<PAGE>
THE ADVISORS' INNER CIRCLE FUND
INVESTMENT ADVISER:
ARONSON+PARTNERS
The Advisors' Inner Circle Fund (the "Fund") provides a convenient and
economical means of investing in professionally managed portfolios of
securities. This Prospectus offers shares of the A+P Large-Cap Value Fund (the
"Portfolio"), which is an equity mutual fund and a separate series of the Fund.
A+P LARGE-CAP VALUE FUND
This Prospectus sets forth concisely the information about the Fund and the
Portfolio that a prospective investor should know before investing. Investors
are advised to read this Prospectus and retain it for future reference. A
Statement of Additional Information dated February 28, 1996 has been filed with
the Securities and Exchange Commission and is available without charge by
calling 1-800-932-7781. The Statement of Additional Information is incorporated
into this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
February 28, 1996
<PAGE>
SUMMARY
The following summary provides basic information about the A+P Large-Cap Value
Fund (the "Portfolio"), formerly the A+F Large-Cap Fund. The Portfolio is one
of the funds comprising The Advisors' Inner Circle Fund (the "Fund"). This
summary is qualified in its entirety by reference to the more detailed
information provided elsewhere in this Prospectus and in the Statement of
Additional Information.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES? The Portfolio seeks total
return. Under normal circumstances, the Portfolio intends to be as fully
invested as possible, and will invest at least 65% of its assets in the common
stocks of companies with large capitalizations (i.e., those with market
capitalizations in excess of $2.0 billion) that are included in the Russell
1000(R) Index and which are deemed by Aronson+Partners (the "Adviser"), the
Portfolio's investment adviser, to be relatively undervalued based on various
measures such as price/earnings and price/book ratios. The Adviser will attempt
to manage the Portfolio so that the Portfolio's total return exceeds the total
return of the Russell 1000(R) Value Index. Any remaining assets may be invested
in stocks of companies with market capitalizations less than $2.0 billion or
that are not included in the Russell 1000(R) Index; American Depositary
Receipts; Standard & Poor's Depositary Receipts; convertible securities' and
options, futures, warrants and other derivative instruments.
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE PORTFOLIO? The investment
policies of the Portfolio entail certain risks and considerations of which
investors should be aware. The Portfolio invests in securities that fluctuate
in value, and investors should expect the Portfolio's net asset value per share
to fluctuate. In addition, risks associated with investing in options and
futures may include lack of a liquid secondary market, trading restrictions
which may be imposed by an exchange and government regulations which may
restrict trading.
For more information about the Portfolio, see "Investment Objectives and
Policies" and "Description of Permitted Investments and Risk Factors."
WHO IS THE ADVISER? Aronson+Partners (formerly Aronson+Fogler), serves as the
investment adviser to the Portfolio. See "Expense Summary" and "The Adviser."
WHO IS THE ADMINISTRATOR? SEI Financial Management Corporation serves as the
administrator and shareholder servicing agent of the Portfolio. See "The
Administrator."
WHO IS THE DISTRIBUTOR? SEI Financial Services Company acts as the distributor
of the Fund's shares. See "The Distributor."
2
<PAGE>
WHO IS THE TRANSFER AGENT? DST Systems, Inc. serves as the transfer agent and
dividend disbursing agent for the Fund. See "The Transfer Agent."
IS THERE A SALES LOAD? No, shares of the Portfolio are offered on a no-load
basis.
IS THERE A MINIMUM INVESTMENT? The Portfolio has a minimum initial investment
of $1 million.
HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Transfer Agent on a day when the New York Stock Exchange is open for
business ("Business Day"). A purchase order will be effective as of the
Business Day received by the Transfer Agent if the Transfer Agent receives an
order and payment prior to 4:00 p.m., Eastern time. To open an account by wire,
you must first call 1-800-808-4921. Redemption orders received by the Transfer
-----
Agent prior to 4:00 p.m., Eastern time on any Business Day will be effective
that day. The purchase and redemption price for shares is the net asset value
per share determined as of the end of the day the order is effective. See
"Purchase and Redemption of Shares."
HOW ARE DISTRIBUTIONS PAID? Substantially all of the net investment income
(exclusive of capital gains) of the Portfolio is distributed in the form of
dividends to shareholders of record on the last Business Day of each quarter.
Any capital gain is distributed at the end of the fiscal year. Distributions
are paid in additional shares unless the shareholder elects to take the payment
in cash. See "Dividends and Distributions."
3
<PAGE>
EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
A+P LARGE-CAP
VALUE FUND
- -------------------------------------------------------------------
<S> <C>
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees (1) None
Exchange Fees None
- -------------------------------------------------------------------
</TABLE>
(1) A wire redemption charge, currently $10.00, is deducted from the amount of
a Federal Reserve wire redemption payment made at the request of a
shareholder.
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets) A+P LARGE-CAP
VALUE FUND
- -------------------------------------------------------------------
<S> <C>
Advisory Fees (after fee waivers) .40%
====
12b-1 Fees None
Other Expenses .32%
====
- -------------------------------------------------------------------
Total Operating Expenses (after fee waivers) .72%
====
- -------------------------------------------------------------------
</TABLE>
EXAMPLE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor in the Portfolio
would pay the following expenses
on a $1,000 investment assuming
(1) 5% annual return, and (2)
redemption at the end of each
time period: $8 $24 $42 $93
=== ==== ==== ====
- -------------------------------------------------------------------
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose of
this table is to assist the investor in understanding the various costs and
expenses that may be directly or indirectly borne by investors in the Portfolio.
Additional information may be found under "The Adviser" and "The Administrator."
4
<PAGE>
FINANCIAL HIGHLIGHTS THE A+P LARGE-CAP VALUE FUND
The following information on the A+P Large-Cap Fund has been audited by Arthur
Andersen LLP, the Fund's independent public accountants, as indicated in their
report dated December 5, 1995 on the Portfolio's financial statements as of
October 31, 1995 included in the Portfolio's Statement of Additional Information
under "Financial Information." This table should be read in conjunction with
the Portfolio's audited financial statements and notes thereto. Additional
performance information is set forth in the Annual Report to Shareholders and is
available without change by calling 1-800-932-7781.
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
A + P LARGE-CAP FUND
11/1/94 11/12/93(1)
TO TO
10/31/95 10/31/94
(000) (000)
- ------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................. $9.96 $10.00
=====
- ------------------------------------------------------------------------------
Income From Investment Operations:
Net Investment Income............................ 0.21 0.21
Net Realized and Unrealized Gain
(Loss) on Investments.. 2.48 (0.05)
====
- ------------------------------------------------------------------------------
Total From Investment Operations...................... 2.69 0.16
====
- ------------------------------------------------------------------------------
Less Distributions:
Dividends From Net Investment Income.................. (0.21) (0.20)
Distributions From Capital Gains...................... -- 0.00
=====
- ------------------------------------------------------------------------------
Total Distributions......................... (0.21) (0.20)
=====
- ------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD........................ $12.44 $9.96
======
- ------------------------------------------------------------------------------
TOTAL RETURN.......................................... 27.31% 1.63%+
======
- ------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End Of Period (000)....................... $54,661 $40,592
=======
Ratio Of Expenses To Average Net Assets............... 0.72% 0.70%*
=====
Ratio Of Expenses To Average Net Assets
(Excluding Waivers).............................. 0.72% 0.80%*
=====
Ratio Of Net Income To Average
Net Assets....................................... 1.96% 2.13%*
=====
Ratio Of Net Income (Loss) to Average Net
Assets (Excluding Waivers)....................... 1.96% 2.03%*
=====
Portfolio Turnover Rate............................... 126.47% 79.23%
=======
==============================================================================
</TABLE>
* Annualized
(+) Total Return is cumulative since inception.
(1) The A+P Large-Cap Value Fund, formerly A+F Large-Cap Fund, commenced
operations on November 12, 1993.
5
<PAGE>
THE FUND AND THE PORTFOLIO
The Advisors' Inner Circle Fund (the "Fund") offers shares in a number of
diversified mutual funds, each of which is a separate series ("portfolio")
of the Fund. Each share of each mutual fund represents an undivided,
proportionate interest in that mutual fund. This Prospectus offers shares
of the Fund's A+P Large-Cap Value Fund (the "Portfolio").
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio seeks total return. There can be no assurance that the
Portfolio will be able to achieve this investment objective.
Under normal circumstances, the Portfolio intends to be as fully invested as
possible, and will invest at least 65% of its assets in the common stocks of
companies with large capitalizations (i.e., those with market capitalizations in
excess of $2.0 billion) that are included in the Russell 1000(R) Index and which
are deemed by Aronson+Partners (the "Adviser"), the Portfolio's investment
adviser, to be relatively undervalued based on various measures such as
price/earnings and price/book ratios. The Adviser will attempt to manage the
Portfolio so that the Portfolio's total return exceeds the total return of the
Russell 1000(R) Value Index. The Adviser also intends to invest in each economic
sector of the U.S. economy so that the Portfolio's holdings will generally align
with the economic sector weights reflected in the Russell 1000(R) Value Index.
The Russell 1000(R) Index is an equity market capitalization weighted index
available from Frank Russell Company, which consists of common stocks of
most of the 1,000 largest companies in terms of the aggregate market value
of their outstanding stock as measured by the market price per share
multiplied by the number of shares outstanding. The Russell 1000(R) Value
Index is a subset of the broader Russell 1000(R) Index, consisting of
securities in the Russell 1000(R) Index considered by Frank Russell Company
to have a less-than-average growth orientation. Securities in the Russell
1000(R) Value Index tend to exhibit lower price/earnings and price/book
ratios, higher dividend yields and lower forecasted growth values. The
Portfolio is neither sponsored by nor affiliated with Frank Russell Company.
Any remaining assets of the Portfolio will be invested in stocks of companies
with market capitalizations less than $2.0 billion or that are not included
in the Russell 1000(R) Index; stocks of non-U.S. companies that are traded
in the form of American Depositary Receipts ("ADRs"); interests in common
stocks constituting the Standard & Poor's 500 Composite Stock Price Index
that are traded in the form of Standard & Poor's Depositary Receipts
("SPDRs"); convertible securities; and options, options on futures
contracts, futures contracts, warrants, and other derivative instruments
designed to permit the Portfolio to achieve returns based on the movement of
broad equity market indices. The aggregate value of the Portfolio's option
positions may not exceed 10% of its net assets as of the time the Portfolio
enters into such options. The Portfolio may engage in securities lending.
The Portfolio will not invest more than 15% of its net assets in illiquid
securities.
6
<PAGE>
The Portfolio may invest a portion of its assets in cash and investments in
money market instruments in order to maintain liquidity, or if the Adviser
determines that securities meeting the Portfolio's investment objective and
policies are not readily available for purchase. Money market instruments
consist of securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; certificates of deposit, time deposits and
bankers' acceptances issued by banks or savings & loan associations having
net assets of at least $500 million as stated on their most recently
published financial statements; commercial paper rated in one of the two
highest rating categories by at least one nationally recognized statistical
rating organization; repurchase agreements involving the foregoing
securities; and, to the extent permitted by applicable law, shares of other
investment companies investing solely in money market instruments.
INVESTMENT RISKS
Investments in common stocks in general are subject to market risks that may
cause their prices to fluctuate over time. Fluctuations in the value of
equity securities will cause the net asset value of the Portfolio to
fluctuate, and the Portfolio's shares, consequently, will fluctuate in
value. Accordingly, an investment in the Portfolio may be more suitable for
long-term investors who can bear the risk of short-term fluctuations. In
addition, risks associated with investing in options and futures may include
lack of a liquid secondary market, trading restrictions which may be imposed
by an exchange, government regulations which may restrict trading, an
imperfect correlation between the prices of securities held by the Portfolio
and the price of an option or future.
For additional information regarding risks and permitted investments, see
"Description of Permitted Investments and Risk Factors" and "Description of
Permitted Investments" in the Statement of Additional Information.
INVESTMENT LIMITATIONS
The investment objectives and the investment limitations set forth here and in
the Statement of Additional Information are fundamental policies of the
Portfolio. Fundamental policies cannot be changed without the consent of the
holders of a majority of the Portfolio's outstanding shares.
The Portfolio may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase agreements
involving such securities) if as a result more than 5% of the total assets of
the Portfolio would be
7
<PAGE>
invested in the securities of such issuer. This restriction applies to 75% of
the Portfolio's total assets.
2. Purchase any securities which would cause 25% or more of its total assets
to be invested in the securities of one or more issuers conducting their
principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities and repurchase
agreements involving such securities. For purposes of this limitation, (1)
utility companies will be classified according to their services, for
example, gas distribution, gas transmission, electric and telephone will
each be considered a separate industry, and (2) financial service companies
will be classified according to the end users of their services, for
example, automobile finance, bank finance and diversified finance will each
be considered a separate industry.
3. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding 10% of the value of its total assets.
The foregoing percentages will apply at the time of the purchase of a security.
THE ADVISER
Aronson+Partners is a professional investment management firm and registered
investment adviser that has been in business since 1984. The general
partners of the Adviser are Theodore R. Aronson, James S. Lobb, Martha E.
Ortiz and Kevin M. Johnson. As of December 31, 1995, the Adviser had
discretionary management authority with respect to approximately $660
million of assets, of which approximately $657 million was invested in
equity securities. In addition to advising the Portfolio, the Adviser
provides advisory services to pension plans, endowments, foundations, trusts
and estates. The principal business address of the Adviser is 230 South
Broad Street, Twentieth Floor, Philadelphia, Pennsylvania 19102.
Theodore R. Aronson, has managed the Portfolio since its inception. He has
been a portfolio manager and partner of the Adviser since co-founding it in
1984.
The Adviser serves as the Portfolio's investment adviser under an investment
advisory agreement (the "Advisory Agreement"), pursuant to which the Adviser
makes the investment decisions for the assets of the Portfolio and
continuously reviews, supervises and administers the investment program of
the Portfolio, subject to the supervision of, and policies established by,
the Trustees of the Fund.
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of .40% of the Portfolio's average daily
net assets. The Adviser has voluntarily agreed to waive all or a portion of
its fee and to reimburse expenses of the
8
<PAGE>
Portfolio in order to limit total operating expenses of the Portfolio to an
annual rate of .75% of its average daily net assets. The Adviser reserves
the right, in its sole discretion, to terminate its voluntary fee waiver and
any reimbursement at any time. For the fiscal year ended October 31, 1995,
the Adviser received fees for services to the Portfolio equal to .40% of the
Portfolio's average daily net assets.
THE ADMINISTRATOR
SEI Financial Management Corporation (the "Administrator"), a wholly-owned
subsidiary of SEI Corporation ("SEI"), provides the Fund with administrative
services, including regulatory reporting and all necessary office space,
equipment, personnel and facilities.
For its services, the Administrator is entitled to a fee, which is calculated
daily and paid monthly, at an annual rate equal to the higher of (i)
$75,000, or (ii) .20% of the Portfolio's average daily net assets up to $100
million, .15% on the next $100 million and .10% on assets in excess of $200
million.
The Administrator also serves as shareholder servicing agent for the Portfolio
under a shareholder servicing agreement with the Fund.
THE TRANSFER AGENT
DST Systems, Inc., 210 West 10th Street, Kansas City, Missouri 64105 (the
"Transfer Agent") serves as the transfer agent and dividend disbursing agent
for the Fund under a transfer agency agreement with the Fund.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly owned subsidiary
of SEI, serves as the Fund's distributor pursuant to a distribution
agreement (the "Distribution Agreement"). No compensation is paid to the
Distributor for distribution services for the shares of the Portfolio.
PURCHASE AND REDEMPTION OF SHARES
Investors may purchase and redeem shares of the Portfolio directly through the
Transfer Agent, P.O. Box 419009, Kansas City, Missouri 64141-6009 by mail
or wire transfer. All shareholders may place orders by telephone; when
market conditions are extremely busy, it is possible that investors may
experience difficulties placing orders by telephone and may wish to place
orders by mail. Purchases and redemptions of shares of the Portfolio may be
made on any Business Day. Shares of the Portfolio are only offered to
residents of states in which the shares are eligible for purchase. Certain
broker-dealers assist their
9
<PAGE>
clients in the purchase of shares from the Distributor and charge a fee for this
service in addition to the Portfolio's public offering price.
The minimum initial investment in the Portfolio is $1 million and subsequent
purchases must be at least $10,000. The Distributor may waive these
minimums at its discretion. No minimum applies to subsequent purchases
effected by dividend and/or capital gain reinvestment. No minimum purchase
amount applies to accounts established for persons who have other existing
investment accounts under management with the Adviser, for immediate family
members of such persons, for employees of the Adviser, or for immediate
family members of such employees.
PURCHASES BY MAIL
An account may be opened by mailing a check or other negotiable bank draft
(payable to the A+P Large-Cap Value Fund) for $1 million or more, together
with a completed Account Application to the Transfer Agent, P.O. Box 419009,
Kansas City, Missouri 64141-6009. Subsequent investments may also be
mailed directly to the Transfer Agent.
PURCHASES BY WIRE TRANSFER
Shareholders having an account with a commercial bank that is a member of the
Federal Reserve System may purchase shares of the Portfolio by requesting
their bank to transmit funds by wire to: United Missouri Bank of Kansas,
N.A.; ABA #10-10-00695; for Account Number 98-7052-396-5; Further Credit:
A+P Large-Cap Value Fund. The shareholder's name and account number must be
specified in the wire.
Initial Purchases: Before making an initial investment by wire, an investor
must first telephone 1-800-808-4921 to be assigned an account number. The
investor's name, account number, taxpayer identification number or Social
Security number, and address must be specified in the wire. In addition, an
Account Application should be promptly forwarded to: Transfer Agent, P.O.
Box 419009, Kansas City, Missouri 64141-6009.
Subsequent Purchases: Additional investments may be made at any time through
the wire procedures described above, which must include a shareholder's name
and account number. The investor's bank may impose a fee for investments by
wire.
GENERAL INFORMATION REGARDING PURCHASES
A purchase order will be effective as of the day received by the Transfer
Agent if the Transfer Agent receives the order and payment before 4:00 p.m.,
Eastern time. Payment may be made by check or readily available funds. The
purchase price of shares of the Portfolio is the net asset value per share
next determined after a purchase order is effective. Purchases will be made
in full and fractional shares of the Portfolio calculated
10
<PAGE>
to three decimal places. The Fund will not issue certificates representing
shares of the Portfolio.
If a check received for the purchase of shares does not clear, the purchase
will be cancelled, and the investor could be liable for any losses or fees
incurred. The Fund reserves the right to reject a purchase order when the
Fund determines that it is not in the best interest of the Fund or its
shareholders to accept such order.
Shares of the Portfolio may be purchased in exchange for securities included
in the Portfolio subject to the Adviser's or the Administrator's
determination that the securities are acceptable. Securities accepted in an
exchange will be valued at market value. All accrued interest and
subscription or other rights that are reflected in the market price of
accepted securities at the time of valuation become the property of the Fund
and must be delivered by the shareholder to the Fund upon receipt from the
issuer. The Adviser or the Administrator will not accept securities in
exchange for shares of the Portfolio unless (1) there is available an
independent current market price for such securities, (2) such transaction
is consistent with the Portfolio's policy and (3) no brokerage commission,
fee or other remuneration is paid in connection with the transaction.
REDEMPTIONS
Redemption orders received by the Transfer Agent prior to 4:00 p.m., Eastern
time on any Business Day will be effective that day. The redemption price
of shares is the net asset value per share of the Portfolio next determined
after the redemption order is effective. Payment on redemption will be made
as promptly as possible and, in any event, within seven days after the
redemption order is received, provided, however, that redemption proceeds
for shares purchased by check (including certified or cashier's checks) will
be forwarded only upon collection of payment for such shares; collection of
payment may take 15 or more days. Shareholders may not close their accounts
by telephone.
It is currently the Fund's policy to pay for all redemptions in cash. The
Fund retains the right, however, to alter this policy to provide for
redemptions in whole or in part by a distribution in-kind of readily
marketable securities held by the Portfolio in lieu of cash. Shareholders
may incur brokerage charges on the sale of any such securities so received
in payment of redemptions. A shareholder will at all times be entitled to
aggregate cash redemptions from the Portfolio during any 90-day period of up
to the lesser of $250,000 or 1% of the Fund's net assets.
Shareholders may receive redemption payments in the form of a check or by
Federal Reserve or Automated Clearing House ("ACH") wire transfer. There is
no charge for having a check for redemption proceeds mailed. The custodian
will deduct a wire charge, currently $10.00, from the amount of a Federal
Reserve wire redemption payment made at the request of a shareholder.
Shareholders cannot redeem shares of the
11
<PAGE>
Portfolio by Federal Reserve wire on federal holidays restricting wire
transfers. The Fund does not charge for ACH wire transfers; however, such
transactions will not be posted to a shareholder's bank account until the second
Business Day following the transaction.
Neither the Fund nor the Transfer Agent will be responsible for the
authenticity of redemption instructions received by telephone if it
reasonably believes those instructions to be genuine. The Fund and the
Transfer Agent will each employ reasonable procedures to confirm that
telephone instructions are genuine, and may be liable for losses resulting
from unauthorized or fraudulent telephone transactions if it does not employ
those procedures. Such procedures may include taping of telephone
conversations.
The right of redemption may be suspended or the date of payment of redemption
proceeds postponed during certain periods as set forth more fully in the
Statement of Additional Information.
The net asset value per share of the Portfolio is determined by dividing the
total market value of the Portfolio's investments and other assets, less any
liabilities, by the total outstanding shares of the Portfolio. Net asset
value per share is determined as of the close of business of the New York
Stock Exchange (normally 4:00 p.m., Eastern time) on any Business Day. The
Portfolio will use a pricing service to provide market quotations. The
pricing service may use a matrix system of valuation which considers factors
such as securities process, yield features, call features, ratings and
developments related to a specific security.
PERFORMANCE
From time to time, the Portfolio may advertise its yield and total return.
These figures will be based on historical earnings and are not intended to
indicate future performance. No representation can be made regarding actual
future yields or returns. The yield of the Portfolio refers to the
annualized income generated by an investment in the Portfolio over a
specified 30-day period. The yield is calculated by assuming that the same
amount of income generated by the investment during that period is generated
in each 30-day period over one year and is shown as a percentage of the
investment.
The total return of the Portfolio refers to the average compounded rate of
return on a hypothetical investment, for designated time periods (including
but not limited to the period from which the Portfolio commenced operations
through the specified date), assuming that the entire investment is redeemed
at the end of each period and assuming the reinvestment of all dividend and
capital gain distributions.
The Portfolio may periodically compare its performance to that of other mutual
funds tracked by mutual fund rating services (such as Lipper Analytical
Services, Inc.), or by financial and business publications and periodicals,
broad groups of comparable mutual
12
<PAGE>
funds, unmanaged indices, which may assume investment of dividends but generally
do not reflect deductions for administrative and management costs, or other
investment alternatives. The Portfolio may quote Morningstar, Inc., a service
that ranks mutual funds on the basis of risk-adjusted performance. The Portfolio
may quote Ibbotson Associates of Chicago, Illinois, which provides historical
returns of the capital markets in the U.S. The Portfolio may use long-term
performance of these capital markets to demonstrate general long-term risk
versus reward scenarios and could include the value of a hypothetical investment
in any of the capital markets. The Portfolio may also quote financial and
business publications and periodicals as they relate to fund management,
investment philosophy, and investment techniques.
The Portfolio may quote various measures of volatility and benchmark
correlation in advertising and may compare these measures to those of other
funds. Measures of volatility attempt to compare historical share price
fluctuations or total returns to a benchmark while measures of benchmark
correlation indicate how valid a comparative benchmark might be. Measures
of volatility and correlation are calculated using averages of historical
data and cannot be calculated precisely.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state or local income tax treatment of the Portfolio
or its shareholders. Accordingly, shareholders are urged to consult their tax
advisers regarding specific questions as to federal, state and local income
taxes.
TAX STATUS OF THE PORTFOLIO:
The Portfolio is treated as a separate entity for federal income tax purposes
and is not combined with the Fund's other portfolios. The Portfolio intends
to qualify for the special tax treatment afforded regulated investment
companies as defined under Subchapter M of the Internal Revenue Code of
1986, as amended. So long as the Portfolio qualifies for this special tax
treatment, it will be relieved of federal income tax on that part of its net
investment income and net capital gain (the excess of net long-term capital
gain over net short-term capital loss) which it distributes to shareholders.
13
<PAGE>
TAX STATUS OF DISTRIBUTIONS:
The Portfolio will distribute all of its net investment income (including, for
this purpose, net short-term capital gain) to shareholders. Dividends from
net investment income will be taxable to shareholders as ordinary income
whether received in cash or in additional shares. Distributions from net
investment income will qualify for the dividends-received deduction for
corporate shareholders only to the extent such distributions are derived
from dividends paid by domestic corporations. It can be expected that only
certain dividends of the Portfolio will qualify for that deduction. Any net
capital gains will be distributed annually and will be taxed to shareholders
as long-term capital gains, regardless of how long the shareholder has held
shares. The Portfolio will make annual reports to shareholders of the federal
income tax status of all distributions, including the amount of dividends
eligible for the dividends-received deduction.
Certain securities purchased by the Portfolio are sold with original issue
discount and thus do not make periodic cash interest payments. The
Portfolio will be required to include as part of its current income the
accrued discount on such obligations even though the Portfolio has not
received any interest payments on such obligations during that period.
Because the Portfolio distributes all of its net investment income to its
shareholders, the Portfolio may have to sell portfolio securities to
distribute such accrued income, which may occur at a time when the Adviser
would not have chosen to sell such securities and which may result in a
taxable gain or loss.
Income received on direct U.S. obligations is exempt from income tax at the
state level when received directly and may be exempt, depending on the
state, when received by a shareholder from the Portfolio provided certain
state-specific conditions are satisfied. The Portfolio will inform
shareholders annually of the percentage of income and distributions derived
from direct U.S. obligations. Shareholders should consult their tax
advisers to determine whether any portion of the income dividends received
from a Portfolio is considered tax exempt in their particular state.
Dividends declared by the Portfolio in October, November or December of any
year and payable to shareholders of record on a date in one of those months
will be deemed to have been paid by the Portfolio and received by the
shareholders on December 31 of that year, if paid by the Portfolio at any
time during the following January.
The Portfolio intends to make sufficient distributions prior to the end of
each calendar year to avoid liability for federal excise tax.
Sale, exchange or redemption of the Portfolio's shares is a taxable event to
the shareholder.
14
<PAGE>
Income derived by the Portfolio from securities of foreign issuers may be
subject to foreign withholding taxes. The Portfolio will not be able to
elect to treat shareholders as having paid their proportionate share of such
foreign taxes.
GENERAL INFORMATION
THE FUND
The Fund, an open-end investment management company that offers shares of
diversified portfolios, was organized under Massachusetts law as a business
trust under a Declaration of Trust dated July 18, 1991. The Declaration of
Trust permits the Fund to offer separate series ("portfolios") of units of
beneficial interest ("shares"). All consideration received by the Fund for
shares of any portfolio and all assets of such portfolio belong to that
portfolio and would be subject to liabilities related thereto. The Fund
reserves the right to create and issue shares of additional portfolios.
