield.

<PAGE>

What are the Fund's Fees and Expenses?

This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Funds.

Shareholder Fees
Fees Paid Directly From Your Investment

Capital Capital Mid Cap Mid Cap
Appreciation Appreciation Louisiana Equity Equity Total U.S.
Fund Fund Municipal Fund Fund Return Government
Class A Class B Income Class A Class B Bond Income
Shares Shares Fund Shares Shares Fund Fund
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.50% None 3.00% 4.50% None 3.00% 3.00%

Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None None None None None
(as a percentage of offering price)
Contingent Deferred Sales Charge
(as a percentage of original purchase
price or redemptionproceeds, as applicable) (1) None 5.50% None None 5.50% None None

Redemption Fee None None None None None None None
(as a percentage of amount redeemed,
if applicable)

Exchange Fee None None None None None None None

Annual Fund Operating Expenses (Before Waivers)
(2 (As a percentage of average net assets)

Management Fee (3) 0.75% 0.75% 0.45% 0.75% 0.75% 0.70% 0.45%
Distribution (12b-1 Fee) (4) 0.25% 0.75% 0.25% 0.25% 0.75% 0.25% 0.25%
Shareholder Service Fee None 0.25% None None 0.25% None None
Other Expenses 0.21% 0.46% 0.30% 1.70% (5) 1.95% 0.33% 0.30%
Total Annual Fund Operating Expenses 1.21% 1.96% 1.00% 2.70% 3.45% (6) 1.28% 1.00%

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

(2) Although not contractually obligated to do so, the Adviser, administrator,
distributor and shareholder services provider waived certain amounts. These are
shown below along with the net expenses the Funds actually paid for the fiscal
year ended August 31, 1998

Total Waiver of Fund Expenses 0.00% 0.00% 0.33% 0.94% 0.94% 0.30% 0.31%
Total Actual Annual Fund Operating
Expenses (after waiver) 1.21% 1.96% 0.67% 1.76% 2.51% 0.98% 0.69%

</TABLE>

(3) The adviser voluntarily waived a portion of the management fee of Louisiana
Municipal Income Fund, Mid Cap Equity Fund, Total Return Bond Fund, and U.S.
Government Income Fund. The voluntary waiver can be terminated at any time. The
management fee paid by Louisiana Municipal Income Fund, Mid Cap Equity Fund,
Total Return Bond Fund, and U.S. Government Income Fund (after voluntary
reduction) was 0.22%, 0.00%, 0.40%, and 0.24%, respectively.

(4) The distribution (12b-1) fee for Louisiana Municipal Income Fund and U.S.
Government Income Fund has been voluntarily reduced. This voluntary reduction
can be terminated at any time. The distribution (12b-1) fee paid by the
Louisiana Municipal Income Fund and U.S. Government Income Fund (after voluntary
reduction) was 0.15% for both funds for the year ended August 31, 1998.

(5) The administrator voluntarily reduced a portion of its fee for the Mid Cap
Equity Fund Class A and Class B Shares. The administrator can terminate this
voluntary reduction at any time. Total other expenses paid by the Mid Cap Equity
Fund Class A and Class B Shares (after voluntary reduction) was 1.51% and 1.76%,
respectively.

(6) .....Class B Shares convert to Class A Shares (which pay lower ongoing
expenses) approximately eight years after purchase.
EXAMPLE

This Example is intended to help you compare the cost of investing in each of
the Funds with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in each of the Funds for the time
periods indicated and then redeemed all of your Shares at the end of those
periods. Expenses assuming no redemption are also shown. The Example also
assumes that your investment has a 5% return each year and that the Funds'
operating expenses are before waivers as shown in the table and remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:

1 3 5 10 Years
Year Years Years
-------------- ------------ ----------- -----------
Expenses assuming redemption

Capital Appreciation Fund - Class A Shares $568 $817 $1,085 $1,850
Capital Appreciation Fund - Class B Shares $749 $1,015 $1,257 $2,086
Louisiana Municipal Income Fund $399 $609 $836 $1,488
Mid Cap Equity Fund-Class A Shares $711 $1,251 N/A N/A
Mid Cap Equity Fund-Class B Shares $898 $1,459 N/A N/A
Total Return Bond Fund $426 $694 $981 $1,799
U.S. Government Income Fund $399 $609 $836 $1,488
Expenses assuming no redemption
Capital Appreciation Fund - Class B Shares $199 $615 $1,057 $2,285
Mid Cap Equity Fund-Class B Shares $348 $1,059 N/A N/A

Cash Cash
Reserve Reserve US Treasury
Fund Fund Money Market
Class A Class B Fund
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) None None None
Maximum Sales Charge Imposed on
Reinvested Dividends (as a percentage
of offering price). None None None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) None 5.50%(1) None
Redemption Fee (as a percentage of amount
redeemed, if applicable) None None None
Exchange Fee None None None

Annual Fund Operating Expenses
(As percentage of average net assets)
Management Fees 0.40% 0.40% 0.40%
Distribution (12b-1 fee) (2) 0.25% 0.75% 0.00%
Shareholder Services Fee None 0.25% None
Other Expenses 0.24% 0.49% 0.23%
Total Annual Fund Operating Expenses 0.89% 1.64%(3) 0.63%
</TABLE>

(1) The contingent deferred sales charge is 5.50% in the first year, declining
to 1.00% in the sixth year and then 0.00% thereafter. See "What Shares
Cost--Contingent Deferred Sales Charge." (2) Under Rule 12b-1 distribution
plans, U.S. Treasury Money Market Fund can pay the distributor up to 0.25% as a
12b-1 fee. Prior to 11/1/98 the 12B-1 Plan was dormant. (3)......Class B Shares
convert to Class A Shares (which pay lower ongoing expenses) approximately eight
years after purchase.
EXAMPLE
This Example is intended to help you compare the cost of investing in each of
the Funds with the cost of investing in other funds. The Example assumes that
you invest $10,000 in each of the Funds for the time periods indicated and then
redeem all of your Shares at the end of those periods. Expenses assuming no
redemption are also shown. The Example also assumes that your investment has a
5% return each year and that each of the Funds' operating expenses are before
waivers as shown in the table and remain the same. Wire-transferred redemption
of less than $5,000 may be subject to additional fees. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:

This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Funds

Cash Cash
Reserve Reserve U.S. Treasury
Fund Fund Money Market
Class A Class B Fund
1 Year $91 $717 $64
3 Years $284 $917 $202
5 Years $493 N/A $351
10 Years $1,096 N/A $786

Cash
Reserve
Fund
You would pay the following on the same
investment assuming no redemptions in...... Class B
1 Year $166
3 Years $517
5 Years N/A
10 Year N/A

<PAGE>

Principal securities in which the funds invest
Equity Securities
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. A Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Funds invest as
noted in the chart.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings
directly influence the value of its common stock.
Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities. A security's yield measures the
annual income earned on a security as a percentage of its price. A security's
yield will increase or decrease depending upon whether it costs less (a
discount) or more (a premium) than the principal amount. If the issuer may
redeem the security before its scheduled maturity, the price and yield on a
discount or premium security may change based upon the probability of an early
redemption. Securities with higher risks generally have higher yields. The
following describes the types of fixed income securities in which the Funds
invest as noted in the chart.
Treasury Securities
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the
lowest credit risks. Agency Securities Agency securities are issued or
guaranteed by a federal agency or other government sponsored entity acting
under federal authority (a GSE). The United States supports some GSEs with
its full faith and credit. Other GSEs receive support through federal
subsidies, loans or other benefits. A few GSEs have no explicit financial
support, but are regarded as having implied support because the federal
government sponsors their activities. Agency securities are generally
regarded as having low credit risks, but not as low as treasury securities.
The Funds treat mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does
not reduce the market and prepayment risks of these mortgage backed
securities. Corporate Debt Securities Corporate debt securities are fixed
income securities issued by businesses. Notes, bonds, debentures and
commercial paper are the most prevalent types of corporate debt securities.
A Fund may also purchase interests in bank loans to companies. The credit
risks of corporate debt securities vary widely among issuers. In addition,
the credit risk of an issuer's debt security may vary based on its priority
for repayment. For example, higher ranking (senior) debt securities have a
higher priority than lower ranking (subordinated) securities. This means
that the issuer might not make payments on subordinated securities while
continuing to make payments on senior securities. In addition, in the event
of bankruptcy, holders of senior securities may receive amounts otherwise
payable to the holders of subordinated securities. Some subordinated
securities, such as trust preferred and capital securities notes, also
permit the issuer to defer payments under certain circumstances. For
example, insurance companies issue securities known as surplus notes that
permit the insurance company to defer any payment that would reduce its
capital below regulatory requirements.
Commercial Paper
Commercial paper is an issuer's obligation with a maturity of less than
nine months. Companies typically issue commercial paper to pay for
current expenditures. Most issuers constantly reissue their commercial
paper and use the proceeds (or bank loans) to repay maturing paper. If
the issuer cannot continue to obtain liquidity in this fashion, its
commercial paper may default. The short maturity of commercial paper
reduces both the market and credit risks as compared to other debt
securities of the same issuer. Demand Instruments Demand instruments
are corporate debt securities that the issuer must repay upon demand.
Other demand instruments require a third party, such as a dealer or
bank, to repurchase the security for its face value upon demand. The
Funds treat demand instruments as short-term securities, even though
their stated maturity may extend beyond one year.
Mortgage Backed Securities
Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates,
maturities and other terms. Mortgages may have fixed or adjustable interest
rates. Interests in pools of adjustable rate mortgages are known as ARMs.
Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
pass-through certificates. An issuer of pass-through certificates gathers
monthly payments from an underlying pool of mortgages. Then, the issuer
deducts its fees and expenses and passes the balance of the payments onto
the certificate holders once a month. Holders of pass-through certificates
receive a pro rata share of all payments and pre-payments from the
underlying mortgages. As a result, the holders assume all the prepayment
risks of the underlying mortgages.
Collateralized Mortgage Obligations (CMOs)
CMOs, including interests in real estate mortgage investment conduits
(REMICs), allocate payments and prepayments from an underlying
pass-through certificate among holders of different classes of mortgage
backed securities. This creates different prepayment and interest rate
risks for each CMO class.

Asset Backed Securities
Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial
debts with maturities of less than ten years. However, almost any type of
fixed income assets (including other fixed income securities) may be used
to create an asset backed security. Asset backed securities have prepayment
risks. Like CMOs, asset backed securities may be structured like Floaters,
Inverse Floaters, IOs and POs.
Tax Exempt Securities

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

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

The interest from the municipal securities in which the Louisiana Municipal
Income Fund invests is, in the opinion of bond counsel for the issuers, or in
the opinion of officers of Hibernia Mutual Funds and/or the investment adviser
to the Fund, exempt from both federal regular income tax and the personal income
tax imposed by the state of Louisiana. (Municipal securities not issued by the
state of Louisiana, its political subdivisions or agencies, which may generate
interest income subject to the Louisiana personal income tax, may also be
purchased by the Fund.) Tax exempt securities are fixed income securities that
pay interest that is not subject to regular federal income taxes. Typically,
states, counties, cities and other political subdivisions and authorities issue
tax exempt securities. The market categorizes tax exempt securities by their
source of repayment. Louisiana Municipal Income Fund invests in debt
obligations, including industrial development bonds, issued on behalf of the
state of Louisiana, its political subdivisdions or agencies and debt obligations
issued by or on behalf of any state, territory or possession of the United
States, including the district of Columbia, or any political subdivision or
agency of any of these.

General Obligation Bonds
General obligation bonds are supported by the issuer's power to exact
property or other taxes. The issuer must impose and collect taxes
sufficient to pay principal and interest on the bonds. However, the
issuer's authority to impose additional taxes may be limited by its charter
or state law. Special Revenue Bonds Special revenue bonds are payable
solely from specific revenues received by the issuer such as specific
taxes, assessments, tolls, or fees. Bondholders may not collect from the
municipality's general taxes or revenues. For example, a municipality may
issue bonds to build a toll road, and pledge the tolls to repay the bonds.
Therefore, a shortfall in the tolls normally would result in a default on
the bonds.
Special Transactions
Repurchase Agreements
Repurchase agreements are transactions in which a Fund buys a security from
a dealer or bank and agrees to sell the security back at a mutually agreed
upon time and price. The repurchase price exceeds the sale price,
reflecting the Fund's return on the transaction. This return is unrelated
to the interest rate on the underlying security. The Funds will enter into
repurchase agreements only with banks and other recognized financial
institutions, such as securities dealers, deemed creditworthy by the
Adviser. A Fund's custodian or subcustodian will take possession of the
securities subject to repurchase agreements. The Adviser or subcustodian
will monitor the value of the underlying security each day to ensure that
the value of the security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.

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

o prime commercial paper (rated A-2 or above by Standard & Poor's
(S&P), Prime-2 or above by Moody's, or F-2 or above by Fitch, IBCA,
Inc. (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 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 FDIC
or the Savings Association Insurance Fund ("SAIF"). These
instruments include certificates of deposit, demand and time
deposits, savings shares, ECDs, ETDs, Canadian Time Deposits, and
bankers' acceptances;

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 Adviser to be of comparable quality to the
other temporary obligations in which the Funds may invest.

Louisiana Municipal Income Fund may, from time to time, on a temporary basis, or
when the Adviser determines that market conditions call for a temporary
defensive posture, invest in short-term tax-exempt or taxable temporary
investments. These temporary investments include: notes issued by or on behalf
of municipal or corporate issuers; obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities; other debt securities; commercial
paper; certificates of deposit of banks; and repurchase agreements. Louisiana
Municipal Income Fund has no rating requirements applicable to temporary
investments. However, the investment adviser will limit temporary investments to
those it considers to be of high quality. Although the Fund is permitted to make
taxable, temporary investments, there is no current intention of generating
income subject to federal regular income tax.

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

Investment Ratings
The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, S&P, a rating service, assigns ratings to investment grade securities
(AAA, AA, A, and BBB) based on their assessment of the likelihood of the
issuer's inability to pay interest or principal (default) when due on each
security. Lower credit ratings correspond to higher credit risk. If a security
has not received a rating, a Fund must rely entirely upon the Adviser's credit
assessment that the security is comparable to investment grade. The U.S.
Government Income Fund may invest in corporate bonds rated A or better by S&P,
Moody's or Fitch. The Louisiana Municipal Income Fund, Mid Cap Equity Fund and
Total Return Bond Fund each invest in securities rated Baa or better by Moody's
or BBB or better by S&P or Fitch.

Money market instruments and commercial paper in which the Funds normally invest
are 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.

The notes, warrants, rights and convertible securities in which the Funds invest
are rated at least BBB by S&P or Fitch, or at least Baa by Moody's, or if not
rated, are determined by the Adviser to be of comparable quality.

The securities in which the Cash Reserve Fund invests must be rated in the
highest short-term rating categories by one or more NRSROs or be of comparable
quality to securities having such ratings. The Fund has been rated AAAm by
Moody's and in the highest class of acceptable investments by the National
Association of Insurance Companies.

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

Industry Concentration
As previously stated, the Cash Reserve Fund may invest 25% or more of its assets
in commercial paper and variable rate demand notes. Generally, in excess of 50%
of the total assets of the Fund will be invested in commercial paper and
variable rate demand notes. Commercial paper issued by finance companies will
comprise more than 25% of the Fund's total assets, unless the Fund is in a
temporary defensive position as a result of economic conditions. These policies
may not be changed without shareholder approval. Concentration of the Fund's
portfolio in such obligations may entail additional risks which are not
encountered by funds with more diversified portfolios.

Portfolio Turnover
The Capital Appreciation Fund, Mid Cap Equity Fund and Total Return Bond Fund
actively trade portfolio securities in an attempt to achieve their respective
goal. Active trading will cause a Fund to have an increased portfolio turnover
rate, which is likely to generate shorter-term gains (losses) for its
shareholders, which are taxed at a higher rate than longer-term gains (losses).
Actively trading portfolio securities increases a Fund's trading costs and may
have an adverse impact on the Fund's performance.

WHAT ARE THE SPECIFIC RISKS OF INVESTING IN A FUND?

Stock Market Risks
o The value of equity securities in a Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. A
Fund's portfolio will reflect changes in prices of individual portfolio
stocks or general changes in stock valuations. Consequently, a Fund's share
price may decline.
o The Adviser attempts to manage market risk by limiting the amount a Fund
invests in each company's equity securities. However, diversification will
not protect a Fund against widespread or prolonged declines in the stock
market.
Sector Risks
o Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may underperform other sectors or the market as a whole. As the
Adviser allocates more of a Fund's portfolio holdings to a particular
sector, the Fund's performance will be more susceptible to any economic,
business or other developments which generally affect that sector.
Risks Related to Investing for Growth
o Due to their relatively high valuations, growth stocks are typically more
volatile than value stocks. For instance, the price of a growth stock may
experience a larger decline on a forecast of lower earnings, a negative
fundamental development, or an adverse market development. Further, growth
stocks may not pay dividends or may pay lower dividends than value stocks.
This means they depend more on price changes for returns and may be more
adversely affected in a down market compared to value stocks that pay
higher dividends.

Risks Related to Company Size
o Generally, the smaller the market capitalization of a company, the fewer
the number of shares traded daily, the less liquid its stock and the more
volatile its price. Market capitalization is determined by multiplying the
number of its outstanding shares by the current market price per share.
o Companies with smaller market capitalizations also tend to have unproven
track records, a limited product or service base and limited access to
capital. These factors also increase risks and make these companies more
likely to fail than companies with larger market capitalizations.

Currency Risks
o Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risk tends to make securities traded in foreign markets
more volatile than securities traded exclusively in the U.S.
o The Adviser attempts to manage currency risk by limiting the amount a Fund
invests in securities denominated in a particular currency. However,
diversification will not protect a Fund against a general increase in the
value of the U.S. dollar relative to other currencies.
Interest Rate Risks
o Prices of fixed income securities rise and fall in response to changes in
the interest rate paid by similar securities. Generally, when interest
rates rise, prices of fixed income securities fall. However, market
factors, such as the demand for particular fixed income securities, may
cause the price of certain fixed income securities to fall while the prices
of other securities rise or remain unchanged.
o Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity
of a fixed income security to changes in interest rates.
Credit Risks
o Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, a
Fund will lose money.
o Many fixed income securities receive credit ratings from services such as
S&P and Moody's. These services assign ratings to securities by assessing
the likelihood of issuer default. Lower credit ratings correspond to higher
credit risk. If a security has not received a rating, a Fund must rely
entirely upon the Adviser's credit assessment.
o Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of a
security and the yield of a U.S. Treasury security with a comparable
maturity (the spread) measures the additional interest paid for risk.
Spreads may increase generally in response to adverse economic or market
conditions. A security's spread may also increase if the security's rating
is lowered, or the security is perceived to have an increased credit risk.
An increase in the spread will cause the price of the security to decline.
o Credit risk includes the possibility that a party to a transaction
involving a Fund will fail to meet its obligations. This could cause the
Fund to lose the benefit of the transaction or prevent the Fund from
selling or buying other securities to implement its investment strategy.
o Trading opportunities are more limited for fixed income securities that
have not received any credit ratings, have received ratings below
investment grade or are not widely held.
Prepayment Risks

o Unlike traditional fixed income securities, which pay a fixed rate of
interest until maturity (when the entire principal amount is due) payments
on mortgage backed securities include both interest and a partial payment
of principal. Partial payment of principal may be comprised of scheduled
principal payments as well as unscheduled payments from the voluntary
prepayment , refinancing, or foreclosure of the underlying loans. These
unscheduled prepayments of principal create risks that can adversely affect
a Fund holding mortgage backed securities.

For example, when interest rates decline, the values of mortgage backed
securities generally rise. However, when interest rates decline,
unscheduled prepayments can be expected to accelerate, and a Fund would be
required to reinvest the proceeds of the prepayments at the lower interest
rates then available. Unscheduled prepayments would also limit the
potential for capital appreciation on mortgage backed securities.
Conversely, when interest rates rise, the values of mortgage backed
securities generally fall. Since rising interest rates typically result in
decreased prepayments, this could lengthen the average lives of mortgage
backed securities, and cause their value to decline more than traditional
fixed income securities.

o Generally, mortgage backed securities compensate for the increased risk
associated with prepayments by paying a higher yield. The additional
interest paid for risk is measured by the difference between the yield of a
mortgage backed security and the yield of a U.S. Treasury security with a
comparable maturity (the spread). An increase in the spread will cause the
price of the mortgage backed security to decline. Spreads generally
increase in response to adverse economic or market conditions. Spreads may
also increase if the security is perceived to have an increased prepayment
risk or is perceived to have less market demand.

Call Risks
o Call risk is the possibility that an issuer may redeem a fixed income
security before maturity (a call) at a price below its current market
price. An increase in the likelihood of a call may reduce the security's
price.
o If a fixed income security is called, a Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates, higher
credit risks, or other less favorable characteristics.