The Portfolio pays its (i) operating expenses, including fees of its service
providers, expenses of preparing prospectuses, proxy solicitation material
and reports to shareholders, costs of custodial services and registering its
shares under federal and state securities laws, pricing and insurance
expenses, brokerage costs, interest charges, taxes and organizational
expenses and (ii) pro rata share of the Fund's other expenses, including
audit and legal expenses.
TRUSTEES OF THE FUND
The management and affairs of the Fund are supervised by the Trustees under
the laws of the Commonwealth of Massachusetts. The Trustees have approved
contracts under which, as described above, certain companies provide
essential management services to the Fund.
VOTING RIGHTS
Each share held entitles the shareholder of record to one vote. The Portfolio
will vote separately on matters relating solely to it, such as approval of
advisory agreements and changes in fundamental policies, and matters
affecting some but not all portfolios of the Fund will be voted on only by
the affected portfolios. All portfolios will vote together in matters
affecting the Fund generally, such as election of Trustees or selection of
accountants. As a Massachusetts business trust, the Fund is not required,
and does not intend, to hold annual meetings of shareholders but
shareholders' approval will be sought for certain changes in the operation
of the Fund and for the election of Trustees under certain circumstances.
In addition, a Trustee may be removed by the remaining Trustees or by
shareholders at a special meeting called upon written request of
shareholders owning at least 10% of the outstanding shares of the Fund. In
the event that such a
15
<PAGE>
meeting is requested, the Fund will provide appropriate assistance and
information to the shareholders requesting the meeting.
REPORTING
The Fund issues unaudited financial information semi-annually and audited
financial statements annually. The Fund also furnishes periodic reports
and, as necessary, proxy statements to shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to The Advisors' Inner Circle Fund,
P.O. Box 419009, Kansas City, Missouri 64141-6009 or by calling 1-800-932-
7781. Purchases and redemptions of shares should be made through the
Transfer Agent by calling 1-800-808-4921.
DIVIDENDS AND DISTRIBUTIONS
Substantially all of the net investment income (exclusive of capital gains) of
the Portfolio is distributed in the form of quarterly dividends. If any
capital gain is realized, substantially all of it will be distributed by the
Portfolio at least annually.
Shareholders automatically receive all dividends and capital gain
distributions in additional shares at the net asset value determined on the
next Business Day after the record date, unless the shareholder has elected
to take such payment in cash. Shareholders may change their election by
providing written notice to the Transfer Agent at least 15 days prior to the
distribution. Shareholders may receive payments for cash distributions in
the form of a check or by Federal Reserve or ACH wire transfer.
Dividends and distributions of the Portfolio are paid on a per share basis.
The value of each share will be reduced by the amount of the payment. If
shares are purchased shortly before the record date for a dividend or
distribution of capital gains, a shareholder will pay the full price for the
shares and receive some portion of the price back as a taxable dividend or
distribution.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Morgan, Lewis & Bockius LLP serves as counsel to the Fund. Arthur Andersen
LLP serves as the independent public accountants of the Fund.
16
<PAGE>
CUSTODIAN
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618,
Philadelphia, Pennsylvania 19101 acts as the custodian (the "Custodian") of
the Fund. The Custodian holds cash, securities and other assets of the Fund
as required by the Investment Company Act of 1940, as amended (the "1940
Act").
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS
The following is a description of certain permitted investments for the
Portfolio:
AMERICAN DEPOSITARY RECEIPTS ("ADRS") - ADRs are securities, typically issued
by a U.S. financial institution (a "depositary"), that evidence ownership
interests in a security or a pool of securities issued by a foreign issuer
and deposited with the depositary. ADRs may be available through
"sponsored" or "unsponsored" facilities. A sponsored facility is
established jointly by the issuer of the security underlying the receipt and
a depositary, whereas an unsponsored facility may be established by a
depositary without participation by the issuer of the underlying security.
Holders of unsponsored depositary receipts generally bear all the costs of
the unsponsored facility. The depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through, to
the holders of the receipts, voting rights with respect to the deposited
securities.
BANKERS' ACCEPTANCE - Bankers' acceptances are bills of exchange or time
drafts drawn on and accepted by a commercial bank. Bankers' acceptances are
used by corporations to finance the shipment and storage of goods.
Maturities are generally six months or less.
CERTIFICATE OF DEPOSIT - Certificates of deposit are interest bearing
instruments with a specific maturity. They are issued by banks and savings
and loan institutions in exchange for the deposit of funds and normally can
be traded in the secondary market prior to maturity. Certificates of
deposit with penalties for early withdrawal will be considered illiquid.
COMMERCIAL PAPER - Commercial paper is a term used to describe unsecured
short-term promissory notes issued by banks, municipalities, corporations
and other entities. Maturities on these issues typically vary from a few to
270 days.
CONVERTIBLE SECURITIES - Convertible securities are corporate securities that
are exchangeable for a set number of another security at a prestated price.
Convertible securities typically have characteristics similar to both fixed
income and equity securities. Because of the conversion feature, the market
value of a convertible security tends to move with the market value of the
underlying stock. The value of a convertible security
17
<PAGE>
is also affected by prevailing interest rates, the credit quality of the
issuer, and any call provisions.
DERIVATIVES - Derivatives are securities that derive their value from other
securities. The following are considered derivative securities: options on
futures, futures, options (e.g., puts and calls), convertible securities and
"stripped" U.S. Treasury securities (e.g., Receipts and STRIPs). See
elsewhere in this "Description of Permitted Investments and Risk Factors"
for discussions of these various instruments, and see "Investment Objective
and Policies" for more information about any investment policies and
limitations applicable to their use.
FUTURES AND OPTIONS ON FUTURES -- Futures contracts provide for the sale by
one party and purchase by another party of a specified amount of a specific
security at a specified future time and at a specified price. An option on
a futures contract gives the purchaser the right, in exchange for a premium,
to assume a position in a futures contract at a specified exercise price
during the term of the option. The Portfolio may use futures contracts and
related options for bona fide hedging purposes, to offset changes in the
---- ----
value of securities held or expected to be acquired, to minimize
fluctuations in foreign currencies, or to gain exposure to a particular
market or instrument. The Portfolio will minimize the risk that it will be
unable to close out a futures contract by only entering into futures
contracts which are traded on national futures exchanges.
There are risks associated with these activities, including the following:
(1) the success of a hedging strategy may depend on an ability to predict
movements in the prices of individual securities, fluctuations in markets
and movements in interest rates, (2) there may be an imperfect or no
correlation between the changes in market value of the securities held by
the Portfolio and the prices of futures and options on futures, (3) there
may not be a liquid secondary market for a futures contract or option, (4)
trading restrictions or limitations may be imposed by an exchange, and (5)
government regulations may restrict trading in futures contracts and futures
options.
OPTIONS - A put option gives the purchaser of the option the right to sell,
and the writer of the option the obligation to buy, the underlying security
at any time during the option period. A call option gives the purchaser of
the option the right to buy, and the writer of the option the obligation to
sell, the underlying security at any time during the option period. The
premium paid to the writer is the consideration for undertaking the
obligations under the option contract. The initial purchase (sale) of an
option contract is an "opening transaction." In order to close out an
option position, the Portfolio may enter into a "closing transaction," which
is simply the sale (purchase) of an option contract on the same security
with the same exercise price and expiration date as the option contract
originally opened.
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<PAGE>
Risks associated with options transactions include: (1) the success of a
hedging strategy may depend on an ability to predict movements in the prices
of individual securities, fluctuations in markets and movements in interest
rates; (2) there may be an imperfect correlation between the movement in
prices of options and the securities underlying them; (3) there may not be a
liquid secondary market for options; and (4) while the Portfolio will
receive a premium when it writes covered call options, it may not
participate fully in a rise in the market value of the underlying security.
REPURCHASE AGREEMENTS - Repurchase agreements are agreements by which the
Portfolio obtains a security and simultaneously commits to return the
security to the seller at an agreed upon price on an agreed upon date within
a number of days from the date of purchase. The Custodian will hold the
security as collateral for the repurchase agreement. The Portfolio bears a
risk of loss in the event the other party defaults on its obligations and
the Portfolio is delayed or prevented from exercising its right to dispose
of the collateral or if the Portfolio realizes a loss on the sale of the
collateral. The Portfolio will enter into repurchase agreements only with
financial institutions deemed to present minimal risk of bankruptcy during
the term of the agreement based on established guidelines. Repurchase
agreements are considered loans under the 1940 Act.
SECURITIES LENDING - In order to generate additional income, the Portfolio may
lend securities which it owns pursuant to agreements requiring that the loan
be continuously secured by collateral consisting of cash, securities of the
U.S. Government or its agencies equal to at least 100% of the market value
of the securities lent. The Portfolio continues to receive interest on the
securities lent while simultaneously earning interest on the investment of
cash collateral. Collateral is marked to market daily. There may be risks
of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially or become
insolvent.
STANDARD & POOR'S DEPOSITARY RECEIPTS ("SPDRS") - An interest in a unit
investment trust holding a portfolio of securities linked to the S&P Index.
SPDRs closely track the underlying portfolio of securities, trade like a
share of common stock and pay periodic dividends proportionate to those paid
by the portfolio of stocks that constitutes the S&P Index. For further
information regarding the Portfolio's investment in SPDRs, see the Statement
of Additional Information.
TIME DEPOSIT - Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns
a specified rate of interest over a definite period of time; however, it
cannot be traded in the secondary market. Time deposits are considered to
be illiquid securities.
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<PAGE>
U.S. TREASURY OBLIGATIONS - U.S. Treasury obligations consist of bills,
notes and bonds issued by the U.S. Treasury and separately traded interest and
principal component parts of such obligations that are transferable through the
federal book-entry system known as Separately Traded Registered Interest and
Principal Securities ("STRIPS").
WARRANTS - Warrants are instruments giving holders the right, but not the
obligation, to buy shares of a company at a given price during a specified
period.
20
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY.......................................................... 2
EXPENSE SUMMARY.................................................. 4
THE FUND AND THE PORTFOLIO....................................... 6
INVESTMENT OBJECTIVE AND POLICIES................................ 6
INVESTMENT LIMITATIONS........................................... 7
THE ADVISER...................................................... 8
THE ADMINISTRATOR................................................ 9
THE TRANSFER AGENT............................................... 9
THE DISTRIBUTOR.................................................. 9
PURCHASE AND REDEMPTION OF SHARES................................ 9
PERFORMANCE...................................................... 12
TAXES............................................................ 13
GENERAL INFORMATION.............................................. 15
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS............ 17
</TABLE>
<PAGE>
FUND:
THE ADVISORS' INNER CIRCLE FUND
PORTFOLIO:
A+P LARGE-CAP VALUE FUND
ADVISER:
ARONSON+PARTNERS
DISTRIBUTOR:
SEI FINANCIAL SERVICES COMPANY
ADMINISTRATOR:
SEI FINANCIAL MANAGEMENT CORPORATION
LEGAL COUNSEL:
MORGAN, LEWIS & BOCKIUS LLP
===
INDEPENDENT PUBLIC ACCOUNTANTS:
ARTHUR ANDERSEN LLP
FEBRUARY 28, 1996
<PAGE>
FUND:
THE ADVISORS' INNER CIRCLE FUND
PORTFOLIO:
A+P LARGE-CAP VALUE FUND
INVESTMENT ADVISER:
ARONSON+PARTNERS
This Statement of Additional Information is not a prospectus and relates only to
the A+P Large-Cap Value Fund, formerly the A+F Large-Cap Fund (the "Portfolio").
It is intended to provide additional information regarding the activities and
operations of the Advisors' Inner Circle Fund (the "Fund") and the Portfolio and
should be read in conjunction with the Portfolio's Prospectus dated February 28,
1996. The Prospectus for the Portfolio may be obtained by calling 1-800-932-
7781.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
THE FUND........................................................... S - 2
DESCRIPTION OF PERMITTED INVESTMENTS............................... S - 2
INVESTMENT LIMITATIONS............................................. S - 9
THE ADVISER........................................................ S - 11
THE ADMINISTRATOR.................................................. S - 12
THE DISTRIBUTOR.................................................... S - 13
TRUSTEES AND OFFICERS OF THE FUND.................................. S - 13
COMPUTATION OF YIELD AND TOTAL RETURN.............................. S - 16
PURCHASE AND REDEMPTION OF SHARES.................................. S - 17
DETERMINATION OF NET ASSET VALUE................................... S - 17
TAXES.............................................................. S - 17
PORTFOLIO TRANSACTIONS............................................. S - 19
DESCRIPTION OF SHARES.............................................. S - 20
SHAREHOLDER LIABILITY.............................................. S - 21
LIMITATION OF TRUSTEES' LIABILITY.................................. S - 21
5% SHAREHOLDERS.................................................... S - 21
EXPERTS............................................................ S - 22
FINANCIAL STATEMENTS............................................... S - 22
APPENDIX........................................................... S - 1
</TABLE>
February 28, 1996
<PAGE>
THE FUND
This Statement of Additional Information relates only to the Fund's A+P Large-
Cap Value Fund (the "Portfolio"). The Portfolio is a separate series of the
Advisors' Inner Circle Fund (the "Fund") an open-end investment management
company that offers shares of diversified portfolios, established under
Massachusetts law as a Massachusetts business trust under a Declaration of Trust
dated July 18, 1991. The Declaration of Trust permits the Fund to offer
separate series ("portfolios") of units of beneficial interest ("shares"). Each
portfolio is a separate mutual fund, and each share of each portfolio represents
an equal proportionate interest in that portfolio. See "Description of Shares."
No investment in shares of a portfolio should be made without first reading that
portfolio's prospectus. Capitalized terms not defined herein are defined in the
Prospectus offering shares of the Portfolio.
DESCRIPTION OF PERMITTED INVESTMENTS
AMERICAN DEPOSITARY RECEIPTS
The Portfolio may invest in American Depositary Receipts. These instruments may
subject the Portfolio to investment risks that differ in some respects from
those related to investments in obligations of U.S. domestic issuers. Such
risks include future adverse political and economic developments, the possible
imposition of withholding taxes on interest or other income, possible seizure,
nationalization, or expropriation of foreign deposits, the possible
establishment of exchange controls or taxation at the source, greater
fluctuations in value due to changes in exchange rates, or the adoption of other
foreign governmental restrictions which might adversely affect the payment of
principal and interest on such obligations. Foreign issuers of securities or
obligations are often subject to accounting treatment and engage in business
practices different from those respecting domestic issuers of similar securities
or obligations. Foreign branches of U.S. banks and foreign banks may be subject
to less stringent reserve requirements than those applicable to domestic
branches of U.S. banks.
FUTURES AND OPTIONS ON FUTURES
The Portfolio may enter into futures contracts on securities indices. A futures
contract sale creates an obligation by the seller to deliver the type of
instrument called for in the contract in a specified delivery month for a stated
price. A futures contract purchase creates an obligation by the purchaser to
take delivery of the type of instrument called for in the contract in a
specified delivery month at a stated price. Futures contracts are traded in the
United States only on commodities exchanges or boards of trade, known as
"contract markets," approved for such trading by the Commodities Futures Trading
Commission ("CFTC"), and must be executed through a futures commission merchant,
or brokerage firm, that is a member of the relevant contract market. The
Portfolio may enter into futures contracts and options on futures contracts
traded on
S-2
<PAGE>
an exchange regulated by the CFTC if, to the extent that such futures and
options are not for "bona fide hedging purposes" (as defined by the CFTC), the
aggregate initial futures margin and options premiums on such positions
(excluding the amount by which options are in the money) do not exceed 5% of the
Portfolio's net assets.
Although futures contracts by their terms call for actual delivery or acceptance
of securities, the contracts usually are closed out before the settlement date
without the making or taking of delivery. The Portfolio may elect to close some
or all of its futures positions at any time prior to their expiration. The
purpose of making such a move would be to reduce or eliminate the hedge position
then currently held by the Portfolio. Closing out a futures contract sale
(purchase) is effected by purchasing (selling) a futures contract for the same
aggregate amount of the specific type of financial instrument with the same
delivery date. If the price of the initial sale of the futures contract exceeds
the price of the offsetting purchase, the seller is paid the difference and
realizes a gain; if the offsetting purchase price exceeds the initial sale
price, the seller realizes a loss. If the offsetting sale price exceeds the
purchase price, the purchaser realizes a gain; if the purchase price exceeds the
offsetting sale price, the purchaser realizes a loss.
When the Portfolio purchases or sells a futures contract, it does not pay or
receive the purchase price; instead, the Portfolio is required to deposit an
"initial margin" in the form of cash and/or U.S. Government securities with the
custodian in a segregated account in the name of the futures broker. The nature
of initial margin in futures transactions is different from that of margin in
security transactions in that futures contract margin does not involve the
borrowing of funds by the Portfolio to finance the transactions. Rather,
initial margin is in the nature of a performance bond or good faith deposit on
the contract that is returned to the Portfolio upon termination of the futures
contract, assuming all contractual obligations have been satisfied. Futures
contracts also involve brokerage costs, and closing transactions involve
additional commission costs.
Subsequent payments, called "variation margin," to and from the broker are made
on a daily basis as the price of the underlying security fluctuates, making the
long and short positions in the futures contract more or less valuable, a
process known as "marking to market." Final determinations of variation margin
are made when the Portfolio enters into a closing transaction.
The Portfolio may also enter into written options on Securities Index futures
contracts. The Portfolio may purchase and write call and put options on the
futures contracts it may buy or sell and enter into closing transactions with
respect to such options to terminate existing positions. The Portfolio may use
such options on futures contracts in lieu of writing options directly on the
underlying securities or purchasing and selling the underlying futures
contracts. Such options generally operate in the same manner as options
purchased or written directly on the underlying investments. See the section
titled "Options" below.
S-3
<PAGE>
The Portfolio holding or writing an option on futures may terminate its position
by selling or purchasing an offsetting option. There can be no guarantee that
such closing transactions will be available.
The Portfolio will be required to deposit initial margin and maintenance margin
with respect to put and call options on futures contracts pursuant to brokers'
requirements similar to those described above.
Transactions using futures contracts and options (other than options that the
Portfolio has purchased) expose the Portfolio to an obligation to another party.
The Portfolio will not enter into any such transactions unless it owns either
(1) an offsetting ("covered") position in securities or other options or futures
contracts or (2) cash, receivables and short-term debt securities with a value
sufficient at all times to cover its potential obligations not covered as
provided in (1) above. The Portfolio will comply with the Securities and
Exchange Commission (the "SEC") guidelines regarding cover for these
instruments and, if the guidelines so require, set aside cash, U.S. government
securities or other liquid, high-grade debt securities in a segregated account
with its custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold while the
position in the corresponding futures contract or option is open, unless they
are replaced with similar assets. As a result, the commitment of a large
portion of the Portfolio's assets to cover or to segregated accounts could
impede portfolio management or the Portfolio's ability to meet redemption
requests or other current obligations.
Successful use of securities' futures contracts by the Portfolio is subject to
the ability of Aronson+Partners, the Portfolio's investment adviser (the
"Adviser"), to predict correctly movements in the direction of interest rates
and other factors affecting securities markets.
The purchase of options on futures contracts involves less risk to the Portfolio
than does the purchase or sale of futures contracts, because the maximum amount
at risk is the premium paid for the options (plus transaction costs). However,
there may be circumstances when the purchase of an option on a futures contract
would result in a loss to the Portfolio when the purchase or sale of the futures
contract would not, such as when there is no movement in the price of the hedged
investments. The writing of an option on a futures contract involves risks
similar to those risks, described below under "Options," involved in the writing
of options on securities.
There can be no assurance that higher-than-anticipated trading activity or other
unforeseen events will not, at times, render certain market clearing facilities
inadequate, and thereby result in the institution by exchanges of special
procedures which may interfere with the timely execution of customer orders.
S-4
<PAGE>
Under certain circumstances, futures exchanges may establish daily limits on the
amount that the price of a future contract or option thereon can vary from the
previous day's settlement price; once that limit is reached, no trades may be
made that day at a price beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing the liquidation
of unfavorable positions.
If the Portfolio were unable to liquidate a futures contract or option thereon
due to the absence of a liquid secondary market or the imposition of price
limits, it could incur substantial losses. The Portfolio would continue to be
subject to market risk with respect to the position. In addition, except in the
case of purchased options, the Portfolio would be required to make daily
variation margin payments and might be required to maintain the position being
hedged by the futures contract or option or to maintain cash or securities in a
segregated account.
To reduce or eliminate a hedge position it holds, the Portfolio may seek to
close out that position. The ability to establish and close out positions will
be subject to the development and maintenance of a liquid secondary market.
There can be no assurance that such a market does or will continue to exist for
a particular futures contract or option. Reasons for the absence of a liquid
secondary market on an exchange include the following: (1) there may be
insufficient trading interest in certain contracts or options; (2) restrictions
may be imposed by an exchange on opening transactions or closing transactions or
both; (3) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of contracts or options, or underlying
securities; (4) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (5) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current trading volume;
or (6) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of contracts or options
(or a particular class or series of contracts or options), in which event the
secondary market on that exchange (or in the class or series of contracts or
options) would cease to exist, although outstanding contracts or options on the
exchange that had been issued by a clearing corporation as a result of trades on
that exchange would continue to be exercisable in accordance with their terms.
OPTIONS
The Portfolio may trade put and call options on stocks and stock indices to a
limited extent, as the Adviser determines is appropriate in seeking to meet the
Portfolio's investment objective.
The initial purchase (sale) of an option contract is an "opening transaction."
In order to close out an option position, the Portfolio may enter into a
"closing transaction," which is a sale (purchase) of an option contract on the
same security with the same exercise price and expiration date as the option
contract originally opened.
S-5
<PAGE>
The Portfolio may buy protective put options. A put option gives the purchaser
(the Portfolio) the right to sell, and imposes on the writer the obligation to
buy, the underlying security at the exercise price during the option period.
The advantage to the Portfolio of buying the protective put is that if the price
of the stock falls during the option period, the Portfolio may exercise the put
and receive the higher exercise price for the stock. However, if the security
rises in value, the Portfolio will have paid a premium for the put, which will
expire unexercised.
The Portfolio may buy fiduciary call options. A call option gives the purchaser
(the Portfolio) the right to buy, and imposes on the writer the obligation to
sell, the underlying security at the exercise price during the option period.
The Portfolio may buy fiduciary calls on stocks that it is trying to buy. The
advantage to the Portfolio of buying the fiduciary call is that if the price of
the stock rises during the option period, the Portfolio may exercise the call
and buy the stock for the lower exercise price. If the security falls in value,
however, the Portfolio will have paid a premium for the call which will expire
worthless, but will be able to buy the stock at a lower price.
The Portfolio may write covered call options. As discussed above, a call gives
the purchaser the right to buy and imposes on the writer (the Portfolio) the
obligation to sell, the underlying security at the exercise price during the
option period. The advantage to the Portfolio of writing covered call options
is that the Portfolio receives a premium, which is additional income. However,
if the security rises in value, the Portfolio may not fully participate in the
market appreciation. During the option period, a covered call option writer may
be assigned an exercise notice by the broker-dealer through whom such call
option was sold requiring the writer to deliver the underlying security against
payment of the exercise price. The Portfolio's obligation as the writer of a
covered call is terminated upon the expiration of the option period or at such
earlier time in which the writer effects a closing purchase transaction. As
noted above, a closing purchase transaction is one in which the Portfolio, when
obligated as a writer of an option, terminates its obligation by purchasing an
option of the same series as the option previously written. A closing purchase
transaction cannot be effected with respect to an option once the option writer
has received an exercise notice for such option.
The market value of an option generally reflects the market price of an
underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the pricing volatility of the underlying
security and the time remaining until the expiration date.
The Portfolio also may purchase and write put and call options on indices and
enter into related closing transactions. Put and call options on indices are
similar to options on securities except that options on an index give the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the underlying index is greater than (or less than, in the case
of puts) the exercise price of the option. This amount of cash is equal to the
difference between the closing price of the index and
S-6
<PAGE>
the exercise price of the option, expressed in dollars multiplied by a specified
number or multiplier. Thus, unlike options on individual securities, all
settlements are in cash, and gain or loss depends on price movements in the
particular market represented by the index generally, rather than the price
movements in individual securities. The Portfolio may choose to terminate an
option position by entering into a closing transaction. The ability of the
Portfolio to enter into closing transactions depends upon the existence of a
liquid secondary market for such transactions.
All options written on indices must be covered. When the Portfolio writes an
option on an index, it will either hold a portfolio of securities substantially
replicating the particular underlying index or establish a segregated account
containing cash or liquid high grade debt securities with its custodian in an
amount at least equal to the market value of the option and will maintain the
account while the option is open or will otherwise cover the transaction.
The successful use of the Portfolio's options strategies depends on, among other
things, the Adviser's ability to forecast interest rate and market movements
correctly.
When it purchases an option, the Portfolio runs the risk that it will lose its
entire investment in the option in a relatively short period of time, unless the
Portfolio exercises the option or enters into a closing transaction with respect
to the option during the life of the option. If the price of the underlying
security does not rise (in the case of a call) or fall (in the case of a put) to
an extent sufficient to cover the option premium and transaction costs, the
Portfolio will lose part or all of its investment in the option. This risk
differs from the risk involved with an investment by the Portfolio in the
underlying securities, since the Portfolio may continue to hold its investment
in those securities notwithstanding the lack of a change in price of those
securities.
The effective use of options also depends on the Portfolio's ability to
terminate option positions at times when the Adviser deems it desirable to do
so. Although the Portfolio will take an option position only if the Adviser
believes a liquid secondary market exists for the option, there is no assurance
that such a market does or will continue to exist. If a secondary trading
market in options were to become unavailable, the Portfolio could no longer
engage in closing transactions; even when a liquid secondary market does
generally exist, there can be no assurance that the Portfolio will be able to
effect a closing transaction on a given option at any particular time or at an
acceptable price. Lack of investor interest might adversely affect the
liquidity of the market for particular options or series of options. A
marketplace may discontinue trading of a particular option or options generally.
In addition, a market could become temporarily unavailable if unusual events,
such as volume in excess of trading or clearing capability, were to interrupt
normal market operations. A marketplace may at times find it necessary to
impose restrictions on particular types of options transactions, which may limit
the Portfolio's ability to realize its profits or limit its losses.
S-7
<PAGE>
Disruptions in the markets for the securities underlying options purchased or
sold by the Portfolio could result in losses on the options. If trading is
interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, the Portfolio as purchaser or writer
of an option will be unable to close out its position until options trading
resumes, and it may be faced with losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing Corporation
(OCC) or other options markets may impose exercise restrictions. If a
prohibition on exercise is imposed at the time when trading in the option has
also been halted, the Portfolio as purchaser or writer of an option will be
locked into its position until one of the two restrictions has been lifted. If
a prohibition on exercise remains in effect until an option owned by the
Portfolio has expired, the Portfolio could lose the entire value of its option.
STANDARD & POOR'S DEPOSITARY RECEIPTS ("SPDRS")
SPDRs are interests in a unit investment trust ("UIT") that may be obtained from
the UIT or purchased in the secondary market as SPDRs listed on the American
Stock Exchange. The UIT will issue SPDRs in aggregations of 50,000 known as
"Creation Units" in exchange for a "Portfolio Deposit" consisting of (a) a
portfolio of securities substantially similar to the component securities
("Index Securities") of the Standard & Poor's 500 Composite Stock Price Index
(the "S&P Index"), (b) a cash payment equal to a pro rata portion of the
dividends accrued on the UIT's portfolio securities since the last dividend
payment by the UIT, net of expenses and liabilities, and (c) a cash payment or
credit ("Balancing Amount") designed to equalize the net asset value of the S&P
Index and the net asset value of a Portfolio Deposit.
SPDRs are not individually redeemable, except upon termination of the UIT. To
redeem, the Portfolio must accumulate enough SPDRs to reconstitute a Creation
Unit. The liquidity of small holdings of SPDRs, therefore, will depend upon the
existence of a secondary market. Upon redemption of a Creation Unit, the
Portfolio will receive Index Securities and cash identical to the Portfolio
Deposit required of an investor wishing to purchase a Creation Unit that day.
The price of SPDRs is derived and based upon the securities held by the UIT.
Accordingly, the level of risk involved in the purchase or sale of a SPDR is
similar to the risk involved in the purchase or sale of traditional common
stock, with the exception that the pricing mechanism for SPDRs is based on a
basket of stocks. Disruptions in the markets for the securities underlying
SPDRs purchased or sold by the Portfolio could result in losses on SPDRs.
Trading in SPDRs involves risks similar to those risks, described above under
"Options," involved in the writing of options on securities.
S-8
<PAGE>
INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
The following investment limitations are fundamental policies of the Portfolio
which cannot be changed with respect to the Portfolio without the consent of the
holders of a majority of the Portfolio's outstanding shares. The term "majority
of the outstanding shares" means the vote of (1) 67% or more of the Portfolio's
shares present at a meeting, if more than 50% of the outstanding shares of the
Portfolio are present or represented by proxy, or (2) more than 50% of the
Portfolio's outstanding shares, whichever is less.
The Portfolio may not:
1. Acquire more than 10% of the voting securities of any one issuer.
2. Invest in companies for the purpose of exercising control.
3. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding 10% of the value of its total assets. Any borrowing
will be done from a bank and, to the extent that such borrowing exceeds 5%
of the value of the Portfolio's assets, asset coverage of at least 300% is
required. In the event that such asset coverage shall at any time fall
below 300%, the Portfolio shall, within three days thereafter or such
longer period as the SEC may prescribe by rules and regulations, reduce the
amount of its borrowings to such an extent that the asset coverage of such
borrowings shall be at least 300%. This borrowing provision is included
solely for temporary liquidity or emergency purposes. All borrowings in
excess of 5% of the Portfolio's total assets will be repaid before making
investments and any interest paid on such borrowings will reduce income.
4. Make loans, except that the Portfolio may purchase or hold debt instruments
in accordance with its investment objective and policies, and the Portfolio
may enter into repurchase agreements, as described in the Prospectus.
5. Pledge, mortgage or hypothecate assets except to secure temporary
borrowings permitted by (3) above in aggregate amounts not to exceed 10% of
total assets taken at current value at the time of the incurrence of such
loan.
6. Purchase or sell real estate, real estate limited partnership interests,
futures contracts, commodities or commodities contracts, provided that this
shall not prevent the Portfolio from investing in readily marketable
securities of issuers which can invest in real estate or commodities,
institutions that issue mortgages, real estate investment trusts which deal
in real estate or interests therein pursuant to the Portfolio's investment
objective and policies.
S-9
<PAGE>
7. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Portfolio may effect short sales
"against the box" and obtain short-term credits as necessary for the
clearance of security transactions.
8. Act as an underwriter of securities of other issuers, except as it may be
deemed an underwriter in selling a portfolio security.
9. Purchase securities of other investment companies, except as permitted by
the Investment Company Act of 1940, as amended (the "1940 Act"), and the
rules and regulations thereunder.
10. Issue senior securities (as defined in the 1940 Act), except in connection
with permitted borrowings as described above or as permitted by rule,
regulation or order of the SEC.
11. Invest in interests in oil, gas or other mineral exploration or development
programs and oil, gas or mineral leases.
NON-FUNDAMENTAL POLICIES
The following investment limitations of the Portfolio are non-fundamental and
may be changed by the Fund's Board of Trustees without shareholder approval:
1. The Portfolio may not purchase or hold illiquid securities in an amount
exceeding, in the aggregate, 15% of the Portfolio's net assets. This
limitation does not include any Rule 144A security that has been determined
by, or pursuant to procedures established by, the Board of Trustees, based
on trading markets for such security, to be liquid. An illiquid security
is a security which cannot be disposed of promptly (within seven days) and
in the usual course of business without a loss, and includes repurchase
agreements maturing in excess of seven days, time deposits with a
withdrawal penalty, non-negotiable instruments and instruments for which no
market exists.
2. The Portfolio may invest in warrants valued at lower of cost or market
value in an aggregate amount not exceeding 5% of the Portfolio's net
assets. Included in that amount, but not to exceed 2% of the Portfolio's
net assets, may be warrants not listed on the New York Stock Exchange or
American Stock Exchange.
3. The Portfolio may not invest more than 10% of its total assets in the
securities of issuers which together with any predecessors have a record of
less than three years continuous operation. To comply with certain state
securities restrictions, the Portfolio will not invest more than 5% of its
total assets in securities of such issuers; however, if these restrictions
are loosened, the
S-10
<PAGE>
Portfolio reserves the right to invest up to 10% of its total assets in
securities of such issuers without advance notice to its shareholders.
4. To the extent the Portfolio is registered in the state of California and
purchases securities of other investment companies, such purchase shall be
limited to shares of money market open-end investment companies and the
Adviser will waive its fee on that portion of the assets placed in such
money market open-end investment companies.
5. Purchase or retain securities of an issuer if, to the knowledge of the
Fund, an officer, trustee, partner or director of the Fund or any
investment adviser of the Portfolio owns beneficially more than 1/2 of 1%
of the shares or securities of such issuer and all such officers, trustees,
partners and directors owning more than 1/2 of 1% of such shares or
securities together own more than 5% of such shares or securities.
Except as otherwise noted, the foregoing percentages will apply at the time of
the purchase of a security.
THE ADVISER
The Fund and the Adviser have entered into an advisory agreement (the "Advisory
Agreement"). The Advisory Agreement provides certain limitations on the
Adviser's liability, but also provides that the Adviser shall not be protected
against any liability to the Fund or its shareholders by reason of willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard of its obligations or duties thereunder.
The Advisory Agreement provides that if, for any fiscal year, the ratio of
expenses of the Portfolio (including amounts payable to the Adviser but
excluding interest, taxes, brokerage, litigation, and other extraordinary
expenses) exceeds limitations established by any state in which the shares of
the Portfolio are registered, the Adviser will bear the amount of such excess.
The Adviser will not be required to bear expenses of the Portfolio to an extent
which would result in the Portfolio's inability to qualify as a regulated
investment company under provisions of the Internal Revenue Code of 1986, as
amended (the "Code"). For the fiscal years ended October 31, 1995 and 1994, the
Adviser received $185,870 and $105,411, respectively, and waived $38 and
$37,189, respectively, in fees due it under the Advisory Agreement.
The continuance of the Advisory Agreement as to the Portfolio after the first
two years must be specifically approved at least annually by the vote of a
majority of the Trustees who are not parties to the Advisory Agreement or
"interested persons" of any party thereto, cast in person at a meeting called
for the purpose of voting on such approval, and either (1) by the majority vote
of the entire Board of Trustees or (2) by a vote of the shareholders of the
Portfolio. The Advisory Agreement will terminate
S-11
<PAGE>
automatically in the event of its assignment, and is terminable at any time
without penalty by the Trustees of the Fund or, with respect to the Portfolio,
by a majority of the outstanding shares of the Portfolio, on not less than 30
days' nor more than 60 days' written notice to the Adviser, or by the Adviser on
90 days' written notice to the Fund.
THE ADMINISTRATOR
The Fund and SEI Financial Management Corporation (the "Administrator") have
entered into an administration agreement (the "Administration Agreement"). The
Administration Agreement provides that the Administrator shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which the Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of the Administrator in the performance of its duties or from
reckless disregard by it of its duties and obligations thereunder. The
Administration Agreement shall remain in effect for a period of five years after
its effective date and shall continue in effect for successive periods of two
years unless terminated by either party on not less than 90 days' prior written
notice to the other party. For the fiscal years ended October 31, 1995 and
1994, the Administrator received fees of $91,984 and $65,281, respectively, for
the Portfolio.
The Fund and the Administrator have also entered into a shareholder servicing
agreement pursuant to which the Administrator provides certain shareholder
services in addition to those set forth in the Administration Agreement.
The Administrator, a wholly owned subsidiary of SEI Corporation ("SEI"), was
organized as a Delaware corporation in 1969 and has its principal business
offices at 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658. Alfred P.
West, Jr., Henry H. Greer and Carmen V. Romeo constitute the Board of Directors
of the Administrator. Mr. West is the Chairman of the Board and Chief Executive
Officer of the Administrator and of SEI. Mr. Greer is the President and Chief
Operating Officer of the Administrator and of SEI. SEI and its subsidiaries are
leading providers of funds evaluation services, trust accounting systems, and
brokerage and information services to financial institutions, institutional
investors and money managers. The Administrator also serves as administrator to
the following other mutual funds: The Achievement Funds Trust, The Arbor Fund,
ARK Funds, Bishop Street Funds, The Compass Capital Group, Conestoga Family of
Funds, CoreFunds, Inc., CrestFunds, Inc., CUFUND, FFB Lexicon Funds, First
American Investment Funds, Inc., First American Funds, Inc., Insurance
Investment Products Trust, Inventor Funds, Inc., Marquis Funds(R), Morgan
Grenfell Investment Trust, The PBHG Funds, Inc., The Pillar Funds, Rembrandt
Funds(R), 1784 Funds, SEI Daily Income Trust, SEI Index Funds, SEI Institutional
Managed Trust, SEI International Trust, SEI Liquid Asset Trust, SEI Tax Exempt
Trust, Stepstone Funds, STI Classic Funds and STI Classic Variable Trust.
S-12
<PAGE>
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly owned subsidiary of
SEI, and the Fund are parties to a distribution agreement (the "Distribution
Agreement"). The Distributor will not receive compensation for distribution of
shares of the Portfolio.
The Distribution Agreement shall remain in effect for a period of two years
after the effective date of the agreement and is renewable annually. The
Distribution Agreement may be terminated by the Distributor, by a majority vote
of the Trustees who are not interested persons and have no financial interest in
the Distribution Agreement or by a majority vote of the outstanding securities
of the Fund upon not more than 60 days' written notice by either party or upon
its assignment by the Distributor.
TRUSTEES AND OFFICERS OF THE FUND
The management and affairs of the Fund are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees and executive officers
of the Fund and their principal occupations for the last five years are set
forth below. Each may have held other positions with the named companies during
that period. Unless otherwise noted, the business address of each Trustee and
executive officer is SEI Financial Management Corporation, 680 E. Swedesford
Road, Wayne, Pennsylvania 19087-1658. Certain officers of the Fund also serve
as Trustees and/or officers of The Achievement Funds Trust, The Arbor Fund, ARK
Funds, Bishop Street Funds, The Compass Capital Group, Conestoga Family of
Funds, CoreFunds, Inc., CrestFunds, Inc., CUFUND, FFB Lexicon Funds, First
American Investment Funds, Inc., First American Funds, Inc., Insurance
Investment Products Trust, Inventor Funds, Inc., Marquis Funds(R), Morgan
Grenfell Investment Trust, The PBHG Funds, Inc., The Pillar Funds, Rembrandt
Funds(R), 1784 Funds, SEI Daily Income Trust, SEI Index Funds, SEI Institutional
Managed Trust, SEI International Trust, SEI Liquid Asset Trust, SEI Tax Exempt
Trust, Stepstone Funds, STI Classic Funds and STI Classic Variable Trust.
ROBERT A. NESHER (DOB 08/17/46) - Trustee* - 8 South Street, Kennebunkport, ME
04046. Retired since 1994. Director, Executive Vice President of SEI
Corporation, 1986-1994. Director and Executive Vice President of the
Administrator and Distributor, September, 1981-1994.
JOHN T. COONEY (DOB 01/20/27) - Trustee** - 569 N. Post Oak Lane, Houston, TX
77024. Retired since 1992. Formerly Vice Chairman of Ameritrust Texas N.A.,
1989-1992, and MTrust Corp., 1985-1989.
WILLIAM M. DORAN (DOB 05/26/40) - Trustee* - 2000 One Logan Square,
Philadelphia, PA 19103. Partner of Morgan, Lewis & Bockius LLP, Counsel to SEI,
the
S-13
<PAGE>
Fund, the Administrator and Distributor, for the past five years. Director
and Secretary of SEI.
FRANK E. MORRIS (DOB 12/30/23) - Trustee** - 105 Walpole Street, Dover, MA
02030. Peter Drucker Professor of Management, Boston College since 1989.
President, Federal Reserve Bank of Boston, 1968-1988.
ROBERT A. PATTERSON (DOB 11/05/17) - Trustee** - 208 Old Main, University Park,
PA 16802. Pennsylvania State University, Senior Vice President, Treasurer
(Emeritus). Financial and Investment Consultant, Professor of Transportation
(1984-present). Vice President-Investments, Treasurer, Senior Vice President
(Emeritus) (1982-1984). Director, Pennsylvania Research Corp.; Member and
Treasurer, Board of Trustees of Grove City College.
GENE PETERS (DOB 06/03/29) - Trustee** - 943 Oblong Road, Williamstown, MA
01267. Private investor from 1987 to present. Vice President and Chief
Financial Officer, Western Company of North America (petroleum service company)
(1980-1986). President of Gene Peters and Associates (import company) (1978-
1980). President and Chief Executive Officer of Jos. Schlitz Brewing Company
before 1978.
JAMES M. STOREY (DOB 04/12/31) - Trustee** - Ten Post Office Square South,
Boston, MA 02109. Retired since 1993. Formerly, Partner of Dechert Price &
Rhoads (law firm).
DAVID G. LEE (DOB 04/16/52) - President, Chief Executive Officer - Senior Vice
President of the Administrator and Distributor since 1993. Vice President of
the Administrator and Distributor (1991-1993). President, GW Sierra Trust Funds
before 1991.
SANDRA K. ORLOW (DOB 10/18/53) - Vice President, Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Administrator and the Distributor
since 1983.
KEVIN P. ROBINS (DOB 04/15/61) - Vice President, Assistant Secretary - Senior
Vice President and General Counsel of SEI, the Administrator and the Distributor
since 1994. Secretary of the Administrator and the Distributor since 1994.
Vice President and Assistant Secretary of SEI, the Administrator and the
Distributor (1992-1994). Associate, Morgan, Lewis & Bockius LLP (law firm)
prior to 1992.
JEFFREY A. COHEN, CPA (DOB 04/22/61) - Controller, Assistant Secretary -
Director, International and Domestic Funds Accounting, SEI Corporation since
1991. Audit Manager, Price Waterhouse prior to 1991.
S-14
<PAGE>
ROBERT B. CARROLL (DOB 02/26/60) - Vice President, Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Administrator and Distributor
since 1994. SEC, Division of Investment Management, (1990-1994). Associate,
McGuire, Woods, Battle & Boothe (law firm) before 1990.
KATHRYN L. STANTON (DOB 11/19/58) - Vice President, Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Administrator and the Distributor
since 1994. Associate, Morgan, Lewis & Bockius LLP (law firm) (1989-1994).
JOSEPH M. LYDON (DOB 09/27/59) - Vice President, Assistant Secretary - Director
of Business Administration of Fund Resources, SEI Corporation since 1995. Vice
President of Fund Group and Vice President of the Adviser, Dreman Value
Management and President of Dreman Financial Services, Inc. prior to 1995.
TODD CIPPERMAN (DOB 02/14/66) - Vice President, Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Administrator and the Distributor
since 1995. Associate, Dewey Ballantine (law firm) (1994-1995). Associate,
Winston & Strawn (law firm) (1991-1994).
RICHARD W. GRANT (DOB 10/25/45) - Secretary - 2000 One Logan Square,
Philadelphia, PA 19103, Partner of Morgan, Lewis & Bockius LLP (law firm),
Counsel to SEI, the Fund, the Administrator and the Distributor for the past
five years.
___________________
*Messrs. Nesher and Doran are Trustees who may be deemed to be "interested"
persons of the Fund as that term is defined in the 1940 Act.
**Messrs. Cooney, Morris, Patterson, Peters and Storey serve as members of the
Audit Committee of the Fund.
The Trustees and officers of the Fund own less than 1% of the outstanding shares
of the Fund. The Fund pays the fees for unaffiliated Trustees.
The following table exhibits Trustee compensation for the fiscal year ended
October 31, 1995.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Total
Compensation
From Registrant
and Fund
Aggregate Compensation Pension or Complex* Paid to
From Registrant for the Retirement Benefits Estimated Trustees for the
Fiscal Year Ended Accrued as Part of Annual Benefits Fiscal Year Ended
Name of Person, Position October 31, 1995 Fund Expenses Upon Retirement October 31, 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
S-15
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
John T. Cooney $9,429.84 N/A N/A $9,429.84 for
services on 1
board
- -----------------------------------------------------------------------------------------------------------------------
Frank E. Morris $9,429.84 N/A N/A $9,429.84 for
services on 1
board
- -----------------------------------------------------------------------------------------------------------------------
Robert Patterson $9,429.84 N/A N/A $9,429.84 for
services on 1
board
- -----------------------------------------------------------------------------------------------------------------------
Eugene B. Peters $9,429.84 N/A N/A $9,429.84 for
services on 1
board
- -----------------------------------------------------------------------------------------------------------------------
James M. Storey, Esq. $9,429.84 N/A N/A $9,429.84 for
services on 1
board
- -----------------------------------------------------------------------------------------------------------------------
William M. Doran, Esq. $0 N/A N/A $0 for services
on 1 board
- -----------------------------------------------------------------------------------------------------------------------
Robert A. Nesher $0 N/A N/A $0 for services
on 1 board
=======================================================================================================================
</TABLE>
COMPUTATION OF YIELD AND TOTAL RETURN
From time to time the Fund may advertise yield and total return of the
Portfolio. These figures will be based on historical earnings and are not
intended to indicate future performance. No representation can be made
concerning actual future yields or returns. The yield of a Portfolio refers to
the annualized income generated by an investment in that Portfolio over a
specified 30-day period. The yield is calculated by assuming that the income
generated by the investment during that 30-day period is generated in each
period over one year and is shown as a percentage of the investment. In
particular, yield will be calculated according to the following formula:
Yield = 2[((a-b) divided by cd + 1)/6/ - 1] where a = dividends and interest
earned during the period; b = expenses accrued for the period (net of
reimbursement); c = the current daily number of shares outstanding during the
period that were entitled to receive dividends; and d = the maximum offering
price per share on the last day of the period.
For the 30-day period ended October 31, 1995, the Portfolio's yield was 1.80%.
The total return of the Portfolio refers to the average annual compounded rate
of return for a hypothetical investment over designated time periods (including,
but not limited to, the period from which the Portfolio commenced operations
through the specified date), assuming that the entire investment is redeemed at
the end of each period. In particular, total return will be calculated
according to the following formula: P (1 + T)/n/ = ERV, where P = a
hypothetical initial payment of $1,000; T = average annual total return; n =
number of years; and ERV = ending redeemable value, as of
S-16
<PAGE>
the end of the designated time period, of a hypothetical $1,000 payment made at
the beginning of the designated time period.
For the fiscal year ended October 31, 1995 and for the period from November 12,
1993 (commencement of operations) through October 31, 1995, the total return for
the Portfolio was 27.31% and 13.99%, annualized, respectively.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through the Transfer Agent on days when
the New York Stock Exchange is open for business. Shares of each Portfolio are
offered on a continuous basis.
It is currently the Fund's policy to pay all redemptions in cash. The Fund
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by the Portfolio
in lieu of cash. Shareholders may incur brokerage charges on the sale of any
such securities so received in payment of redemptions.
The Fund reserves the right to suspend redemptions and/or to postpone the date
of payment upon redemption for any period during which trading on the New York
Stock Exchange is restricted, or during the existence of an emergency (as
determined by the SEC by rule or regulation) as a result of which disposal or
valuation of the Portfolio's securities is not reasonably practicable, or for
such other periods as the SEC by order permits. The Fund also reserves the
right to suspend sales of shares of the Portfolio for any period during which
the New York Stock Exchange, the Adviser, the Administrator, the Transfer Agent
and/or the custodian are not open for business.
DETERMINATION OF NET ASSET VALUE
The securities of the Portfolio are valued by the Administrator. The
Administrator will use an independent pricing service to obtain valuations of
securities. The pricing service relies primarily on prices of actual market
transactions as well as trade quotations. The procedures of the pricing service
and its valuations are reviewed by the officers of the Fund under the general
supervision of the Trustees.
TAXES
The following is only a summary of certain tax considerations generally
affecting the Portfolio and its shareholders, and is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their
tax advisers with specific reference to their own tax situations, including
their state and local tax liabilities.
S-17
<PAGE>
FEDERAL INCOME TAX
The following discussion of federal income tax consequences is based on the Code
and the regulations issued thereunder as in effect on the date of this Statement
of Additional Information. New legislation, as well as administrative changes
or court decisions, may significantly change the conclusions expressed herein,
and may have a retroactive effect with respect to the transactions contemplated
herein.
The Portfolio intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By following such a policy, the
Portfolio expects to eliminate or reduce to a nominal amount the federal taxes
to which the Portfolio may be subject.
In order to qualify for treatment as a RIC under the Code, the Portfolio must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) (the "Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (1) at least 90% of
the Portfolio's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock or securities, or certain other income; (2) the
Portfolio must derive less than 30% of its gross income each taxable year from
the sale or other disposition of stocks or securities held for less than three
months; (3) at the close of each quarter of the Portfolio's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, U.S. Government securities, securities of other RICs and other
securities, with such other securities limited, in respect to any one issuer, to
an amount that does not exceed 5% of the value of the Portfolio's assets and
that does not represent more than 10% of the outstanding voting securities of
such issuer; and (4) at the close of each quarter of the Portfolio's taxable
year, not more than 25% of the value of its assets may be invested in securities
(other than U.S. Government securities or the securities of other RICs) of any
one issuer or of two or more issuers which the Portfolio controls and which are
engaged in the same, similar or related trades or businesses.
Notwithstanding the Distribution Requirement described above, which requires
only that the Portfolio distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), the
Portfolio will be subject to a nondeductible 4% federal excise tax to the extent
it fails to distribute by the end of any calendar year 98% of its ordinary
income for that year and 98% of its capital gain net income (the excess of
short- and long-term capital gains over short- and long-term capital losses) for
the one-year period ending on October 31 of that year, plus certain other
amounts.
S-18
<PAGE>
Any gain or loss recognized on a sale or redemption of shares of the Portfolio
by a non-exempt shareholder who is not a dealer in securities generally will be
treated as a long-term capital gain or loss if the shares have been held for
more than twelve months and otherwise generally will be treated as a short-term
capital gain or loss. If shares of the Portfolio on which a net capital gain
distribution has been received are subsequently sold or redeemed and such shares
have been held for six months or less, any loss recognized will be treated as a
long-term capital loss to the extent of the long-term capital gain distribution.
In certain cases, the Portfolio will be required to withhold, and remit to the
U.S. Treasury, 31% of any distributions paid to a shareholder who (1) has failed
to provide a correct taxpayer identification number, (2) is subject to backup
withholding by the Internal Revenue Service, or (3) has not certified to the
Portfolio that such shareholder is not subject to backup withholding.
If the Portfolio fails to qualify as a RIC for any taxable year, it will be
taxable at regular corporate rates. In such case, distributions (including
capital gains distributions) will be taxable as ordinary dividends to the extent
of the Portfolio's current and accumulated earnings and profits and such
distributions generally will be eligible for the corporate dividends-received
deduction.
STATE TAXES
The Portfolio is not liable for any income or franchise tax in Massachusetts if
it qualifies as a RIC for federal income tax purposes. Distributions by the
Portfolio to shareholders and the ownership of shares may be subject to state
and local taxes.
PORTFOLIO TRANSACTIONS
The Adviser selects the brokers or dealers that will execute the purchases and
sales of investment securities for the Portfolio. The Adviser will use its best
efforts to obtain the best execution with respect to all transactions for the
Portfolio. In doing so, a Portfolio may pay higher commission rates than the
lowest available when the Adviser believes it is reasonable to do so in light of
the value of the research, statistical and pricing services provided by the
broker effecting the transactions.
Since the Portfolio does not market its shares through intermediary brokers or
dealers, it is not the Portfolio's practice to allocate brokerage or principal
business on the basis of sales of its shares which may be made through such
firms. However, the Adviser may place Portfolio orders with qualified broker-
dealers who recommend the Portfolio or who act as agents in the purchase of
shares of the Portfolio for their clients. In addition, and as permitted under
the 1940 Act, the Portfolio may direct commission business to one or more
designated broker-dealers, including the Distributor, in connection with such
broker-dealers' payment of certain expenses of the Portfolio.
S-19
<PAGE>
Some securities considered for investment by the Portfolio may also be
appropriate for other clients served by the Adviser. If purchase or sale of
securities consistent with the investment policies of the Portfolio and one or
more of these other clients served by the Adviser is considered at or about the
same time, transactions in such securities will be allocated among the Portfolio
and clients in a manner deemed fair and reasonable by the Adviser. Although
there is no specified formula for allocating such transactions, the various
allocation methods used by the Adviser, and the results of such allocations, are
subject to periodic review by the Fund's Trustees.
It is expected that the Portfolio may execute brokerage or other agency
transactions through the Distributor, which is a registered broker-dealer, for a
commission in conformity with the 1940 Act, the Securities Exchange Act of 1934
and rules promulgated by the SEC. Under these provisions, the Distributor is
permitted to receive and retain compensation for effecting portfolio
transactions for the Portfolio on an exchange if a written contract is in effect
between the Distributor and the Portfolio expressly permitting the Distributor
to receive and retain such compensation. These rules further require that
commissions paid to the Distributor by the Portfolio for exchange transactions
not exceed "usual and customary" brokerage commissions. The rules define "usual
and customary" commissions to include amounts which are "reasonable and fair
compared to the commission, fee or other remuneration received or to be received
by other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time." In addition, the Portfolio may direct commission business to
one or more designated broker-dealers, including the Distributor, in connection
with such broker-dealer's payment of certain of the Portfolio's or the Fund's
expenses. The Trustees, including those who are not "interested persons" of the
Fund, have adopted procedures for evaluating the reasonableness of commissions
paid to the Distributor and will review these procedures periodically. For the
fiscal years ended October 31, 1995 and 1994, the Portfolio directed no
transactions to broker-dealers for research services and paid no commissions on
these transactions. Aggregate brokerage commissions paid for the fiscal periods
ended October 31, 1995 and 1994 were $66,406 and $46,819.