Tax Risks
o In order to be tax-exempt, municipal securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest
received and distributed by the Louisiana Municipal Income Fund to
shareholders to be taxable.

o Changes or proposed changes in federal tax laws may cause the prices of
municipal securities to fall.

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

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

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

Other factors that may effect the Fund's returns include bond defaults or
increase in the risk of defaults, or early redemptions of portfolio securities.

Non-Diversification. The Fund is a non-diversified investment company. An
investment in the Fund, therefore, may entail greater risk than would exist in a
diversified investment company because the higher percentage of investments
across fewer issuers could result in greater fluctuation in the total market
value of the Fund's portfolio. Any economic, political, or regulatory
developments affecting the value of the securities in the Fund's portfolio could
have a greater impact on the total value of the portfolio than would be the case
if the portfolio were diversified among more issuers. The Fund will attempt to
minimize the risks associated with a non-diversified portfolio by limiting, with
respect to 75% of the Fund's total assets, investments in one issuer to not more
than 10% of the value of its total assets. The total amount of the remaining 25%
of the value of the Fund's total assets could be invested in a single issuer,
but only if the investment adviser believes such a strategy to be prudent. In
addition, the Fund intends to comply with Subchapter M of the Internal Revenue
Code. This undertaking requires that at the end of each quarter of the taxable
year, the aggregate value of all investments in any one issuer (except U.S.
government obligations, cash, and money market instruments) which exceed 5% of
the Fund's total assets not exceed 50% of the value of the Fund's total assets.

What Do Shares Cost?

You can purchase, redeem, or exchange Shares of Capital Appreciation Fund,
Louisiana Municipal Income Fund, Mid Cap Equity Fund, Total Return Bond Fund and
U.S. Government Income Fund (Equity and Income Funds) any day the New York Stock
Exchange (NYSE) is open. When a Fund receives your transaction request in proper
form (as described in the prospectus), it is processed at the next calculated
NAV plus any applicable front-end sales charge (public offering price).

NAV is determined at the end of regular trading (normally 3:00 p.m. Central
time) each day the NYSE is open.

The Capital Appreciation Fund and Mid Cap Equity Fund generally values equity
securities according to the last sale price in the market in which they are
primarily traded (either a national securities exchange or the over-the-counter
market).]

The Louisiana Municipal Income Fund, Total Return Bond Fund and U.S. Government
Income Fund generally value fixed income securities at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service.]

The Money Market Funds attempt to stabilize the NAV of their Shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The Funds
cannot guarantee that their NAV will always remain at $1.00 per Share. The Money
Market Funds do not charge a front-end sales charge. NAV is determined at 11:00
a.m. (Central time) and as of the end of regular trading (normally 3:00 p.m.
Central time) each day the NYSE is open.

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

The following tables summarize the maximum sales charge that you will pay on an
investment in a Fund. Keep in mind that investment professionals may charge you
fees for their services in connection with your Share transactions.

SALES CHARGE WHEN YOU PURCHASE

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

<PAGE>

Sales Charge as a Sales Charge as a
Purchase Amount Percentage of Public Percentage of NAV
Offering Price
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 greater 0.25% 0.25%
- ---------------------------------------------------------------------------------------------------

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

<PAGE>

Sales Charge as a Percentage Sales Charge as a
Purchase Amount of Public Offering Price Percentage of NAV
Less than $100,000 3.00% 3.09%
$100,000 but less than $250,000 2.50% 2.56%
$250,000 but less than $500,000 2.00% 2.04%
$500,000 but less than $750,000 1.00% 1.01%
$750,000 but less than $1 million 0.75% 0.76%
$1 million but less than $2 million 0.50% 0.50%
$2 million or greater1 0.25% 0.25%
- ------------------------------------------------------------------------------------------------------
</TABLE>

The sales charge at purchase may be reduced or eliminated by:

o purchasing Shares in greater quantities to reduce the applicable sales
charge;

o combining concurrent purchases of Shares:

- - by you, your spouse, and your children under age 21; or
- - of the same share class of two or more Funds (other than Money Market Funds);
o accumulating purchases (in calculating the sales charge on an additional
purchase, include the
current value of previous Share purchases still invested in the Fund); or

o signing a letter of intent to purchase a specific dollar amount of Shares
within 13 months (call your investment professional or the Fund for more
information).

The sales charge will be eliminated when you purchase Shares:

o within 30 days (within 120 days for IRA accounts)of redeeming Shares of an
equal or lesser amount;

o by exchanging shares from the same share class of another Fund (other than
a Money Market Fund);

o through wrap accounts or other investment programs where you pay the
investment professional directly for services;

o through investment professionals that receive no portion of the sales
charge;

o as a Trustee or employee of the Fund, the Adviser, the Distributor and their
affiliates, and the immediate family members of these individuals.

If your purchase qualifies, you or your investment professional should notify
the Distributor at the time of purchase to reduce or eliminate the sales charge.
If the Distributor is not notified, the sales charge will apply.

SALES CHARGE WHEN YOU REDEEM

Redemption proceeds of Class B Shares of Capital Appreciation Fund and Mid Cap
Equity Fund may be reduced by a sales charge, commonly referred to as a
contingent deferred sales charge (CDSC).

Class B Shares of Capital Appreciation
Fund and Mid Cap Equity Fund

Shares Held Up To: CDSC
1 year 5.50%
2 years 4.50%
3 years 4.00%
4 years 3.00%
5 years 2.00%
6 years 1.00%
7 years or more 0.00%

You will not be charged a CDSC when redeeming:

o purchased with reinvested dividends or capital gains;

o purchased within 30 days (120 days for an IRA account) of redeeming Shares
of an equal or lesser amount;

o that you exchanged into the same share class of another Fund if the shares
were held for the applicable CDSC holding period (other than a Money Market
Fund);

o purchased through investment professionals who did not receive advanced
sales payments;

o if, after you purchase Shares, you become disabled as defined by the IRS;

o if the Fund redeems your Shares and closes your account for not meeting the
minimum balance requirement;

o if your redemption is a required retirement plan distribution; or

o upon the death of the last surviving shareholder of the account.

If your redemption qualifies, you or your investment professional should notify
the Distributor at the time of redemption to eliminate the CDSC. If the
Distributor is not notified, the CDSC will apply.

To keep the sales charge as low as possible, the Funds redeem your Shares in
this order:

o Shares acquired through the reinvestment of dividends and long-term capital
gains;

o Shares held for more than six full years from the date of purchase; and

o Shares held for fewer than seven years on a first-in, first-out basis.

The CDSC is then calculated using the Share price at the time of purchase or
redemption, whichever is lower.

Conversion Feature. Class B Shares include all Class B Shares which have been
outstanding for less than the period ending eight years after the end of the
month in which the shareholder's order to purchase Class B Shares was accepted.
At the end of this eight-year period, Class B Shares will automatically convert
to Class A Shares of Capital Appreciation Fund, Mid Cap Equity Fund or Cash
Reserve Fund, in which case the Shares will be subject to a lower Rule 12b-1
distribution fee which is assessed on Class A Shares. Such conversion will be on
the basis of the relative NAV 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. This conversion is a non-taxable event.

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.

Tim: This is footnote Patty refers to in her comments: INSTRUCTION: If
prospectus includes Class A Shares and Class B Shares: Insert the following at
the end of Footnote 1: 1 Orders for $250,000 or more will be invested in Class A
Shares instead of Class B Shares to maximize your return and minimize the sales
charges and marketing fees. Accounts held in the name of an investment
professional may be treated differently. Class B Shares will automatically
convert into Class A Shares after eight full years from the purchase date. This
conversion is a non-taxable event.

How are the Funds Sold?

The Capital Appreciation Fund, Mid-Cap Equity Fund and Cash Reserve Fund each
offer two Share classes: Class A Shares and Class B Shares, each representing
interests in a single portfolio of securities. The Louisiana Municipal Income
Fund, Total Return Bond Fund, U.S. Government Income Fund, and U.S. Treasury
Money Market Fund each offer a single class of Shares

The Funds' Distributor, Federated Securities Corp., markets the Funds' Shares
described in this prospectus to institutions or individuals, directly or through
investment professionals. The Louisiana Municipal Income Fund may not be a
suitable investment for retirement plans or for non-Louisiana taxpayers because
it invests in Louisiana municipal securities.

When the Distributor receives marketing fees and sales charges, it may pay some
or all of them to investment professionals. The Distributor and its affiliates
may pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares.The Distributor is a
subsidiary of Federated Investors, Inc. (Federated).

RULE 12B-1 PLAN

The Funds (except U.S. Treasury Money Market Fund) have adopted a Rule 12b-1
Plan, which allows each Fund to pay marketing fees to the Distributor and
investment professionals for the sale, distribution and customer servicing of a
Fund's Shares. Because these Shares pay marketing fees on an ongoing basis, your
investment cost may be higher over time than other shares with different sales
charges and marketing fees.

How to Purchase Shares

You may purchase Shares through Hibernia National Bank (HNB), Hibernia
Investment Securities, Inc. (HISI) or an investment professional
(Broker/dealer). Shares of the Money Market Funds may be purchased directly from
the Distributor. The Funds reserve the right to reject any request to purchase
or exchange Shares.

through HNB or hisi

o You may call HNB to place an order to purchase Shares of the all the Funds,
except Class B Shares of Capital Appreciation Fund and Mid Cap Equity Fund.
(Call toll-free 1-800-999-0426).

o You may call HISI toll-free at 1-800-999-0124 purchase Shares of all the
Funds. Texas residents may purchase Shares only through HISI.

Purchase orders for the Funds (except the Money Market Funds) are considered
received when the appropriate Fund is notified of the purchase order. Purchase
orders must be received by HNB or HISI before 3:00 p.m. (Central time) and must
be transmitted by HNB or HISI to the appropriate Fund before 3:00 p.m. (Central
time) in order for Shares to be purchased at that day's public offering price.

Payment for Shares of the Money Market Funds may be made either by check or
federal funds. Payment by check must be included with the order.

Orders are considered received after payment by check is converted by HNB into
federal funds. When payment is made with federal funds, the order is considered
received immediately. Payment by federal funds must be received before 11:00
a.m. (Central time) on the same day as the order to earn dividends for that day.
If your check does not clear, your purchase order will be canceled and you could
be liable for any loses or fees the Funds or their transfer agent incurs.

Federal funds should be wired as follows:

Hibernia National Bank,

New Orleans, Louisiana

All requests must include:

o Shareholder Name;

o Fund Name and Share Class;

o Title or name of account;

o and Wire Order Number.

Shares cannot be purchased by wire on holidays when wire transfers are
restricted.

THROUGH A broker/dealer

o You may place an order through brokers and dealers to purchase Shares of
the Funds (except U.S. Treasury Money Market Fund and Class A Shares of
Cash Reserve Fund). Shares will be purchased at the public offering price
next determined after the Fund receives the purchase request from HNB or
HISI, which forwards the request to the transfer agent.

o 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 time) in order for shares to be purchased at that day's public
offering price.

Systematic Investment Program

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

How to Redeem and Exchange Shares

You should redeem or exchange Shares:

directly from HNB or HISI if you purchased Shares directly from one of them.

o through an investment professional if you purchased Shares through an
investment professional; or

DIRECTLY FROM HNB or hisi

By Telephone

You may redeem or exchange Shares by calling HNB at 1-800-999-0124, HISI at
1-800-999-0426, , or the Fund once you have completed the appropriate
authorization form (you may exchange Shares by calling the Distributor
directly);

Equity and Income Funds

If you call before the end of regular trading on the NYSE (normally 3:00 p.m.
Central time) to redeem Shares of Capital Appreciation Fund, Louisiana Municipal
Income Fund, Mid Cap Equity Fund, Total Return Bond Fund or U.S. Government
Income Fund, you will receive a redemption amount based on that day's NAV.

Money Market Funds

If you call before 2:00 a.m. (Central time) to redeem from a Money Market Fund,
your redemption will be wired to you the same day. You will not receive that
day's dividend.

If you call after 2:a.m. (Central time) to redeem from a Money Market Fund, your
redemption will be wired to you the following business day. You will receive
that day's dividend.

By Mail

You may redeem or exchange Shares by mailing a written request to HNB or HISI.

Equity and Income Funds

You will receive a redemption amount based on the next calculated NAV after the
Capital Appreciation Fund, Louisiana Municipal Income Fund, Mid Cap Equity Fund,
Total Return Bond Fund or U.S. Government Income Fund receives your written
request in proper form.

Money Market Funds

Your redemption request for a Money Market Fund will be processed on the day the
Fund receives your written request in proper form. Dividends are paid up to and
including the day that a redemption request is processed.

Send requests by mail to:

HISI
313 Carondelet Street
New Orleans, Louisiana 70130
All requests must include:

o Shareholder Name;

o Fund Name and Share Class, account number and account registration;

o amount to be redeemed or exchanged; and

o signatures of all shareholders exactly as registered; and

o if exchanging, the Fund Name and Share Class, account number and account
registration into which you are exchanging.

Call your investment professional or HISI at 1-800-999-0426 if you need special
instructions.

THROUGH AN INVESTMENT PROFESSIONAL

Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 3:00 p.m. Central time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.

Signature Guarantees Signatures must be guaranteed if:

o your redemption will be sent to an address other than the address of
record;

o your redemption will be sent to an address of record that was changed
within the last 30 days;

o a redemption is payable to someone other than the shareholder(s) of record;
or

o if exchanging (transferring) into another fund with a different shareholder
registration.

A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.

PAYMENT METHODS FOR REDEMPTIONS

Your redemption proceeds will be mailed by check to your address of record or
wired to your account at domestic commercial bank that is a Federal Reserve
System member.

Redemption in Kind
Although the Funds intend to pay Share redemptions in cash, they reserve the
right to pay the redemption price in whole or in part by a distribution of a
Fund's portfolio securities.

LIMITATIONS ON REDEMPTION PROCEEDS

Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to five days:

o to allow your purchase to clear;

o during periods of market volatility; or

o when a shareholder's trade activity or amount adversely impacts a Fund's
ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from a Fund if
those checks are undeliverable and returned to the Fund.

REDEMPTIONS FROM RETIREMENT ACCOUNTS

In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in a Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.

EXCHANGE PRIVILEGE

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

To do this, you must:

o ensure that the account registrations are identical;

o you must exchange Shares having an NAV of at least $1,000; and

o receive a prospectus for the Fund into which you wish to exchange.

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 andacquired through
reinvested dividends 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 NAV.

An exchange of Class B shares for Class B Shares of another Hibernia Fund will
not be subject to a CDSC. However, if the shareholder redeems the exchanged-for
Shares within six years of the original purchase of Class B Shares, a CDSC will
be imposed. For purposes of computing the CDSC, the length of time the
shareholder has owned Class B Shares will be measured from the date of original
purchase and will not be effected by the exchange.

The Funds may modify or terminate the exchange privilege at any time. The Funds'
management or Adviser may determine from the amount, frequency and pattern of
exchanges that a shareholder is engaged in excessive trading that is detrimental
to the Funds and other shareholders. If this occurs, the Funds may terminate the
availability of exchanges to that shareholder and may bar that shareholder from
purchasing other Hibernia Funds.

SYSTEMATIC WITHDRAWAL PROGRAM (SWP)

You may automatically redeem Shares in a minimum amount of $100 on a regular
basis. Complete the appropriate section of the new account form or contact your
investment professional, Hibernia National Bank or HISI. Your account value must
have an a value of at least $10,000, other than retirement accounts, at the time
the program is established. This program may reduce, and eventually deplete,
your account. Payments should not be considered yield or income.

Generally, it is not advisable to continue to purchase Class A Shares of Capital
Appreciation Fund, Mid Cap Equity Fund or Shares of Louisiana Municipal Income
Fund, Total Return Bond Fund, or U.S. Government Income Fund Shares subject to a
sales charge while redeeming Shares using this program.

Systematic Withdrawal Program On Class B Shares You will not be charged a CDSC
on redemptions if:

o you redeem 12% or less of your account value in a single year;

o you reinvest all dividends and capital gains distributions; and

o your account has at least a $10,000 balance when you establish the SWP (You
cannot aggregate multiple Class B Share accounts to meet this minimum
balance.)

You will be subject to a CDSC on redemption amounts that exceed the 12% annual
limit. In measuring the redemption percentage, your account is valued when you
establish the SWP and then annually at calendar year-end. You can redeem
monthly, quarterly, or semi-annually.

Share Certificates
The Fund no longer issues share certificates. If you are redeeming or exchanging
Shares represented by certificates previously issued by the Fund, you must
return the certificates with your written redemption or exchange request. For
your protection, send your certificates by registered or certified mail, but do
not endorse them.

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

You will receive confirmation of purchases, redemptions and exchanges except for
systematic transactions. In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.

DIVIDENDS AND CAPITAL GAINS

The Capital Appreciation Fund and Mid Cap Equity Fund declare and pay any
dividends quarterly to shareholders. The Louisiana Municipal Income Fund, Total
Return Bond Fund and U.S. Government Income Fund declare and pay any dividends
monthly to shareholders. Dividends are paid to all shareholders invested in a
Fund on the record date. The record date is the date on which a shareholder must
officially own Shares in order to earn a dividend.

The Money Market Funds declare any dividends daily and pay them monthly to
shareholders. If you purchase Shares by wire, you begin earning dividends on the
day your wire is received. If you purchase Shares by check, you begin earning
dividends on the business day after the Fund receives your check. In either
case, you earn dividends through the day your redemption request is received.

In addition, the Funds pay any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.

If you purchase Shares (other than Money Market Fund Shares) just before a Fund
declares a dividend or capital gain distribution, you will pay the full price
for the Shares and then receive a portion of the price back in the form of a
taxable distribution, whether or not you reinvest the distribution in Shares.
Therefore, you should consider the tax implications of purchasing Shares shortly
before a Fund declares a dividend or capital gain. Contact your investment
professional or Hibernia National Bank for information concerning when dividends
and capital gains will be paid.

The Money Market Funds do not expect to realize any capital gains or losses. If
capital gains or losses were to occur, they could result in an increase or
decrease in dividends.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
you will be notified and allowed 30 days to purchase additional Shares to meet
the minimum.

TAX INFORMATION

The Funds send an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. For all the Funds (except
Louisiana Municipal Income Fund), Fund distributions of dividends and capital
gains are taxable to you whether paid in cash or reinvested in the Fund.
Dividends are taxable as ordinary income; capital gains are taxable at different
rates depending upon the length of time a Fund holds its assets.

Fund: Distributions are expected to be
primarily:
Capital Appreciation Fund Capital Gains
Mid Cap Equity Fund Capital Gains
Total Return Bond Fund Dividends
U.S. Government Income Fund Dividends

Cash Reserve Fund Dividends

U.S. Treasury Money Market Fund Dividends

It is anticipated that Louisiana Municipal Income Fund distributions will be
primarily dividends that are exempt from federal income tax, although a portion
of the Fund's dividends may not be exempt. Dividends may be subject to state and
local taxes, although the Louisiana Municipal Income Fund's dividends will be
exempt from Louisiana state personal income tax to the extent they are derived
from interest on obligations exempt from Louisiana personal income taxes.
Capital gains and non-exempt dividends are taxable whether paid in cash or
reinvested in the Fund. It is likely that you will be required to include
interest from a portion of the municipal securities owned by the Fund in
calculating the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.

Redemptions and exchanges are taxable sales. Please consult your tax adviser
regarding your federal, state, and local tax liability.

Who Manages the Funds?

The Board of Trustees governs the Funds. The Board selects and oversees the
Adviser, Hibernia National Bank. The Adviser manages the Funds' assets,
including buying and selling portfolio securities. The Adviser's address is
Hibernia Funds, P.O. Box 61540, New Orleans, Louisiana 70161.

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

Hibernia National Bank has been ranked by the American Banker newspaper as the
_______th largest U.S. Bank according to December 31, 1998, total deposits. The
1998 Money Market Directory of Pension Funds ranked Hibernia National Bank among
the top ___% of the largest of nearly 200 bank and trust company managers of
tax-exempt funds in the United States. As of December 31, 1998, the Trust Group
had $____ billion under administration of which it had investment discretion
over $____ billion. The Trust Group has managed pools of commingled funds since
1966; as of December 31, 1998, the Trust Group managed ________ such investment
pools, as well as the seven Hibernia Funds.

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

John A. Cain became Capital Appreciation Fund's portfolio manager in March 1995
and Mid Cap Equity Fund's portfolio manager in June 1998. Mr. Cain is a Vice
President and Trust Investment Officer, specializing in equity and balanced
account management for Hibernia since May 1985. He has 40 years of investment
management experience both in the brokerage and trust industries. He earned his
B.B.A. from the University of Mississippi.

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

U.S. Government Income Fund, Cash Reserve Fund and U.S. Treasury Money Market
Fund are managed by a committee of investment professionals from Hibernia
National Bank.