The Fund is required to identify any securities of its "regular brokers or
dealers" (as such term is defined in the 1940 Act) which the Fund has acquired
during its most recent fiscal year. As of October 31, 1995, the Portfolio held
$649,350 of equity securities issued by Merrill Lynch & Co. As of October 31,
1995, the Portfolio held $338,350 of equity securities issued by Travelers
Group.
S-20
<PAGE>
<TABLE>
<CAPTION>
================================================================================
TURNOVER RATE
PORTFOLIO 1994 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
A+F Large-Cap Fund 79.23% 126.47
================================================================================
</TABLE>
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the creation of an unlimited number of
portfolios and the issuance of an unlimited number of shares of each portfolio.
Each share of a portfolio represents an equal proportionate interest in that
portfolio with each other share. Shares are entitled upon liquidation to a pro
rata share in the net assets of the portfolio available for distribution to
shareholders. Shareholders have no preemptive rights. All consideration
received by the Fund for shares of any portfolio and all assets in which such
consideration is invested would belong to that portfolio and would be subject to
the liabilities related thereto.
SHAREHOLDER LIABILITY
The Fund is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Fund were held to be a partnership, the
possibility of the shareholders' incurring financial loss for that reason
appears remote because the Fund's Declaration of Trust contains an express
disclaimer of shareholder liability for obligations of the Fund and requires
that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by or on behalf of the Fund or the Trustees,
and because the Declaration of Trust provides for indemnification out of the
Fund property for any shareholder held personally liable for the obligations of
the Fund.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his or
her own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisers, shall not be
liable for any neglect or wrongdoing of any such person. The Declaration of
Trust also provides that the Fund will indemnify its Trustees and officers
against liabilities and expenses incurred in connection with actual or
threatened litigation in which they may be involved because of their offices
with the Fund unless it is determined in the manner provided in the Declaration
of Trust that they have not acted in good faith in the reasonable belief that
their actions were in the best interests of the Fund. However, nothing in the
Declaration of Trust shall protect or indemnify a Trustee against any liability
for his or
S-21
<PAGE>
her willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties.
5% SHAREHOLDERS
As of February 5, 1996, the following persons were the only persons who were
record owners (or to the knowledge of the Fund, beneficial owners) of 5% or more
of the Portfolio's shares.
S-22
<PAGE>
A+P Large-Cap Value Fund
<TABLE>
<CAPTION>
Shareholder Number of %
Shares
<S> <C> <C>
CoreStates Bank Trustee for Cooper
Healthcare Retirement Plan 822,978.3230 17.07%
One Cooper Plaza
Attn. Edward C. Maher EVP & Chief
Financial Officer
Camden, NJ 08103
NationsBank Trust Co Cust 1,712,675.3150 35.53%
FBO Medlantic Health Care Group
CB Ret-Aronson
Attn. SAS/45-20-026-7430515
P.O. Box 831575
Dallas, TX 75283-1575
NationsBank Trust Company Cust 1,610,676.9870 33.41%
FBO MHG-INV Pool-Aronson/Fogler
Attn. SAS/45-20-026-7430515
P.O. Box 831575
Dallas, TX 75283-1575
General Service Foundation 512,645.8530 10.63%
411 East Main Street
Suite 205
Aspen, CO 81611
</TABLE>
The Fund believes that most of the shares referred to above were held by the
above persons in accounts for their fiduciary, agency or custodial customers.
EXPERTS
The financial statements in this Statement of Additional Information have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
FINANCIAL STATEMENTS
S-23
<PAGE>
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
The following descriptions of commercial paper ratings have been published by
Standard & Poor's Corporation ("S&P"), Moody's Investors Service, Inc.
("Moody's"), Fitch Investors Service, Inc. ("Fitch"), Duff & Phelps, Inc.
("Duff") and IBCA Limited and IBCA, Inc. (together, "IBCA").
Commercial paper rated A by S&P is regarded by S&P as having the greatest
capacity for timely payment. Issues rated A are further refined by use of the
numbers 1, 1+ and 2, to indicate the relative degree of safety. Issues rated
A-1+ are those with an "overwhelming degree" of credit protection. Those rated
A-1 reflect a "very strong" degree of safety regarding timely payment. Those
rated A-2 reflect a safety regarding timely payment but not as high as A-1.
Commercial paper issues rated Prime-1 or Prime-2 by Moody's are judged by
Moody's to be of superior quality and strong quality respectively on the basis
of relative repayment capacity.
F-1+ (Exceptionally Strong) is the highest commercial paper rating Fitch
assigns; paper rated F-1+ is regarded as having the strongest degree of
assurance for timely payment. Paper rated F-1 (Very Strong) reflects an
assurance of timely payment only slightly less in degree than paper rated F-1+.
The rating F-2 (Good) reflects a satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as for issues rated F-1+ or
F-1.
The rating Duff-1 is the highest commercial paper rating assigned by Duff.
Paper rated Duff-1 is regarded as having very high certainty of timely payment
with excellent liquidity factors which are supported by good fundamental
protection factors. Risk factors are minor. Duff has incorporated gradations
of 1+ and 1- to assist investors in recognizing quality differences within this
highest tier. Paper rated Duff-1+ has the highest certainty of timely payment,
with outstanding short-term liquidity and safety just below risk-free U.S.
Treasury short-term obligations. Paper rated Duff-1- has high certainty of
timely payment with strong liquidity factors which are supported by good
fundamental protection factors. Risk factors are very small. Paper rated Duff-2
is regarded as having good certainty of timely payment, good access to capital
markets (although ongoing funding may enlarge total financing requirements) and
sound liquidity factors and company fundamentals. Risk factors are small.
The designation A1 by IBCA indicates that the obligation is supported by a
strong capacity for timely repayment. Those obligations rated A1+ are supported
by the highest capacity for timely repayment. Obligations rated A2 are
supported by a satisfactory capacity for timely repayment, although such
capacity may be susceptible to adverse changes in business, economic or
financial conditions.
A-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Trustees of A + F Large-Cap Fund of The Advisors' Inner
Circle Fund:
We have audited the accompanying statement of net assets of A + F Large-Cap
Fund (one of the funds constituting The Advisors' Inner Circle Fund) as of
October 31, 1995, and the related statements of operations, changes in net
assets and financial highlights for the periods presented. These financial
statements and financial highlights are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of A + F
Large-Cap Fund of The Advisors' Inner Circle Fund as of October 31, 1995, the
results of its operations, changes in its net assets, and financial highlights
for the periods presented, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Philadelphia, PA
December 5, 1995
<PAGE>
STATEMENT OF NET ASSETS THE ADVISORS' INNER CIRCLE FUND
October 31, 1995
<TABLE>
<CAPTION>
Market
Value
A + F LARGE-CAP FUND Shares (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 99.7%
AEROSPACE & DEFENSE -- 1.0%
McDonnell Douglas 7,000 $ 572
AGRICULTURE PRODUCTS -- 2.8%
Archer Daniels Midland 60,758 980
Pioneer Hi-Bred International 11,200 556
-------
1,536
-------
AIR TRANSPORTATION -- 1.5%
AMR* 3,900 257
KLM Royal Dutch Air 16,202 539
-------
796
-------
APPAREL/TEXTILES -- 1.3%
V F 14,600 699
-------
AUTOMOTIVE -- 1.6%
Ford Motor 10,400 299
General Motors 12,900 564
-------
863
-------
AUTOPARTS -- 2.5%
Eaton 12,200 625
TRW 11,400 750
-------
1,375
-------
BANKS -- 6.5%
Bank of New York 17,600 739
Chemical Banking 17,900 1,018
First Chicago 13,600 923
NationsBank 13,000 855
-------
3,535
-------
COMPUTERS & SERVICES -- 5.9%
Apple Computer 4,500 163
Compaq Computer* 6,800 379
IBM 16,000 1,557
Sun Microsystems* 14,400 1,123
-------
3,222
-------
ELECTRONIC AND OTHER ELECTRICAL EQUIPMENT -- 2.6%
Emerson Electric 3,200 228
Philips Electronics ADR 15,900 614
Tandy 11,700 578
-------
1,420
-------
ENERGY & POWER -- 4.2%
Consolidated Edison of New York 15,900 483
Detroit Edison 27,000 911
Pacific Gas And Electric 30,700 902
-------
2,296
-------
FINANCIAL SERVICES -- 3.4%
Merrill Lynch 11,700 $ 649
S & P Depositary Receipt 14,900 870
Travelers 6,700 338
-------
1,857
-------
FOOD, BEVERAGE & TOBACCO -- 5.5%
Anheuser Busch 16,700 1,102
Philip Morris Companies 17,200 1,454
Unilever N V ADR 3,300 432
-------
2,988
-------
HOSPITAL & MEDICAL SERVICE
PLANS -- 2.3%
Tenet Healthcare Corporation* 54,700 977
U.S. Healthcare 7,600 293
-------
1,270
-------
HOUSEHOLD PRODUCTS -- 1.4%
Premark International 16,600 768
-------
INSURANCE -- 5.6%
Allstate 7,694 283
Cigna 9,400 931
CNA Financial* 2,200 251
Loews 6,300 924
Safeco 10,500 674
Transport Holdings* 34 1
-------
3,064
-------
MACHINERY -- 1.6%
Deere 7,200 643
Tenneco 5,100 224
-------
867
-------
MEDICAL PRODUCTS -- 3.3%
Baxter International 23,800 919
Becton Dickinson 13,800 897
-------
1,816
-------
PAPER & PAPER PRODUCTS -- 6.9%
Champion International 17,300 925
International Paper 18,000 666
Union Camp 15,900 809
Westvaco 23,550 654
Willamette Industries 12,600 731
-------
3,785
-------
PETROLEUM REFINING -- 9.7%
Amoco 12,800 818
Exxon 14,700 1,123
Imperial Oil 16,600 606
Mobil 10,600 1,068
Occidental Petroleum 23,000 495
Royal Dutch Petroleum 9,600 1,178
-------
5,288
-------
</TABLE>
<PAGE>
STATEMENT OF NET ASSETS THE ADVISORS' INNER CIRCLE FUND
October 31, 1995
<TABLE>
<CAPTION>
Market
Value
A + F LARGE-CAP FUND (Continued) Shares (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
PHARMACEUTICALS -- 4.7%
Bristol Myers Squibb 17,000 $ 1,297
Rhone Poulenc Rorer 4,800 226
Upjohn 20,400 1,035
-------
2,558
-------
PHOTOGRAPHIC EQUIPMENT & SUPPLIES -- 0.8%
Eastman Kodak 7,300 457
-------
RETAIL -- 4.9%
Dillard Department Stores,
Class A 26,500 719
Gap 7,500 295
J C Penney 11,300 476
Limited 20,200 371
May Department Stores 20,900 821
-------
2,682
-------
SEMI-CONDUCTORS -- 5.8%
Advanced Micro Devices* 22,500 537
Intel 11,200 783
Micron Technology 14,300 1,010
National Semiconductor* 9,200 224
Texas Instruments 8,900 607
-------
3,161
-------
SPORTING AND ATHLETIC GOODS -- 2.6%
Nike, Class B 18,600 1,056
Reebok International 11,500 391
-------
1,447
-------
STEEL & STEEL WORKS -- 1.4%
Phelps Dodge 12,300 780
-------
TELEPHONES & TELECOMMUNICATION -- 8.9%
Ameritech 4,400 238
BellSouth 17,500 1,338
MCI Communications 38,200 953
NYNEX 5,900 277
Pacific Telesis Group 33,900 1,030
Sprint 26,600 1,024
-------
4,860
-------
TIRE AND RUBBER -- 1.0%
Goodyear Tire And Rubber 14,100 536
-------
TOTAL COMMON STOCK
(Cost $48,506,218) 54,498
-------
<CAPTION>
Face Market
Amount Value
A + F LARGE-CAP FUND (Concluded) (000) (000)
- ------------------------------------------------------------------------------
<S> <C> <C>
CASH EQUIVALENTS -- 0.2%
Tempfund
5.725%, $95 $ 95
-------
TOTAL CASH EQUIVALENTS
(Cost $94,968) 95
-------
TOTAL INVESTMENTS -- 99.9%
(Cost $48,601,186) 54,593
-------
OTHER ASSETS AND LIABILITIES -- 0.1%
Other Assets and Liabilities, Net 68
-------
NET ASSETS:
Portfolio shares (unlimited authorization--no par
value) based on 4,392,792 outstanding shares of
beneficial interest 44,032
Undistributed net investment income 56
Accumulated net realized gain 4,581
Net unrealized appreciation on investments 5,992
-------
TOTAL NET ASSETS: -- 100.0% $54,661
=======
Net Asset Value, Offering Price and Redemption Price
Per Share $ 12.44
=======
</TABLE>
* Non-income producing security.
ADR--American Depository Receipt
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF OPERATIONS THE ADVISORS' INNER CIRCLE FUND
For the year ended October 31, 1995
<TABLE>
<CAPTION>
A+F
LARGE-CAP
FUND
-----------
11/01/94
TO 10/31/95
A + F LARGE-CAP FUND (000)
- --------------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividend Income................................................... $ 1,230
Interest Income................................................... 13
- --------------------------------------------------------------------------------
Total Investment Income.......................................... 1,243
- --------------------------------------------------------------------------------
Expenses:
Advisory Fees..................................................... 186
Administrative Fees............................................... 92
Custodian Fees.................................................... 5
Professional Fees................................................. 23
Transfer Agent Fees............................................... 12
Printing Fees..................................................... 4
Directors' Fees................................................... 4
Registration and Filing Fees...................................... 1
Pricing Fees...................................................... 2
Amortization of Deferred Organizational Costs..................... 3
Insurance and Other Fees.......................................... 1
- --------------------------------------------------------------------------------
Total Expenses................................................... 333
- --------------------------------------------------------------------------------
Net Investment Income............................................ 910
- --------------------------------------------------------------------------------
Net Realized Gain from Securities Sold............................ 5,858
Net Unrealized Appreciation of Investment Securities.............. 4,742
- --------------------------------------------------------------------------------
Net Realized and Unrealized Gain on Investments.................. 10,600
- --------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations.............. $11,510
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS THE ADVISORS' INNER CIRCLE FUND
For the year ended October 31, 1995
<TABLE>
<CAPTION>
A+F
LARGE-CAP
FUND
------------------------
11/01/94 11/12/93 (2)
TO 10/31/95 TO 10/31/94
A + F LARGE-CAP FUND (000) (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
Investment Activities:
Net Investment Income............................... $ 910 $ 761
Net Realized Gain (Loss) on Securities Sold......... 5,858 (1,277)
Net Unrealized Appreciation of Investment
Securities......................................... 4,742 1,250
- --------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Operations........................................ 11,510 734
- --------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income............................... (891) (724)
- --------------------------------------------------------------------------------
Total Distributions................................ (891) (724)
- --------------------------------------------------------------------------------
Capital Share Transactions:
Shares Issued....................................... 3,973 40,008
Shares Issued in Lieu of Cash Distributions......... 891 724
Shares Redeemed..................................... (1,414) (150)
- --------------------------------------------------------------------------------
Increase in Net Assets Derived from Capital Share
Transactions....................................... 3,450 40,582
- --------------------------------------------------------------------------------
Total Increase in Net Assets....................... 14,069 40,592
- --------------------------------------------------------------------------------
Net Assets:
Beginning of Period................................. 40,592 --
- --------------------------------------------------------------------------------
End of Period....................................... $54,661 $40,592
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Issued and Redeemed:
Shares Issued....................................... 361 4,017
Issued in Lieu of Cash Distributions................ 81 75
Redeemed............................................ (126) (15)
- --------------------------------------------------------------------------------
Net Increase in Share Transactions................. 316 4,077
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(2) The A+F Large-Cap Fund commenced operations on November 12, 1993.
The accompanying notes are an integral part of the financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS THE ADVISORS' INNER CIRCLE FUND
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net Realized and Net Net Ratio
Asset Unrealized Distributions Asset Assets Ratio of Net
Value Net Gains or from Net Distributions Value End of Expenses Income
Beginning Investment Losses on Investment from Capital End Total of Period to Average to Average
of Period Income Securities Income Gains of Period Return (000) Net Assets Net Assets
--------- ---------- ------------ ------------- ------------- --------- ------ --------- ----------- ----------
- ------------------
A+F LARGE-CAP FUND
- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 9.96 0.21 2.48 (0.21) -- $12.44 27.31% $54,661 0.72% 1.96%
1994(1) $10.00 0.21 (0.05) (0.20) -- $ 9.96 1.63%+ $40,592 0.70%* 2.13%*
<CAPTION>
Ratio
of Net
Ratio Income
of Expenses (Loss) to
to Average Average
Net Assets Net Assets Portfolio
(Excluding (Excluding Turnover
Waivers) Waivers) Rate
----------- ---------- ---------
- ------------------
A+F LARGE-CAP FUND
- ------------------
<S> <C> <C> <C>
1995 0.72% 1.96% 126.47%
1994(1) 0.80%* 2.03%* 79.23%
</TABLE>
* Annualized
+ Total Return is cumulative since inception.
(1) The A+F Large-Cap Fund commenced operations on November 12, 1993.
The accompanying notes are an integral part of the financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
October 31, 1995
1. Organization:
THE ADVISOR'S INNER CIRCLE FUND (the "Trust") is organized as a Massachusetts
business trust under a Declaration of Trust dated July 18, 1991. The Trust is
registered under the Investment Company Act of 1940, as amended, as a
diversified open-end management investment company with eleven portfolios. The
financial statements herein present those of the A+F Large-Cap Fund (the
"Fund"). The financial statements of the remaining portfolios are presented
separately. The assets of each portfolio are segregated, and a Shareholder's
interest is limited to the portfolio in which shares are held.
2. Significant Accounting Policies:
The following is a summary of the significant accounting policies followed by
the Fund.
Security Valuation--Investments in equity securities which are traded on a
national exchange (or reported on the NASDAQ national market system) are
stated at the last quoted sales price if readily available for such equity
securities on each business day; other equity securities traded in the
over-the-counter market and listed equity securities for which no sale was
reported on that date are stated at the last quoted bid price. Debt
obligations exceeding sixty days to maturity for which market quotations
are readily available are valued at the most recently quoted bid price.
Debt obligations with sixty days or less remaining until maturity may be
valued at their amortized cost, which approximates market value.
Federal Income Taxes--It is the Fund's intention to qualify as a regulated
investment company by complying with the appropriate provisions of the
Internal Revenue Code of 1986, as amended. Accordingly, no provision for
Federal income taxes is required.
Security Transactions and Related Income-- Security transactions are
accounted for on the date the security is purchased or sold (trade date).
Interest income is recognized on the accrual basis. Cost used in
determining realized gains and losses on the sales of investment securities
are those of the specific securities sold during the respective holding
period.
THE ADVISORS' INNER CIRCLE FUND
Net Asset Value Per Share--The net asset value per share of the Fund is
calculated on each business day, by dividing the total value of assets,
less liabilities, by the number of shares outstanding.
Other--Expenses that are directly related to the Fund are charged to the
Fund. Other operating expenses of the Trust are prorated to the Fund on the
basis of its relative daily net assets to those of the Trust.
Distributions from net investment income are declared and paid to
Shareholders quarterly. Any net realized capital gains are distributed to
Shareholders at least annually.
Distributions from net investment income and net realized capital gains are
determined in accordance with the U.S. Federal income tax regulations,
which may differ from those amounts determined under generally accepted
accounting principals. These book/tax differences are either temporary or
permanent in nature. To the extent these differences are permanent, they
are charged or credited to paid-in-capital in the period that the
differences arise. These reclassifications have no effect on net assets or
net asset value.
3. Organization Costs and Transactions with Affiliates:
The Fund incurred organization costs of approximately $13,000. These costs have
been capitalized by the fund and are being amortized over sixty months
commencing with operations. In the event of the initial shares of the fund
redeemed by any holder thereof during the period that the fund is amortizing
its organizational costs the redemption proceeds payable to the holder thereof
by the fund will be reduced by the unamortized organizational costs in the same
ratio as the number of initial shares being redeemed bears to the number of
initial shares outstanding at the time of redemption. These costs include legal
fees of approximately $4,000 for organizational work performed by a law firm of
which an officer of the fund is a partner.
Certain officers and trustees of the Trust are also officers of SEI Financial
Management Company (the "Administrator") and/or SEI Financial Services Company
(the "Distributor"). Such officers and trustees are paid no fees by the Trust
for serving as officers and trustees of the Trust.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
October 31, 1995
4. Administration, Shareholder Servicing and Distribution Agreements:
The Trust and the Administrator are parties to an Administration Agreement
dated November 14, 1991, under which the Administrator provides management and
administrative services for an annual fee equal to the higher of $75,000 or
.20% of the Fund's average daily net assets up to $100 million, .15% on the
next $100 million and .10% on assets in excess of $200 million.
DST Systems, Inc., (the "Transfer Agent") serves as the transfer agent and
dividend disbursing agent for the Fund under a transfer agency agreement with
the Trust.
The Trust and Distributor are parties to a Distribution Agreement dated
November 14, 1991. The Distributor receives no fees for its distribution
services under this agreement.
5. Investment Advisory and Custodian Agreements:
The Fund and Aronson+Fogler (the "Advisor") are parties to an Investment
Advisory Agreement dated October 15, 1993 under which the Advisor receives an
annual fee equal to .40% of the Fund's average daily net assets. The Advisor
has voluntarily agreed to waive all or a portion of its fees in order to limit
operating expenses to not more than .75% of the average daily net assets of the
Fund. Fee waivers are voluntary and may be terminated at any time.
CoreStates Bank, N.A. acts as custodian (the "Custodian") for the Fund. Fees of
the Custodian are charged on the basis of the net assets of the Fund. The
Custodian plays no role in determining the investment policies of the Fund or
which securities are to be purchased and sold in the Fund.
THE ADVISORS' INNER CIRCLE FUND
6. Investment Transactions:
The cost of security purchases and the proceeds from security sales, other than
short-term investments, for the year ended October 31, 1995, are as follows:
<TABLE>
<CAPTION>
A+F LARGE-CAP
FUND (000)
-------------
<S> <C>
Purchases
Government....................................................... $ 0
Other............................................................ 61,890
Sales
Government....................................................... $ 0
Other............................................................ 58,430
</TABLE>
At October 31, 1995, the total cost of securities and the net realized gains or
losses on securities sold for Federal Income tax purposes was not materially
different from amounts reported for financial reporting purposes. The aggregate
gross unrealized appreciation and depreciation for securities held by the Fund
at October 31, 1995, is as follows:
<TABLE>
<CAPTION>
A+F LARGE-CAP
FUND (000)
-------------
<S> <C>
Aggregate gross unrealized appreciation........................... $7,549
Aggregate gross unrealized depreciation........................... (1,557)
------
Net unrealized appreciation....................................... $5,992
======
</TABLE>
7. Capital Loss Carryforward
The A+F Large Cap Fund utilized their entire capital loss carryforward balance
of $1,276,903 to reduce realized gains incurred which otherwise would have been
distributed.
<PAGE>
NOTICE TO SHAREHOLDERS
OF
THE ADVISORS' INNER CIRCLE FUND
UNAUDITED
For the shareholders that do not have an October 31, 1995 taxable year end,
this notice is for informational purposes only. For shareholders with an
October 31, 1995 taxable year end, please consult your tax adviser as to the
pertinence of this notice.
For the fiscal year ended October 31, 1995, the portfolio is designating long
term capital gains, qualifying dividends and exempt interest income with regard
to distributions paid during the year as follows:
<TABLE>
<CAPTION>
(A) (B)
LONG TERM ORDINARY (C)
CAPITAL GAIN INCOME TOTAL
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS
PORTFOLIO (TAX BASIS) (TAX BASIS) (TAX BASIS)
--------- ------------- ------------- -------------
<S> <C> <C> <C>
A + F LARGE-CAP FUND.................. 0% 100% 100%
<CAPTION>
(D) (E) (F)
QUALIFYING TAX EXEMPT FOREIGN
PORTFOLIO DIVIDENDS(1) INTEREST TAX CREDIT
--------- ------------- ------------- -------------
<S> <C> <C> <C>
A + F LARGE-CAP FUND.................. 80% 0% 0%
</TABLE>
- --------
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
* Items (A) and (B) are based on a percentage of the portfolio's total
distributions.
** Items (D) and (E) are based on a percentage of ordinary income distributions
of the portfolio.
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
Investment Adviser:
HGK ASSET MANAGEMENT, INC.
The Advisors' Inner Circle Fund (the "Fund") provides a convenient and
economical means of investing in professionally managed portfolios of
securities. This Prospectus offers shares of the following mutual fund (the
"Portfolio"), which is a separate series of the Fund.
HGK FIXED INCOME FUND
This Prospectus sets forth concisely the information about the Fund and the
Portfolio that a prospective investor should know before investing. Investors
are advised to read this Prospectus and retain it for future reference. A
Statement of Additional Information dated February 28, 1996 has been filed with
the Securities and Exchange Commission and is available without charge by
calling 1-800-932-7781. The Statement of Additional Information is incorporated
into this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
February 28, 1996
HGK-F-001-01
<PAGE>
SUMMARY
The following provides basic information about the HGK Fixed Income Fund (the
"Portfolio"). The Portfolio is one of the mutual funds comprising The Advisors'
Inner Circle Fund (the "Fund"). This summary is qualified in its entirety by
reference to the more detailed information provided elsewhere in this Prospectus
and in the Statement of Additional Information.
WHAT IS THE INVESTMENT OBJECTIVE? The Portfolio seeks total return through
current income and capital appreciation consistent with the preservation of
capital.
WHAT ARE THE PERMITTED INVESTMENTS? The Portfolio intends to invest primarily
in U.S. dollar denominated fixed income securities. See "Investment Objective
and Policies" and "Description of Permitted Investments and Risk Factors".
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE PORTFOLIO? The investment
policies of the Portfolio entail certain risks and considerations of which
investors should be aware. The Portfolio invests in securities that fluctuate
in value, and investors should expect the Portfolio's net asset value per share
to fluctuate. Values of fixed income securities and, correspondingly, of mutual
funds invested in such securities, such as the Portfolio, generally tend to vary
inversely with interest rates and may be affected by other market and economic
factors as well. The Portfolio may invest in securities that have speculative
characteristics. Investing in the securities of foreign issuers involves
special risks and considerations not typically associated with investing in U.S.
issuers. The purchase of asset-backed securities raises risk considerations
peculiar to the financing of the instruments underlying such securities,
including prepayment risk, which may vary depending on the type of asset. See
"Investment Objective and Policies" and "Description of Permitted Investments
and Risk Factors".