Advisory Fees

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

Year 2000 Readiness

The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Funds, that rely on computers.

While it is impossible to determine in advance all of the risks to the Funds, a
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.

The Funds' service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.

Year 2000 problems would also increase the risks of a Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities each Fund
may purchase. However, this may be difficult with certain issuers. For example,
funds dealing with foreign service providers or investing in foreign securities
will have difficulty determining the Year 2000 readiness of those entities. The
financial impact of these issues for the Funds is still being determined. There
can be no assurance that potential Year 2000 problems would not have a material
adverse effect on a Fund.

Financial Information

FINANCIAL HIGHLIGHTS

The Financial Highlights will help you understand a Fund's financial performance
for its past five fiscal years, or since inception, if the life of the Fund is
shorter. Some of the information is presented on a per share basis. Total
returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.

This information has been audited by Ernst & Young, LLP whose report, along with
the Funds' audited financial statements, is included in the Annual Report.

<PAGE>

89
Hibernia Capital Appreciation Fund - Class A Shares and Class B Shares

Hibernia Louisiana Municipal Income Fund

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

Hibernia Total Return Bond Fund

Hibernia U.S. Government Income Fund

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

Hibernia U.S. Treasury Money Market Fund

Portfolios of Hibernia Funds

A Statement of Additional Information (SAI) dated December ___, 1999, is
incorporated by reference into this prospectus. Additional information about the
Funds' investments is contained in the Funds' Annual and Semi-Annual Reports to
shareholders as they become available. The Annual Report discusses market
conditions and investment strategies that significantly affected the Funds'
performance during their last fiscal year. To obtain the SAI, the Annual Report,
the Semi-Annual Report and other information without charge, and to make
inquiries, call your investment professional or the Trust at 1-800-999-0124.

Investment Company Act File No.811-5536

Cusip428661102
Cusip428661201
Cusip428661508
Cusip428661607
Cusip428661706
Cusip428661805
Cusip428661888
Cusip428661300
Cusip428661409
Cusip428661870

000000-00(12/99)

Statement of Additional Information

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

Hibernia Louisiana Municipal Income Fund

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

Hibernia Total Return Bond Fund

Hibernia U.S. Government Income Fund

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

Hibernia U.S. Treasury Money Market Fund

(Portfolios of Hibernia Funds)

This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Hibernia Capital Appreciation Fund,
Class A Shares and Class B Shares, Hibernia Louisiana Municipal Income Fund,
Hibernia Mid Cap Equity Fund, Class A Shares and Class B Shares, Hibernia Total
Return Bond Fund, Hibernia U.S. Government Income Fund, Hibernia Cash Reserve
Fund, Class A Shares and Class B Shares, and Hibernia U.S. Treasury Money Market
Fund dated December , 1999.

This SAI incorporates by reference the Funds' Annual Report. Obtain the
prospectus or the Annual Report without charge by calling 1-800-999-0124.

DECEMBEr ,1999

Contents
How are the Funds Organized?
Securities in Which the Funds Invest
What do Shares Cost?
How are the Funds Sold?
Exchanging Securities for Shares
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Funds?
How Do the Funds Measure Performance?
Financial Information
Investment Ratings
Addresses

Cusip428661102
Cusip428661201
Cusip428661508
Cusip428661607
Cusip428661706
Cusip428661805
Cusip428661888
Cusip428661300
Cusip428661409
Cusip428661870
00000000 (12/99)

<PAGE>

How are the Funds Organized?

Hibernia Capital Appreciation Fund (Capital Appreciation Fund), Hibernia Mid Cap
Equity Fund (Mid Cap Equity Fund), Hibernia Total Return Bond Fund (Total Return
Bond Fund), Hibernia U.S. Government Income Fund (U.S. Government Income Fund)
(together, the Equity and Income Funds) are diversified portfolios of Hibernia
Funds (Trust). Hibernia Cash Reserve Fund (Cash Reserve Fund), and Hibernia U.S.
Treasury Money Market Fund (U.S. Treasury Money Market Fund, and together with
Cash Reserve Fund, the Money Market Funds) are also diversified portfolios of
the Trust. Louisiana Municipal Income Fund is a non-diversified portfolio of the
Trust. The Trust is an open-end, management investment company that was
established as a Massachusetts business trust under the laws of the Commonwealth
of Massachusetts on April 8, 1988. The Trust changed its name from Tower Mutual
Funds to Hibernia Funds on November 1, 1998.

The Board of Trustees (the Board) has established two classes of shares of the
Capital Appreciation Fund, Mid Cap Equity Fund and Cash Reserve Fund, known as
Class A Shares and Class B Shares. This SAI relates to all of the Funds and
their respective classes of Shares (Shares). The Funds' investment adviser is
Hibernia National Bank (Adviser).

securities in which the funds invest

Following is a table that indicates which types of securities are a:
P = Principal investment of a Fund; (shaded in chart) A = Acceptable (but not
principal) investment of a Fund; or N = Not an acceptable investment of a Fund.

- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Securities in which the Capital Louisiana Mid Cap Total U.S. Cash U.S.
Funds Invest: Appreciation Municipal Equity Fund Return Government Reserve Treasury
Fund Income Fund Bond Fund Income Fund Fund Money
Market Fund
- -------------------------- ------------ ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Equity Securities P N P N N N N
- -------------------------- ---------------- ------------ ----------- -------------- ---------- ------------
- -------------------------- ------------- ----------- -------------- ---------- ------------
Common Stocks P N P N N N N
- -------------------------- ---------------- ------------ ------------- ----------- --------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Preferred Stocks A N A N N N N
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Warrants A N A N N N N
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Fixed Income Securities A A A P P P P
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ----------
- -------------------------- ------------
Treasury Securities A A A P P A P
- -------------------------- ---------------- ------------ ------------- ----------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- -------------- ---------- ------------
Agency Securities A A A A P A N
- -------------------------- ------------ ------------- -------------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Corporate Debt A A A P A P N
Securities
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Commercial Paper1 A A A A A P N
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ------------
Demand Instruments A A A A N P N
- -------------------------- ---------------- ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ------------
Taxable Municipal N A N A A N N
Securities
- -------------------------- ---------------- ------------ ------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Mortgage Backed N N N P A N N
Securities
- -------------------------- ---------------- ------------ ------------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- ---------- ------------
Collateralized N N N P P N N
Mortgage Obligations
(CMOs)
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ---------- ------------
Sequential CMOs N N N A A N N
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Z Classes and N N N N A N N
Residual Classes
- -------------------------- ---------------- ------------ ------------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Asset Backed N N N P A A N
Securities
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Zero Coupon Securities A A A A A A A
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Bank Instruments A A A A A A N
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Credit Enhancement N A N N N A N
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Convertible Securities A N A A A N N
- -------------------------- ---------------- ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Tax Exempt Securities N P N A N N N
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
General Obligation N P N N N N N
Bonds
- -------------------------- ---------------- ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Special Revenue Bonds N P N N N N N
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Private Activity N A N N N N N
Bonds
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Tax Increment N A N N N N N
Financing Bonds
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Municipal Notes N A N N N N N
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Municipal Leases N A N N N N N
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Participation N A N N N N N
Interests
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Variable Rate Demand N A N A N A N
Instruments
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Foreign Securities2 A N A A N A N
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Depositary Receipts A N A A N A N
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Foreign Exchange A N A A N A N
Contracts
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Foreign Government A N A A N N N
Securities
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Brady Bonds A N A A N N N
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Derivative Contracts A A A A A N N
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Futures Contracts3/4 A A A A A N N
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Options3 A A A A A N N
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Special Transactions A A A A A A N
- -------------------------- ---------------- ------------ ------------- ----------- --------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Repurchase Agreements A A A A A P P
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Reverse Repurchase A A A A A A N
Agreements
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Delayed Delivery A A A A A A A
Transactions
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
To Be Announced A A N N A A N
Securities (TBAs)
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Dollar Rolls A A N A A N
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Securities Lending A A A A A N N
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Asset Coverage A A A A A A N
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Shares of Other A A A A A A A
Investment Companies
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
Restricted and A A A A A A A
Illiquid Securities5
- -------------------------- ---------------- ------------ ------------- ----------- -------------- ---------- ------------
</TABLE>

1 Cash Reserve Fund will not invest more than 25% of the value of its total
assets in any one industry except commercial paper of finance companies. 2 The
Capital Appreciation Fund, Mid Cap Equity Fund and Total Return Fund will only
purchase securities issued in U.S. dollar denominations and will not invest more
than 15% of total assets in foreign securities. 3 Mid Cap Equity 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. Each Fund
will limit its purchase of options so that not more than 20% of its net assets
will be invested in option premiums. Each Fund will limit its option writing so
that the assets underlying such options will not exceed 25% of its total net
assets. 4 A Fund will not participate in futures transactions if the sum of its
initial margin deposits will exceed 5% of the value 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. 5 The Funds may invest up to 10%
of their respective total assets in restricted securities. Capital Appreciation
Fund, Louisiana Municipal Income Fund, Mid Cap Equity Fund, Total Return Bond
Fund, and U.S. Government Income Fund will limit investments in illiquid
securities (including, as applicable, certain restricted securities not
determined by the Trustees to be liquid, non-negotiable time deposits,
repurchase agreements providing for settlement in more than seven days after
notice, and over-the-counter options) to 15% of their respective net assets. The
Money Market Funds will limit investments in illiquid securities to 10% of their
respective net assets. Securities in Which the Funds Invest

Permitted securities and investment techniques are set forth in the securities
chart in the prospectus. Securities and techniques principally used by the Funds
to meet their respective goals are also described in the prospectus. Other
securities and techniques used by the Funds to meet their respective goals are
described below.

SECURITIES DESCRIPTIONS AND TECHNIQUES

Equity Securities
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. A Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business.
Preferred Stocks
Preferred stocks have the right to receive specified dividends or
distributions before the issuer makes payments on its common stock. Some
preferred stocks also participate in dividends and distributions paid on
common stock. Preferred stocks may also permit the issuer to redeem the
stock. A Fund may also treat such redeemable preferred stock as a fixed
income security. Warrants Warrants give a Fund the option to buy the
issuer's equity securities at a specified price (the exercise price) at a
specified future date (the expiration date). The Fund may buy the
designated securities by paying the exercise price before the expiration
date. Warrants may become worthless if the price of the stock does not rise
above the exercise price by the expiration date. This increases the market
risks of warrants as compared to the underlying security. Rights are the
same as warrants, except companies typically issue rights to existing
stockholders.
Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities. A security's yield measures the
annual income earned on a security as a percentage of its price. A security's
yield will increase or decrease depending upon whether it costs less (a
discount) or more (a premium) than the principal amount. If the issuer may
redeem the security before its scheduled maturity, the price and yield on a
discount or premium security may change based upon the probability of an early
redemption. Securities with higher risks generally have higher yields.
Taxable Municipal Securities
Municipal securities are issued by states, counties, cities and other
political subdivisions and authorities. Although many municipal securities
are exempt from federal income tax, the Funds may invest in taxable
municipal securities. Mortgage Backed Securities Mortgage backed securities
represent interests in pools of mortgages. The mortgages that comprise a
pool normally have similar interest rates, maturities and other terms.
Mortgages may have fixed or adjustable interest rates. Interests in pools
of adjustable rate mortgages are known as ARMs. Mortgage backed securities
come in a variety of forms. Many have extremely complicated terms. The
simplest form of mortgage backed securities are pass-through certificates.
An issuer of pass-through certificates gathers monthly payments from an
underlying pool of mortgages. Then, the issuer deducts its fees and
expenses and passes the balance of the payments onto the certificate
holders once a month. Holders of pass-through certificates receive a pro
rata share of all payments and pre-payments from the underlying mortgages.
As a result, the holders assume all the prepayment risks of the underlying
mortgages.
Collateralized Mortgage Obligations (CMOs)
CMOs, including interests in real estate mortgage investment conduits
(REMICs), allocate payments and prepayments from an underlying
pass-through certificate among holders of different classes of mortgage
backed securities. This creates different prepayment and interest rate
risks for each CMO class.

Sequential CMOs
In a sequential pay CMO, one class of CMOs receives all principal
payments and prepayments. The next class of CMOs receives all
principal payments after the first class is paid off. This process
repeats for each sequential class of CMO. As a result, each class
of sequential pay CMOs reduces the prepayment risks of subsequent
classes. The Funds will invest only in CMOs which are rated AAA by
an NRSRO and which may be: (a) collateralized by pools of
mortgages in which each mortgage is guaranteed as to payment of
principal and interest by an agency or instrumentality of the U.S.
government; (b) collateralized by pools of mortgages in which
payment of principal and interest is guaranteed by the issuer and
such guarantee is collateralized by U.S. government securities; or
(c) securities in which the proceeds of the issuance are invested
in mortgage securities and payment of the principal and interest
are supported by the credit of an agency or instrumentality of the
U.S. government.

Z Classes and Residual Classes
CMOs must allocate all payments received from the underlying
mortgages to some class. To capture any unallocated payments, CMOs
generally have an accrual (Z) class. Z classes do not receive any
payments from the underlying mortgages until all other CMO classes
have been paid off. Once this happens, holders of Z class CMOs
receive all payments and prepayments. Similarly, REMICs have
residual interests that receive any mortgage payments not
allocated to another REMIC class. The degree of increased or
decreased prepayment risks depends upon the structure of the CMOs.
However, the actual returns on any type of mortgage backed
security depend upon the performance of the underlying pool of
mortgages, which no one can predict and will vary among pools.
Zero Coupon Securities
Zero coupon securities do not pay interest or principal until final
maturity unlike debt securities that provide periodic payments of interest
(referred to as a coupon payment). Investors buy zero coupon securities at
a price below the amount payable at maturity. The difference between the
purchase price and the amount paid at maturity represents interest on the
zero coupon security. Investors must wait until maturity to receive
interest and principal, which increases the market and credit risks of a
zero coupon security. Bank Instruments Bank instruments are unsecured
interest bearing deposits with banks. Bank instruments include bank
accounts, time deposits, certificates of deposit and banker's acceptances.
Yankee instruments are denominated in U.S. dollars and issued by U.S.
branches of foreign banks. Eurodollar instruments are denominated in U.S.
dollars and issued by non-U.S. branches of U.S. or foreign banks. Credit
Enhancement Credit enhancement consists of an arrangement in which a
company agrees to pay amounts due on a fixed income security if the issuer
defaults. In some cases the company providing credit enhancement makes all
payments directly to the security holders and receives reimbursement from
the issuer. Normally, the credit enhancer has greater financial resources
and liquidity than the issuer. For this reason, the Adviser usually
evaluates the credit risk of a fixed income security based solely upon its
credit enhancement. There are many forms of zero coupon securities. Some
are issued at a discount and are referred to as zero coupon or capital
appreciation bonds. Others are created from interest bearing bonds by
separating the right to receive the bond's coupon payments from the right
to receive the bond's principal due at maturity, a process known as coupon
stripping. Treasury STRIPs, Treasury Income Growth Receipts (TIGRs) and
Certificates of Accrual on Treasuries (CATs) are the most common forms of
stripped zero coupon securities. In addition, some securities give the
issuer the option to deliver additional securities in place of cash
interest payments, thereby increasing the amount payable at maturity. These
are referred to as pay-in-kind or PIK securities.
Convertible Securities
Convertible securities are fixed income securities that a Fund has the option to
exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed income securities. Convertible securities have lower yields
than comparable fixed income securities. In addition, at the time a convertible
security is issued the conversion price exceeds the market value of the
underlying equity securities. Thus, convertible securities may provide lower
returns than non-convertible fixed income securities or equity securities
depending upon changes in the price of the underlying equity securities.
However, convertible securities permit a Fund to realize some of the potential
appreciation of the underlying equity securities with less risk of losing its
initial investment.

The Funds treat convertible securities as both fixed income and equity
securities for purposes of their investment policies and limitations, because of
their unique characteristics. Tax Exempt Securities Tax exempt securities are
fixed income securities that pay interest that is not subject to regular federal
income taxes. Typically, states, counties, cities and other political
subdivisions and authorities issue tax exempt securities. The market categorizes
tax exempt securities by their source of repayment.
Private Activity Bonds
Private activity bonds are special revenue bonds used to finance
private entities. For example, a municipality may issue bonds to
finance a new factory to improve its local economy. The municipality
would lend the proceeds from its bonds to the company using the
factory, and the company would agree to make loan payments sufficient
to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the
municipality. Therefore, any default on the loan normally would result
in a default on the bonds. The interest on many types of private
activity bonds is subject to the federal alternative minimum tax (AMT).
The Louisiana Municipal Income Fund may invest in bonds subject to AMT.
Tax Increment Financing Bonds Tax increment financing (TIF) bonds are
payable from increases in taxes or other revenues attributable to
projects financed by the bonds. For example, a municipality may issue
TIF bonds to redevelop a commercial area. The TIF bonds would be
payable solely from any increase in sales taxes collected from
merchants in the area. The bonds could default if merchants' sales, and
related tax collections, failed to increase as anticipated. Municipal
Notes Municipal notes are short-term tax exempt securities. Many
municipalities issue such notes to fund their current operations before
collecting taxes or other municipal revenues. Municipalities may also
issue notes to fund capital projects prior to issuing long-term bonds.
The issuers typically repay the notes at the end of their fiscal year,
either with taxes, other revenues or proceeds from newly issued notes
or bonds. Municipal Leases Municipalities may enter into leases for
equipment or facilities. In order to comply with state public financing
laws, these leases are typically subject to annual appropriation. In
other words, a municipality may end a lease, without penalty, by not
providing for the lease payments in its annual budget. After the lease
ends, the lessor can resell the equipment or facility but may lose
money on the sale. The Fund may invest in securities supported by pools
of municipal leases. The most common type of lease backed securities
are certificates of participation (COPs). However, the Fund may also
invest directly in individual leases. Participation Interests The
Louisiana Municipal Income Fund may purchase participation interests
from financial institutions such as commercial banks, savings
associations, and insurance companies. These participation interests
give the Fund an undivided interest in Louisiana municipal securities.

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

Liquidity Puts
The Louisiana Municipal Income Fund may purchase a right to sell a
security held by it back to the issuer or to another party at an agreed
upon price at any time during a stated period or on a certain date.
These rights are also referred to as standby commitments. Municipal
Bond Insurance The Louisiana Municipal Income Fund may purchase
municipal securities covered by insurance which guarantee the timely
payment of principal at maturity and interest on such securities. These
insured municipal securities are either (1) covered by an insurance
policy applicable to a particular security, whether obtained by the
issuer of the security or by a third party (Issuer-Obtained Insurance)
or (2) insured under master insurance policies issued by municipal bond
insurers, which may be purchased by the Fund (Policies).

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

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

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

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

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

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

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

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

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

Variable Rate Demand Instruments
Variable rate demand instruments are securities that require the issuer or a
third party, such as a dealer or bank, to repurchase the security for its face
value upon demand. The securities also pay interest at a variable rate intended
to cause the securities to trade at their face value. The Funds treat demand
instruments as short-term securities, because their variable interest rate
adjusts in response to changes in market rates, even though their stated
maturity may extend beyond thirteen months. Foreign Securities Foreign
securities are securities of issuers based outside the United States. The Funds
consider an issuer to be based outside the United States if: o it is organized
under the laws of, or has a principal office located in, another country; o the
principal trading market for its securities is in another country; or o it (or
its subsidiaries) derived in its most current fiscal year at least 50% of its
total assets,
capitalization, gross revenue or profit from goods produced, services
performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.
Depositary Receipts
Depositary receipts represent interests in underlying securities issued by
a foreign company. Depositary receipts are not traded in the same market as
the underlying security. The foreign securities underlying American
Depositary Receipts (ADRs) are traded in the United States. ADRs provide a
way to buy shares of foreign-based companies in the United States rather
than in overseas markets. ADRs are also traded in U.S. dollars, eliminating
the need for foreign exchange transactions. The foreign securities
underlying European Depositary Receipts (EDRs), Global Depositary Receipts
(GDRs), and International Depositary Receipts (IDRs), are traded globally
or outside the United States. Depositary receipts involve many of the same
risks of investing directly in foreign securities, including currency risks
and risks of foreign investing. Foreign Exchange Contracts In order to
convert U.S. dollars into the currency needed to buy a foreign security, or
to convert foreign currency received from the sale of a foreign security
into U.S. dollars, a Fund may enter into spot currency trades. In a spot
trade, the Fund agrees to exchange one currency for another at the current
exchange rate. The Fund may also enter into derivative contracts in which a
foreign currency is an underlying asset. The exchange rate for currency
derivative contracts may be higher or lower than the spot exchange rate.
Use of these derivative contracts may increase or decrease the Fund's
exposure to currency risks. Foreign Government Securities Foreign
government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations
of supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government
agencies. Examples of these include, but are not limited to, the
International Bank for Reconstruction and Development (the World Bank), the
Asian Development Bank, the European Investment Bank and the Inter-American
Development Bank. Foreign government securities also include fixed income
securities of quasi-governmental agencies that are either issued by
entities owned by a national, state or equivalent government or are
obligations of a political unit that are not backed by the national
government's full faith and credit. Further, foreign government securities
include mortgage-related securities issued or guaranteed by national, state
or provincial governmental instrumentalities, including quasi-governmental
agencies. Brady Bonds Brady Bonds are U.S. dollar denominated debt
obligations that foreign governments issue in exchange for commercial bank
loans. The International Monetary Fund (IMF) typically negotiates the
exchange to cure or avoid a default by restructuring the terms of the bank
loans. The principal amount of some Brady Bonds is collateralized by zero
coupon U.S. Treasury securities which have the same maturity as the Brady
Bonds. However, neither the U.S. government nor the IMF has guaranteed the
repayment of any Brady Bond.
Derivative Contracts
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty. Many
derivative contracts are traded on securities or commodities exchanges. In this
case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, a Fund could close out an open contract to buy an asset at a future
date by entering into an offsetting contract to sell the same asset on the same
date. If the offsetting sale price is more than the original purchase price, the
Fund realizes a gain; if it is less, the Fund realizes a loss. Exchanges may
limit the amount of open contracts permitted at any one time. Such limits may
prevent the Fund from closing out a position. If this happens, the Fund will be
required to keep the contract open (even if it is losing money on the contract),
and to make any payments required under the contract (even if it has to sell
portfolio securities at unfavorable prices to do so). Inability to close out a
contract could also harm the Fund by preventing it from disposing of or trading
any assets it has been using to secure its obligations under the contract.