WHO IS THE ADVISER? HGK Asset Management, Inc. serves as the investment adviser
of the Portfolio. See "Expense Summary" and "The Adviser".
WHO IS THE ADMINISTRATOR? SEI Financial Management Corporation serves as the
administrator and shareholder servicing agent of the Portfolio. See "The
Administrator".
WHO IS THE TRANSFER AGENT? DST Systems, Inc. serves as the transfer agent and
dividend disbursing agent for the Fund. See "The Transfer Agent".
WHO IS THE DISTRIBUTOR? SEI Financial Services Company acts as the distributor
of the Portfolio's shares. See "The Distributor".
IS THERE A SALES LOAD? No, shares of the Portfolio are offered on a no-load
basis.
2
<PAGE>
IS THERE A MINIMUM INVESTMENT? The Portfolio has a minimum initial investment
of $2,000, which the Distributor may waive at its discretion.
HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Transfer Agent on a day when the New York Stock Exchange is open for
business ("Business Day"). A purchase order will be effective as of the
Business Day received by the Transfer Agent if the Transfer Agent receives an
order and payment by check or with readily available funds prior to 4:00 p.m.,
Eastern time. To open an account by wire, you must first call 1-800-808-4921.
Redemption orders placed with the Transfer Agent prior to 4:00 p.m., Eastern
time on any Business Day will be effective that day. The purchase and
redemption price for shares is the net asset value per share determined as of
the end of the day the order is effective. See "Purchase and Redemption of
Shares".
HOW ARE DISTRIBUTIONS PAID? The Portfolio distributes substantially all of its
net investment income (exclusive of capital gains) in the form of dividends
declared daily and paid monthly. Shares normally begin earning dividends within
two Business Days after the purchase order is effective. Any capital gain is
distributed at least annually. Distributions are paid in additional shares
unless the shareholder elects to take the payment in cash. See "Dividends and
Distributions".
3
<PAGE>
EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
HGK FIXED INCOME FUND
- --------------------------------------------------------------------------------
<S> <C>
Maximum Sales Load Imposed on Purchases.....................................None
Maximum Sales Load Imposed on Reinvested Dividends..........................None
Deferred Sales Load.......................................................None
Redemption Fees(1)..........................................................None
Exchange Fees...............................................................None
- --------------------------------------------------------------------------------
</TABLE>
(1) A wire redemption charge, currently $10.00, is deducted from the amount of
a Federal Reserve wire redemption payment made at the request of a
shareholder.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
HGK FIXED INCOME FUND
- --------------------------------------------------------------------------------
<S> <C>
Advisory Fees (after fee waivers) (2)......................................0.00%
Other Expenses (after reimbursements)......................................1.00%
- --------------------------------------------------------------------------------
Total Operating Expenses (after fee waivers and reimbursements) (2)........1.00%
- --------------------------------------------------------------------------------
</TABLE>
(2) The Adviser has, on a voluntary basis, agreed to waive all or a portion of
its fee and to reimburse certain expenses of the Portfolio to the extent
that Total Operating Expenses will not exceed 1.00%. The Adviser reserves
the right to terminate its waiver or any reimbursements at any time in its
sole discretion. Absent such waivers and reimbursements, advisory fees,
"Other Expenses" and total operating expenses for the Portfolio would be
.50%, 1.33% and 1.83%, respectively, of average daily net assets on an
annualized basis.
EXAMPLE
<TABLE>
<CAPTION>
HGK FIXED INCOME FUND
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses
on a $1,000 investment assuming (1) 5% annual
return and (2) redemption at the end of $10 $32 $55 $122
each time period:
- --------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose
of the expense table and example is to assist the investor in understanding the
various costs and expenses that may be directly or indirectly borne by
shareholders of the Portfolio. Additional information may be found under "The
Adviser" and "The Administrator".
4
<PAGE>
FINANCIAL HIGHLIGHTS THE ADVISORS' INNER CIRCLE FUND
The following information on the HGK Fixed Income Fund has been audited by
Arthur Andersen LLP, the Fund's independent public accountants, as indicated in
their report dated December 5, 1995 on the Fund's financial statements as of
October 31, 1995 included in the Fund's Statement of Additional Information
under "Financial Information." This table should be read in conjunction with
the Fund's audited financial statements and notes thereto.
For a Share of the Portfolio Outstanding Throughout the Period:
<TABLE>
<CAPTION>
HGK FIXED
INCOME
FUND
- ----------------------------------------------------------------
11/3/94(1)
TO
10/31/95
- ----------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............. $ 10.00
- ----------------------------------------------------------------
Income From Investment Operations:
Net Investment Income........................ 0.67
Realized and Unrealized
Gains on Securities.......................... 0.88
- ----------------------------------------------------------------
Total From Investment Operations.................. 1.55
- ----------------------------------------------------------------
Less Distributions:
Distributions From Net Investment Income.......... (0.67)
Distributions From Capital Gains.................. --
Total Distributions........................ (0.67)
- ----------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.................... $ 10.88
- ----------------------------------------------------------------
TOTAL RETURN...................................... 16.07%*
- ----------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End Of Period (000)................... $ 10,420
Ratios Of Expenses To Average Net Assets.......... 1.00%*
Ratio Of Expenses To Average Net Assets 2.37%*
(Excluding Fee Waivers and Reimbursements).....
Ratio Of Net Income To Average 6.38%*
Net Assets.....................................
Ratio Of Net Income (Loss) to Average Net Assets
(Excluding Fee Waivers and Reimbursements)..... 5.01%*
Portfolio Turnover Rate........................... 300.48%
===============================================================
</TABLE>
* Annualized
(1) The HGK Fixed Income Fund commenced operations on November 3, 1994.
5
<PAGE>
THE FUND AND THE PORTFOLIO
The Advisors' Inner Circle Fund (the "Fund") offers shares in a number of mutual
funds, each of which is a separate series ("portfolio") of the Fund. Each
share of each mutual fund represents an undivided, proportionate interest in
that mutual fund. This Prospectus offers shares of the Fund's HGK Fixed
Income Fund (the "Portfolio"). Information regarding the other mutual funds
in the Fund is contained in separate prospectuses that may be obtained by
calling 1-800-932-7781.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio seeks total return through current income and capital appreciation
consistent with the preservation of capital. There can be no assurance that
the Portfolio will be able to achieve this investment objective.
The Portfolio will normally invest at least 65% of its total assets in the
following U.S. dollar denominated fixed income securities: (i) U.S. Treasury
obligations, including STRIPS; (ii) obligations issued or guaranteed as to
principal and interest by the U.S. government, its agencies or
instrumentalities; (iii) corporate bonds and debentures issued by U.S. and
foreign issuers and, at the time of purchase, rated in one of the four
highest rating categories assigned by a nationally recognized statistical
rating organization ("NRSRO") such as Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Corporation ("S&P"), Duff & Phelps, Inc.
("Duff") or Fitch Investors Service, Inc. ("Fitch"), or, if not rated,
determined to be of comparable quality by the Adviser; (iv) securities of the
government of Canada and its provincial and local governments; and (v)
securities of foreign governments.
The Portfolio may also invest up to 35% of its total assets in collateralized
mortgage obligations ("CMOs"), real estate mortgage investment conduits
("REMICs") and asset-backed securities meeting the rating quality criteria
described above. Under normal conditions, the Portfolio may also hold up to
20% of its total assets in cash or investments in repurchase agreements or
money market instruments, described below under "In General", in order to
maintain liquidity, or in the event that the Adviser determines that
securities meeting the Portfolio's investment objective and policies are not
otherwise readily available for purchase. The Portfolio may also invest up
to 5% of its net assets in stripped mortgage-backed securities, including
securities that receive interest-only payments and other securities that
receive principal-only payments.
The Portfolio may purchase zero coupon obligations and securities that pay
interest on a variable or floating rate basis. The Portfolio may invest up
to 15% of its net assets in restricted securities.
The Adviser may purchase securities with any stated remaining maturity.
However, under normal circumstances, the Portfolio expects to maintain a
dollar weighted average
6
<PAGE>
remaining maturity of approximately 10 years. In determining the maturity of
mortgage-backed securities, the Portfolio will use the expected life of such
securities, which is based upon the anticipated prepayment patterns of the
underlying mortgages.
IN GENERAL
For temporary defensive purposes during periods when the Adviser determines that
conditions warrant, the Portfolio may invest up to 100% of its assets in cash
and money market instruments, consisting of securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities; certificates of
deposit, time deposits, and bankers' acceptances issued by banks or savings
and loans associations having net assets of at least $500 million as of the
end of their most recent fiscal year; commercial paper rated at the time of
purchase at least A-1 by S&P or P-1 by Moody's, or unrated commercial paper
determined by the Adviser to be of comparable quality; repurchase agreements
involving any of the foregoing; and, to the extent permitted by applicable
law, shares of other investment companies.
The Adviser seeks to achieve the Portfolio's investment objective by
outperforming the Lehman Government Corporate Bond Index while taking less
risk and protecting the Portfolio's principal. The Adviser attempts to
maintain a relatively duration-neutral posture versus the Lehman Government
Corporate Bond Index (that is, maintaining a maximum 10% over- or under-
weighting relative to the duration of such Index), while adding value through
the overweighting of particular sectors or areas of the yield curve. The
Adviser believes that by not including large interest rate bets or sizable
duration shifts in its strategy, it can reduce the volatility of returns and
limit the loss of principal.
Debt rated BBB or Baa is regarded as having an adequate capacity to pay interest
and repay principal. (Whereas such debt 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. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.)
In the event any security held by the Portfolio is downgraded below the rating
categories set forth above, the Adviser will review the security and
determine whether to retain or dispose of that security.
Although the Portfolio cannot accurately predict its portfolio turnover rate,
under normal circumstances the portfolio turnover rate is not expected to
exceed 200% per year. A portfolio turnover rate in excess of 100% may result
from the Adviser's investment strategy of finding market pricing
inefficiencies rather than forecasting interest rates. The Adviser may sell
securities held for a short time in order to take advantage of what the
Adviser believes to be temporary disparities in normal yield relationships
between securities. A Portfolio turnover rate in excess of 100% may result
in higher transaction
7
<PAGE>
costs to the Portfolio and may increase the amount of taxes payable by the
Portfolio's shareholders.
For a further discussion of the Portfolio's permitted investments, see
"Description of Permitted Investments and Risk Factors" and "Description of
Permitted Investments" in the Statement of Additional Information.
INVESTMENT LIMITATIONS
The investment objective and the investment limitations set forth here and in
the Statement of Additional Information are fundamental policies of the
Portfolio. Fundamental policies cannot be changed without the consent of the
holders of a majority of the Portfolio's outstanding shares.
The Portfolio may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase
agreements involving such securities) if as a result more than 5% of the
total assets of the Portfolio would be invested in the securities of such
issuer. This restriction applies to 75% of the Portfolio's total assets.
2. Purchase any securities which would cause 25% or more of the total assets of
the Portfolio to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, provided
that this limitation does not apply to investments in the obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements involving such securities. For purposes of this
limitation, (i) utility companies will be classified according to their
services, for example, gas, gas transmission, electric and telephone will
each be considered a separate industry; and (ii) financial service companies
will be classified according to the end users of their services, for example,
automobile finance, bank finance and diversified finance will each be
considered a separate industry.
3. Make loans, except that the Portfolio may purchase or hold debt instruments
in accordance with its investment objective and policies.
4. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding 33 1/3% of the value of its total assets.
The foregoing percentages will apply at the time of the purchase of a security,
except for the percentage limitations specified in paragraph 4 above, which
will apply at all times.
8
<PAGE>
THE ADVISER
HGK Asset Management, Inc. (the "Adviser") was incorporated in 1983 by three
principals, Jeffrey T. Harris, Warren A. Greenhouse, and Joseph E. Kutzel.
While the Adviser has no previous experience managing investment companies,
it has, however, provided equity, fixed income and balanced fund management
of individually structured portfolios since its inception. As of January 19,
1996, total assets under management were approximately $11.2 billion. The
principal business address of the Adviser is Newport Tower, 525 Washington
Blvd., Jersey City, New Jersey 07310.
The Adviser serves as the Portfolio's investment adviser and makes the
investment decisions for the assets of the Portfolio and continuously
reviews, supervises and administers the Portfolio's investment program,
subject to the supervision of, and policies established by, the Trustees of
the Fund.
Gregory W. Lobo, Vice President, Senior Portfolio Manager of Fixed Income
Securities, Anthony Santoliquido, Portfolio Manager of Fixed Income
Securities and Patricia Bernabeo, Portfolio Manager of Fixed Income
Securities have managed the Portfolio since its inception. Mr. Lobo has been
with the Adviser since 1990. Mr. Santoliquido has been with the Adviser
since 1993 and prior to that he was at Hilliard Farber and Co. Brokerage.
Ms. Bernabeo has been with the Adviser since 1992 and prior to that was at
New York University.
The Adviser is entitled to a fee, which is calculated daily and paid monthly, at
an annual rate of .50% of the average daily net assets of the Portfolio. The
Adviser has voluntarily agreed to waive all or a portion of its fees for, and
reimburse expenses of, the Portfolio to the extent necessary in order to
limit net operating expenses to an annual rate of not more than 1.00% of the
Portfolio's average daily net assets. For the fiscal year ended October 31,
1995, the Adviser received an advisory fee of .00% of the Portfolio's average
daily net assets, and the Adviser reimbursed expenses equal to .87% of the
Portfolio's average daily net assets.
THE ADMINISTRATOR
SEI Financial Management Corporation (the "Administrator"), a wholly-owned
subsidiary of SEI Corporation ("SEI"), provides the Fund with administrative
services, including regulatory reporting and all necessary office space,
equipment, personnel and facilities.
For these administrative services, the Administrator is entitled to a fee, which
is calculated daily and paid monthly, at an annual rate of .20% of the
Portfolio's average daily net assets. However, the Portfolio pays the
Administrator a minimum annual fee of $75,000, and consequently the annual
administration fee the Portfolio pays will exceed .20% of the Portfolio's
average daily net assets at low asset levels.
9
<PAGE>
The Administrator also serves as shareholder servicing agent for the Portfolio.
THE TRANSFER AGENT
DST Systems, Inc., 210 West 10th Street, Kansas City, Missouri 64105 (the
"Transfer Agent") serves as the transfer agent and dividend disbursing agent
for the Fund.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly owned subsidiary of
SEI, serves as the Fund's distributor. No compensation is paid to the
Distributor for distribution services for the shares of the Portfolio.
PURCHASE AND REDEMPTION OF SHARES
Investors may purchase and redeem shares of the Portfolio directly through the
Transfer Agent, P.O. Box 419009, Kansas City, Missouri 64141-6009 by mail or
wire transfer. All shareholders may place orders by telephone; when market
conditions are extremely busy, it is possible that investors may experience
difficulties placing orders by telephone and may wish to place orders by
mail. Purchases and redemptions of shares of the Portfolio may be made on a
day on which the New York Stock Exchange is open for business ("Business
Day"). Shares of the Portfolio are offered only to residents of states in
which such shares are eligible for purchase.
The minimum initial investment in the Portfolio is $2,000 and subsequent
purchases must be at least $1,000. The Distributor may waive these minimums
at its discretion. No minimum applies to subsequent purchases effected by
dividend reinvestment.
PURCHASES BY MAIL
An account may be opened by mailing a check or other negotiable bank draft
(payable to HGK Fixed Income Fund) for $2,000 or more, together with a
completed Account Application to the Transfer Agent, P.O. Box 419009, Kansas
City, Missouri 64141-6009. Subsequent investments may also be mailed
directly to the Transfer Agent.
PURCHASES BY WIRE TRANSFER
Initial Purchases: Before making an initial investment by wire, an investor
must first telephone 1-800-808-4921 to be assigned an account number. The
investor's name, account number, taxpayer identification number or Social
Security number, and address must be specified in the wire. In addition, an
Account Application should be promptly forwarded to: DST Systems, Inc., P.O.
Box 419009, Kansas City, Missouri 64141-6009.
10
<PAGE>
Shareholders having an account with a commercial bank that is a member of the
Federal Reserve System may purchase shares of the Portfolio by requesting
their bank to transmit funds by wire to: United Missouri Bank of Kansas; ABA
#10-10-00695; for Account Number 98-7060-029-3; Further Credit: HGK Fixed
Income Fund. The shareholder's name and account number must be specified in
the wire.
Subsequent Purchases: Additional investments may be made at any time through
the wire procedures described above, which must include a shareholder's name
and account number. The investor's bank may impose a fee for investments by
wire.
GENERAL INFORMATION REGARDING PURCHASES
A purchase order will be effective as of the day received by the Transfer Agent
if the Transfer Agent receives the order and payment before 4:00 p.m.,
Eastern time. Payment may be made by check or readily available funds. The
purchase price of shares of the Portfolio is the net asset value per share
next determined after a purchase order is effective. Purchases will be made
in full and fractional shares of the Portfolio calculated to three decimal
places. The Fund will not issue certificates representing shares of the
Portfolio.
If a check received for the purchase of shares does not clear, the purchase will
be cancelled, and the investor could be liable for any losses or fees
incurred. The Fund reserves the right to reject a purchase order when the
Fund determines that it is not in the best interest of the Fund or its
shareholders to accept such order.
SYSTEMATIC INVESTMENT PLAN
A shareholder may also arrange for periodic additional investments in the
Portfolio through automatic deductions by Automated Clearing House ("ACH")
transactions from a checking or savings account by completing the appropriate
section of the Account Application form. This Systematic Investment Plan is
subject to account minimum initial purchase amounts and a minimum pre-
authorized investment amount of $500 per month. An Account Application form
may be obtained by calling 1-800-932-7781.
TAX DEFERRED INVESTMENT
The Portfolio is eligible for investment by tax-deferred retirement programs
such as 401(k) plans, Simplified Employee Pension Plans ("SEP accounts") and
IRAs. The minimum initial investment amount for an account established under
such programs is $2,000. All accounts established in the Portfolio under
such programs must elect to have all dividends reinvested in the Portfolio.
11
<PAGE>
REDEMPTIONS
Redemption orders received by the Transfer Agent prior to 4:00 p.m., Eastern
time on any Business Day will be effective that day. The redemption price of
shares is the net asset value per share of the Portfolio next determined
after a valid redemption order, in good form, is received. Payment on
redemption will be made as promptly as possible and, in any event, within
seven days after the redemption order is received, provided, however, that
redemption proceeds for shares purchased by check (including certified or
cashier's checks) will be forwarded only upon collection of payment for such
shares; collection of payment may take up to 15 days from the purchase date.
Shareholders may not close their accounts by telephone.
Shareholders may receive redemption payments in the form of a check or by
Federal Reserve or ACH wire transfer. There is no charge for having a check
for redemption proceeds mailed. The custodian will deduct a wire charge,
currently $10.00, from the amount of a Federal Reserve wire redemption
payment made at the request of a shareholder. Shareholders cannot redeem
shares of the Portfolio by Federal Reserve wire on federal holidays
restricting wire transfers. The Fund does not charge for ACH wire
transactions; however, such transactions will not be posted to a
shareholder's bank account until the second Business Day following the
transaction.
SYSTEMATIC WITHDRAWAL PLAN
The Portfolio offers a Systematic Withdrawal Plan ("SWP") for shareholders who
wish to receive regular distributions from their account. Upon commencement
of the SWP, the account must have a current value of $50,000 or more.
Shareholders may elect to receive automatic payments via ACH wire transfers
of $100 or more on a monthly, quarterly, semi-annual or annual basis. An
application form for SWP may be obtained by calling 1-800-932-7781.
Shareholders should realize that if withdrawals exceed income dividends, their
invested principal in the account will be depleted. Thus, depending on the
frequency and amounts of the withdrawal payments and/or fluctuations in the
net asset value per share, their original investment could be exhausted
entirely. To participate in the SWP, shareholders must have their dividends
automatically reinvested. Shareholder may change or cancel the SWP at any
time, upon written notice to the Transfer Agent.
Neither the Fund nor the Transfer Agent will be responsible for the authenticity
of the redemption instructions received by telephone if it reasonably
believes those instructions are genuine. The Fund and the Transfer Agent
will each employ reasonable procedures to confirm that telephone instructions
are genuine, and may be liable for losses resulting from unauthorized or
fraudulent telephone transactions if it does not employ those procedures.
Such procedures may include taping of telephone conversations.
12
<PAGE>
The right of redemption may be suspended or the date of payment of redemption
proceeds postponed during certain periods as set forth more fully in the
Statement of Additional Information.
The net asset value per share of the Portfolio is determined by dividing the
total market value of the Portfolio's investments and other assets, less any
liabilities, by the total outstanding shares of the Portfolio. Net asset
value per share is determined daily as of 4:00 p.m., Eastern time on any
Business Day. The Portfolio will use a pricing service to provide market
quotations. The pricing service may use a matrix system of valuation which
considers factors such as securities prices, yield features, call features,
ratings and developments related to a specific security.
PERFORMANCE
From time to time, the Portfolio may advertise its yield and total return.
These figures will be based on historical earnings and are not intended to
indicate future performance. No representation can be made regarding actual
future yields or returns. The yield of the Portfolio refers to the
annualized income generated by an investment in the Portfolio over a
specified 30-day period. The yield is calculated by assuming that the same
amount of income generated by the investment during that period is generated
in each 30-day period over one year and is shown as a percentage of the
investment.
The total return of a Portfolio refers to the average compounded rate of return
on a hypothetical investment, for designated time periods (including but not
limited to the period from which the Portfolio commenced operations through
the specified date), assuming that the entire investment is redeemed at the
end of each period and assuming the reinvestment of all dividend and capital
gain distributions.
The Portfolio may periodically compare its performance to that of other mutual
funds tracked by mutual fund rating services (such as Lipper Analytical
Services, Inc.), financial and business publications and periodicals, broad
groups of comparable mutual funds, unmanaged indices, which may assume
investment of dividends but generally do not reflect deductions for
administrative and management costs, or other investment alternatives. The
Portfolio may quote Morningstar, Inc., a service that ranks mutual funds on
the basis of risk-adjusted performance. The Portfolio may quote Ibbotson
Associates of Chicago, Illinois, which provides historical returns of the
capital markets in the U.S. The Portfolio may use long-term performance of
these capital markets to demonstrate general long-term risk versus reward
scenarios and could include the value of a hypothetical investment in any of
the capital markets. The Portfolio may also quote financial and business
publications and periodicals as they relate to fund management, investment
philosophy, and investment techniques.
The Portfolio may quote various measures of volatility and benchmark correlation
in advertising and may compare these measures to those of other funds.
Measures of
13
<PAGE>
volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and
correlation are calculated using averages of historical data and cannot be
calculated precisely.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action.
No attempt has been made to present a detailed explanation of the federal, state
or local income tax treatment of the Portfolio or its shareholders.
Accordingly, shareholders are urged to consult their tax advisers regarding
specific questions as to federal, state and local income taxes.
TAX STATUS OF THE PORTFOLIO
The Portfolio is treated as a separate entity for federal income tax purposes
and is not combined with the Fund's other portfolios. The Portfolio intends
to qualify for the special tax treatment afforded regulated investment
companies as defined under Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code"). So long as the Portfolio qualifies for this special
tax treatment, it will be relieved of federal income tax on that part of its
net investment income and net capital gain (the excess of net long-term
capital gain over net short-term capital loss) which it distributes to
shareholders.
TAX STATUS OF DISTRIBUTIONS
The Portfolio will distribute all of its net investment income (including, for
this purpose, net short-term capital gain) to shareholders. Dividends from
net investment income will be taxable to shareholders as ordinary income
whether received in cash or in additional shares. Distributions from net
investment income will qualify for the dividends-received deduction for
corporate shareholders only to the extent such distributions are derived from
dividends paid by domestic corporations; dividends of the Portfolio are not
expected to qualify for this deduction. Any net capital gain will be
distributed annually and will be taxed to shareholders as long-term capital
gain, regardless of how long the shareholder has held shares. The Portfolio
will make annual reports to shareholders of the federal income tax status of
all distributions.
Certain securities purchased by the Portfolio (such as STRIPS, defined in
"Description of Permitted Investments and Risk Factors" below) are sold with
original issue discount and thus do not make periodic cash interest payments.
The Portfolio will be required to include as part of its current income the
accrued discount on such obligations even though the Portfolio has not
received any interest payments on such obligations during that period.
Because the Portfolio distributes all of its net investment income to its
14
<PAGE>
shareholders, the Portfolio may have to sell portfolio securities to
distribute such accrued income, which may occur at a time when the Adviser
would not have chosen to sell such securities and which may result in a
taxable gain or loss.
Income received on direct U.S. obligations is exempt from income tax at the
state level when received directly and may be exempt, depending on the state,
when received by a shareholder from the Portfolio provided certain state-
specific conditions are satisfied. The Portfolio will inform shareholders
annually of the percentage of income and distributions derived from direct
U.S. obligations. Shareholders should consult their tax advisers to
determine whether any portion of the income dividends received from the
Portfolio is considered tax exempt in their particular state.
Dividends declared by the Portfolio in October, November or December of any year
and payable to shareholders of record on a date in one of those months will
be deemed to have been paid by the Portfolio and received by the shareholders
on December 31 of that year, if paid by the Portfolio at any time during the
following January.
The Portfolio intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for federal excise tax.
Sale, exchange or redemption of the Portfolio's shares is a taxable event to the
shareholder.
Income derived by the Portfolio from securities of foreign issuers may be
subject to foreign withholding taxes. The Portfolio will not be able to
elect to treat shareholders as having paid their proportionate share of such
foreign taxes.
GENERAL INFORMATION
THE FUND
The Fund, an open-end management investment company that offers shares of
diversified portfolios, was organized under Massachusetts law as a business
trust under a Declaration of Trust dated July 18, 1991. The Declaration of
Trust permits the Fund to offer separate series ("portfolios") of shares.
All consideration received by the Fund for shares of any portfolio and all
assets of such portfolio belong to that portfolio and are subject to
liabilities related thereto. The Fund reserves the right to create and issue
shares of additional portfolios.
The Portfolio pays its (i) operating expenses, including fees of its service
providers, expenses of preparing prospectuses, proxy solicitation material
and reports to shareholders, costs of custodial services and registering its
shares under federal and state securities laws, pricing and insurance
expenses and pays additional expenses, brokerage costs, interest charges,
taxes and organization expenses and (ii) pro rata share
15
<PAGE>
of the Fund's other expenses, including audit and legal expenses. The
Portfolio's expense ratios are disclosed under "Financial Highlights".
TRUSTEES OF THE FUND
The management and affairs of the Fund are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved
contracts under which, as described above, certain companies provide
essential management services to the Fund.
VOTING RIGHTS
Each share held entitles the shareholder of record to one vote. The Portfolio
will vote separately on matters relating solely to it. As a Massachusetts
business trust, the Fund is not required to hold annual meetings of
shareholders but shareholders' approval will be sought for certain changes in
the operation of the Fund and for the election of Trustees under certain
circumstances. In addition, a Trustee may be removed by the remaining
Trustees or by shareholders at a special meeting called upon written request
of shareholders owning at least 10% of the outstanding shares of the Fund.
In the event that such a meeting is requested, the Fund will provide
appropriate assistance and information to the shareholders requesting the
meeting.
REPORTING
The Fund issues unaudited financial information semiannually and audited
financial statements annually for the Portfolio. The Fund also furnishes
periodic reports and, as necessary, proxy statements to shareholders of
record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to The Advisors' Inner Circle Fund,
P.O. Box 419009, Kansas City, Missouri 64141-6009 or by calling 1-800-932-
7781. Purchase and redemption transactions should be made through the
Transfer Agent by calling 1-800-808-4921.
DIVIDENDS AND DISTRIBUTIONS
The Portfolio declares dividends of substantially all of its net investment
income (exclusive of capital gains) daily and distributes such dividends on
the first Business Day of each month. Shares purchased begin earning
dividends on the Business Day following receipt of funds by the Transfer
Agent. Normally, this will occur within two Business Days after an order is
effective. If any capital gain is realized, substantially all of it will be
distributed at least annually.
16
<PAGE>
Shareholders automatically receive all income dividends and capital gain
distributions in additional shares, unless the shareholder has elected to
take such payment in cash. Shareholders may change their election by
providing written notice to the Transfer Agent at least 15 days prior to the
distribution. Shareholders may receive payments for cash distributions in
the form of a check or by Federal Reserve or ACH wire transfer.
Dividends and other distributions of the Portfolio are paid on a per-share
basis. The value of each share will be reduced by the amount of the payment.
If shares are purchased shortly before the record date for a distribution of
capital gains, a shareholder will pay the full price for the shares and
receive some portion of the price back as a taxable distribution or dividend.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Morgan, Lewis & Bockius LLP serves as counsel to the Fund. Arthur Andersen LLP
serves as the independent public accountants of the Fund.
CUSTODIAN
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101 acts as custodian (the "Custodian") of the Portfolio. The
Custodian holds cash, securities and other assets of the Fund as required by
the Investment Company Act of 1940, as amended (the "1940 Act").
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS
The following is a description of some permitted investments for the Portfolio,
and the associated risk factors:
ASSET-BACKED SECURITIES - Asset-backed securities are secured by non-mortgage
assets such as company receivables, truck and auto loans, leases and credit
card receivables. Such securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in the
underlying pools of assets. Such securities also may be debt instruments,
which are also known as collateralized obligations and are generally issued
as the debt of a special purpose entity, such as a trust, organized solely
for the purpose of owning such assets and issuing such debt.
Asset-backed securities are not issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; however, the payment of principal and interest
on such obligations may be guaranteed up to certain amounts and for a certain
period by a letter of credit issued by a financial institution (such as a
bank or insurance company) unaffiliated with the issuers of such securities.
The purchase of asset-backed securities raises risk considerations peculiar
to the financing of the instruments underlying such securities. For example,
there is a risk that another party could acquire an interest in the
17
<PAGE>
obligations superior to that of the holders of the asset-backed securities.
There also is the possibility that recoveries on repossessed collateral may
not, in some cases, be available to support payments on those securities.
Asset-backed securities entail prepayment risk, which may vary depending on
the type of asset, but is generally less than the prepayment risk associated
with mortgage-backed securities. In addition, credit card receivables are
unsecured obligations of the card holder.
The market for asset-backed securities is at a relatively early stage of
development. Accordingly, there may be a limited secondary market for such
securities.
BANKERS' ACCEPTANCES - Bankers' acceptances are bills of exchange or time drafts
drawn on and accepted by a commercial bank. Bankers' acceptances are used by
corporations to finance the shipment and storage of goods. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT - Certificates of deposit are interest bearing
instruments with a specific maturity. They are issued by banks and savings
and loan institutions in exchange for the deposit of funds and normally can
be traded in the secondary market prior to maturity. Certificates of deposit
with penalties for early withdrawal will be considered illiquid.
COMMERCIAL PAPER - Commercial paper is a term used to describe unsecured short-
term promissory notes issued by banks, municipalities, corporations and other
entities. Maturities on these issues vary from a few to 270 days.
FIXED INCOME SECURITIES - Fixed income securities are debt obligations issued by
corporations, municipalities and other borrowers. The market value of fixed
income investments will change in response to interest rate changes and other
factors. During periods of falling interest rates, the values of outstanding
fixed income securities generally rise. Conversely, during periods of rising
interest rates, the values of such securities generally decline. Moreover,
while securities with longer maturities tend to produce higher yields, the
prices of longer maturity securities are also subject to greater market
fluctuations as a result of changes in interest rates. Changes by recognized
agencies in the rating of any fixed income security and in the ability of an
issuer to make payments of interest and principal will also affect the value
of these investments. Changes in the value of portfolio securities will not
affect cash income derived from these securities but will affect the
Portfolio's net asset value.
MORTGAGE-BACKED SECURITIES - Mortgage-backed securities are instruments that
entitle the holder to a share of all interest and principal payments from
mortgages underlying the security. The mortgages backing these securities
include conventional thirty-year fixed rate mortgages, graduated payment
mortgages, and adjustable rate mortgages. During periods of declining
interest rates, prepayment of mortgages underlying mortgage-backed securities
can be expected to accelerate. Prepayment of mortgages which underlie
18
<PAGE>
securities purchased at a premium often results in capital losses, while
prepayment of mortgages purchased at a discount often results in capital
gains. Because of these unpredictable prepayment characteristics, it is
often not possible to predict accurately the average life or realized yield
of a particular issue.
Government Pass-Through Securities: These are securities that are issued or
- ----------------------------------
guaranteed by a U.S. Government agency representing an interest in a pool of
mortgage loans. The primary issuers or guarantors of these mortgage-backed
securities are GNMA, FNMA and FHLMC. FNMA and FHLMC obligations are not
backed by the full faith and credit of the U.S. Government as GNMA
certificates are, but FNMA and FHLMC securities are supported by the
instrumentalities' right to borrow from the U.S. Treasury. GNMA, FNMA and
FHLMC each guarantees timely distributions of interest to certificate
holders. GNMA and FNMA also each guarantees timely distributions of
scheduled principal. FHLMC has in the past guaranteed only the ultimate
collection of principal of the underlying mortgage loan; however, FHLMC now
issues mortgage-backed securities (FHLMC Gold PCs) which also guarantee
timely payment of monthly principal reductions. Government and private
guarantees do not extend to the securities' value, which is likely to vary
inversely with fluctuations in interest rates.
Private Pass-Through Securities: These are mortgage-backed securities issued by
- -------------------------------
a non-governmental entity, such as a trust. These securities include CMOs and
REMICs that are rated in one of the top four rating categories. While they
are generally structured with one or more types of credit enhancement,
private pass-through securities typically lack a guarantee by an entity
having the credit status of a governmental agency or instrumentality.
CMOs: CMOs are debt obligations or multiclass pass-through certificates issued
- ----
by agencies or instrumentalities of the U.S. Government or by private
originators or investors in mortgage loans. In a CMO, series of bonds or
certificates are usually issued in multiple classes. Principal and interest
paid on the underlying mortgage assets may be allocated among the several
classes of a series of a CMO in a variety of ways. Each class of a CMO,
often referred to as a "tranche," is issued with a specific fixed or floating
coupon rate and has a stated maturity or final distribution date. Principal
payments on the underlying mortgage assets may cause CMOs to be retired
substantially earlier then their stated maturities or final distribution
dates, resulting in a loss of all or part of any premium paid.
REMICs: A REMIC is a CMO that qualifies for special tax treatment under the
- ------
Code and invests in certain mortgages principally secured by interests in
real property. Investors may purchase beneficial interests in REMICs, which
are known as "regular" interests, or "residual" interests. Guaranteed REMIC
pass-through certificates ("REMIC Certificates") issued by FNMA or FHLMC
represent beneficial ownership interests in a REMIC trust consisting
principally of mortgage loans or FNMA, FHLMC or GNMA-guaranteed mortgage
pass-through certificates. For FHLMC REMIC Certificates, FHLMC
19
<PAGE>
guarantees the timely payment of interest, and also guarantees the payment of
principal as payments are required to be made on the underlying mortgage
participation certificates. FNMA REMIC Certificates are issued and guaranteed as
to timely distribution of principal and interest by FNMA.
Risk Factors: Due to the possibility of prepayments of the underlying mortgage
- ------------
instruments, mortgage-backed securities generally do not have a known
maturity. In the absence of a known maturity, market participants generally
refer to an estimated average life. An average life estimate is a function
of an assumption regarding anticipated prepayment patterns, based upon
current interest rates, current conditions in the relevant housing markets
and other factors. The assumption is necessarily subjective, and thus
different market participants can produce different average life estimates
with regard to the same security. There can be no assurance that estimated
average life will be a security's actual average life.
RESTRICTED SECURITIES - Restricted securities are securities that may not be
sold freely to the public absent registration under the Securities Act of
1933 or an exemption from registration.
SECURITIES OF FOREIGN GOVERNMENTS - The Portfolio may invest in U.S. dollar
denominated obligations or securities of the Government of Canada and its
provincial and local governments and U.S. dollar denominated securities
issued or guaranteed by foreign governments, their political subdivisions,
agencies or instrumentalities. Permissible investments may consist of
obligations of foreign branches of U.S. Banks and of foreign banks, including
Yankee Certificates of Deposit. In addition, the Portfolio may invest in
American Depositary Receipts. These instruments may subject the Portfolio to
investment risks that differ in some respects from those related to
investments in obligations of U.S. domestic issuers. Such risks include
future adverse political and economic developments, the possible imposition
of withholding taxes on interest or other income, possible seizure,
nationalization, or expropriation of foreign deposits, the possible
establishment of exchange controls or taxation at the source, or the adoption
of other foreign governmental restrictions which might adversely affect the
payment of principal and interest on such obligations. Such investments may
also entail higher custodial fees and sales commissions than domestic
investments. Foreign issuers of securities or obligations are often subject
to accounting treatment and engage in business practices different from those
respecting domestic issuers of similar securities or obligations. Foreign
branches of U.S. banks and foreign banks may be subject to less stringent
reserve requirements than those applicable to domestic branches of U.S.
banks.
SECURITIES OF FOREIGN ISSUERS - There are certain risks connected with investing
in foreign securities. These include risks of adverse political and economic
developments (including possible governmental seizure or nationalization of
assets), the possible imposition of exchange controls or other governmental
restrictions, less uniformity in accounting and reporting requirements, the
possibility that there will be less information
20
<PAGE>
on such securities and their issuers available to the public, the difficulty
of obtaining or enforcing court judgments abroad, restrictions on foreign
investments in other jurisdictions, difficulties in effecting repatriation of
capital invested abroad, and difficulties in transaction settlements and the
effect of delay on shareholder equity. Foreign securities may be subject to
foreign taxes, and may be less marketable than comparable U.S. securities.
The value of the Portfolio's investments denominated in foreign currencies
will depend on the relative strengths of those currencies and the U.S.
dollar, and the Portfolio may be affected favorably or unfavorably by changes
in the exchange rates or exchange control regulations between foreign
currencies and the U.S. dollar. Changes in foreign currency exchange rates
also may affect the value of dividends and interest earned, gains and losses
realized on the sale of securities and net investment income and gains, if
any, to be distributed to shareholders by the Portfolio.
TIME DEPOSITS - Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot
be traded in the secondary market. Time deposits are considered to be
illiquid securities.
U.S. GOVERNMENT AGENCIES - Obligations issued or guaranteed by agencies of the
U.S. Government, including, among others, the Federal Farm Credit Bank, the
Federal Housing Administration and the Small Business Administration, and
obligations issued or guaranteed by instrumentalities of the U.S. Government,
including, among others, the FHLMC, the Federal Land Banks and the U.S.
Postal Service. Some of these securities are supported by the full faith and
credit of the U.S. Treasury (e.g., GNMA), others are supported by the right
of the issuer to borrow from the Treasury (e.g., Federal Farm Credit Bank),
while still others are supported only by the credit of the instrumentality
(e.g., FNMA). Guarantees of principal by agencies or instrumentalities of
the U.S. Government may be a guarantee of payment at the maturity of the
obligation so that in the event of a default prior to maturity there might
not be a market and thus no means of realizing on the obligation prior to
maturity. Guarantees as to the timely payment of principal and interest do
not extend to the value or yield of these securities nor to the value of the
Portfolio's shares.
U.S. TREASURY OBLIGATIONS - U.S. Treasury obligations consist of bills, notes
and bonds issued by the U.S. Treasury and separately traded interest and
principal component parts of such obligations that are transferable through
the federal book-entry system known as Separately Traded Registered Interest
and Principal Securities ("STRIPS").
VARIABLE AND FLOATING RATE INSTRUMENTS - Certain obligations may carry variable
or floating rates of interest, and may involve a conditional or unconditional
demand feature. Such instruments bear interest at rates which are not fixed,
but which vary with changes in specified market rates or indices. The
interest rates on these securities may be reset daily, weekly, quarterly or
some other reset period, and may have a floor or ceiling on interest rate
changes. There is a risk that the current interest rate on such obligations
21
<PAGE>
may not accurately reflect existing market interest rates. A demand
instrument with a demand notice exceeding seven days may be considered
illiquid if there is no secondary market for such security.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES - When-issued or delayed delivery
basis transactions involve the purchase of an instrument with payment and
delivery taking place in the future. Delivery of and payment for these
securities may occur a month or more after the date of the purchase
commitment. The Portfolio will maintain with the Custodian a separate
account with liquid high grade debt securities or cash in an amount at least
equal to these commitments. The interest rate realized on these securities
is fixed as of the purchase date and no interest accrues to the Portfolio
before settlement. These securities are subject to market fluctuation due to
changes in market interest rates and it is possible that the market value at
the time of settlement could be higher or lower than the purchase price if
the general level of interest rates has changed. Although the Portfolio
generally purchases securities on a when-issued or forward commitment basis
with the intention of actually acquiring securities for its portfolio, the
Portfolio may dispose of a when-issued security or forward commitment prior
to settlement if it deems appropriate.
ZERO COUPON OBLIGATIONS - Zero coupon obligations are debt securities that do
not bear any interest, but instead are issued at a deep discount from par. The
value of a zero coupon obligation increases over time to reflect the interest
accreted. Such obligations will not result in the payment of interest until
maturity, and will have greater price volatility than similar securities that
are issued at par and pay interest periodically.
22
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SUMMARY............................................................ 2
EXPENSE SUMMARY.................................................... 4
THE FUND AND THE PORTFOLIO......................................... 6
INVESTMENT OBJECTIVE AND POLICIES.................................. 6
INVESTMENT LIMITATIONS............................................. 8
THE ADVISER........................................................ 9
THE ADMINISTRATOR.................................................. 9
THE TRANSFER AGENT................................................. 10
THE DISTRIBUTOR.................................................... 10
PURCHASE AND REDEMPTION OF SHARES.................................. 10
PERFORMANCE........................................................ 13
TAXES.............................................................. 14
GENERAL INFORMATION................................................ 15
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS.............. 17
</TABLE>
<PAGE>
Fund:
THE ADVISORS' INNER CIRCLE FUND
Portfolio:
HGK FIXED INCOME FUND
Adviser:
HGK ASSET MANAGEMENT, INC.
Distributor:
SEI FINANCIAL SERVICES COMPANY
Administrator:
SEI FINANCIAL MANAGEMENT CORPORATION
Legal Counsel:
MORGAN, LEWIS & BOCKIUS LLP
Independent Public Accountants:
ARTHUR ANDERSEN LLP
February 28, 1996
<PAGE>
FUND:
THE ADVISORS' INNER CIRCLE FUND
PORTFOLIO:
HGK FIXED INCOME FUND
INVESTMENT ADVISER:
HGK ASSET MANAGEMENT, INC.
This Statement of Additional Information is not a prospectus and relates only to
the HGK Fixed Income Fund (the "Portfolio"). It is intended to provide
additional information regarding the activities and operations of The Advisors'
Inner Circle Fund (the "Fund") and the Portfolio and should be read in
conjunction with the Portfolio's Prospectus dated February 28, 1996. The
Prospectus for the Portfolio may be obtained by calling 1-800-932-7781.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
THE FUND............................................................... S - 3
DESCRIPTION OF PERMITTED INVESTMENTS................................... S - 3
INVESTMENT LIMITATIONS................................................. S - 4
THE ADVISER............................................................ S - 6
THE ADMINISTRATOR...................................................... S - 6
THE DISTRIBUTOR........................................................ S - 7
TRUSTEES AND OFFICERS OF THE FUND...................................... S - 8
COMPUTATION OF YIELD AND TOTAL RETURN.................................. S - 11
PURCHASE AND REDEMPTION OF SHARES...................................... S - 12
DETERMINATION OF NET ASSET VALUE....................................... S - 12
TAXES.................................................................. S - 12
PORTFOLIO TRANSACTIONS................................................. S - 14
DESCRIPTION OF SHARES.................................................. S - 16
SHAREHOLDER LIABILITY.................................................. S - 16
LIMITATION OF TRUSTEES' LIABILITY...................................... S - 17
5% SHAREHOLDERS........................................................ S - 17
EXPERTS................................................................ S - 18
FINANCIAL.............................................................. S - 18
</TABLE>
February 28, 1996
<PAGE>
THE FUND
This Statement of Additional Information relates only to the HGK Fixed Income
Fund (the "Portfolio"). The Portfolio is a separate series of the Advisors'
Inner Circle Fund (the "Fund"), an open-end investment management company that
offers shares of diversified portfolios, established under Massachusetts law as
a Massachusetts business trust under a Declaration of Trust dated July 18, 1991.
The Declaration of Trust permits the Fund to offer separate series
("portfolios") of shares of beneficial interest ("shares"). Each portfolio is a
separate mutual fund, and each share of each portfolio represents an equal
proportionate interest in that portfolio. See "Description of Shares". No
investment in shares of a portfolio should be made without first reading that
portfolio's prospectus. Capitalized terms not defined herein are defined in the
Prospectus offering shares of the Portfolio.
DESCRIPTION OF PERMITTED INVESTMENTS
The following sets forth certain information as a supplement to the "Investment
Objective and Policies" and "Description of Permitted Investments and Risk
Factors" sections of the Prospectus.
FLOATING RATE INSTRUMENTS have a rate of interest that is set as a specific
percentage of a designated base rate (such as the prime rate) at a major
commercial bank. The Portfolio can demand payment of the obligation at all
times or at stipulated dates on short notice (not to exceed 30 days) at par plus
accrued interest. The Portfolio may use the longer of the period required
before the Portfolio is entitled to prepayment under such obligations or the
period remaining until the next interest rate adjustment date for purposes of
determining the maturity of the instrument. Such obligations are frequently
secured by letters of credit or other credit support arrangements provided by
banks. The quality of the underlying credit or of the bank, as the case may be,
must, in the Adviser's opinion be equivalent to the long-term bond or commercial
paper ratings stated in the Prospectus. The Adviser will monitor the earning
power, cash flow and liquidity ratios of the issuers of such instruments and the
ability of an issuer of a demand instrument to pay principal and interest on
demand.
RESTRICTED SECURITIES are securities that may not be sold to the public without
registration under the Securities Act of 1933 (the "1933 Act") absent an
exemption from registration. Certain of the permitted investments of the
Portfolio may be restricted securities and the Adviser may invest up to 15% of
the net assets of the Portfolio in restricted securities provided it determines
that at the time of investment such securities are not illiquid (generally, an
illiquid security cannot be disposed of within seven days in the ordinary course
of business at its full value), based on guidelines which are the responsibility
of and are periodically reviewed by the Board of
S-2
<PAGE>
Trustees. Under these guidelines, the Adviser will consider the frequency of
trades and quotes for the security, the number of dealers in, and potential
purchasers for, the securities, dealer undertakings to make a market in the
security, and the nature of the security and of the marketplace trades. In
purchasing such restricted securities, the Adviser intends to purchase
securities that are exempt from registration under Rule 144A promulgated under
the 1933 Act. Investing in Rule 144A securities could have the effect of
increasing the level of Portfolio illiquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing these
securities. In addition, certain state securities regulators have required that
the Portfolio include Rule 144A securities in the 15% limitation. The Portfolio
will so limit its investments, but intends to remove or loosen this restriction
once permitted to do so by state regulators.
Certain U.S. Government Agencies have been established as instrumentalities of
the U.S. Government to supervise and finance certain types of activities.
Issues of these agencies, while not direct obligations of the U.S. Government,
are either backed by the full faith and credit of the United States or supported
by the issuing agency's right to borrow from the Treasury. The issues of other
agencies are supported only by the credit of the instrumentality.
INVESTMENT LIMITATIONS
The Portfolio may not:
1. Acquire more than 10% of the voting securities of any one issuer.
2. Invest in companies for the purpose of exercising control.
3. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding 33 1/3% of the value of total assets. Any borrowing
will be done from a bank and to the extent that such borrowing exceeds 5%
of the value of the Portfolio's assets, asset coverage of at least 300% is
required. In the event that such asset coverage shall at any time fall
below 300%, the Portfolio shall, within three days thereafter or such
longer period as the Securities and Exchange Commission ("SEC") may
prescribe by rules and regulations, reduce the amount of its borrowings to
such an extent that the asset coverage of such borrowings shall be at least
300%. This borrowing provision is included for temporary liquidity or
emergency purposes. All borrowings will be repaid before making investments
and any interest paid on such borrowings will reduce income.
4. Make loans, except that the Portfolio may purchase or hold debt instruments
in accordance with its investment objective and policies and may enter into
repurchase agreements.
S-3
<PAGE>
5. Pledge, mortgage or hypothecate assets except to secure temporary
borrowings permitted by (3) above in aggregate amounts not to exceed 10% of
total assets taken at current value at the time of the incurrence of such
loan.
6. Purchase or sell real estate, real estate limited partnership interests,
futures contracts, commodities or commodities contracts and interests in a
pool of securities that are secured by interests in real estate. However,
subject to the permitted investments of the Portfolio, it may invest in
municipal securities or other marketable obligations secured by real estate
or interests therein.
7. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Portfolio may obtain short-term
credits as necessary for the clearance of security transactions.
8. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling the Portfolio security.
9. Purchase securities of other investment companies except as permitted by
the Investment Company Act of 1940, as amended (the "1940 Act") and the
rules and regulations thereunder.
10. Issue senior securities (as defined in the 1940 Act) except in connection
with permitted borrowings as described above or as permitted by rule,
regulation or order of the SEC.
11. Purchase or retain securities of an issuer if, to the knowledge of the
Fund, an officer, trustee, partner or director of the Fund or any
investment adviser of the Fund owns beneficially more than 0.5% of the
shares or securities of such issuer and all such officers, trustees,
partners and directors owning more than 0.5% of such shares or securities
together own more than 5% of such shares or securities.
12. Invest in interests in oil, gas or other mineral exploration or development
programs and oil, gas or mineral leases.
13. Write or purchase puts, calls, options or combinations thereof or invest in
warrants.
The foregoing percentages will apply at the time of the purchase of a security.
THE ADVISER
The Fund and HGK Asset Management Inc. (the "Adviser") have entered into an
advisory agreement dated August 15, 1994 (the "Advisory Agreement"). The
Advisory
S-4
<PAGE>
Agreement provides that the Adviser shall not be protected against any liability
to the Fund or its shareholders by reason of willful misfeasance, bad faith or
gross negligence on its part in the performance of its duties or from reckless
disregard of its obligations or duties thereunder.
The Advisory Agreement provides that if, for any fiscal year, any ratio of
expenses of the Portfolio (including amounts payable to the Adviser but
excluding interest, taxes, brokerage, litigation and other extraordinary
expenses) exceeds limitations established by any state in which the shares of
the Portfolio are registered, the Adviser will bear the amount of such excess.
The Adviser will not be required to bear expenses of any Portfolio to an extent
which would result in the Portfolio's inability to qualify as a regulated
investment company under provisions of the Internal Revenue Code of 1986, as
amended (the "Code"). For the fiscal period ended October 31, 1995, the Adviser
was paid $0, waived fees of $39,390 and reimbursed expenses of $68,886.
To the extent the Portfolio purchases securities of open end investment
companies, the Adviser will waive its advisory fee on that portion of the
Portfolio's assets invested in such securities.
The continuance of the Advisory Agreement, after the first two years, must be
specifically approved at least annually (i) by the vote of the Trustees or by a
vote of the shareholders of the Portfolio, and (ii) by the vote of a majority of
the Trustees who are not parties to the Agreement or "interested persons" of any
party thereto, cast in person at a meeting called for the purpose of voting on
such approval. The Advisory Agreement will terminate automatically in the event
of its assignment, and is terminable at any time without penalty by the Trustees
of the Fund or, with respect to the Portfolio, by a majority of the outstanding
shares of the Portfolio, on not less than 30 days' nor more than 60 days'
written notice to the Adviser, or by the Adviser on 90 days' written notice to
the Fund.
THE ADMINISTRATOR
The Fund and SEI Financial Management Corporation (the "Administrator") have
entered into an administration agreement dated November 14, 1991 (the
"Administration Agreement"). The Administration Agreement provides that the
Administrator shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which the
Administration Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Administrator in
the performance of its duties or from reckless disregard by it of its duties and
obligations thereunder. The Administration Agreement shall remain in effect with
respect to the Portfolio until August 15, 1999 and shall continue in effect for
successive periods of two years unless terminated by either party on not less
than 90 days' written notice to the other party. For the fiscal period
S-5
<PAGE>
ended October 31, 1995, the Administrator received fees of $74,589 for the
Portfolio.
The Fund and the Administrator have also entered into a shareholder servicing
agreement pursuant to which the Administrator provides certain shareholder
services in addition to those set forth in the Administration Agreement.
The Administrator, a wholly owned subsidiary of SEI Corporation ("SEI"), was
organized as a Delaware corporation in 1969 and has its principal business
offices at 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658. Alfred P.
West, Jr., Henry H. Greer and Carmen V. Romeo constitute the Board of Directors
of the Administrator. Mr. West is the Chairman of the Board and Chief Executive
Officer of the Administrator and of SEI. Mr. Greer is the President and Chief
Operating Officer of the Administrator and of SEI. SEI and its subsidiaries are
leading providers of funds evaluation services, trust accounting systems, and
brokerage and information services to financial institutions, institutional
investors and money managers. The Administrator also serves as administrator to
the following other mutual funds: The Achievement Funds Trust, The Arbor Fund,
ARK Funds, Bishop Street Funds, The Compass Capital Group, Conestoga Family of
Funds, CoreFunds, Inc., CrestFunds, Inc., CUFUND, FFB Lexicon Funds, First
American Investment Funds, Inc., First American Funds, Inc., Insurance
Investment Products Trust, Inventor Funds, Inc., Marquis Funds(R), Morgan
Grenfell Investment Trust, The PBHG Funds, Inc., The Pillar Funds, Rembrandt
Funds(R), 1784 Funds, SEI Daily Income Trust, SEI Index Funds, SEI Institutional
Managed Trust, SEI International Trust, SEI Liquid Asset Trust, SEI Tax Exempt
Trust, Stepstone Funds, STI Classic Funds and STI Classic Variable Trust.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI, and the Fund are parties to a distribution agreement dated November 14,
1991 ("Distribution Agreement"). The Distributor will not receive compensation
for the distribution of shares of any Portfolio.