The Funds may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be
directly offset with other OTC contracts. In addition, OTC contracts with
more specialized terms may be more difficult to price than exchange traded
contracts. Depending upon how a Fund uses derivative contracts and the
relationships between the market value of a derivative contract and the
underlying asset, derivative contracts may increase or decrease the Fund's
exposure to market and currency risks, and may also expose the Fund to
liquidity and leverage risks. OTC contracts also expose the Fund to credit
risks in the event that a counterparty defaults on the contract. The Funds
may trade in the following types of derivative contracts. Futures Contracts
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified
price, date, and time. Entering into a contract to buy an underlying asset
is commonly referred to as buying a contract or holding a long position in
the asset. Entering into a contract to sell an underlying asset is commonly
referred to as selling a contract or holding a short position in the asset.
Futures contracts are considered to be commodity contracts. Futures
contracts traded OTC are frequently referred to as forward contracts. The
Funds (except the Money Market Funds) may buy and sell the following types
of futures contracts: financial futures contracts, and, in the case of
Capital Appreciation Fund and Mid Cap Equity Fund, stock index futures. For
the immediate future, Capital Appreciation Fund and Mid Cap Equity Fund
will enter into futures contracts directly only when it desires to exercise
a financial futures put option in its portfolio rather than either closing
out the option or allowing it to expire. Options Options are rights to buy
or sell an underlying asset for a specified price (the exercise price)
during, or at the end of, a specified period. A call option gives the
holder (buyer) the right to buy the underlying asset from the seller
(writer) of the option. A put option gives the holder the right to sell the
underlying asset to the writer of the option. The writer of the option
receives a payment, or premium, from the buyer, which the writer keeps
regardless of whether the buyer uses (or exercises) the option. The Funds
may:
o Buy call options on financial futures contracts in anticipation of an
increase in the value of the underlying asset.;
o (Except Capital Appreciation Fund) Buy put options on financial futures
contracts in anticipation of a decrease in the value of the underlying
asset; and
o Buy or write options to close out existing options positions.
The Funds may also write call options on portfolio securities to generate
income from premiums, and in anticipation of a decrease or only limited
increase in the value of the underlying asset. If a call written by the
Fund is exercised, the Fund foregoes any possible profit from an increase
in the market price of the underlying asset over the exercise price plus
the premium received. The Funds may also write put options on portfolio
securities to generate income from premiums, and in anticipation of an
increase or only limited decrease in the value of the underlying asset. In
writing puts, there is a risk that a Fund may be required to take delivery
of the underlying asset when its current market price is lower than the
exercise price. When a Fund writes options on futures contracts, it will be
subject to margin requirements similar to those applied to futures
contracts. Mid Cap Equity 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.

Each Fund will limit its purchase of options so that not more than 20% of
its net assets will be invested in option premiums. Each Fund will limit
its option writing so that the assets underlying such options will not
exceed 25% of its total net assets.
Hedging
Hedging transactions are intended to reduce specific risks. For example, to
protect a Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a derivative
contract that would normally increase in value under the same circumstances. The
Fund may also attempt to hedge by using combinations of different derivatives
contracts, or derivatives contracts and securities. The Fund's ability to hedge
may be limited by the costs of the derivatives contracts. The Fund may attempt
to lower the cost of hedging by entering into transactions that provide only
limited protection, including transactions that (1) hedge only a portion of its
portfolio, (2) use derivatives contracts that cover a narrow range of
circumstances or (3) involve the sale of derivatives contracts with different
terms. Consequently, hedging transactions will not eliminate risk even if they
work as intended. In addition, hedging strategies are not always successful, and
could result in increased expenses and losses to the Fund.

Derivative Contracts
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty. Many
derivative contracts are traded on securities or commodities exchanges. In this
case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, a Fund could close out an open contract to buy an asset at a future
date by entering into an offsetting contract to sell the same asset on the same
date. If the offsetting sale price is more than the original purchase price, the
Fund realizes a gain; if it is less, the Fund realizes a loss. Exchanges may
limit the amount of open contracts permitted at any one time. Such limits may
prevent the Fund from closing out a position. If this happens, the Fund will be
required to keep the contract open (even if it is losing money on the contract),
and to make any payments required under the contract (even if it has to sell
portfolio securities at unfavorable prices to do so). Inability to close out a
contract could also harm the Fund by preventing it from disposing of or trading
any assets it has been using to secure its obligations under the contract.

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

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

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

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

Purchasing Put Options on Financial Futures Contracts
Unlike entering directly into a futures contract, which requires the
purchaser to buy a financial instrument on a set date at a specified
price, the purchase of a put option on a futures contract entitles (but
does not obligate) its purchaser to decide on or before a future date
whether to assume a short position at the specified price.

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

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

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

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

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

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

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

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

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

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

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

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

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

Purchasing Put and Call Options on Portfolio Securities
The Funds may purchase put and call options on portfolio securities to
protect against price movements in particular securities. A put option
gives a Fund, in return for a premium, the right to sell the underlying
security to the writer (seller) at a specified price during the term of
the option. A call option gives a Fund, in return for a premium, the right
to buy the underlying security from the seller.

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

Writing Covered Put and Call Options on Portfolio Securities
As writer of a call option, a Fund has the obligation, upon exercise of
the option during the option period, to deliver the underlying security
upon payment of the exercise price. As a writer of a put option, a Fund
has the obligation to purchase a security from the purchaser of the option
upon the exercise of the option.

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

Stock Index Futures and Options

The Mid Cap Equity Fund may utilize stock index futures contracts, options
and options on stock index futures contracts, subject to the limitation
that the value of these futures contracts and options will not exceed 20%
of the Fund's total assets. These futures contracts and options will be
used to handle cash flows into and out of the Fund and to potentially
reduce transactional costs, since transactional costs associated with
futures and options contracts can be lower than costs stemming from direct
investments in stocks.

Special Transactions
Reverse Repurchase Agreements
Reverse repurchase agreements are repurchase agreements in which a Fund is
the seller (rather than the buyer) of the securities, and agrees to
repurchase them at an agreed upon time and price. A reverse repurchase
agreement may be viewed as a type of borrowing by the Fund. Reverse
repurchase agreements are subject to credit risks. In addition, reverse
repurchase agreements create leverage risks because the Fund must
repurchase the underlying security at a higher price, regardless of the
market value of the security at the time of repurchase. Delayed Delivery
Transactions Delayed delivery transactions, including when issued
transactions, are arrangements in which a Fund buys securities for a set
price, with payment and delivery of the securities scheduled for a future
time. During the period between purchase and settlement, no payment is made
by the Fund to the issuer and no interest accrues to the Fund. The Fund
records the transaction when it agrees to buy the securities and reflects
their value in determining the price of its shares. Settlement dates may be
a month or more after entering into these transactions so that the market
values of the securities bought may vary from the purchase prices.
Therefore, delayed delivery transactions create interest rate risks for a
Fund. Delayed delivery transactions also involve credit risks in the event
of a counterparty default.
To Be Announced Securities (TBAs)
As with other delayed delivery transactions, a seller agrees to issue a
TBA security at a future date. However, the seller does not specify the
particular securities to be delivered. Instead, the Fund agrees to
accept any security that meets specified terms. For example, in a TBA
mortgage backed transaction, the Fund and the seller would agree upon
the issuer, interest rate and terms of the underlying mortgages. The
seller would not identify the specific underlying mortgages until it
issues the security. TBA mortgage backed securities increase interest
rate risks because the underlying mortgages may be less favorable than
anticipated by the Fund. Dollar Rolls Dollar rolls are transactions
where a Fund sells mortgage backed securities with a commitment to buy
similar, but not identical, mortgage backed securities on a future date
at a lower price. Normally, one or both securities involved are TBA
mortgage backed securities. Dollar rolls are subject to interest rate
risks and credit risks.
Securities Lending
A Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from
the borrower as collateral. The borrower must furnish additional collateral
if the market value of the loaned securities increases. Also, the borrower
must pay the Fund the equivalent of any dividends or interest received on
the loaned securities. The Fund will reinvest cash collateral in securities
that qualify as an acceptable investment for the Fund. However, the Fund
must pay interest to the borrower for the use of cash collateral. Loans are
subject to termination at the option of the Fund or the borrower. The Fund
will not have the right to vote on securities while they are on loan, but
it will terminate a loan in anticipation of any important vote. The Fund
may pay administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the cash collateral to a
securities lending agent or broker. Securities lending activities are
subject to interest rate risks and credit risks. Asset Coverage In order to
secure its obligations in connection with derivatives contracts or special
transactions, a Fund will either own the underlying assets, enter into an
offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has
other readily marketable assets to set aside, it cannot trade assets used
to secure such obligations without entering into an offsetting derivative
contract or terminating a special transaction. This may cause the Fund to
miss favorable trading opportunities or to realize losses on derivative
contracts or special transactions.
Investing in Securities of Other Investment Companies
The Funds may invest assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out their investment policies and managing their uninvested cash.
Any such investment by a Fund may be subject to duplicate expenses. However, the
Adviser will waive its investment advisory fee on assets invested in securities
of other investment companies. The Adviser believes that the benefits and
efficiencies of this approach should outweigh the potential additional expenses.
The Funds may also invest in such securities directly.

Investment Ratings
A nationally recognized rating service's two highest rating categories are
determined without regard for sub-categories and gradations. For example,
securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's ("S&P"), MIG-1 or
MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or F-1+, F-1, or F-2 by
Fitch IBCA, Inc. ("Fitch") are all considered to be rated in one of the two
highest short-term rating categories. The Cash Reserve Fund will follow
applicable regulations in determining whether a security rated by more than one
rating service can be treated as being in one of the two highest short-term
rating categories; currently, such securities must be rated by two rating
services in one of their two highest rating categories. See "Regulatory
Compliance."

The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard &Poor's, a rating service, assigns ratings to investment grade
securities (AAA, AA, A, and BBB) based on their assessment of the likelihood of
the issuer's inability to pay interest or principal (default) when due on each
security. Lower credit ratings correspond to higher credit risk. If a security
has not received a rating, a Fund must rely entirely upon the Adviser's credit
assessment that the security is comparable to investment grade.

INVESTMENT RISKS

There are many factors which may affect an investment in the Fund. A Fund's
principal risks are described in the prospectus. Additional risk factors are
outlined below.

Liquidity Risks
o Trading opportunities are more limited for equity securities that are not
widely held. This may make it more difficult to sell or buy a security at a
favorable price or time. Consequently, a Fund may have to accept a lower
price to sell a security, sell other securities to raise cash or give up an
investment opportunity, any of which could have a negative effect on the
Fund's performance. Infrequent trading of securities may also lead to an
increase in their price volatility.
o Liquidity risk also refers to the possibility that a Fund may not be able
to sell a security or close out a derivative contract when it wants to. If
this happens, the Fund will be required to continue to hold the security or
keep the position open, and the Fund could incur losses.

o OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.

Risks of Foreign Investing
o Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable than those of the United States.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
o Foreign companies may not provide information (including financial
statements) as frequently or to as great an extent as companies in the
United States. Foreign companies may also receive less coverage than United
States companies by market analysts and the financial press. In addition,
foreign countries may lack uniform accounting, auditing and financial
reporting standards or regulatory requirements comparable to those
applicable to U.S. companies. These factors may prevent a Fund and its
Adviser from obtaining information concerning foreign companies that is as
frequent, extensive and reliable as the information available concerning
companies in the United States.
o Foreign countries may have restrictions on foreign ownership of securities
or may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.

o Trading opportunities are more limited for fixed income securities that
have not received any credit ratings, have received ratings below
investment grade or are not widely held.
Risks Related To Hedging
When a Fund uses financial futures and options on futures as hedging devices,
there is a risk that the prices of the securities subject to the futures
contracts may not correlate perfectly with the prices of the securities in the
Fund's portfolio. This may cause the futures contracts and any related options
to react differently than the portfolio securities to market changes. In
addition, the Fund's Adviser could be incorrect in its expectations about the
direction or extent of market factors, such as interest rate movements. In these
events, the Fund may lose money on the futures contracts or options. When a Fund
writes a call option, it retains the risk of a market decline in the price of
the underlying security, but gives up the right to capital appreciation of that
security above the "strike price" of the option.

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

o A Fund will not participate in futures transactions if the sum of its
initial margin deposits on open contracts will exceed 5% of the market
value of the Fund's total assets, after taking into account the unrealized
profits and losses on those contracts into which it has entered;

o The Funds will not enter into these contracts for speculative purposes; and

o Since the Funds do not constitute a commodity pool, they will not market as
such, nor serve as vehicles for trading in the commodities futures or
commodity options markets.

In this regard, the Funds will disclose to all prospective investors the
limitations on its futures and options transactions, and will make clear that
these transactions are entered into only for bona fide hedging purposes or such
other purposes permitted under regulations promulgated by the Commodity Futures
Trading Commission (CFTC). The Funds intend to claim an exclusion from
registration as a commodity pool operator under the regulations promulgated by
the CFTC. When a Fund purchases futures contracts or writes put options on
futures contracts , an amount of cash and cash equivalents equal to the
underlying commodity value of the futures contracts(less any related margin
deposits) or equal to the exercise price of the put options will be deposited in
a segregated account with the Fund's custodian (or broker, if legally permitted)
to collateralize the position and thereby insure that the use of such futures
contracts is unleveraged.

Fundamental INVESTMENT Objectives and Policies

The investment objective and fundamental policies of a Fund may not be changed
by the Fund's Trustees without shareholder approval.
Capital Appreciation Fund seeks to provide growth of capital and income;

Louisiana Municipal Income Fund seeks to provide current income which
is generally exempt from federal regular income tax and the personal income
taxes imposed by the state of Louisiana;

Mid Equity Cap Fund seeks total return;

Total Return Bond Fund seeks to maximize total return;

U.S. Government Income Fund seeks to provide current income; Cash
Reserve Fund seeks to provide current income consistent with stability
of principal; and

U.S. Treasury Money Market Fund seeks to provide current income
consistent with stability of principal and liquidity.

As a matter of fundamental policy, the Louisiana Municipal Income Fund will
invest its assets so that, under normal circumstances, at least 80% of its
annual interest income is exempt from federal regular and Louisiana state income
taxes or at least 80% of its net assets are invested in obligations, the
interest income from which is exempt from federal regular and Louisiana state
income taxes.

As a matter of fundamental policy, the average maturity of the securities in
Cash Reserve Fund's portfolio, computed on a dollar-weighted basis, will be 120
days or less.

INVESTMENT LIMITATIONS

Diversification of Investments
With respect to securities comprising 75% of the value of its total assets, a
Fund (except Louisiana Municipal Income Fund) will not purchase securities of
any one issuer (other than cash; cash items, securities issued or guaranteed by
the government of the United States or its agencies or instrumentalities and
repurchase agreements collateralized by such U.S. government securities; and
securities of other investment companies) if, as a result, more than 5% of the
value of its total assets would be invested in securities of that issuer, or the
Fund would own more than 10% of the outstanding voting securities of that
issuer.

Issuing Senior Securities and Borrowing Money
A Fund may borrow money, directly or indirectly, and issue senior securities to
the maximum extent permitted under the Investment Company Act of 1940.

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

Investing in Real Estate
A Fund may not purchase or sell real estate, provided that this restriction does
not prevent the Fund from investing in issuers which invest, deal, or otherwise
engage in transactions in real estate or interests therein, or investing in
securities that are secured by real estate or interests therein. A Fund may
exercise its rights under agreements relating to such securities, including the
right to enforce security interests and to hold real estate acquired by reason
of such enforcement until that real estate can be liquidated in an orderly
manner.

Investing in Commodities
A Fund may not purchase or sell physical commodities, provided that the Fund may
purchase securities of companies that deal in commodities.

Underwriting
A Fund may not underwrite the securities of other issuers, except that the Fund
may engage in transactions involving the acquisition, disposition or resale of
its portfolio securities, under circumstances where it may be considered to be
an underwriter under the Securities Act of 1933.

Lending Cash or Securities
A Fund may not make loans, provided that this restriction does not prevent the
Fund from purchasing debt obligations, entering into repurchase agreements,
lending its assets to broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.

The above limitations cannot be changed unless authorized by the Board of
Trustees (Board) and by the "vote of a majority of its outstanding voting
securities," as defined by the Investment Company Act. The following
limitations, however, may be changed by the Board without shareholder approval.
Shareholders will be notified before any material change in these limitations
becomes effective.

Buying on Margin
A Fund will not purchase securities on margin provided that the Fund may obtain
short-term credits necessary for the clearance of purchases and sales of
securities.

Pledging Assets
A Fund will not mortgage, pledge or hypothecate any of its assets, provided that
this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.

Restricted and Illiquid Securities
A fund may invest in restricted securities. Restricted securities are
any securities in which a 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 Funds will limit their purchase, together
with other illiquid securities to 15% (for the Money Market Funds, 10%)of their
net assets.

Acquiring Securities
Cash Reserve Fund will not acquire the voting securities of any issuer. It will
not invest in securities of a company for the purpose of exercising control or
management.

Investing in Other Investment Companies
A Fund may invest its assets in securities of other investment
companies as an efficient means of carrying out its investment policies. It
should be noted that investment companies incur certain expenses, such as
management fees, and, therefore, any investment by the Fund in shares of other
investment companies may be subject to such duplicate expenses. At the present
time, the Fund expects that its investments in other investment companies may
include shares of money market funds, including funds affiliated with the Fund's
investment adviser.

Writing Covered Call Options and Purchasing Put Options
Capital Appreciation Fund and Mid Cap Equity Fund will not write call options on
securities unless the securities are held in the Fund's portfolio or unless the
Fund is entitled to them in deliverable form without further payment or after
segregating cash in the amount of any further payment. A Fund will not purchase
put options on securities, other than put options on stock indices, unless the
securities are held in the Fund's portfolio and not more than 5% of the value of
the Fund's net assets would be invested in premiums on open put option
positions.

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

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

Regulatory Compliance

The Money Market Funds may follow non-fundamental operational policies that are
more restrictive than the fundamental investment limitations, as set forth in
the prospectus and this Statement of Additional Information, in order to comply
with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940. In particular, the Funds
will comply with the various requirements of Rule 2a-7 (the Rule), which
regulates money market mutual funds. The Funds will determine the effective
maturity of investments according to the Rule. The Funds may change these
operational policies to reflect changes in the laws and regulations without the
approval of its shareholders.

DETERMINING MARKET VALUE OF SECURITIES

Market values of the Fund's (except the Money Market Funds) portfolio securities
are determined as follows:

for equity securities, according to the last sale price in the market
in which they are primarily traded (either a national securities exchange or
the over-the-counter market), if available;

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

for fixed income securities, at the last sale price on a national
securities exchange, if available, otherwise, as determined by an independent
pricing service;

o futures contracts and options are generally valued at market values
established by the exchanges on which they are traded at the close of trading
on such exchanges. Options traded in the over-the-counter market are
generally valued according to the mean between the last bid and the last
asked price for the option as provided by an investment dealer or other
financial institution that deals in the option. The Board may determine in
good faith that another method of valuing such investments is necessary to
appraise their fair market value;

for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as
determined in good faith by the Board; and

for all other securities at fair value as determined in good faith by the Board.

Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.