The Distribution Agreement will remain in effect for a period of two years after
the effective date of the agreement and is renewable annually. The Distribution
Agreement may be terminated by the Distributor, by a majority vote of the
Trustees who are not interested persons and have no financial interest in the
Distribution Agreement or by a majority of the outstanding shares of the Fund
upon not more than 60 days' written notice by either party or upon assignment by
the Distributor.
TRUSTEES AND OFFICERS OF THE FUND
S-6
<PAGE>
The management and affairs of the Trust are supervised by the Trustees under the
laws governing business trusts in the Commonwealth of Massachusetts. The
Trustees and executive officers of the Trust and their principal occupations for
the last five years are set forth below. Each may have held other positions
with the named companies during that period. Unless otherwise noted, the
business address of each Trustee and executive officer is SEI Financial
Management Corporation, 680 East Swedesford Road, Wayne, Pennsylvania 19087-
1658. Certain officers of the Trust also serve as Trustees and/or officers of
The Achievement Funds Trust, The Arbor Fund, ARK Funds, Bishop Street Funds, The
Compass Capital Group, Conestoga Family of Funds, CoreFunds, Inc., CrestFunds,
Inc., CUFUND, FFB Lexicon Funds, First American Investment Funds, Inc., First
American Funds, Inc., Insurance Investment Products Trust, Inventor Funds, Inc.,
Marquis Funds(R), Morgan Grenfell Investment Trust, The PBHG Funds, Inc., The
Pillar Funds, Rembrandt Funds(R), 1784 Funds, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional Managed Trust, SEI International Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, Stepstone Funds, STI Classic Funds and STI
Classic Variable Trust.
ROBERT A. NESHER (DOB 08/17/46) - Trustee* - 8 South Street, Kennebunkport, ME
04046. Retired since 1994. Director, Executive Vice President of SEI
Corporation, 1986-1994. Director and Executive Vice President of the
Administrator and Distributor, September, 1981-1994.
JOHN T. COONEY (DOB 01/20/27) - Trustee** - 569 N. Post Oak Lane, Houston, TX
77024. Retired since 1992. Formerly Vice Chairman of Ameritrust Texas N.A.,
1989-1992, and MTrust Corp., 1985-1989.
WILLIAM M. DORAN (DOB 05/26/40) - Trustee* - 2000 One Logan Square,
Philadelphia, PA 19103. Partner of Morgan, Lewis & Bockius LLP, Counsel to SEI,
the Fund, the Administrator and Distributor, for the past five years. Director
and Secretary of SEI.
FRANK E. MORRIS (DOB 12/30/23) - Trustee** - 105 Walpole Street, Dover, MA
02030. Peter Drucker Professor of Management, Boston College since 1989.
President, Federal Reserve Bank of Boston, 1968-1988.
ROBERT A. PATTERSON (DOB 11/05/17) - Trustee** - 208 Old Main, University Park,
PA 16802. Pennsylvania State University, Senior Vice President, Treasurer
(Emeritus). Financial and Investment Consultant, Professor of Transportation
(1984-present). Vice President-Investments, Treasurer, Senior Vice President
(Emeritus) (1982-1984). Director, Pennsylvania Research Corp.; Member and
Treasurer, Board of Trustees of Grove City College.
GENE PETERS - (DOB 06/03/29) Trustee** - 943 Oblong Road, Williamstown, MA
01267. Private investor from 1987 to present. Vice President and Chief
Financial
S-7
<PAGE>
Officer, Western Company of North America (petroleum service company) (1980-
1986). President of Gene Peters and Associates (import company) (1978-1980).
President and Chief Executive Officer of Jos. Schlitz Brewing Company before
1978.
JAMES M. STOREY (DOB 04/12/31) - Trustee** - Ten Post Office Square South,
Boston, MA 02109. Retired since 1993. Formerly, Partner of Dechert Price &
Rhoads (law firm).
DAVID G. LEE (DOB 04/16/52) - President, Chief Executive Officer - Senior Vice
President of the Administrator and Distributor since 1993. Vice President of
the Administrator and Distributor (1991-1993). President, GW Sierra Trust Funds
before 1991.
SANDRA K. ORLOW (DOB 10/18/53) - Vice President, Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Administrator and the Distributor
since 1983.
KEVIN P. ROBINS (DOB 04/15/61) - Vice President, Assistant Secretary - Senior
Vice President and General Counsel of SEI, the Administrator and the Distributor
since 1994. Secretary of the Administrator and the Distributor since 1994.
Vice President and Assistant Secretary of SEI, the Administrator and the
Distributor (1992-1994). Associate, Morgan, Lewis & Bockius LLP (law firm)
prior to 1992.
*1
JEFFREY A. COHEN, CPA (DOB 04/22/61) - Controller, Assistant Secretary -
Director, International and Domestic Funds Accounting, SEI Corporation since
1991. Audit Manager, Price Waterhouse prior to 1991.
ROBERT B. CARROLL (DOB 02/26/60) - Vice President, Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Administrator and Distributor
since 1994. SEC, Division of Investment Management, (1990-1994). Associate,
McGuire, Woods, Battle & Boothe (law firm) before 1990.
**1 KATHRYN L. STANTON (DOB 11/19/58) - Vice President, Assistant Secretary -
Vice President and Assistant Secretary of SEI, the Administrator and the
Distributor since 1994. Associate, Morgan, Lewis & Bockius LLP (law firm)
(1989-1994).
JOSEPH M. LYDON (DOB 09/27/59) - Vice President, Assistant Secretary -Director
of Business Administration of Fund Resources, SEI Corporation since 1995. Vice
President of Fund Group and Vice President of the Adviser, Dreman Value
S-8
<PAGE>
Value Management and President of Dreman Financial Services, Inc. prior to
1995.
TODD CIPPERMAN (DOB 02/14/66) - Vice President, Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Administrator and the Distributor
since 1995. Associate, Dewey Ballantine (law firm) (1994-1995). Associate,
Winston & Strawn (law firm) (1991-1994).
RICHARD W. GRANT (DOB 10/25/45) - Secretary - 2000 One Logan Square,
Philadelphia, PA 19103, Partner of Morgan, Lewis & Bockius LLP (law firm),
Counsel to SEI, the Fund, the Administrator and the Distributor for the past
five years.
___________________
*Messrs. Nesher and Doran are Trustees who may be deemed to be "interested"
persons of the Fund as that term is defined in the 1940 Act.
**Messrs. Cooney, Morris, Patterson, Peters and Storey serve as members of the
Audit Committee of the Fund.
The Trustees and officers of the Fund own less than 1% of the outstanding shares
of the Fund. The Fund pays the fees for unaffiliated Trustees.
The following table exhibits Trustee compensation for the fiscal period ended
October 31, 1995.
<TABLE>
<CAPTION>
Total
Compensation
From Registrant
and Fund
Aggregate Compensation Pension or Complex* Paid to
From Registrant for the Retirement Benefits Estimated Trustees for the
Fiscal Period Ended Accrued as Part of Annual Benefits Fiscal Period
Name of Person, Position October 31, 1995 Fund Expenses Upon Retirement Ended October 31,
1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John T. Cooney $9,429.84 N/A N/A $9,429.84 for
services on 1
board
- ------------------------------------------------------------------------------------------------------------------------------
Frank E. Morris $9,429.84 N/A N/A $9,429.84 for
services on 1
board
- ------------------------------------------------------------------------------------------------------------------------------
Robert Patterson $9,429.84 N/A N/A $9,429.84 for
services on 1
board
- ------------------------------------------------------------------------------------------------------------------------------
Eugene B. Peters $9,429.84 N/A N/A $9,429.84 for
services on 1
board
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-9
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
James M. Storey, Esq. $9,429.84 N/A N/A $9,429.84 for
services on 1
board
- ------------------------------------------------------------------------------------------------------------------------------
William M. Doran, Esq. $0 N/A N/A $0 for service on 1
board
- ------------------------------------------------------------------------------------------------------------------------------
Robert A. Nesher $0 N/A N/A $0 for service on 1
board
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
COMPUTATION OF YIELD AND TOTAL RETURN
From time to time, the Fund may advertise yield, tax equivalent yield and total
return of the Portfolios. These figures will be based on historical earnings and
are not intended to indicate future performance. No representation can be made
concerning actual future yields or returns. The yield of the Portfolio refers to
the annualized income generated by an investment in that Portfolio over a
specified 30-day period. The yield is calculated by assuming that the income
generated by the investment during that 30-day period is generated in each
period over one year and is shown as a percentage of the investment. In
particular, yield will be calculated according to the following formula:
Yield = 2[((a-b)/cd+1)/6/-1], where a = dividends and interest earned during the
period; b = expenses accrued for the period (net of reimbursement); c = the
average daily number of shares outstanding during the period that were entitled
to receive dividends; and d = the maximum offering price per share on the last
day of the period.
For the 30-day period ended October 31, 1995, the Portfolio's yield was
5.77%.
A tax equivalent yield is computed by dividing the portion of the yield that is
tax exempt by one minus a stated income tax rate and adding the product to that
portion, if any, of the yield that is not tax exempt.
The total return of the Portfolio refers to the average compounded rate of
return to a hypothetical investment for designated time periods (including, but
not limited to, the period from which that Portfolio commenced operations
through the specified date), assuming that the entire investment is redeemed at
the end of each period. In particular, total return will be calculated
according to the following formula: P (1 + T)/n/ = ERV, where P = a
hypothetical initial payment of $1,000; T = average annual total return; n =
number of years; and ERV = ending redeemable value, as of the end of the
designated time period, of a hypothetical $1,000 payment made at the beginning
of the designated time period.
S-10
<PAGE>
For the period from November 3, 1994 (commencement of operations) through
October 31, 1995, the total return was 16.07% (annualized).
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through the Distributor on a day on which
both the New York Stock Exchange and the Federal Reserve wire system are open
for business. Shares of the Portfolio are offered on a continuous basis.
It is currently the Fund's policy to pay all redemptions in cash. The Fund
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by the Portfolio
in lieu of cash. Shareholders may incur brokerage charges on the sale of any
such securities so received in payment of redemptions.
The Fund reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
the disposal or valuation of the Portfolio's securities is not reasonably
practicable, or for such other periods as the SEC has by order permitted. The
Fund also reserves the right to suspend sales of shares of any Portfolio for any
period during which the New York Stock Exchange, the Adviser, the Administrator,
the Transfer Agent and/or the custodian are not open for business.
DETERMINATION OF NET ASSET VALUE
The securities of the Portfolio are valued by the Administrator. The
Administrator will use an independent pricing service to obtain valuations of
securities. The pricing service relies primarily on prices of actual market
transactions as well as trader quotations. However, the service may also use a
matrix system to determine valuations, which system considers such factors as
security prices, yields, maturities, call features, ratings and developments
relating to specific securities in arriving at valuations. The procedures of
the pricing service and its valuations are reviewed by the officers of the Fund
under the general supervision of the Trustees.
TAXES
The following is only a summary of certain tax considerations generally
affecting the Portfolio and its shareholders, and is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their
tax advisers with specific reference to their own tax situations, including
their state and local tax liabilities.
S-11
<PAGE>
Federal Income Tax
The following discussion of federal income tax consequences is based on the Code
and the regulations issued thereunder as in effect on the date of this Statement
of Additional Information. New legislation, as well as administrative changes
or court decisions, may significantly change the conclusions expressed herein,
and may have a retroactive effect with respect to the transactions contemplated
herein.
The Portfolio intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By following such a policy, the
Portfolio expects to eliminate or reduce to a nominal amount the federal taxes
to which it may be subject.
In order to qualify for treatment as a RIC under the Code, the Portfolio
generally must distribute annually to its shareholders at least 90% of its
investment company taxable income (generally, net investment income plus net
short-term capital gain) (the "Distribution Requirement") and also must meet
several additional requirements. Among these requirements are the following:
(i) at least 90% of the Portfolio's gross income each taxable year must be
derived from dividends, interest, payments with respect to securities loans, and
gains from the sale or other disposition of stock or securities, or certain
other income; (ii) the Portfolio must derive less than 30% of its gross income
each taxable year from the sale or other disposition of stocks or securities
held for less than three months; (iii) at the close of each quarter of the
Portfolio's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. Government securities, securities of
other RICs and other securities, with such other securities limited, in respect
to any one issuer, to an amount that does not exceed 5% of the value of the
Portfolio's assets and that does not represent more than 10% of the outstanding
voting securities of such issuer; and (iv) at the close of each quarter of the
Portfolio's taxable year, not more than 25% of the value of its assets may be
invested in securities (other than U.S. Government securities or the securities
of other RICs) of any one issuer or of two or more issuers which the Portfolio
controls and which are engaged in the same, similar or related trades or
businesses.
Notwithstanding the Distribution Requirement described above, which requires
only that the Portfolio distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), the
Portfolio will be subject to a nondeductible 4% federal excise tax to the extent
it fails to distribute by the end of any calendar year 98% of its ordinary
income for that year and 98% of its capital gain net income (the excess of
short- and long-term capital gains over short- and long-term capital losses) for
the one-year period ending on October 31 of that year, plus certain other
amounts. The Portfolio intends to make sufficient distributions of its ordinary
income and capital gain net income prior to the end of each calendar year to
avoid liability for excise tax.
S-12
<PAGE>
Any gain or loss recognized on a sale or redemption of shares of the Portfolio
by a non-exempt shareholder who is not a dealer in securities generally will be
treated as a long-term capital gain or loss if the shares have been held for
more than twelve months and otherwise generally will be treated as a short-term
capital gain or loss. If shares of the Portfolio on which a net capital gain
distribution has been received are subsequently sold or redeemed and such shares
have been held for six months or less, any loss recognized will be treated as a
long-term capital loss to the extent of the long-term capital gain distribution.
In certain cases, the Portfolio will be required to withhold, and remit to the
United States Treasury, 31% of any distributions paid to a shareholder who (1)
has failed to provide a correct taxpayer identification number, (2) is subject
to backup withholding by the Internal Revenue Service, or (3) has not certified
to the Portfolio that such shareholder is not subject to backup withholding.
If the Portfolio fails to qualify as a RIC for any taxable year, it will be
subject to tax on its taxable income at regular corporate rates. In such an
event, all distributions from the Portfolio generally would be eligible for the
corporate dividend received deduction.
STATE TAXES
The Portfolio is not liable for any income or franchise tax in Massachusetts if
it qualifies as a RIC for federal income tax purposes. Portfolio shareholders
should consult with their tax advisers regarding the state and local tax
consequences of investments in the Portfolio.
PORTFOLIO TRANSACTIONS
The Portfolio has no obligation to deal with any broker-dealer or group of
broker-dealers in the execution of transactions in portfolio securities.
Subject to policies established by the Trustees of the Fund, the Adviser is
responsible for placing the orders to execute transactions for the Portfolio.
In placing orders, it is the policy of the Fund to seek to obtain the best net
results taking into account such factors as price (including the applicable
dealer spread), the size, type and difficulty of the transaction involved, the
firm's general execution and operational facilities and the firm's risk in
positioning the securities involved. While the Adviser generally seeks
reasonably competitive spreads or commissions, the Portfolio will not
necessarily be paying the lowest spread or commission available.
The money market instruments in which the Portfolio invests are traded primarily
in the over-the-counter market. Bonds and debentures are usually traded over-
the-counter, but may be traded on an exchange. Where possible, the Adviser will
deal directly with the dealers who make a market in the securities involved
except in those circumstances where better prices and execution are
available
S-13
<PAGE>
elsewhere. Such dealers usually are acting as principal for their own account.
On occasion, securities may be purchased directly from the issuer. Money market
instruments are generally traded on a net basis and do not normally involve
either brokerage commissions or transfer taxes. The cost of executing portfolio
securities transactions of the Portfolio will primarily consist of dealer
spreads and underwriting commissions.
The Adviser may, consistent with the interests of the Portfolio, select brokers
on the basis of the research services they provide to the Adviser. Such
services may include analyses of the business or prospects of a company,
industry or economic sector, or statistical and pricing services. Information
so received by the Adviser will be in addition to and not in lieu of the
services required to be performed by the Adviser under the Advisory Agreement.
If, in the judgment of the Adviser, the Portfolio or other accounts managed by
the Adviser will be benefitted by supplemental research services, the Adviser is
authorized to pay brokerage commissions to a broker furnishing such services
which are in excess of commissions which another broker may have charged for
effecting the same transaction. These research services include advice, either
directly or through publications or writings, as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; furnishing of
analyses and reports concerning issuers, securities or industries; providing
information on economic factors and trends; assisting in determining portfolio
strategy; providing computer software used in security analyses; and providing
portfolio performance evaluation and technical market analyses. The expenses of
the Adviser will not necessarily be reduced as a result of the receipt of such
supplemental information, such services may not be used exclusively, or at all,
with respect to the Portfolio or account generating the brokerage, and there can
be no guarantee that the Adviser will find all of such services of value in
advising the Portfolio. For the fiscal period ended October 31, 1995, the
Portfolio directed no transactions to broker-dealers for research services.
It is expected that the Portfolio may execute brokerage or other agency
transactions through the Distributor, which is a registered broker-dealer, for a
commission in conformity with the 1940 Act, the Securities Exchange Act of 1934
and rules promulgated by the SEC. Under these provisions, the Distributor is
permitted to receive and retain compensation for effecting portfolio
transactions for the Portfolio on an exchange if a written contract is in effect
between the Distributor and the Fund expressly permitting the Distributor to
receive and retain such compensation. These rules further require that
commissions paid to the Distributor by the Portfolio for exchange transactions
not exceed "usual and customary" brokerage commissions. The rules define "usual
and customary" commissions to include amounts which are "reasonable and fair
compared to the commission, fee or other remuneration received or to be received
by other
S-14
<PAGE>
brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time." The Trustees, including those who are not "interested persons"
of the Fund, have adopted procedures for evaluating the reasonableness of
commissions paid to the Distributor and will review these procedures
periodically. For the fiscal period ended October 31, 1995 the Portfolio paid
the Distributor brokerage commissions in the aggregate amount of $139. For the
fiscal period ended October 31, 1995, the commission the Portfolio paid to the
Distributor represented 29% of the aggregate brokerage commissions which were
paid on transactions that represented 4% of the aggregate dollar amount of
transactions that incurred commissions paid by the Portfolio during such period.
Aggregate brokerage commissions paid by the Portfolio for the period ended
October 31, 1995 was $486.
Since the Fund does not market its shares through intermediary brokers or
dealers, it is not the Fund's practice to allocate brokerage or principal
business on the basis of sales of its shares which may be made through such
firms. However, the Adviser may place portfolio orders with qualified broker-
dealers who recommend the Portfolio' shares to clients, and may, when a number
of brokers and dealers can provide best net results on a particular transaction,
consider such recommendations by a broker or dealer in selecting among broker-
dealers.
The Portfolio is required to identify any securities of its "regular brokers or
dealers" (as such term is defined in the 1940 Act, which the Portfolio has
acquired during its most recent fiscal year. As of October 31, 1995, the
Portfolio held $296,625 of debt securities issued by Lehman Brothers.
For the fiscal year ended October 31, 1995, the portfolio turnover rate for the
Portfolio was 300.48%.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
portfolios and shares of each portfolio, each of which represents an equal
proportionate interest in the portfolio with each other share. Shares are
entitled upon liquidation to a pro rata share in the net assets of the
portfolio. Shareholders have no preemptive rights. The Declaration of Trust
provides that the Trustees of the Fund may create additional series of shares.
All consideration received by the Fund for shares of any additional series and
all assets in which such consideration is invested would belong to that series
and would be subject to the liabilities related thereto. Share certificates
representing shares will not be issued.
S-15
<PAGE>
SHAREHOLDER LIABILITY
The Fund is an entity of the type commonly known as a "Massachusetts business
trust". Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Fund were held to be a partnership, the
possibility of the shareholders incurring financial loss for that reason appears
remote because the Fund's Declaration of Trust contains an express disclaimer of
shareholder liability for obligations of the Fund and requires that notice of
such disclaimer be given in each agreement, obligation or instrument entered
into or executed by or on behalf of the Fund or the Trustees, and because the
Declaration of Trust provides for indemnification out of the Fund property for
any shareholder held personally liable for the obligations of the Fund.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his or
her own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisers, shall not be
liable for any neglect or wrongdoing of any such person. The Declaration of
Trust also provides that the Fund will indemnify its Trustees and officers
against liabilities and expenses incurred in connection with actual or
threatened litigation in which they may be involved because of their offices
with the Fund unless it is determined in the manner provided in the Declaration
of Trust that they have not acted in good faith in the reasonable belief that
their actions were in the best interests of the Fund. However, nothing in the
Declaration of Trust shall protect or indemnify a Trustee against any liability
for his or her willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties.
5% SHAREHOLDERS
As of February 5, 1996, the following persons were the only persons who were
record owners (or to the knowledge of the Fund, beneficial owners) of 5% or more
of the shares of the Portfolios.
<TABLE>
<CAPTION>
HGK fixed Income Fund
Shareholder Number of Shares
%
<S> <C> <C>
Westchester Heavy Construction 115,017.4640 10.43%
Local 60 General Fund
c/o Mr. Joseph Dominick
140 Broadway
</TABLE>
S-16
<PAGE>
<TABLE>
<CAPTION>
Hawthorne, NY 10534-1104
<S> <C> <C>
Sam Agati TTEE 152,375.1400 13.81%
Laborers Local #322 General Fund
P.O. Box 361
Massena, NY 13662-0361
</TABLE>
S-17
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Joint Council No. 40 Retirement Plan 108,492.4380 9.84%
For Full-Time Paid Officers &
Business Representatives
910 Sheraton Dr., Suite 210
Mars, PA 16046-9440
Laborers' Local 17 58,993.6410 5.35%
Training & Education Trust Fund
C/O Victor Mandia
305 C Little Britain Road
Newburgh, NY 12550-5126
Ritangela Construction Corp. 58,720.6360 5.32%
P.O. Box 9153 176 Route 304
Bardonia, NY 10954
Terry Peck And 55,653.3080 5.05%
Edward A. Grimm TTEES
Plumbers & Piperfitters Local 520
JT Apprntshp & Training Comm Fund
7193 Jonestown Rd C/O Murphy
Harrisburg, PA 17112-3649
</TABLE>
The Fund believes that most of the shares referred to above were held by the
persons indicated in accounts for their fiduciary, agency or custodial
customers.
EXPERTS
The financial statements in this Statement of Additional Information have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
FINANCIAL STATEMENTS
S-18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Trustees of HGK Fixed Income Fund of The Advisors'
Inner Circle Fund:
We have audited the accompanying statements of net assets of HGK Fixed Income
Fund (one of the funds constituting The Advisors' Inner Circle Fund) as of
October 31, 1995, and the related statements of operations, changes in net
assets and financial highlights for the periods presented. These financial
statements and financial highlights are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that out audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of HGK
Fixed Income Fund of The Advisors' Inner Circle Fund as of October 31, 1995,
the results of its operations, changes in its net assets, and financial
highlights for the period presented, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, PA
December 5, 1995
<PAGE>
STATEMENT OF NET ASSETS THE ADVISORS' INNER CIRCLE FUND
October 31, 1995
[PIE CHART APPEARS HERE]
A pie chart depicting industry breakdowns in the HGK Fixed Income Fund as a
percentage of Total Fund Investments. The breakdown is as follows:
<TABLE>
<CAPTION>
Industry %
-------- -
<S> <C>
Industrial 27%
U.S. Gov't Agency 26%
U.S. Treasury 18%
Financial 10%
Repurchase Agreements 7%
Yankee 7%
Utility 4%
Asset Backed 1%
</TABLE>
<TABLE>
<CAPTION>
Face Market
Amount Value
HGK FIXED INCOME FUND (000) (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS -- 47.5%
Asarco
8.500%, 05/01/25 $350 $ 386
Brascan Yankee Bond
7.375%, 10/01/02 250 249
CCP Insurance
10.500%, 12/15/04 250 273
Countrywide Funding MTN
6.880%, 08/03/98 150 152
Dresdner Bank
6.625%, 09/15/05 500 503
General Motors Acceptance Corporation
6.625%, 10/01/02 350 352
General Motors Corporation
7.400%, 09/01/25 175 179
IBM
6.375%, 11/01/97 290 291
KMart
7.950%, 02/01/23 225 188
Lehman Brothers
5.040%, 12/15/03 300 297
Niagara Mohawk Power
7.750%, 05/15/06 500 451
Philip Morris Companies
8.750%, 12/01/96 400 412
Republic of Italy Global Bond
6.875%, 09/27/23 250 230
Time Warner
7.950%, 02/01/00 475 496
Union Pacific Railroad
8.350%, 05/01/25 450 489
-------
TOTAL CORPORATE BONDS
(Cost $4,864,504) 4,948
U.S. GOVERNMENT AGENCY OBLIGATION -- 25.4%
FHLB
5.000%, 07/16/96 $250 $ 249
FHLMC
7.360%, 03/05/98 375 376
6.730%, 03/21/01 250 251
FNMA
6.020%, 09/19/97 callable 9/16/96 @ 100 375 375
FNMA MTN
7.375%, 03/28/05 450 483
7.650%, 05/04/05 150 152
FNMA Pool# 50759
6.000%, 07/01/00 208 205
FNMA Series 1994-M3 Class A CMO
7.710%, 04/25/06 246 257
SLMA
5.240%, 03/03/97 300 297
-------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATION
(Cost $2,583,702) 2,645
-------
U.S. TREASURY OBLIGATIONS -- 17.7%
U.S. Treasury Bonds
7.500%, 11/15/16 425 479
7.250%, 08/15/22 200 221
U.S. Treasury Notes
7.500%, 01/31/96 250 251
7.250%, 02/15/98 300 310
7.500%, 11/15/01 400 432
5.750%, 08/15/03 150 148
-------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $1,736,923) 1,841
-------
ASSET BACKED SECURITIES -- 1.3%
Ford Credit Grantor Trust 94b A
7.300%, 10/15/99 139 141
-------
TOTAL ASSET BACKED SECURITIES
(Cost $138,725) 141
-------
REPURCHASE AGREEMENT -- 6.6%
Lehman Brothers Securities 5.54%, dated 10/31/95, matures
11/01/95, repurchase price $685,478 (collateralized by U.S.