The Board has decided that the best method for determining the value of the
Money Market Funds' portfolio instruments is amortized cost. Under this method,
portfolio instruments are valued at the acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than at current
market value. Accordingly, neither the amount of daily income nor the net asset
value is affected by any unrealized appreciation or depreciation of the
portfolio. In periods of declining interest rates, the indicated daily yield on
Shares of the Fund computed by dividing the annualized daily income on the
Fund's portfolio by the net asset value computed as above may tend to be higher
than a similar computation made by using a method of valuation based upon market
prices and estimates. In periods of rising interest rates, the opposite may be
true.

The Money Market Funds' use of the amortized cost method of valuing portfolio
instruments depends on their compliance with certain conditions in the Rule
promulgated by the SEC under the Investment Company Act of 1940. Under the Rule,
the Trustees must establish procedures reasonably designed to stabilize the net
asset value per Share, as computed for purposes of distribution and redemption,
at $1.00 per Share, taking into account current market conditions and the Fund's
investment objective. The procedures include monitoring the relationship between
the amortized cost value per Share and the net asset value per Share based upon
available indications of market value. The Board will decide what, if any, steps
should be taken if there is a difference of more than 0.5 of 1% between the two
values. The Board will take any steps they consider appropriate (such as
redemption in kind or shortening the average portfolio maturity) to minimize any
material dilution or other unfair results arising from differences between the
two methods of determining net asset value.

What Do Shares Cost?

The Funds' (except the Money Market Funds) net asset value (NAV) per Share
fluctuates and is based on the market value of all securities and other assets
of the Fund.

The NAV for Class A Shares and Class B Shares of Capital Appreciation Fund and
Mid Cap Equity Fund may differ due to the variance in daily net income realized
by each class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.

REDUCING or eliminating THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge for the Equity
and Income Funds, as follows. HNB or the Distributor must be notified by you in
writing or by your financial institution in order to reduce or eliminate the
sales charge.

Quantity Discounts
Larger purchases of Class A Shares of Capital Appreciation Fund and Mid Cap
Equity Fund and Shares of Louisiana Municipal Income Fund, Total Return Bond
Fund, or U.S. Government Income Fund reduce the sales charge you pay. You can
combine purchases of Shares made on the same day by you, your spouse and your
children under age 21. In addition, purchases made at one time by a trustee or
fiduciary for a single trust estate or a single fiduciary account can be
combined.

Accumulated Purchases
If you make an additional purchase of Shares, you can count previous Share
purchases still invested in a Fund in calculating the applicable sales charge on
the additional purchase.

Concurrent Purchases
You can combine concurrent purchases of Class A Shares of Capital Appreciation
Fund and Mid Cap Equity Fund and Shares of Louisiana Municipal Income Fund,
Total Return Bond Fund, or U.S. Government Income Fund in calculating the
applicable sales charge. The sales charge will be reduced after the purchase is
confirmed.

Letter of Intent
You can sign a Letter of Intent committing to purchase a certain amount of the
Class A Shares of Capital Appreciation Fund and Mid Cap Equity Fund and Shares
of Louisiana Municipal Fund, Total Return Bond Fund, and U.S. Government Income
Fund within a 13-month period to combine such purchases in calculating the sales
charge. The Fund's custodian will hold Shares in escrow equal to the maximum
applicable sales charge. If you complete the Letter of Intent, the Custodian
will release the Shares in escrow to your account. If you do not fulfill the
Letter of Intent, the Custodian will redeem the appropriate amount from the
Shares held in escrow to pay the sales charges that were not applied to your
purchases.

Reinvestment Privilege
You may reinvest, within 30 days (within 120 days for an IRA account), your
Share redemption proceeds at the next determined NAV without any sales charge.
Hibernia National Bank or the Distributor must be notified by you or your
financial institutional in writing of the reinvestment in order to eliminate a
sales charge. If you redeem your Shares in a Fund, there may be tax
consequences.

Purchases by Affiliates of the Fund
The following individuals and their immediate family members may buy Shares at
NAV without any sales charge because there are nominal sales efforts associated
with their purchases.

o the Trust Division of Hibernia National Bank or other affiliates of
Hibernia National Bank for funds which are held in a fiduciary, agency,
custodial, or similar capacity;

o Trustees/Directors and employees of the Trust, Hibernia National Bank, or
their affiliates;

o retired Trustees/Directors and retired employees of Hibernia National Bank,
and the spouse, children, parents and the parents of the spouse of any such
person;

o any accounts for which such an employee serves in a fiduciary, agency,
custodial, or similar
capacity;

o Trustees/Directors and employees of Federated Securities Corp. or its
affiliates;

o retired Trustees/Directors and retired employees of any bank or investment
dealer who has a sales agreement with Federated Securities Corp. with
regard to the Funds, and their spouses and children; and

investors who purchase shares through The Personal Portfolio
Manager(R), an investment program sponsored by Hibernia Investment
Securities, Inc. (HISI) or other similar asset allocation programs made
available through financial institutions who have established dealer
agreements with Federated Securities Corp.

REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE - Class B Shares

These reductions or eliminations are offered because: no sales commissions have
been advanced to the investment professional selling Shares; the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC); or nominal sales efforts
are associated with the original purchase of Shares.

Upon notification to the Distributor or the Funds' transfer agent, no CDSC will
be imposed on redemptions:

o the portion of redemption proceeds attributable to increases in the value
of the account due to increases in the net asset value per Share;

o shares acquired through reinvestment of dividends and capital gains;

o Shares held for more than six years after the end of the calendar month of
acquisition;

o following the death or post-purchase disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, of the last surviving
shareholder;

o representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age
of 70 1/2;

o which are involuntary redemptions processed by the Fund because the
accounts do not meet the minimum balance requirements.

How are the Funds Sold?

Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.

front-end SALES CHARGE REALLOWANCES

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

RULE 12B-1 PLAN

As a reimbursement-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that a Fund's overall assets are maintained or increased.
This helps the Fund achieve economies of scale, reduce per Share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Funds' service providers that receive asset-based fees also
benefit from stable or increasing a Fund's assets.

The Fund reimburses the Distributor only for those payments made to investment
professionals up to the maximum Rule 12b-1 Plan fee. The Distributor may seek
reimbursement in following years for any unreimbursed expenses permitted under
the Plan. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.

For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing-related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses.

SHAREHOLDER SERVICES - class b shares

The Capital Appreciation Fund, Mid Cap Equity Fund and Cash Reserve Fund may pay
Federated Shareholder Services Company, a subsidiary of Federated Investors,
Inc. (Federated), for providing shareholder services and maintaining shareholder
accounts. Federated Shareholder Services Company may select others to perform
these services for their customers and may pay them fees.

SUPPLEMENTAL PAYMENTS

Investment professionals and financial institutions may be paid fees out of the
assets of the Distributor, HISI, Hibernia National Bank, or their affiliates,
(but not out of a Fund's assets). The Distributor may be reimbursed by the
Adviser or its affiliates.

Investment professionals and financial institutions receive such fees for
providing distribution-related or shareholder services such as sponsoring sales,
providing sales literature, conducting training seminars for employees, and
engineering sales-related computer software programs and systems. Also,
investment professionals may be paid cash or promotional incentives, such as
reimbursement of certain expenses relating to attendance at informational
meetings about the Funds or other special events at recreational-type
facilities, or items of material value. These payments will be based upon the
amount of Shares the investment professional sells or may sell and/or upon the
type and nature of sales or marketing support furnished by the investment
professional.

When an investment professional's customer purchases shares, the investment
professional may receive an amount up to 5.50% of the NAV of Class B Shares.

In addition, the Distributor may pay investment professionals 0.25% of the
purchase price of $1 million or more of Class A Shares that its customer has not
redeemed over the first year.

Exchanging Securities for Shares

You may contact the Distributor to request a purchase of Shares in exchange for
securities you own with a value of at least $25,000. The Funds reserve the right
to determine whether to accept your securities. A Fund will value your
securities in the same manner as it values its assets. This exchange is treated
as a sale of your securities for federal tax purposes.

Redemption in Kind

Although the Funds intend to pay Share redemptions in cash, they reserve the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Funds' portfolio securities.

Because the Funds have elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Funds are obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.

Any Share redemption payment greater than this amount will also be in cash
unless the Funds' Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Funds' Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.

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

Massachusetts Partnership Law

Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Funds.

In the unlikely event a shareholder is held personally liable for a Fund's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or 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 a Fund. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.

Account and Share Information
VOTING RIGHTS

Each share of a Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote.

All Shares of a Fund have equal voting rights, except that in matters affecting
only a particular Fund or class, only Shares of that Fund or class are entitled
to vote.

Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.

As of , 1999, the following shareholders owned of record, beneficially, or both,
5% or more of outstanding Shares: (To be filed by amendment)

Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.

Tax Information

FEDERAL INCOME TAX

The Funds intend to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.

Each Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by a Fund.

The Mid Cap Equity Fund and U.S. Government Income Fund is entitled to a loss
carry-forward, which may reduce the taxable income or gain that the Fund would
realize, and to which the shareholder would be subject, in the future.

FOREIGN INVESTMENTS

If the Capital Appreciation Fund, Mid Cap Equity Fund, Total Return Bond Fund,
or Cash Reserve Fund purchase foreign securities, their investment income may be
subject to foreign withholding or other taxes that could reduce the return on
these securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.

Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax-basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of
fixed-income securities denominated in foreign currencies, it is difficult to
project currency effects on an interim basis. Therefore, to the extent that
currency fluctuations cannot be anticipated, a portion of distributions to
shareholders could later be designated as a return of capital, rather than
income, for income tax purposes, which may be of particular concern to simple
trusts.

If a Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to federal income taxes upon disposition of PFIC investments.

If more than 50% of the value of a Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.

Louisiana Municipal Income Fund--Additional Tax Information

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

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

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

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

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

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

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

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

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

Who Manages and Provides Services to the Funds?

BOARD OF TRUSTEES

The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birth date, present position(s) held with the Trust,
principal occupations for the past five years and positions held prior to the
past five years, total compensation received as a Trustee from the Trust for its
most recent fiscal year, and the total compensation received from the Fund
Complex for the most recent calendar year. The Trust is comprised of seven
funds. The Trust is the only investment company in the Complex.

As of December , 1999, the Funds' Board and Officers as a group owned less than
1% of the outstanding Class A Shares and Class B Shares of Capital Appreciation
Fund, Mid Cap Equity Fund and Cash Reserve Fund and less than 1% of the
outstanding Shares of Louisiana Municipal Income Fund, Total Return Bond Fund,
U.S. Government Income Fund and U.S. Treasury Money Market Fund.

An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. A pound sign (#) denotes a Member
of the Board's Executive Committee, which handles the Board's responsibilities
between its meetings.

<PAGE>

- -----------------------------------------------------------------------------------------------------------------
Name
Birth Date Aggregate
Address Principal Occupations Compensation
Position With Trust for Past Five Years From Trust
- -----------------------------------------------------------------------------------------------------------------

<PAGE>

Edward C. Gonzales*# Trustee or Director of some of the Funds in the $0
Birth Date: October 22, 1930 Federated Fund Complex; President, Executive Vice
Federated Investors Tower President and Treasurer of some of the Funds in the
1001 Liberty Avenue Federated Fund Complex; Vice Chairman, Federated
Pittsburgh, PA Investors, Inc.; Vice President, Federated
PRESIDENT, TREASURER and TRUSTEE Investment Management Company and Federated
Investment Counseling, Federated Global Investment
Management Corp. and Passport Research, Ltd.;
Executive Vice President and Director, Federated
Securities Corp.; Trustee, Federated Shareholder
Services Company.

Robert L. diBenedetto, Gynecologist; President/CEO, Louisiana Medical $12,000
M.D. Birth Date: April Mutual Insurance Company; Medical Director Emeritus,
14, 1928 Women's Hospital.
781 Colonial Drive
Baton Rouge, LA
TRUSTEE
- -----------------------------------------------------------------------------------------------------------------
Arthur Rhew Dooley, Jr.@ Registered Professional Engineer; Chairman and CEO,
Birth Date: December 17, 1942 Dooley Tackaberry, Inc. (distributors and $0
4849 Cardinal Drive fabricators of fire protection and safety
Beaumont, TX 77536 equipment), 1967 to Present; Chairman and CEO,
TRUSTEE Spindeltop Computer Systems, Inc. dba Entire
Business Technology Center, 1983 to
Present; Director, Loop Cold Storage
Company; Director, UTM.D. Anderson Cancer
Center Board of Visitors; Director, Texas
Energy Museum; Member, World Presidents
Organization (former YPO Members); Member,
Society of Fire Protection Engineers.

- -----------------------------------------------------------------------------------------------------------------
James A. Gayle, Sr.
Birth Date: September 27, 1923 Board of Directors, Louisiana Forestry Association; $12,000
613 Turtle Creek Drive President, Jim Gayle Interests, Inc.; Retired from
Shreveport, LA International Paper Company, August 1985.
TRUSTEE
- -----------------------------------------------------------------------------------------------------------------
J. Gordan Reische#
Birth Date: September 11, 1931 Retired Managing Partner, New Orleans office, KPMG - $12,000
20 Dogwood Drive LLP.
Covington, LA
TRUSTEE
- --------------------------------------------------------------------------------------------------------------
----
Jeffrey W. Sterling Vice President, Mutual Fund Services.
Birth Date: February 5, 1947 $0
Federated Investors Tower
Pittsburgh, PA
VICE PRESIDENT AND ASSISTANT
TREASURER

- -----------------------------------------------------------------------------------------------------------------
Peter J. Germain Senior Vice President and Director, Mutual Fund
Birth Date: September 3, 1959 Services Division, Federated Services Company; $0
Federated Investors Tower Formerly Senior Corporate Counsel, Federated
Pittsburgh, PA Investors (1992-1997).
SECRETARY

- -----------------------------------------------------------------------------------------------------------------
</TABLE>

@ Mr. Dooley was elected to the Board on September 13, 1999, and, therefore has
not received any remuneration from the Trust during either the last fiscal year
or last calendar year.
INVESTMENT ADVISER

The Adviser conducts investment research and makes investment decisions for the
Funds.

The Adviser shall not be liable to the Trust or any Fund shareholder 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 HNB to restrict the flow of
non-public information, Fund investments are typically made without any
knowledge of HNB's or it's affiliates' lending relationships with an issuer.

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. 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 may select brokers and dealers
based on whether they also offer research services (as described below). 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 the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Funds' Board.

Research Services
Research services 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 may be used by the Adviser or by affiliates in advising other accounts.
To the extent that receipt of these services may replace 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 those brokers who offer brokerage and research services to
execute securities transactions. They determine in good faith that commissions
charged by such persons are reasonable in relationship to the value of the
brokerage and research services provided.

For the fiscal year ended August 31, 1999, the Fund's Adviser directed brokerage
transactions to certain brokers due to research services they provided. The
total amount of these transactions for Capital Appreciation Fund was $_______
for which the Fund paid $_______ in brokerage commissions and the total amount
of these transactions for Mid Cap Equity Fund was $_______ for which the Fund
paid $_______ in brokerage commissions.

Investment decisions for the Funds are made independently from those of other
accounts managed by the Adviser. When a Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Funds and the accounts in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit a Fund, it is possible
that this procedure could adversely impact the price paid or received and/or the
position obtained or disposed of by a Fund.

ADMINISTRATOR

Federated Administrative Services, a subsidiary of Federated, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Funds. Federated Administrative
Services provides these at the following annual rate of the average aggregate
daily net assets of the Funds as specified below:

Maximum Administrative Fee Average Aggregate Daily Net Assets of the Federated
Funds 0.150 of 1% on the first $250 million 0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million 0.075 of 1% on assets in excess of $750
million The administrative fee received during any fiscal year shall be at least
$50,000 per portfolio. Federated Administrative Services may voluntarily waive a
portion of its fee and may reimburse the Funds for expenses.

Federated Administrative Services also provides certain accounting and
recordkeeping services with respect to the Funds' portfolio investments for a
fee based on each Fund's assets, plus out-of-pocket expenses.

CUSTODIAN

Hibernia National Bank, New Orleans, Louisiana, is custodian for the securities
and cash of the Funds.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Funds pay the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders. The fee is based on
the level of a Fund's average net assets for the period, plus out-of- pocket
expenses.

INDEPENDENT Auditors

The independent auditor for the Funds, Ernst & Young LLP, plans and performs its
audit so that it may provide an opinion as to whether the Funds' financial
statements and financial highlights are free of material misstatement.

FEES PAID BY THE FUNDs FOR SERVICES

Capital Appreciation Fund
For the Year Ended August 31 1999 1998 1997
Advisory Fee Earned $ $2,417,253 $1,674,455
Advisory Fee Reduction $ $0 $0
Brokerage Commissions $ $488,045 $294,766
Administrative Fee $ $374,710 $277,600
12b-1 Fee
Class A Shares $ $784,161 N/A
Class B Shares $ $64,769 N/A
Shareholder Services Fee
Class B Shares N/A N/A

Louisiana Municipal Income Fund
For the Year Ended August 31 1999 1998 1997
Advisory Fee Earned $ $450,310 $488,,596
Advisory Fee Reduction $ $80,055 $61,649
Administrative Fee $ $116,480 $95,787

Mid Cap Equity Fund
For the Year Ended August 31 1999 7/13* - 8/31, 1997
1998
Advisory Fee Earned $ $15,872 N/A
Advisory Fee Reduction $ $0 N/A
Brokerage Commissions $ $0 N/A
Administrative Fee $ $6,713 N/A
12b-1 Fee
Class A Shares $ N/A N/A
Class B Shares $ N/A N/A
Shareholder Services Fee
Class B Shares N/A N/A
* Date of initial public offering

Total Return Bond Fund
For the Year Ended August 31 1999 1998 1997
Advisory Fee Earned $ $532,051 $346,773
Advisory Fee Reduction $ $131,063 $0
Brokerage Commissions $ $0 $0
Administrative Fee $ $88,402 $87,209
12b-1 Fee N/A N/A
Shareholder Services Fee N/A N/A

U.S. Government Income Fund
For the Year Ended August 31 1999 1998 1997
Advisory Fee Earned $ $289,526 $190,313
Advisory Fee Reduction $ $38,603 $25,375
Brokerage Commissions $ $0 $0
Administrative Fee $ $74,793 $52,512
12b-1 Fee N/A N/A
Shareholder Services Fee N/A N/A

Cash Reserve Fund
For the Year Ended August 31 1999 1998 1997
Advisory Fee Earned $ $658,507 $682,458
Advisory Fee Reduction $ $0 $0
Brokerage Commissions $ $0 $0
Administrative Fee $ $191,658 $213,586
12b-1 Fee
Class A Shares $ N/A N/A
Class B Shares $ N/A N/A
Shareholder Services Fee
Class B Shares $ N/A N/A

U.S. Treasury Money Market Fund
For the Year Ended August 31 1999 1998 1997
Advisory Fee Earned $ $718,045 $598,805
Advisory Fee Reduction $ $0 $214,099
Brokerage Commissions $ $0 $0
Administrative Fee $ $208,245 $186,989
12b-1 Fee N/A N/A
Shareholder Services Fee N/A N/A
</TABLE>

With respect to Capital Appreciation Fund, Mid Cap Equity Fund, and Cash Reserve
Fund, fees are allocated among classes based on their pro rata share of Fund
assets, except for marketing (Rule 12b-1) fees and shareholder services fees,
which are borne only by the applicable class of Shares.

How Do the Funds Measure Performance?

The Funds may advertise Share performance by using the SEC's standard method for
calculating performance applicable to all mutual funds. The SEC also permits
this standard performance information to be accompanied by non-standard
performance information.

Share performance reflects the effect of non-recurring charges, such as maximum
sales charges, which, if excluded, would increase the total return and yield.
The performance of Shares depends upon such variables as: portfolio quality;
average portfolio maturity; type and value of portfolio securities; changes in
interest rates; changes or differences in a Fund's or any class of Shares'
expenses; and various other factors.

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

Average Annual Total Returns and Yield

Capital Appreciation Fund
Total returns given for the one-year, five-year and Start of Performance ended
August 31, 1998.

Yield given for the 30-day period ended August 31, 1999

30-Day Period 1 Year 5 Years Start of Performance on October 14, 1988
Class A Shares
Total Return N/A 0.41% 15.79% 15.08%
Yield 0.xx% N/A N/A N/A
30-Day Period 1 Year 5 Years Start of Performance on December 2, 1996
Class B Shares
Total Return N/A (1.36%) N/A 10.22%
Yield (0.xx%) N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------

Louisiana Municipal Income Fund
Total returns given for the one-year, five-year and Start of Performance periods
ended August 31, 1998.

Yield and Tax Equivalent Yield given for the 30-day period ended August 31, 1999

30-Day Period 1 Year 5 Years Start of Performance October 14, 1988
Total Return N/A 4.77% 5.06% 7.18%
Yield x.xx% N/A N/A N/A
Tax Equivalent Yield x.xx% N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------

Mid Cap Equity Fund
Cumulative total return given for the period from July 13, 1998 (date of initial
public offering) to August 31, 1998.

Yield given for the 30-day period ended August 31, 1999.

30-Day Period Start of Performance on July 13, 1998
Class A Shares
Total Return N/A %
xx.x
Yield x.xx% N/A
30-Day Period Start of Performance on July 13, 1998
Class B Shares
Total Return N/A x.xx%
Yield (0.82%) N/A
- -------------------------------------------------------------------------------------------

Total Return Bond Fund
Total returns given for the one-year, five-year and Start of Performance periods
ended August 31, 1998.

Yield given for the 30-day period ended August 31, 1999

30-Day Period 1 Year 5 Years Start of Performance on November 2, 1992
Total Return N/A 6.21% 5.02% 6.10%
Yield x.xx% N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------

U.S. Government Income Fund
Total returns given for the one-year, five-year and Start of Performance periods
ended August 31, 1998.

Yield given for the 30-day period ended August 31, 1999.

30-Day Period 1 Year 5 Years Start of Performance October 14, 1988
Total Return N/A 6.43% 5.23% 7.57%
Yield x.xx% N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------

Cash Reserve Fund
Total returns given for the one-year, five-year and Start of Performance ended
August 31, 1999.

Yield given for the 7-day period ended August 31, 1998

7-Day Period 1 Year 5 Years Start of Performance on October
14, 1988
Class A Shares
Total Return N/A 4.82% 4.40% 1.16%
Yield x.xx% N/A N/A N/A
Effective Yield x.xx% N/A N/A N/A
7-Day Period 1 Year 5 Years Start of Performance on September
4, 1998
Class B Shares
Total Return N/A N/A N/
Yield
Effective Yield
- ------------------------------------------------------------------------------------------------------------

U.S. Treasury Money Market Fund
Total returns given for the one-year, five-year and Start of Performance periods
ended August 31, 1998.

Yield given for the 7-day period ended August 31, 1999

7-Day Period 1 Year 5 Years Start of Performance on July 19,
1993
Total Return N/A 4.89% 4.57% 4.53%
Yield x.xx% N/A N/A N/A
Effective Yield x.xx% N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------
</TABLE>

TOTAL RETURN

Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.

The average annual total return for Shares 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 NAV 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, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.

When Shares of a Fund are in existence for less than a year, the Fund may
advertise cumulative total return for that specific period of time, rather than
annualizing the total return.

YIELD, EFFECTIVE YIELD and tax-equivalent yield

The yield of Equity and Income Fund Shares is calculated by dividing: (i) the
net investment income per Share earned by the Shares over a 30-day period; by
(ii) the maximum offering price per Share on the last day of the period. This
number is then annualized using semi-annual compounding. This means that the
amount of income generated during the 30-day period is assumed to be generated
each month over a 12-month period and is reinvested every six months.

The tax-equivalent yield of Louisiana Municipal Income Fund Shares is calculated
similarly to the yield, but is adjusted to reflect the taxable yield that Shares
would have had to earn to equal the actual yield, assuming a specific tax rate.
The yield, effective yield and tax-equivalent yield do not necessarily reflect
income actually earned by Shares because of certain adjustments required by the
SEC and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.

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

The effective yield of Money Market Fund Shares is calculated by compounding the
unannualized base-period return by: adding one to the base-period return,
raising the sum to the 365/7th power; and subtracting one from the result.

To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.

TAX EQUIVALENCY TABLE

Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Louisiana
Municipal Income Fund. The interest earned by the municipal securities owned by
the Fund generally remains free from federal regular income tax and is often
free from state and local taxes as well. However, some of the Louisiana
Municipal Income Fund's income may be subject to the federal alternative minimum
tax and state and/or local taxes.

Taxable Yield Equivalent for 1999 - STATE OF LOUISIANA

Combined Federal and State
Income Tax Bracket: 19.00% 34.00% 37.00% 42.00% 45.60%
- ----------------------------------------------------------------------------------------------------------------------
Joint Return $1-43,050 $43,051-104,050 $104,051-158,550 $158,551-283,150 Over 283,150
Single Return $1-25,750 $25,751-62,450 $62,451-130,250 $130,251-283,150 Over 283,150
Tax Exempt Yield: Taxable Yield Equivalent:
2.00% 2.47% 3.03% 3.17% 3.45% 3.68%
2.50% 3.09% 3.79% 3.97% 4.31% 4.60%
3.00% 3.70% 4.55% 4.76% 5.17% 5.51%
3.50% 4.32% 5.30% 5.56% 6.03% 6.43%
4.00% 4.94% 6.06% 6.35% 6.90% 7.35%
4.50% 5.56% 6.82% 7.14% 7.76% 8.27%
5.00% 6.17% 7.58% 7.94% 8.62% 9.19%
5.50% 6.79% 8.33% 8.73% 9.48% 10.11%
6.00% 7.41% 9.09% 9.52% 10.34% 11.03%
6.50% 8.02% 9.85% 10.32% 11.21% 11.95%

</TABLE>

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

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

o references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;

o charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;

o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Funds; and

o information about the mutual fund industry from sources such as the
Investment Company Institute.

A Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.

A Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.

You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the 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 a 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 Money Market Funds
will quote the Lipper ranking in the "money market instruments funds"
category in advertising and sales literature.

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

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

oStandards & Poor's Daily Stock Price Index of 500 Common Stocks, a
composite index of common stocks in industry, transportation, and
financial and public utility companies, compares total returns of funds
whose portfolios are invested primarily in common stocks. In addition,
the Standard & Poor's index assumes reinvestment of all dividends paid
by stock listed on the index. Taxes due on any of these distributions
are not included, nor are brokerage or other fees calculated in the
Standard & Poor's figures.

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

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

oMerrill Lynch Corporate & Government Master Index is an unmanaged
index comprised of approximately 4,821 issues which include corporate
debt obligations rated BBB or better and publicly issued,
non-convertible domestic debt of the U.S. government or any agency
thereof. These quality parameters are based on composite of rating
assigned by Standard and Poor's 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 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.

Financial Information

The Financial Statements for the Fund for the fiscal year ended August 31, 1999
are incorporated herein by reference to the Annual Report to Shareholders of
Capital Appreciation Fund, Louisiana Municipal Income Fund, Mid Cap Equity Fund,
Total Return Bond Fund, U.S. Government Income Fund, Cash Reserve Fund and U.S.
Treasury Money Market Fund dated August 31, 1999.

<PAGE>

Investment Ratings

Standard and Poor's Municipal Bond Rating Definitions

AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

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

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

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

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

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

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

Standard & Poor's Short-Term Municipal Obligation Ratings

A Standard & Poor's (S&P) note rating reflects the liquidity concerns and market
access risks unique to notes.

SP-1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.

SP-2--Satisfactory capacity to pay principal and interest.

Variable Rate Demand Notes (VRDNs) And Tender Option Bonds (TOBs) Ratings

S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-1+, AA/A-1+, A/A-1. (The definitions for the
long-term and the short-term ratings are provided below.)

Commercial Paper (CP) Ratings

An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.

A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.

A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

Long-Term Debt Ratings

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

AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest-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.

Moody's Investors Service, Inc., Municipal Bond Rating Definitions

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

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

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

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

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

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

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

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

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

Moody's Investors Service, Inc., Short-Term Municipal Obligation Ratings

Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG). (See below.) The purpose of the MIG or
VMIG ratings is to provide investors with a simple system by which the relative
investment qualities of short-term obligations may be evaluated.

MIG1--This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.

MIG2--This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.

Moody's Investors Service, Inc. Short-Term Debt Rating Definitions

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

- - Leading market positions in well established industries.

- - High rates of return on funds employed.

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

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

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

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

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

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

Variable Rate Demand Notes (VRDNs) And Tender Option Bonds (TOBs) Ratings

Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. In this case, two ratings are usually assigned, (for example,
Aaa/VMIG-1); the first representing an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the second
representing an evaluation of the degree of risk associated with the demand
feature. The VMIG rating can be assigned a 1 or 2 designation using the same
definitions described above for the MIG rating.

Commercial Paper (CP) Ratings

P-1--Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structure with moderate reliance on debt
and ample asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to a range of
financial markets and assured sources of alternate liquidity.

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

Long-Term Debt 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
edged." 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.

NR--Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.

NR(1)--The underlying issuer/obligor/guarantor has other outstanding debt rated
AAA by S&P or Aaa by Moody's.

NR(2)--The underlying issuer/obligor/guarantor has other outstanding debt rated
AA by S&P or Aa by Moody's.

NR(3)--The underlying issuer/obligor/guarantor has other outstanding debt rated
A by S&P or Moody's.

Fitch IBCA, Inc.. Short-Term Debt Rating Definitions

F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.

F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues rated
F-1+.

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

Fitch IBCA, Inc. Long-Term Debt Rating Definitions

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. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.

BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.

B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.

CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C--Bonds are imminent default in payment of interest or principal.

Moody's Investors Service, Inc. Commercial Paper Ratings

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

o Leading market positions in well-established industries;

o High rates of return on funds employed;

o Conservative capitalization structure with moderate reliance on debt
and ample asset protection;

o Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and

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

Prime-2--Issuers rated Prime-1 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.

Standard and Poor's Commercial Paper Ratings

A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.

A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

Fitch IBCA, Inc. Commercial Paper Rating Definitions

FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.

FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.

<PAGE>

Addresses

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

Hibernia Louisiana Municipal Income Fund

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

Hibernia Total Return Bond Fund

Hibernia U.S. Government Income Fund

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

Hibernia U.S. Treasury Money Market Fund

(Portfolios of Hibernia Funds)

5800 Corporate Drive
Pittsburgh, PA 15237-7010

Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Investment Adviser
Hibernia National Bank
Attention: Hibernia Funds
P.O. Box 61540
New Orleans, Louisiana 70161

Custodian
Hibernia National Bank
Attention: Hibernia Funds
P.O. Box 61540
New Orleans, Louisiana 70161

Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600

Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072

PART C. OTHER INFORMATION.

Item 23. Exhibits:
(a) (i) Conformed copy of Declaration of Trust of the Registrant; (5.)
(ii) Conformed copy of Amendment No. 7 of Articles
Supplementary; (11.)
(b) (i) Copy of By-Laws of the Registrant; (1.)
(ii) Copy of Amendment #1 to the By-Laws of the Registrant;+
(c) (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.)
(d) (i) Conformed copy of Investment Advisory
Contract of the Registrant; (5.) (ii)
Conformed copy of Exhibit G to Investment
Advisory Contract; (11.)
(e) (i) Conformed copy of Administrative Support and Distributor's
Contract of the Registrant;(5.)
(ii) Amendments No. 1,2,3 and 4 to Exhibit A to Administrative
Support and Distributor's Contract of the Registrant; (10.)
(iii) Exhibit B to Administrative Support and Distributor's Contract
of the Registrant; (10.)
(iv) Conformed copy of Mutual Funds Sales and Service Agreement among
Federated Securities Corp., Federated Shareholder Services
and Hibernia Investment Securities, Inc.; (11.)
(v) Conformed copy of Mutual Funds Sales and Service Agreement among
Federated Securities Corp., Federated Shareholder Services and
Hibernia National Bank; (11.)
(vi) Amendment No. 1 to Exhibit B to the Administrative Support and
Distributor's Contract of the Registrant; (11.)
(f) Not applicable;

+ All exhibits have been filed electronically.

1. Response is incorporated by reference to Registrant's Registration
Statement on Form N-1A filed April 15, 1988. (File Nos. 33-21321 and
811-5536)
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed April 27, 1989. (File Nos. 33-21321 and
811-5536)
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 11 filed October 28, 1993. (File Nos. 33-21321 and 811-5536)
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 filed March 25, 1998. (File Nos. 33-21321 and
811-..................5536)
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 filed October 27, 1998. (File Nos. 33-21321 and 811-5536)

<PAGE>

(g) (i) Conformed copy of Custodian Agreement of the
Registrant; (6.)
(ii) Conformed copy of Transfer Agency and Service Agreement
of the Registrant; (5.)
(iii) Conformed copy of Administrative
Services Agreement of the
Registrant; (5.)
(iv) Conformed copy of Assignment of Administrative Services Agreement
of the Registrant to Federated Administrative Services; (5.)
(v) Copy of Schedule A to Custodian Contract;(8.)
(vi) Conformed copy of Sub-Transfer Agency Agreement;(9.)
(vii)Conformed copy of Agreement for Fund Accounting Services, Administrative
Services and Transfer Agency Services; +
(h) (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.)
(i) Conformed copy of Opinion and Consent of
Counsel as to legality of shares being
registered;(7.)
(j) (i) To be filed by amendment;
(ii) Conformed copy of Opinion and Consent of Special
Counsel;(7.)
(k) Not applicable;
(l) Conformed copy of Initial Capital Understanding;(7.);
(m) (i) Conformed copy of Present Distribution Plan; (5.)
(ii) Form of Rule 12b-1 Agreement;(10.)
(iii) Amendments No. 1,2,3 and 4 to Exhibit A to the Distribution
Plan;(10.)

+ All exhibits have been filed electronically.

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

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

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

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

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

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

<PAGE>

(iv) Copy of Sales Agreement with Federated Securities Corp.; (3.)
(v) Conformed copy of Shareholder Services Agreement;(7.)
(vi) Conformed copy of Shareholder Services Agreement through and
Exhibit A
which relates to Class B Shares of Capital Appreciation
Fund; (8.)
(vii) Exhibit B Shareholder Services Agreement which relates to
Class B Shares for Cash Reserve Fund and Mid-Cap Equity
Fund;(10.)
(n) Not applicable;
(o) (i) Conformed copy of Multiple Class
Plan;(7.)
(ii) Conformed copy of Exhibit B to the
Multiple Class Plan; (11.)
(p) Conformed copy of Power of Attorney;*

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

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

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

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

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

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

<PAGE>

Item 25. Indemnification: (1)

Item 26. Business and Other Connections of Investment Adviser:

A. Investment Adviser

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

Other Substantial
Position with Business, Profession,
Name the Adviser Vocation, Employment

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

Paul J. Bonitatibus Executive Vice President

J. Herbert Boydstun Chairman-Southwest Louisiana Region and Director

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

Cindy S. Collins Executive Vice President

K. Kirk Domingos III Senior Executive Vice President

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

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

Michael G. Gretchen Executive Vice President

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

Russell S. Hoadley Executive Vice President

Linda A. Hoffman Executive Vice President

Randall E. Howard Chairman, Southeast
Louisiana Region

Scott P. Howard Senior Executive Vice President

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

Susan Johnson Executive Vice President

Suzette J. Prechter Executive Vice President

Kenneth A. Rains Executive Vice President

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

John E. Smith Executive Vice President

Willie L. Spears Executive Vice President

Walter P. Walker Executive Vice President

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

Mike Zainey Executive Vice President

</TABLE>

Directors

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

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:

Cash Trust Series II; Cash Trust Series, Inc.; CCB Funds; 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 Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated
Short-Term Municipal Trust; Federated Stock and Bond Fund, Inc.; Federated Stock
Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated
U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years;
Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government
Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; Fixed Income
Securities, Inc.; ; Hibernia Funds; Independence One Mutual Funds; Intermediate
Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.;
Managed Series Trust; Marshall Funds, Inc.; Money Market Management, Inc.; Money
Market Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Regions Funds; RIGGS Funds;
SouthTrust Funds; Tax-Free Instruments Trust; The Planters Funds; The Wachovia
Funds; The Wachovia Municipal Funds; Vision Group of Funds, Inc.; World
Investment Series, Inc.; Blanchard Funds; Blanchard Precious Metals Fund, Inc.;
DG Investor Series; High Yield Cash Trust; Investment Series Trust; Star Funds;
Targeted Duration Trust; The Virtus Funds; Trust for Financial Institutions;

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

<PAGE>

(b)

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant

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

Arthur L. Cherry Director
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Robert W. Bauman Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

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

Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Timothy S. Johnson Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Dennis McAuley Assistant Treasurer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
</TABLE>

Item 28. 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:

<S> <C>

Registrant 5800 Corporate Drive
Pittsburgh, PA 15237-7010

Federated Shareholder Services Company P.O. Box 8600
("Transfer Agent, Dividend Boston, MA 02266-8600
Disbursing Agent and Portfolio
Recordkeeper")

Federated Administrative Federated Investors Tower
Services 1001 Liberty Avenue
("Administrator") Pittsburgh, PA 15222-3779

Hibernia National Bank 313 Carondelet Street
("Adviser") New Orleans, LA 70130

Hibernia National Bank 313 Carondelet Street
("Custodian") New Orleans, LA 70130
</TABLE>

Item 29. Management Services: Not applicable.

Item 30. Undertakings:

Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholder meetings by
shareholders.

Registrant hereby undertakes to furnish each person to whom a
prospectus for Tower Mutual Funds is delivered a copy of the
Registrant's latest annual report to shareholders, upon
request and without charge.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, HIBERNIA FUNDS, certifies that
it meets all of the requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(a) under the Securities Act of 1933
and has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of
Pittsburgh and Commonwealth of Pennsylvania, on the 1st day of October, 1999.

HIBERNIA FUNDS

BY: /s/ Timothy S. Johnson
Timothy S. Johnson, Assistant Secretary
Attorney in Fact for Edward C. Gonzales
October 1, 1999

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/Timothy S. Johnson
ASSISTANT SECRETARY Attorney In Fact October 1, 1999
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

Arthur Rhew Dooley, Jr. Trustee

J. Gordon Reische* Trustee

* By Power of Attorney

</TABLE>

Exhibit a under Form N-1A
Exhibit EX3-b under Item 601/Reg.S-K
Hibernia Mutual Funds
(formerly HNB Funds Group)

Amendment #1
to the By-Laws

(effective September 16, 1998)

Delete Section 1, "Certificates" of Article VI, "Shares" in its entirety and
replace with the following:

Section 1. Certificates. As of September 16, 1998, the Trust will not issue
share certificates.

Delete Section 4, "Lost, Destroyed or Mutilated Certificates" of Article VI,
"Shares" in its entirety.

Delete Section 5, "Transfer Agent and Registrar: Regulations" of Article VI,
"Shares" in its entirety and replace with the following:

Section 5. Transfer Agent and Registrar: Regulations. The Trustees shall
have power and authority to make all such rules and regulations as they may deem
expedient concerning the issuance, transfer and registration of shares and may
appoint a Transfer Agent and/or Registrar for shares of each Series or Class.

Exhibit g under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
Name changed to Hibernia Funds - effective 11/1/98

Tower Mutual Funds

AGREEMENT
for
FUND ACCOUNTING SERVICES,
ADMINISTRATIVE SERVICES
and
TRANSFER AGENCY SERVICES

AGREEMENT made as of September 14, 1998, by and between Tower Mutual Funds,
having its principal office and place of business at 5800 Corporate Drive,
Pittsburgh, PA 15237 (the "Investment Company"), on behalf of the portfolios
(individually referred to herein as a "Fund" and collectively as "Funds") of the
Investment Company, listed on Exhibit 1 as may be amended from time to time, and
FEDERATED SERVICES COMPANY, a Pennsylvania corporation, having its principal
office and place of business at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779 on behalf of itself and its subsidiaries (the
"Company").

WHEREAS, the Investment Company is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), with authorized and issued shares of capital stock or beneficial
interest ("Shares");

WHEREAS, the Investment Company desires to retain the Company as fund
accountant to provide fund accounting services (as herein defined) including
certain pricing, accounting and recordkeeping services for each of the Funds,
including any classes of shares issued by any Fund ("Classes"), and the Company
desires to accept such appointment;

WHEREAS, the Investment Company desires to appoint the Company as its
administrator to provide it with administrative services (as herein defined),
and the Company desires to accept such appointment; and

WHEREAS, the Investment Company desires to appoint the Company as its
transfer agent and dividend disbursing agent to provide it with transfer agency
services (as herein defined), and agent in connection with certain other
activities, and the Company desires to accept such appointment;

NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree as
follows:

<PAGE>

SECTION ONE: Fund Accounting.

Article 1. Appointment.

The Investment Company hereby appoints the Company to provide certain
pricing and accounting services to the Funds, and/or the Classes, for the period
and on the terms set forth in this Agreement. The Company accepts such
appointment and agrees to furnish the services herein set forth in return for
the compensation as provided in Exhibit 1 to this Agreement.

Article 2. The Company's Duties.

Subject to the supervision and control of the Investment Company's Board of
Trustees ("Board"), the Company will assist the Investment Company with regard
to fund accounting for the Investment Company, and/or the Funds, and/or the
Classes, and in connection therewith undertakes to perform the following
specific services;

A. Value the assets of the Funds using: primarily, market quotations,
including the use of matrix pricing, supplied by the independent
pricing services selected by the Company in consultation with the
adviser, or sources selected by the adviser, and reviewed by the
board; secondarily, if a designated pricing service does not provide a
price for a security which the Company believes should be available by
market quotation, the Company may obtain a price by calling brokers
designated by the investment adviser of the fund holding the security,
or if the adviser does not supply the names of such brokers, the
Company will attempt on its own to find brokers to price those
securities; thirdly, for securities for which no market price is
available, the Investment Company's Pricing Committee (or, in the
absence of a Pricing Committee, the Board) will determine a fair value
in good faith. Consistent with Rule 2a-4 of the 1940 Act, estimates
may be used where necessary or appropriate. The Company's obligations
with regard to the prices received from outside pricing services and
designated brokers or other outside sources, is to exercise reasonable
care in the supervision of the pricing agent. The Company is not the
guarantor of the securities prices received from such agents and the
Company is not liable to the Fund for potential errors in valuing a
Fund's assets or calculating the net asset value per share of such
Fund or Class when the calculations are based upon such prices. All of
the above sources of prices used as described are deemed by the
Company to be authorized sources of security prices. The Company
provides daily to the adviser the securities prices used in
calculating the net asset value of the fund, for its use in preparing
exception reports for those prices on which the adviser has comment.
Further, upon receipt of the exception reports generated by the
adviser, the Company diligently pursues communication regarding
exception reports with the designated pricing agents;

B. Determine the net asset value per share of each Fund and/or Class, at
the time and in the manner from time to time determined by the Board
and as set forth in the Prospectus and Statement of Additional
Information ("Prospectus") of each Fund;

C. Calculate the net income of each of the Funds, if any;

D. Calculate realized capital gains or losses of each of the Funds
resulting from sale or disposition of assets, if any;

E. Maintain the general ledger and other accounts, books and financial
records of the Investment Company, including for each Fund, and/or
Class, as required under Section 31(a) of the 1940 Act and the Rules
thereunder in connection with the services provided by the Company;

F. Preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records to be maintained by Rule 31a-1 under the 1940 Act in
connection with the services provided by the Company. The Company
further agrees that all such records it maintains for the Investment
Company are the property of the Investment Company and further agrees
to surrender promptly to the Investment Company such records upon the
Investment Company's request;

G. At the request of the Investment Company, prepare various reports or
other financial documents in accordance with generally accepted
accounting principles as required by federal, state and other
applicable laws and regulations; and

H. Such other similar services as may be reasonably requested by the
Investment Company.

The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section One,
shall hereafter be referred to as "Fund Accounting Services."

Article 3. Compensation and Allocation of Expenses. [Not Applicable]

SECTION TWO: ADMINISTRATIVE SERVICES.

Article 4. Appointment.

The Investment Company hereby appoints the Company as Administrator for the
period on the terms and conditions set forth in this Agreement. The Company
hereby accepts such appointment and agrees to furnish the services set forth in
Article 5 of this Agreement in return for the compensation set forth in Exhibit
1 to this Agreement.

Article 5. The Company's Duties.

As Administrator, and subject to the supervision and control of the Board
and in accordance with Proper Instructions (as defined hereafter) from the
Investment Company, the Company will provide facilities, equipment, and
personnel to carry out the following administrative services for operation of
the business and affairs of the Investment Company and each of its portfolios:

A. prepare, file, and maintain the Investment Company's governing
documents and any amendments thereto, including the Charter (which
has already been prepared and filed), the By-laws and minutes of
meetings of the Board and Shareholders;

B. prepare and file with the Securities and Exchange Commission and the
appropriate state securities authorities the registration statements
for the Investment Company and the Investment Company's Shares and
all amendments thereto, reports to regulatory authorities and
shareholders, prospectuses, proxy statements, and such other
documents all as may be necessary to enable the Investment Company to
make a continuous offering of its Shares;

C. prepare, negotiate, and administer contracts (if any) on behalf of
the Investment Company with, among others, the Investment Company's
investment adviser(s) and distributor(s), subject to any applicable
restrictions of the Board or the 1940 Act;

D. calculate performance data of the Investment Company for
dissemination to information services covering the investment company
industry;

E. prepare and file the Investment Company's tax returns;

F. coordinate the layout and printing of publicly disseminated
prospectuses and reports;

G. perform internal audit examinations in accordance with a charter
adopted by the Company and the Investment Company;

H. assist with the design, development, and operation of the Investment
Company and the Funds;

I. provide individuals reasonably acceptable to the Board for
nomination, appointment, or election as officers of the Investment
Company, who will be responsible for the management of certain of the
Investment Company's affairs as determined by the Investment
Company's Board; and

J. consult with the Investment Company and its Board on matters
concerning the Investment Company and its affairs.

The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section Two,
shall hereafter be referred to as "Administrative Services."

Article 6. Records.

The Company shall create and maintain all necessary books and records in
accordance with all applicable laws, rules and regulations, including but not
limited to records required by Section 31(a) of the Investment Company act of
1940 and the rules thereunder, as the same may be amended from time to time,
pertaining to the Administrative Services performed by it and not otherwise
created and maintained by another party pursuant to contract with the Investment
Company. Where applicable, such records shall be maintained by the Company for
the periods and in the places required by Rule 31a-2 under the 1940 Act. The
books and records pertaining to the Investment Company which are in the
possession of the Company shall be the property of the Investment Company. The
Investment Company, or the Investment Company's authorized representatives,
shall have access to such books and records at all times during the Company's
normal business hours. Upon the reasonable request of the Investment Company,
copies of any such books and records shall be provided promptly by the Company
to the Investment Company or the Investment Company's authorized
representatives.

Article 7. Duties of the Investment Company.

The Investment Company assumes full responsibility for the preparation,
contents and distribution of its own offering documents and for complying with
all applicable requirements the 1940 Act, the Internal Revenue Code, and any
other laws, rules and regulations of government authorities having jurisdiction.

Article 8. Expenses.

The Company shall be responsible for expenses incurred in providing office
space, equipment, and personnel as may be necessary or convenient to provide the
Administrative Services to the Investment Company, including the compensation of
the Company employees who serve as trustees or directors or officers of the
Investment Company. The Investment Company shall be responsible for all other
expenses incurred by the Company on behalf of the Investment Company, including
without limitation postage and courier expenses, printing expenses, travel
expenses, registration fees, filing fees, fees of outside counsel and
independent auditors, or other professional services, organizational expenses,
insurance premiums, fees payable to persons who are not the Company's employees,
trade association dues, and other expenses properly payable by the Funds and/or
the Classes.

Article 9. Compensation. [Not Applicable]

Article 10. Standard of Care and Indemnification.

A. The Company shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Investment Company in
connection with the matters to which Section Two of this Agreement
relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on its part in the performance of its duties or
from reckless disregard by it of its obligations and duties under this
Agreement. The Company shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Investment Company) on
all matters, and shall be without liability for any action reasonably
taken or omitted pursuant to such advice provided that such action is
not in violation of applicable federal or state laws or regulations,
and is in good faith and without negligence. Any person, even though
also an officer, director, trustee, partner, employee or agent of the
Company, who may be or become an officer, director, trustee, partner,
employee or agent of the Investment Company, shall be deemed, when
rendering services to the Investment Company or acting on any business
of the Investment Company (other than services or business in
connection with the duties of the Company hereunder) to be rendering
such services to or acting solely for the Investment Company and not
as an officer, director, trustee, partner, employee or agent or one
under the control or direction of the Company even though paid by the
Company.

B. Subject to the conditions set forth below; the Investment Company
agrees to indemnify and hold harmless the Company against any and all
loss, liability, claim, damage or expense whatsoever (including the
reasonable cost of investigating or defending any alleged loss,
liability, damages, claim or expense and reasonable counsel fees
incurred in connection therewith) arising by reason of any action
taken or thing done by the Company in performing Administrative
Services pursuant to Section Two of this Agreement if not resulting
from the Company's willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.

If any action is brought against the Company to which indemnity may
be sought against the Investment Company pursuant to the foregoing
paragraph, The Company shall promptly notify the Investment Company
in writing of the institution of such action and, if provided such
notice has been given, the Investment Company shall assume the
defense of such action, including the employment of counsel selected
by the Investment Company and payment of expenses. The Company shall
have the right to employ separate counsel in any such case, but the
fees and expenses of such counsel shall be at the expense of the
Company unless the employment of such counsel shall have been
authorized in writing by the Investment Company in connection with
the defense of such action or the Investment Company shall not have
employed counsel to have charge of the defense of such action, in any
of which events such fees and expenses shall be borne by the Company.
Anything in this paragraph to the contrary notwithstanding, the
Investment Company shall not be liable for any settlement of any such
claim or action effected without its written consent. The Investment
Company agrees promptly to notify the Company of the commencement of
any litigation or proceedings against the Investment Company or any
of its officers or Trustees in connection with the Administrative
Services.

C. The Company agrees to indemnify and hold harmless the Investment
Company, each of its Trustees and each of its officers against any
loss, liability, damages, claim or expense (including the reasonable
cost of investigating or defending any alleged loss, liability,
damages, claim or expense and reasonable counsel fee incurred in
connection therewith) arising by reason of any action taken or thing
done by the Company in performing Administrative Services pursuant to
Section Two of this Agreement if resulting from the Company's willful
misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement. In case any action shall
be brought against the Investment Company or any other person so
indemnified based on the foregoing at described in this subsection
(C), and with respect to which indemnity may be sought against the
Company, the Company shall have the rights and duties given to the
Investment Company, and the Investment Company and each other person
so indemnified shall have the rights and duties given to the Company
by the provisions of subsection B above.

SECTION THREE: Transfer Agency Services.

Article 11. Terms of Appointment.

Subject to the terms and conditions set forth in this Agreement, the
Investment Company hereby appoints the Company to act as, and the Company agrees
to act as, transfer agent and dividend disbursing agent for each Fund's Shares,
and agent in connection with any accumulation, open-account or similar plans
provided to the shareholders of any Fund ("Shareholder(s)"), including without
limitation any periodic investment plan or periodic withdrawal program.

<PAGE>

Article 12. Duties of the Company.

The Company shall perform the following services in accordance with Proper
Instructions as may be provided from time to time by the Investment Company as
to any Fund:

A. Purchases

(1) The Company shall receive orders and payment for the
purchase of shares and promptly deliver payment and
appropriate documentation therefore to the custodian of the
relevant Fund, (the "Custodian"). The Company shall notify
the Fund and the Custodian on a daily basis of the total
amount of orders and payments so delivered.

(2) Pursuant to purchase orders and in accordance with the
Fund's current Prospectus, the Company shall compute and
issue the appropriate number of Shares of each Fund and/or
Class and hold such Shares in the appropriate Shareholder
accounts.

(3) For certificated Funds and/or Classes, if a Shareholder or its
agent requests a certificate, the Company, as Transfer Agent,
shall countersign and mail by first class mail, a certificate to
the Shareholder at its address as set forth on the transfer books
of the Funds, and/or Classes, subject to any Proper Instructions
regarding the delivery of certificates.

(4) In the event that any check or other order for the purchase of
Shares of the Fund and/or Class is returned unpaid for any
reason, the Company shall debit the Share account of the
Shareholder by the number of Shares that had been credited to its
account upon receipt of the check or other order, promptly mail a
debit advice to the Shareholder, and notify the Fund and/or Class
of its action. In the event that the amount paid for such Shares
exceeds proceeds of the redemption of such Shares plus the amount
of any dividends paid with respect to such Shares, the Fund
and/the Class or its distributor will reimburse the Company on
the amount of such excess.

B. Distribution

(1) Upon notification by the Funds of the declaration of any
distribution to Shareholders, the Company shall act as Dividend
Disbursing Agent for the Funds in accordance with the provisions
of its governing document and the then-current Prospectus of the
Fund. The Company shall prepare and mail or credit income,
capital gain, or any other payments to Shareholders. As the
Dividend Disbursing Agent, the Company shall, on or before the
payment date of any such distribution, notify the Custodian of
the estimated amount required to pay any portion of said
distribution which is payable in cash and request the Custodian
to make available sufficient funds for the cash amount to be paid
out. The Company shall reconcile the amounts so requested and the
amounts actually received with the Custodian on a daily basis. If
a Shareholder is entitled to receive additional Shares by virtue
of any such distribution or dividend, appropriate credits shall
be made to the Shareholder's account, or for certificated Funds
and/or Classes, delivered where requested; and

(2) The Company shall maintain records of account for each Fund
and Class and advise the Investment Company, each Fund and
Class and its Shareholders as to the foregoing.

C. Redemptions and Transfers

(1) The Company shall receive redemption requests and redemption
directions and, if such redemption requests comply with the
procedures as may be described in the Fund Prospectus or set
forth in Proper Instructions, deliver the appropriate
instructions therefor to the Custodian. The Company shall
notify the Funds on a daily basis of the total amount of
redemption requests processed and monies paid to the Company
by the Custodian for redemptions.

(2) At the appropriate time upon receiving redemption proceeds
from the Custodian with respect to any redemption, the
Company shall pay or cause to be paid the redemption
proceeds in the manner instructed by the redeeming
Shareholders, pursuant to procedures described in the
then-current Prospectus of the Fund.

(3) If any certificate returned for redemption or other request
for redemption does not comply with the procedures for
redemption approved by the Fund, the Company shall promptly
notify the Shareholder of such fact, together with the
reason therefor, and shall effect such redemption at the
price applicable to the date and time of receipt of
documents complying with said procedures.

(4) The Company shall effect transfers of Shares by the registered
owners thereof.

(5) The Company shall identify and process abandoned accounts
and uncashed checks for state escheat requirements on an
annual basis and report such actions to the Fund.

D. Recordkeeping

(1) The Company shall record the issuance of Shares of each Fund,
and/or Class, and maintain pursuant to applicable rules of the
Securities and Exchange Commission ("SEC") a record of the total
number of Shares of the Fund and/or Class which are authorized,
based upon data provided to it by the Fund, and issued and
outstanding. The Company shall also provide the Fund on a regular
basis or upon reasonable request with the total number of Shares
which are authorized and issued and outstanding, but shall have
no obligation when recording the issuance of Shares, except as
otherwise set forth herein, to monitor the issuance of such
Shares or to take cognizance of any laws relating to the issue or
sale of such Shares, which functions shall be the sole
responsibility of the Funds.

(2) The Company shall establish and maintain records pursuant to
applicable rules of the SEC relating to the services to be
performed hereunder in the form and manner as agreed to by
the Investment Company or the Fund to include a record for
each Shareholder's account of the following:

(a) Name, address and tax identification number (and
whether such number has been certified);

(b) Number of Shares held;

(d) Any stop or restraining order placed against the
account;

(e) Information with respect to withholding in the case
of a foreign account or an account for which
withholding is required by the Internal Revenue
Code;

(f) Any dividend reinvestment order, plan application,
dividend address and correspondence relating to the
current maintenance of the account;

(g) Certificate numbers and denominations for any
Shareholder holding certificates (if share certificates
are issued); and

(h) Any information required in order for the Company
to perform the calculations contemplated or
required by this Agreement.

(3) The Company shall preserve any such records required to be maintained
pursuant to the rules of the SEC for the periods prescribed in said
rules as specifically noted below. Such record retention shall be at
the expense of the Company, and such records may be inspected by the
Fund at reasonable times. The Company may, at its option at any time,
and shall forthwith upon the Fund's demand, turn over to the Fund and
cease to retain in the Company's files, records and documents created
and maintained by the Company pursuant to this Agreement, which are no
longer needed by the Company in performance of its services or for its
protection. If not so turned over to the Fund, such records and
documents will be retained by the Company for six years from the year
of creation, during the first two of which such documents will be in
readily accessible form. At the end of the six year period, such
records and documents will either be turned over to the Fund or
destroyed in accordance with Proper Instructions.

E. Confirmations/Reports

(1) The Company shall furnish to the Fund periodically the following
information:

(a) A copy of the transaction register;

(b) Dividend and reinvestment blotters;

(c) The total number of Shares issued and outstanding
in each state for "blue sky" purposes as determined
according to Proper Instructions delivered from
time to time by the Fund to the Company;

(d) Shareholder lists and statistical information;

(e) Payments to third parties relating to distribution
agreements, allocations of sales loads, redemption
fees, or other transaction- or sales-related
payments; and

(f) Such other information as may be agreed upon from time to time.

(2) The Company shall prepare in the appropriate form, file with the
Internal Revenue Service and appropriate state agencies, and, if
required, mail to Shareholders, such notices for reporting dividends
and distributions paid as are required to be so filed and mailed and
shall withhold such sums as are required to be withheld under
applicable federal and state income tax laws, rules and regulations.

(3) In addition to and not in lieu of the services set forth above, the
Company shall:

(a) Perform all of the customary services of a transfer
agent, dividend disbursing agent and, as relevant,
agent in connection with accumulation, open-account or
similar plans (including without limitation any
periodic investment plan or periodic withdrawal
program), including but not limited to: maintaining all
Shareholder accounts, mailing Shareholder reports and
Prospectuses to current Shareholders, withholding taxes
on accounts subject to back-up or other withholding
(including non-resident alien accounts), preparing and
filing reports on U.S. Treasury Department Form 1099
and other appropriate forms required with respect to
dividends and distributions by federal authorities for
all Shareholders, preparing and mailing confirmation
forms and statements of account to Shareholders for all
purchases and redemptions of Shares and other
conformable transactions in Shareholder accounts,
preparing and mailing activity statements for
Shareholders, and providing Shareholder account
information; and

(b) provide a system which will enable the Fund to monitor
the total number of Shares of each Fund (and/or Class)
sold in each state ("blue sky reporting"). The Fund
shall by Proper Instructions (i) identify to the
Company those transactions and assets to be treated as
exempt from the blue sky reporting for each state and
(ii) verify the classification of transactions for each
state on the system prior to activation and thereafter
monitor the daily activity for each state. The
responsibility of the Company for each Fund's (and/or
Class's) state blue sky registration status is limited
solely to the recording of the initial classification
of transactions or accounts with regard to blue sky
compliance and the reporting of such transactions and
accounts to the Fund as provided above.

F. Other Duties

(1) The Company shall answer correspondence from Shareholders
relating to their Share accounts and such other
correspondence as may from time to time be addressed to the
Company;

(2) The Company shall prepare Shareholder meeting lists, mail
proxy cards and other material supplied to it by the Fund in
connection with Shareholder meetings of each Fund; receive,
examine and tabulate returned proxies, and certify the vote
of the Shareholders; and

(3) The Company shall establish and maintain facilities and
procedures for safekeeping of stock certificates (if
issued), check forms and facsimile signature imprinting
devices, if any; and for the preparation or use, and for
keeping account of, such certificates, forms and devices.

The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section Three,
shall hereafter be referred to as "Transfer Agency Services."

Article 13. Duties of the Investment Company.

A. Compliance

The Investment Company or Fund assume full responsibility for the
preparation, contents and distribution of their own and/or their
classes' Prospectus and for complying with all applicable
requirements of the Securities Act of 1933, as amended (the "1933
Act"), the 1940 Act and any laws, rules and regulations of government
authorities having jurisdiction.

B. Share Certificates

If Share certificates are issued, the Investment Company shall supply
the Company with a sufficient supply of blank Share certificates and
from time to time shall renew such supply upon request of the
Company. Such blank Share certificates shall be properly signed,
manually or by facsimile, if authorized by the Investment Company and
shall bear the seal of the Investment Company or facsimile thereof;
and notwithstanding the death, resignation or removal of any officer
of the Investment Company authorized to sign certificates, the
Company may continue to countersign certificates which bear the
manual or facsimile signature of such officer until otherwise
directed by the Investment Company.

C. Distributions

The Fund shall promptly inform the Company of the declaration of any
dividend or distribution on account of any Fund's shares.

Article 14. Compensation and Expenses. [Not Applicable]

SECTION FOUR: Custody Services Procurement. (Articles 15-18) [Not Applicable]

<PAGE>

SECTION FIVE: General Provisions.

Article 19. Proper Instructions.

As used throughout this Agreement, a "Proper Instruction" means a writing
signed or initialed by one or more person or persons as the Board shall have
from time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved. Oral instructions will be deemed to
be Proper Instructions if (a) the Company reasonably believes them to have been
given by a person previously authorized in Proper Instructions to give such
instructions with respect to the transaction involved, and (b) the Investment
Company, or the Fund, and the Company promptly cause such oral instructions to
be confirmed in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices provided that the
Investment Company, or the Fund, and the Company are satisfied that such
procedures afford adequate safeguards for the Fund's assets. Proper Instructions
may only be amended in writing.

Article 20. Assignment.

Except as provided below, neither this Agreement nor any of the rights or
obligations under this Agreement may be assigned by either party without the
written consent of the other party.

A. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.

B. With regard to Transfer Agency Services, the Company may without
further consent on the part of the Investment Company subcontract for
the performance of Transfer Agency Services with

(1) its subsidiary, Federated Shareholder Service Company, a
Delaware business trust, which is duly registered as a
transfer agent pursuant to Section 17A(c)(1) of the
Securities Exchange Act of 1934, as amended, or any
succeeding statute ("Section 17A(c)(1)"); or

(2) such other provider of services duly registered as a
transfer agent under Section 17A(c)(1) as Company shall
select.

C. With regard to Fund Accounting Services and Administrative Services,
the Company may without further consent on the part of the Investment
Company subcontract for the performance of such services with
Federated Administrative Services, a wholly-owned subsidiary of the
Company or such other service provider as Company may select.

D. Except as provided in E below, the Company shall be as fully
responsible to the Investment Company for the acts and omissions of
any subcontractor as it is for its own acts and omissions. The
compensation of such person or persons shall be paid by the Company
and no obligation shall be incurred on behalf of the Investment
Company, the Funds, or the Classes in such respect.

E. The Company shall upon instruction from the Investment Company
subcontract for the performance of services under this Agreement with
an Agent selected by the Investment Company, other than as described
in B. and C. above; provided, however, that the Company shall in no
way be responsible to the Investment Company for the acts and
omissions of the Agent.

F. Either party may assign all of or a substantial portion of its
business to a successor, or to a party controlling, controlled by, or
under common control with such party.

Nothing in this Article 20 shall prevent the Company from delegating
its responsibilities to another entity to the extent provided herein.

Article 21. Documents.

A. In connection with the appointment of the Company under this
Agreement, the Investment Company shall file with the Company the
following documents:

(1) A copy of the Charter and By-Laws of the Investment Company and
all amendments thereto;

(2) A copy of the resolution of the Board of the Investment
Company authorizing this Agreement;

(3) Specimens of all forms of outstanding Share certificates of
the Investment Company or the Funds in the forms approved by
the Board of the Investment Company with a certificate of
the Secretary of the Investment Company as to such approval;

(4) All account application forms and other documents relating to
Shareholders accounts; and

(5) A copy of the current Prospectus for each Fund.

B. The Fund will also furnish from time to time the following documents:

(1) Each resolution of the Board of the Investment Company
authorizing the original issuance of each Fund's, and/or
Class's Shares;

(2) Each Registration Statement filed with the SEC and
amendments thereof and orders relating thereto in effect
with respect to the sale of Shares of any Fund, and/or
Class;

(3) A certified copy of each amendment to the governing document
and the By-Laws of the Investment Company;

(4) Certified copies of each vote of the Board authorizing
officers to give Proper Instructions to the Custodian and
agents for fund accountant, custody services procurement,
and shareholder recordkeeping or transfer agency services;

(5) If issued, specimens of all new Share certificates
representing Shares of any Fund, accompanied by Board
resolutions approving such forms;

(6) Such other certificates, documents or opinions which the
Company may, in its discretion, deem necessary or
appropriate in the proper performance of its duties; and

(7) Revisions to the Prospectus of each Fund.

Article 22. Representations and Warranties.

A. Representations and Warranties of the Company

The Company represents and warrants to the Fund that:

(1) it is a corporation duly organized and existing and in good
standing under the laws of the Commonwealth of Pennsylvania;

(2) it is duly qualified to carry on its business in each
jurisdiction where the nature of its business requires such
qualification, and in the Commonwealth of Pennsylvania;

(3) it is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this
Agreement;

(4) all requisite corporate proceedings have been taken to
authorize it to enter into and perform its obligations under
this Agreement;

(5) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties
and obligations under this Agreement;

(6) it is in compliance with federal securities law requirements
and in good standing as an administrator and fund
accountant; and

(7) it has examined and tested the internal systems that it has
developed to support the services outlined herein and, as of the
date of this Agreement, has no knowledge of any situation or
circumstance that will inhibit the system's ability to perform
the expected functions or inhibit the Company's ability to
provide the expected services as a result of any business
interruptions relating to dates or days before, during and after
the year 2000. In connection with the foregoing, the Company has
made reasonable inquiry of its business partners and other
entities with which it conducts business and has carefully
considered the responses of those third-parties.

B. Representations and Warranties of the Investment Company

The Investment Company represents and warrants to the Company that:

(1) It is an investment company duly organized and existing and
in good standing under the laws of its state of
organization;

(2) It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform its obligations under this
Agreement;

(3) All corporate proceedings required by said Charter and
By-Laws have been taken to authorize it to enter into and
perform its obligations under this Agreement;

(4) The Investment Company is an open-end investment company
registered under the 1940 Act; and

(5) A registration statement under the 1933 Act will be
effective, and appropriate state securities law filings have
been made and will continue to be made, with respect to all
Shares of each Fund being offered for sale.

Article 23. Standard of Care and Indemnification.

A. Standard of Care

With regard to Sections One and Three, the Company shall be held to a
standard of reasonable care in carrying out the provisions of this
Agreement, provided however, that the Company shall be held to any
higher standard of care that would be imposed upon the Company, by an
applicable law or regulation even though such stated standard of care
was not part of this Agreement. The Company shall be entitled to rely
on and may act upon advice of counsel (who may be counsel for the
Investment Company) on all matters, and shall be without liability
for any action reasonably taken or omitted pursuant to such advice,
provided that such action is not in violation of applicable federal
or state laws or regulations, and is in good faith and without
negligence. Any person, even though also an officer, director,
trustee, partner, employee or agent of the Company, who may be or
become an officer, director, trustee, partner, employee or agent of
the Investment Company, shall be deemed, when rendering services to
the Investment Company or acting on any business of the Investment
Company (other than services or business in connection with the
duties of the Company hereunder) to be rendering such services to or
acting solely for the Investment Company and not as an officer,
director, trustee, partner, employee or agent or one under the
control or direction of the Company even though paid by the Company.

B. Indemnification by Investment Company

The Company shall not be responsible for and the Investment Company
or Fund shall indemnify and hold the Company, including its officers,
directors, shareholders and their agents, employees and affiliates,
harmless against any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liabilities arising out of or
attributable to:

(1) The Investment Company's refusal or failure to comply with
the terms of this Agreement, or which arise out of the
Investment Company's lack of good faith, gross negligence or
willful misconduct or which arise out of the breach of any
representation or warranty of the Investment Company
hereunder.

(2) The acts or omissions of any Custodian, Adviser, Sub-adviser
or other party contracted by or approved by the Investment
Company or Fund,

(3) The reliance on or use by the Company or its agents or
subcontractors of information, records and documents in
proper form which

(a) are received by the Company or its agents or
subcontractors and furnished to it by or on behalf
of the Investment Company or Fund, its Shareholders
or investors regarding the purchase, redemption or
transfer of Shares and Shareholder account
information;

(b) are received by the Company from independent pricing
services or sources for use in valuing the assets of
the Investment Company or Fund; or

(c) are received by the Company or its agents or
subcontractors from Advisers, Sub-advisers or other
third parties contracted by or approved by the
Investment Company or Fund for use in the
performance of services under this Agreement; or

(d) have been prepared and/or maintained by the
Investment Company or Fund or its affiliates or any
other person or firm on behalf of the Investment
Company.
(4) The reliance on, or the carrying out by the Company or its
agents or subcontractors of Proper Instructions of the
Investment Company or the Fund.

(5) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the
securities laws or regulations of any state that such Shares
be registered in such state or in violation of any stop
order or other determination or ruling by any federal agency
or any state with respect to the offer or sale of such
Shares in such state.

Provided, however, that the Company shall not be protected
by this Article 23.B. from liability for any act or omission
resulting from the Company's willful misfeasance, bad faith,
negligence or reckless disregard of its duties or failure to
meet the standard of care set forth in 23.A. above.

C. Indemnification by Services

Services shall indemnify and hold the Investment Company and each
Fund harmless from and against any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability arising out
of or attributed to any action or failure or omission to act by
Services as a result of Services' lack of good faith, negligence,
willful misconduct, or failure to meet the standard of care set forth
in Article 23A above.

D. Reliance

At any time the Company may apply to any officer of the Investment
Company or Fund for instructions, and may consult with legal counsel
with respect to any matter arising in connection with the services to
be performed by the Company under this Agreement, and the Company and
its agents or subcontractors shall not be liable and shall be
indemnified by the Investment Company or the appropriate Fund for any
action reasonably taken or omitted by it in reliance upon such
instructions or upon the opinion of such counsel provided such action
is not in violation of applicable federal or state laws or
regulations. The Company, its agents and subcontractors shall be
protected and indemnified in recognizing stock certificates which are
reasonably believed to bear the proper manual or facsimile signatures
of the officers of the Investment Company or the Fund, and the proper
countersignature of any former transfer agent or registrar, or of a
co-transfer agent or co-registrar.

E. Notification

In order that the indemnification provisions contained in this
Article 23 shall apply, upon the assertion of a claim for which
either party may be required to indemnify the other, the party
seeking indemnification shall promptly notify the other party of such
assertion, and shall keep the other party advised with respect to all
developments concerning such claim. The party who may be required to
indemnify shall have the option to participate with the party seeking
indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to
indemnify it except with the other party's prior written consent.

Article 24. Term and Termination of Agreement.

This Agreement shall be effective from the date first written above and
shall continue through December 31, 2001 ("Initial Term"). Thereafter, this
Agreement shall be automatically renewed each year for an additional term of one
year ("Additional Term") provided that either party may terminate this Agreement
by written notice delivered at least one year prior to the expiration of the
Initial or any Additional Term. The termination date for all original or
after-added Funds which are, or become, a party to this Agreement shall be
coterminous. Funds that merge or dissolve during the Term, shall cease to be a
party on the effective date of such merger or dissolution.

In the event that the Investment Company designates a successor to any of
the Company's obligations hereunder, the Company shall, at the expense and
direction of the Investment Company, transfer to such successor all relevant
books, records and other data established or maintained by the Investment
Company under the foregoing provisions. Additionally, the Company reserves the
right to charge for any other reasonable expenses associated with such
termination. The provisions of Articles 10 and 23 shall survive the termination
of this Agreement.

Article 25. Amendment.

This Agreement may be amended or modified by a written agreement executed
by both parties.

Article 26. Interpretive and Additional Provisions.

In connection with the operation of this Agreement, the Company and the
Investment Company may from time to time agree on such provisions interpretive
of or in addition to the provisions of this Agreement as may in their joint
opinion be consistent with the general tenor of this Agreement. Any such
interpretive or additional provisions shall be in a writing signed by both
parties and shall be annexed hereto, provided that no such interpretive or
additional provisions shall contravene any applicable federal or state
regulations or any provision of the Charter. No interpretive or additional
provisions made as provided in the preceding sentence shall be deemed to be an
amendment of this Agreement.

Article 27. Governing Law.

This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the Commonwealth of Pennsylvania,
provided however, that nothing herein shall be construed in a manner
inconsistent with the Investment Company Act of 1940 or any rule or regulation
promulgated by the Securities and Exchange Commission thereunder.

Article 28. Notices.

Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Investment Company at 5800
Corporate Drive Pittsburgh, Pennsylvania, 15237 or to the Company at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to such other address
as the Investment Company or the Company may hereafter specify, shall be deemed
to have been properly delivered or given hereunder to the respective address.

Article 29. Counterparts.

This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.

Article 30. Merger of Agreement.

This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof whether
oral or written.

Article 31. Successor Agent.

If a successor agent for the Investment Company shall be appointed by the
Investment Company, the Company shall upon termination of this Agreement deliver
to such successor agent at the office of the Company all properties of the
Investment Company held by it hereunder. If no such successor agent shall be
appointed, the Company shall at its office upon receipt of Proper Instructions
deliver such properties in accordance with such instructions.

In the event that no written order designating a successor agent or Proper
Instructions shall have been delivered to the Company on or before the date when
such termination shall become effective, then the Company shall have the right
to deliver to a bank or trust company, which is a "bank" as defined in the 1940
Act, of its own selection, having an aggregate capital, surplus, and undivided
profits, as shown by its last published report, of not less than $2,000,000, all
properties held by the Company under this Agreement. Thereafter, such bank or
trust company shall be the successor of the Company under this Agreement.

Article 32. Force Majeure.

The Company shall have no liability for cessation of services hereunder or
any damages resulting therefrom to the Fund as a result of work stoppage, power
or other mechanical failure, natural disaster, governmental action,
communication disruption or other impossibility of performance.

Article 33. Severability.

In the event any provision of this Agreement is held illegal, void or
unenforceable, the balance shall remain in effect.

Article 34. Limitations of Liability of Trustees and Shareholders of the
Investment Company.

The execution and delivery of this Agreement have been authorized by the
Trustees of the Investment Company and signed by an authorized officer of the
Investment Company, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officer shall be deemed to have
been made by any of them individually or to impose any liability on any of them
personally, and the obligations of this Agreement are not binding upon any of
the Trustees or Shareholders of the Investment Company, but bind only the
property of the Fund, or Class, as provided in the Declaration of Trust.

Article 35. Compensation.

A. The Funds will compensate the Company for the Services described
herein in accordance with the fees agreed upon from time to time
between the parties hereto. Such fees do not include out-of-pocket
disbursements of the Company for which the Funds shall reimburse the
Company. Out-of-pocket disbursements shall include, but shall not be
limited to, the items agreed upon between the parties from time to
time.

B. The Fund and/or the Class, and not the Company, shall bear the cost of:
custodial expenses; membership dues in the Investment Company Institute or
any similar organization; transfer agency expenses; investment advisory
expenses; costs of printing and mailing stock certificates (if issued),
prospectuses, reports and notices; administrative expenses; interest on
borrowed money; brokerage commissions; taxes and fees payable to federal,
state and other governmental agencies; fees of Trustees or Directors of the
Investment Company; independent auditors expenses; legal and audit
department expenses billed to the Company for work performed related to the
Investment Company, the Funds, or the Classes; law firm expenses;
organizational expenses; or other expenses not specified in this Article 35
which may be properly payable by the Funds and/or Classes.

C. The compensation and out-of-pocket expenses attributable to the Fund
shall be accrued by the Fund and shall be paid to the Company no less
frequently than monthly, and shall be paid daily upon request of the
Company. The Company will maintain detailed information about the
compensation and out-of-pocket expenses by Fund and Class.

D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Investment Company and/or the Funds and a duly
authorized officer of the Company.

E. The Company, in its sole discretion, may from time to time
subcontract to, employ or associate with itself such person or
persons as the Company may believe to be particularly suited to
assist it in performing Fund Accounting Services. Such person or
persons may be affiliates of the Company, third-party service
providers, or they may be officers and employees who are employed by
both the Company and the Investment Company; provided, however, that
the Company shall be as fully responsible to each Fund for the acts
and omissions of any such subcontractor as it is for its own acts and
omissions.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.

TOWER MUTUAL FUNDS
(listed on Exhibit 1)

By: /s/ Jeffrey W. Sterling
Name: Jeffrey W. Sterling
Title: Vice President

FEDERATED SERVICES COMPANY

By: /s/ Lawrence Caracciolo
Name: Lawrence Caracciolo
Title: Senior Vice President

<PAGE>

EXHIBIT 1
to the Agreement for
Fund Accounting Services,
Administrative Services
and
Transfer Agency Services

The Agreement for Fund Accounting Services, Administrative Services and
Transfer Agency Services dated September 14, 1998 between Tower Mutual Funds and
FEDERATED SERVICES COMPANY shall apply to the following Portfolios:

Tower Capital Appreciation Fund
Class A Shares
Class B Shares
Tower Louisiana Municipal Income Fund
Tower Mid-Cap Fund
Class A Shares
Class B Shares
Tower Total Return Bond Fund
Tower U.S. Government Income Fund
Tower Cash Reserve Fund
Class A Shares
Class B Shares
Tower U.S. Treasury Money Market Fund

I. Administrative Services

For Administrative, Services provided pursuant to this Agreement, the Investment
Company agrees to pay and the Company hereby agrees to accept as full
compensation for its services rendered hereunder a fee at an annual rate per
Fund, payable daily, as follows:

Maximum Administrative Fee Average Daily Net Assets
of the Investment Company
.15% 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

However, the administrative fee received during any year of this Agreement shall
not be less than, or be paid at a rate less than would aggregate, $50,000, per
Fund. This minimum will not apply to Tower Mid Cap Fund prior to June 8, 1999.
In addition to the foregoing minimum, with respect to a Fund that becomes
effective with the SEC after the date of this Agreement and offers multiple
classes of shares, the Company will impose a minimum of $30,000 for each
additional class of shares. With respect to any Fund that becomes effective with
the SEC during the first twenty-four months of this Agreement, these minimums
will not be imposed until the Fund has been effective for six months.

II. Fund Accounting Services Fee

For Fund Accounting Services provided pursuant to this Agreement, the Investment
Company agrees to pay and the Company agrees to accept as full compensation for
its services rendered hereunder a fee as follows:

ASSETS

First $250 Million 2.0 Basis Points

Next $250 Million 1.5 Basis Points

Next $250 Million 1.0 Basis Points

Excess .5 Basis Points

Minimum fee per year* $39,000

Additional class of shares per year* $12,000

*Minimums will not be imposed with respect to any Fund or class that becomes
effective within the first twenty-four months of this Agreement until such Fund
or class has been effective for six months.

III. Fund Accounting Services Out-of-Pocket Expenses

Out-of-pocket expenses include, but are not limited to, the following: postage
(including overnight courier service), statement stock, envelopes, telephones,
telecommunication charges (including FAX), travel, duplicating, forms, supplies,
microfiche, computer access charges, client specific system enhancements, access
to the shareholder recordkeeping system, security pricing services, variable
rate change notification services, paydown factor notification services

<PAGE>

IV. Transfer Agency Services Fee

For Transfer Agency Services provided pursuant to this Agreement, the Investment
Company agrees to pay and the Company hereby agrees to accept as full
compensation for its services rendered hereunder a fee as follows:

Account Fee (Annual account charge)
(includes system access and funds control and reconcilement)

<S> <C>

- Daily dividend fund $16.65

- Monthly dividend fund $ 8.75

- Quarterly dividend fund $ 8.75

- Contingent Deferred Sales Charge (Additionally)
(monthly and quarterly funds only) $ 5.00

- Closed Accounts (per account per month) $00.10
</TABLE>

Minimum charges: The monthly maintenance charge for each class will be the
actual account fee or $2,000, whichever is greater.

V. Transfer Agency Services Out-of-Pocket Expenses

Out-of-pocket expenses include but are not limited to postage (including
overnight courier service), statement stock, envelopes, telecommunication
charges (including Fax), travel, duplicating, forms, supplies, microfiche,
computer access charges, client specific enhancements, disaster recovery, closed
account fees, processing fees (including check encoding), and expenses incurred
at the specific direction of the Fund.
Postage for mass mailings is due seven days in advance of the mailing date.

VI. Payment

All fees are annualized and will be prorated on a monthly basis for billing
purposes. Payment is due thirty days after the date of the invoice.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Exhibit 1 to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of September 14, 1998.

TOWER MUTUAL FUNDS

By: /s/ Jeffrey W. Sterling
Name: Jeffrey W. Sterling
Title: Vice President

FEDERATED SERVICES COMPANY

By: /s/ Lawrence Caracciolo
Name: Lawrence Caracciolo
Title: Senior Vice President

Exhibit p under Form N-1A
Exhibit 24 under Item 601/Reg. S-K

POWER OF ATTORNEY

Each person whose signature appears below hereby constitutes and
appoints the Secretary, Assistant Secretary(ies) of Hibernia Funds and Senior
Corporate Counsel, Mutual Fund Services and each of them, their true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for them and in their names, place and stead, in any and all capacities, to sign
any and all capacities, to sign any and all documents to be filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, the
Securities Exchange Act of 1934 and the Investment Company Act of 1940, by means
of the Securities and Exchange Commission's electronic disclosure system known
as EDGAR; and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
sign and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as each of them
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.

SIGNATURES TITLE DATE

/s/ Edward C. Gonzales President, Trustee and October 22, 1999
Edward C. Gonzales Treasurer (Principal
Executive, Financial
and Accounting Officer)

/s/ James A. Gayle, Sr. Trustee October 22, 1999
- ---------------------- --------------------------
James A. Gayle, Sr.

/s/ Arthur Rhew Dooley, Jr. Trustee October 22, 1999
- -------------------------- ----------------------
Arthur Rhew Dooley, Jr.

/s/ J. Gordon Reische Trustee October 22, 1999
- -------------------------------------------------
J. Gordon Reische

/s/ Robert L. diBenedetto, M.D. Trustee October 22, 1999
Robert L. diBenedetto, M.D.

/s/ Peter J. Germain Secretary October 22, 1999
- -------------------------------------------------
Peter J. Germain
</TABLE>

Sworn to and subscribed before me this 22nd day of October, 1999

Notarial Seal
Madaline P. Kelly, Notary Public
Baldwin Boro, Allegheny County
My commission Expires February 22, 2000
Member, Pennsylvania Association of Notaries