Treasury Note, par value 692,771, 6.625%, matures 03/31/97:
market value 705,905) 685
-------
TOTAL REPURCHASE AGREEMENT
(Cost $685,478) 685
-------
TOTAL INVESTMENTS -- 98.5%
(Cost $10,009,332) $10,260
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF NET ASSETS THE ADVISORS' INNER CIRCLE FUND
October 31, 1995
<TABLE>
<CAPTION>
Market
Value
HGK FIXED INCOME FUND (000)
- ------------------------------------------------------------------------------
<S> <C> <C>
OTHER ASSETS AND LIABILITIES -- 1.5%
Other Assets and Liabilities, Net $ 160
=======
NET ASSETS:
Portfolio shares (unlimited authorization--no par value) based on
957,731 outstanding shares of beneficial interest 9,752
Accumulated net realized gain on investments 417
Net unrealized appreciation on investments 251
-------
TOTAL NET ASSETS: -- 100.0% $10,420
=======
Net Asset Value, Offering Price and Redemption Price Per Share $ 10.88
=======
</TABLE>
CMO--Collateralized Mortgage Obligation
FHLB--Federal Home Loan Bank
FHLMC--Federal Home Loan Mortgage Corporation
FNMA--Federal National Mortgage Association
MTN--Medium Term Note
SLMA--Student Loan Marketing Association
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF OPERATIONS THE ADVISORS' INNER CIRCLE FUND
For the period ended October 31, 1995
<TABLE>
<CAPTION>
HGK
FIXED INCOME
FUND
------------
11/03/94(1)
TO 10/31/95
(000)
- --------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest Income.................................................. $ 584
- --------------------------------------------------------------------------------
Total Investment Income......................................... 584
- --------------------------------------------------------------------------------
Expenses:
Investment Advisory Fees......................................... 39
Waiver of Investment Advisory Fees............................... (39)
Contributions by Adviser......................................... (69)
Administrative Fees.............................................. 74
Custodian Fees................................................... 4
Professional Fees................................................ 24
Transfer Agent Fees.............................................. 16
Printing Fees.................................................... 6
Directors' Fees.................................................. 4
Registration and Filing Fees..................................... 11
Insurance and Other Fees......................................... 3
Amortization of Deferred Organizational Costs.................... 3
Pricing Fees..................................................... 3
- --------------------------------------------------------------------------------
Total Expenses.................................................. 79
- --------------------------------------------------------------------------------
Net Investment Income.......................................... 505
- --------------------------------------------------------------------------------
Net Realized Gain from Securities Sold........................... 417
Net Unrealized Appreciation of Investment Securities............. 251
- --------------------------------------------------------------------------------
Net Realized and Unrealized Gain on Investments................. 668
- --------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations............. $1,173
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) The HGK Fund Commenced operations on November 3, 1994.
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS THE ADVISORS' INNER CIRCLE FUND
For the period ended October 31, 1995
<TABLE>
<CAPTION>
HGK
FIXED INCOME
FUND
------------
11/03/94(2)
TO 10/31/95
(000)
- --------------------------------------------------------------------------------
<S> <C>
Investment Activities:
Net Investment Income............................................. $ 505
Net Realized Gain on Securities Sold.............................. 417
Net Unrealized Appreciation of Investment Securities.............. 251
- --------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations............. 1,173
- --------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income............................................. (505)
- --------------------------------------------------------------------------------
Total Distributions.............................................. (505)
- --------------------------------------------------------------------------------
Capital Share Transactions:
Shares Issued..................................................... 10,408
Shares Issued in Lieu of Cash Distributions....................... 504
Shares Redeemed................................................... (1,160)
- --------------------------------------------------------------------------------
Increase in Net Assets Derived from Capital Share Transactions.... 9,752
- --------------------------------------------------------------------------------
Total Increase in Net Assets..................................... 10,420
- --------------------------------------------------------------------------------
Net Assets:
Beginning of Period............................................... --
- --------------------------------------------------------------------------------
End of Period..................................................... $10,420
- --------------------------------------------------------------------------------
Shares Issued and Redeemed:
Shares Issued..................................................... 1,022
Issued in Lieu of Cash Distributions.............................. 48
Redeemed.......................................................... (112)
- --------------------------------------------------------------------------------
Net Increase in Share Transactions............................... 958
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(2) The HGK Fund commenced operations on November 3, 1994.
The accompanying notes are an integral part of the financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS THE ADVISORS' INNER CIRCLE FUND
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net Realized and Net Net Ratio
Asset Unrealized Distributions Asset Assets Ratio of Net
Value Net Gains or from Net Distributions Value End of Expenses Income
Beginning Investment Losses on Investment from Capital End Total of Period to Average to Average
of Period Income Securities Income Gains of Period Return (000) Net Assets Net Assets
--------- ---------- ------------ ------------- ------------- --------- ------- --------- ----------- ----------
- ---------------------
HGK FIXED INCOME FUND
- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995(1) $10.00 0.67 0.88 (0.67) -- $10.88 16.07%* 10,420 1.00%* 6.38%*
<CAPTION>
Ratio
Ratio of Net Income
of Expenses (Loss) to
to Average Average
Net Assets Net Assets
(Excluding (Excluding Portfolio
Waivers and Waivers and Turnover
Reimbursements) Reimbursements) Rate
--------------- --------------- ---------
- ---------------------
HGK FIXED INCOME FUND
- ---------------------
<S> <C> <C> <C>
1995(1) 2.37%* 5.01%* 300.48%
</TABLE>
* Annualized
(1) The HGK Fixed Income Fund commenced operations on November 3, 1994.
The accompanying notes are an integral part of the financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS THE ADVISORS' INNER CIRCLE FUND
October 31, 1995
1. Organization:
THE ADVISORS' INNER CIRCLE FUND (the "Trust") is organized as a Massachusetts
business trust under a Declaration of Trust dated July 18, 1991. The Trust is
registered under the Investment Company Act of 1940, as amended, as a
diversified open-end management investment company with eleven portfolios. The
financial statements herein present those of the HGK Fixed Income Fund (the
"Fund"). The financial statements of the remaining portfolios are presented
separately. The assets of each portfolio are segregated, and a Shareholder's
interest is limited to the portfolio in which shares are held.
2. Significant Accounting Policies:
The following is a summary of the significant accounting policies followed by
the Fund.
Security Valuation -- Debt obligations exceeding sixty days to maturity for
which market quotations are readily available are valued at the most recent
quoted bid price. Debt obligations with sixty days or less remaining until
maturity may be valued at their amortized cost, which approximates market
value.
Federal Income Taxes -- It is the Fund's intention to qualify as a
regulated investment company by complying with the appropriate provisions
of the Internal Revenue Code of 1986, as amended. Accordingly, no provision
for Federal Income taxes is required.
Security Transactions and Related Income -- Security transactions are
accounted for on the date the security is purchased or sold (trade date).
Interest Income is recognized on the accrual basis. Cost used in
determining realized gains and losses on the sales of investment securities
are those of the specific securities sold during the respective holding
period. Purchase discounts and premiums on securities held by the Fund are
accreted and amortized to maturity using the scientific interest method,
which approximates the effective interest method.
Net Asset Value Per Share -- The net asset value per share of the Fund is
calculated on each business day, by dividing the total value of assets,
less liabilities, by the number of shares outstanding.
Other -- Expenses that are directly related to the Fund are charged to the
Fund. Other operating expenses of the Trust are prorated to the Fund on the
basis of relative daily net assets.
Distributions from net investment income are declared daily and paid to
Shareholders monthly. Any net realized capital gains are distributed to
Shareholders at least annually.
Distributions from net investment income and net realized capital gains are
determined in accordance with the U.S. Federal income tax regulations,
which may differ from those amounts determined under generally accepted
accounting principals. These book/tax differences are either temporary or
permanent in nature. To the extent these differences are permanent, they
are charged or credited to paid-in-capital in the period that the
differences arise. These reclassifications have no effect on net assets or
net asset value.
3. Organization Costs and Transactions with Affiliates:
The Fund incurred organization costs of approximately $13,000. These costs have
been capitalized by the fund and are being amortized over sixty months
commencing with operations. In the event of the initial shares of the fund
redeemed by any holder thereof during the period that the fund is amortizing
its organizational costs the redemption proceeds payable to the holder thereof
by the fund will be reduced by the unamortized organizational costs in the same
ratio as the number of initial shares being redeemed bears to the number of
initial shares outstanding at the time of redemption. These costs include legal
fees of approximately $11,000 for organizational work performed by a law firm
of which an officer of the fund is a partner.
Certain officers and trustees of the Trust are also officers of SEI Financial
Management Company (the "Administrator") and/or SEI Financial Services Company
(the "Distributor"). Such officers and trustees are paid no fees by the Trust
for serving as officers and trustees of the Trust.
4. Administration, Shareholder Servicing and Distribution Agreements:
The Trust and the Administrator are parties to an Administration Agreement,
under which the
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded) THE ADVISORS' INNER CIRCLE FUND
October 31, 1995
Administrator provides management and administrative services for an annual fee
equal to the higher of $75,000 or .20% of the Fund's average daily net assets.
DST Systems Inc., 811 Main Street, Kansas City, Missouri 64105 (the "Transfer
Agent") serves as the transfer agent and dividend disbursing agent for the Fund
under a transfer agency agreement with the Fund.
The Trust and Distributor are parties to a Distribution Agreement. The
Distributor receives no fees for its distribution services under this
agreement.
5. Investment Advisory and Custodian Agreements:
The Trust and HGK Asset Management, Inc. (the "Advisor") are parties to an
Investment Advisory Agreement under which the Advisor receives an annual fee
equal to .50% of the Fund's average daily net assets. The Advisor has
voluntarily agreed to waive all or a portion of its fees in order to limit
operating expenses to not more than 1.00% of the average daily net assets of
the Fund. Fee waivers are voluntary and may be terminated at any time.
CoreStates Bank, N.A. acts as custodian (the "Custodian") for the Fund. Fees of
the Custodian are being paid on the basis of the net assets of the Fund. The
Custodian plays no role in determining the investment policies of the Fund or
which securities are to be purchased and sold in the Fund.
6. Investment Transactions:
The cost of security purchases and the proceeds from security sales, other than
short-term investments, for the period ended October 31, 1995 are as follows:
<TABLE>
<CAPTION>
HGK FIXED INCOME
FUND (000)
----------------
<S> <C>
Purchases
Government.................................................... $10,129
Other......................................................... 20,751
Sales
Government.................................................... $ 6,385
Other......................................................... 15,862
</TABLE>
At October 31, 1995, the total cost of securities and the net realized gains or
losses on securities sold for Federal Income tax purposes was not materially
different from amounts reported for financial reporting purposes. The aggregate
gross unrealized appreciation and depreciation for securities held by the Fund
at October 31, 1995, is as follows:
<TABLE>
<CAPTION>
HGK FIXED INCOME
FUND (000)
----------------
<S> <C>
Aggregate gross unrealized appreciation........................ $312
Aggregate gross unrealized depreciation........................ (61)
----
Net unrealized appreciation.................................... $251
====
</TABLE>
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
Investment Adviser:
OAK ASSOCIATES, LTD.
The Advisors' Inner Circle Fund (the "Fund") provides a convenient and
economical means of investing in professionally managed portfolios of
securities. This Prospectus offers shares of the following mutual funds (each,
a "Portfolio"), each of which is a separate series of the Fund.
WHITE OAK GROWTH STOCK FUND
PIN OAK AGGRESSIVE STOCK FUND
This Prospectus sets forth concisely the information about the Fund and the
Portfolios that a prospective investor should know before investing. Investors
are advised to read this Prospectus and retain it for future reference. A
Statement of Additional Information dated February 28, 1996 has been filed with
the Securities and Exchange Commission and is available without charge by
calling 1-800-932-7781. The Statement of Additional Information is incorporated
into this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
February 28, 1996
<PAGE>
SUMMARY
The following summary provides basic information about the White Oak Growth
Stock Fund ("White Oak Portfolio") and Pin Oak Aggressive Stock Fund ("Pin Oak
Portfolio"). The White Oak Portfolio and the Pin Oak Portfolio are sometimes
referred to individually as a "Portfolio" and collectively as the "Portfolios."
The Portfolios are two of the mutual funds comprising The Advisors' Inner Circle
Fund (the "Fund"). This summary is qualified in its entirety by reference to
the more detailed information provided elsewhere in this Prospectus and in the
Statement of Additional Information.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES? Each Portfolio seeks long-term
capital growth by investing primarily in common stocks of companies that, in the
Adviser's opinion, have strong earnings potential and reasonable market
valuations relative to the market as a whole and common stocks of companies in
the same respective industry classifications. The White Oak Portfolio invests
primarily in established companies with large market capitalization (in excess
of $1 billion). The Pin Oak Portfolio invests primarily in companies with small
to medium market capitalization; such companies may be positioned in emerging
growth industries. There is no assurance that either Portfolio will achieve its
investment objective.
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE PORTFOLIOS? The
investment policies of each Portfolio entail certain risks and considerations of
which an investor should be aware. Each Portfolio invests in securities that
fluctuate in value, and investors should expect each Portfolio's net asset value
per share to fluctuate in value. The share value of the Pin Oak Portfolio may
experience greater volatility than the share value of the White Oak Portfolio
because it invests in less established, smaller capitalization companies.
For more information about each Portfolio, see "Investment Objectives and
Policies," "Risk Factors" and "Description of Permitted Investments and Risk
Factors."
WHO IS THE ADVISER? Oak Associates, Ltd. serves as the investment adviser of
each Portfolio. In addition to advising the Portfolios, the Adviser provides
advisory services to pension plans, religious and educational endowments,
corporations, 401(k) plans, profit sharing plans, individual investors and
trusts and estates. See "Expense Summary" and "The Adviser."
WHO IS THE ADMINISTRATOR? SEI Financial Management Corporation serves as the
administrator and shareholder servicing agent of the Portfolios. See "The
Administrator."
WHO IS THE TRANSFER AGENT? DST Systems, Inc. serves as the transfer agent and
dividend disbursing agent for the Portfolios. See "The Transfer Agent."
<PAGE>
WHO IS THE DISTRIBUTOR? SEI Financial Services Company acts as the distributor
of the Portfolios' shares. See "The Distributor."
IS THERE A SALES LOAD? No, shares of each Portfolio are offered on a no-load
basis.
IS THERE A MINIMUM INVESTMENT? Each Portfolio has a minimum initial investment
of $2,000, and requires subsequent purchases to be at least $500. The
Distributor may waive these minimums at its discretion.
HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Transfer Agent on a day when the New York Stock Exchange is open for
business ("Business Day"). A purchase order will be effective as of the
Business Day received by the Transfer Agent if the Transfer Agent receives an
order and payment by check or with readily available funds prior to 4:00 p.m.,
Eastern time. Redemption orders placed with the Transfer Agent prior to 4:00
p.m., Eastern time on any Business Day will be effective that day. The
Portfolios also offer both a Systematic Investment Plan and a Systematic
Withdrawal Plan. The purchase and redemption price for shares is the net asset
value per share determined as of the end of the day the order is effective. See
"Purchase and Redemption of Shares."
HOW ARE DISTRIBUTIONS PAID? Substantially all of the net investment income
(exclusive of capital gains) of each Portfolio is distributed in the form of
quarterly dividends. Any capital gain is distributed at least annually.
Distributions are paid in additional shares unless the shareholder elects to
take the payment in cash. See "Dividends and Distributions."
3
<PAGE>
EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES
WHITE OAK GROWTH STOCK FUND
PIN OAK AGGRESSIVE STOCK FUND
- --------------------------------------------------------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees (1) None
Exchange Fees None
- --------------------------------------------------------------------------------
(1) A wire redemption charge of $10.00 is deducted from the amount of a Federal
Reserve wire redemption payment made at the request of a shareholder.
ANNUAL OPERATING EXPENSES
<TABLE>
<CAPTION>
(as a percentage of average net assets) WHITE OAK PIN OAK AGGRESSIVE
GROWTH STOCK FUND STOCK FUND
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Advisory Fees (after fee waivers) (2) .06% .30%
12b-1 Fees None None
Other Expenses .94% .70%
- ----------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses (after fee waivers
and reimbursements) (2) 1.00% 1.00%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(2) The Adviser has, on a voluntary basis, waived a portion of its fee and/or
agreed to reimburse certain expenses for each Portfolio, and the fees shown
reflect these voluntary waivers and reimbursements. The Adviser reserves
the right to terminate its waivers and/or reimbursements at any time in its
sole discretion. Absent such waivers and reimbursements, the annual
advisory fees for the White Oak Growth Stock Fund and the Pin Oak
Aggressive Stock Fund would be .74% and .74%, respectively, "Other
Expenses" would be .94% and .70%, respectively, and annual total operating
expenses would be 1.68% and 1.44%, respectively, of average daily net
assets. See "The Adviser."
<TABLE>
<CAPTION>
EXAMPLE
- ----------------------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor in a Portfolio would
pay the following expenses
on a $1,000 investment assuming (1)
5% annual return and (2) redemption
at the end of each time period.
White Oak Growth Stock Fund $10 $32 $55 $122
Pin Oak Aggressive Stock Fund $10 $32 $55 $122
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE IS BASED UPON ESTIMATED TOTAL OPERATING EXPENSES OF A PORTFOLIO
AFTER FEE WAIVERS AND EXPENSE REIMBURSEMENTS. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist the
investor in understanding the various costs and expenses that may be directly or
indirectly borne by investors in a Portfolio. Additional information may be
found under "The Adviser" and "The Administrator."
4
<PAGE>
FINANCIAL HIGHLIGHTS THE ADVISORS' INNER CIRCLE FUND
The following information has been audited by Arthur Andersen LLP, the Fund's
independent public accountants, as indicated in their report dated December 5,
1995 on the Fund's financial statements as of October 31, 1995 included in the
Fund's Statement of Additional Information under "Financial Information." This
table should be read in conjunction with the Fund's audited financial statements
and notes thereto.
<TABLE>
<CAPTION>
For a Share Outstanding Throughout the Period
WHITE OAK
GROWTH STOCK FUND
- ----------------------------------------------------------------------------------------------------------------------------------
11/01/94 11/01/93 11/01/92 08/03/92(1)
TO TO TO TO
10/31/95 10/31/94 10/31/93 10/31/92
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 11.92 $ 10.64 $ 10.33 $ 10.00
- ----------------------------------------------------------------------------------------------------------------------------------
Income From Investment Operations:
Net Investment Income (Loss)................. 0.04 0.02 0.05 0.02
Net Realized and Unrealized Gain
(Loss) on Investments..................... 6.15 1.28 0.32 0.33
- ----------------------------------------------------------------------------------------------------------------------------------
Total From Investment Operations.......... 6.19 1.30 0.37 0.35
- ----------------------------------------------------------------------------------------------------------------------------------
Less Distributions:
Distributions From Net Investment Income..... (0.03) (0.02) (0.06) (0.02)
Dividends From Capital Gains................. -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total Distributions....................... (0.03) (0.02) (0.06) (0.02)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD................. $ 18.08 $ 11.92 $ 10.64 $ 10.33
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN................................... 52.07% 12.24% 3.59% 14.30%*
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End Of Period (000)................ $ 10,495 $ 5,942 $ 5,539 $ 3,195
Ratios Of Expenses To Average Net Assets....... 0.97% 0.97% 0.97% 1.00%*
Ratio Of Expenses To Average Net Assets
(Excluding Waivers and Reimbursements)....... 2.06% 2.24% 2.71% 4.78%*
Ratio Of Net Income (Loss)
To Average Net Assets........................ 0.29% 0.19% 0.54% 0.74%*
Ratio Of Net Income (Loss) To Average
Net Assets (Excluding Waivers and
Reimbursement)............................... (0.80)% (1.08)% (1.20)% (3.04)%*
Portfolio Turnover Rate........................ 22.43% 37.42% 27.48% 0.00%
==================================================================================================================================
* Annualized
</TABLE>
(1) The White Oak Growth Stock Fund commenced operations on August 3, 1992.
5
<PAGE>
FINANCIAL HIGHLIGHTS THE ADVISORS' INNER CIRCLE FUND
The following information has been audited by Arthur Andersen LLP, the Fund's
independent public accountants, as indicated in their report dated December 5,
1995 on the Fund's financial statements as of October 31, 1995 included in the
Fund's Statement of Additional Information under "Financial Information." This
table should be read in conjunction with the Fund's audited financial statements
and notes thereto.
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
PIN OAK
AGGRESSIVE STOCK FUND
11/01/94 11/01/93 11/01/92 08/03/92(1)
TO TO TO TO
10/31/95 10/31/94 10/31/93 10/31/92
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD 11.60 $ 12.62 $ 10.28 $ 10.00
- ----------------------------------------------------------------------------------------------------------------------------------
Income From Investment Operations:
Net Investment Income (Loss)..................... (0.08) (0.06) (0.05) --
Net Realized and Unrealized Gain (Loss) on
Investments..................................... 5.80 (0.96) 2.39 0.28
- ----------------------------------------------------------------------------------------------------------------------------------
Total From Investment Operations............... 5.72 (1.02) 2.34 0.28
- ----------------------------------------------------------------------------------------------------------------------------------
Less Distributions:
Distributions From Net Investment Income......... -- -- -- --
Distributions From Capital Gains................. -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total Distributions............................ -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.................... $ 17.32 $ 11.60 $ 12.62 $ 10.28
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN...................................... 49.31% (8.08)% 22.76% 11.57%*
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End Of Period (000)................... $ 15,652 $ 9,624 $ 9,079 $ 4,127
Ratio Of Expenses To Average Net Assets........... 0.98% 0.96% 0.98% 1.00%*
Ratio Of Expenses To Average Net Assets
(Excluding Waivers and Reimbursements)........... 1.65% 1.74% 2.07% 4.06%*
Ratio Of Net Investment Income To
Average Net Assets............................... (0.70)% (0.62)% (0.48)% 0.03%*
Ratio Of Net Income (Loss) To Average Net Assets
(Excluding Fee Waivers and Reimbursements)....... (1.37)% (1.40)% (1.57)% (3.03)%*
Portfolio Turnover Rate........................... 49.28% 48.88% 68.32% 4.00%
==================================================================================================================================
</TABLE>
* Annualized
(1) The Pin Oak Aggressive Stock Fund commenced operations on August 3, 1992.
6
<PAGE>
THE FUND AND THE PORTFOLIOS
The Advisors' Inner Circle Fund (the "Fund") offers shares of a number of
diversified mutual funds, each of which is a separate series ("portfolio") of
the Fund. Each share of each mutual fund represents an undivided, proportionate
interest in that mutual fund. This Prospectus offers shares of the Fund's White
Oak Growth Stock Fund ("White Oak Portfolio") and Pin Oak Aggressive Stock Fund
("Pin Oak Portfolio") (the White Oak Portfolio and the Pin Oak Portfolio are
sometimes referred to individually as a "Portfolio" and collectively as the
"Portfolios"). Information regarding the other mutual funds in the Fund is
contained in separate prospectuses that may be obtained by calling 1-800-932-
7781.
INVESTMENT OBJECTIVES AND POLICIES
WHITE OAK PORTFOLIO
The White Oak Portfolio seeks long-term capital growth. There can be no
assurance that the Portfolio will be able to achieve this investment objective.
The White Oak Portfolio will normally be as fully invested as practicable in
common stocks, but also may invest in warrants and rights to purchase common
stocks, debt securities and preferred stocks convertible into common stocks, and
American Depositary Receipts ("ADRs"). Under normal market conditions, the
White Oak Portfolio will invest at least 65% of its total assets in common
stocks. The Portfolio will purchase securities primarily of established
companies with large market capitalizations (an equity market capitalization in
excess of $1 billion). The Portfolio may also purchase securities of smaller
established companies if its investment adviser, Oak Associates, Ltd. (the
"Adviser"), believes that such securities offer comparable investment
opportunities.
PIN OAK PORTFOLIO
The Pin Oak Portfolio seeks long-term growth of capital. There can be no
assurance that the Portfolio will be able to achieve this investment objective.
The Pin Oak Portfolio will normally be as fully invested as practicable in
common stocks, but may also invest in warrants and rights to purchase common
stocks, debt securities and preferred stocks convertible into common stocks, and
ADRs. Under normal market conditions, the Pin Oak Portfolio will invest at
least 65% of its total assets in common stocks. The Portfolio will purchase
securities primarily of companies with small to medium market capitalizations
(an equity market capitalization between $100 million and $1 billion); these
companies may be positioned in emerging growth industries. The Pin Oak
Portfolio may purchase the securities of larger companies if the Adviser
believes that they offer comparable investment opportunities or will stabilize
the Portfolio's net asset value.
7
<PAGE>
IN GENERAL
Each Portfolio will purchase securities that the Adviser believes have strong
earnings potential and reasonable market valuations relative to the market as a
whole and common stocks of companies in the same respective industry
classifications. Each Portfolio will purchase only those securities that are
traded in the United States on registered exchanges or the over-the-counter
market.
Each Portfolio may invest in debt securities rates AAA by Standard & Poor's
Corporation ("S&P"). Debt rated AAA has the highest rating S&P assigns to a
debt obligation. Such a rating indicates an extremely strong capacity to pay
principal and interest.
Under normal conditions, each Portfolio may hold up to 15% of its total assets
in cash and investments in the money market instruments described below in order
to maintain liquidity or if the Adviser determines that securities meeting the
Portfolio's investment objective and policies are not otherwise readily
available for purchase.
The Adviser will enter into repurchase agreements on behalf of a Portfolio only
with financial institutions deemed to present minimal risk of bankruptcy during
the term of the agreement based on guidelines established and periodically
reviewed by the Trustees.
A Portfolio will not invest more than 15% of its assets in time deposits and
other illiquid securities.
For temporary defensive purposes during periods when the Adviser determines that
conditions warrant, each Portfolio may invest up to 100% of its assets in money
market instruments (including securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; certificates of deposit, time
deposits and bankers' acceptances issued by banks or savings & loan associations
having net assets of at least $500 million as of the end of their most recent
fiscal year; commercial paper rated at least A-1 by S&P or Prime-1 by Moody's
Investors Service, Inc.; repurchase agreements involving the foregoing
securities; and, to the extent permitted by applicable law, shares of other
investment companies investing solely in money market instruments) and in cash.
For a description of certain permitted investments, see "Description of
Permitted Investments and Risk Factors" and "Description of Permitted
Investments" and the Statement of Additional Information. For a description of
ratings, see the Appendix in the Statement of Additional Information.
RISK FACTORS
8
<PAGE>
Investments in common stocks and other equity securities are subject to market
risks that may cause their prices to fluctuate over time. The value of
securities convertible into equity securities, such as warrants or convertible
debt, is also affected by prevailing interest rates, the credit quality of the
issuer and any call provision. Fluctuations in the value of equity securities in
which a Portfolio invests will cause the net asset value of that Portfolio to
fluctuate. An investment in either Portfolio may therefore be more suitable for
long-term investors who can bear the risk of short-term principal fluctuations.
The Pin Oak Portfolio will invest primarily in securities of issuers with small
to medium market capitalizations. Investing in smaller capitalization companies
involves greater risk than is customarily associated with investments in larger,
more established companies. This increased risk may be due to the greater
business risks of smaller size, limited markets and financial resources, narrow
product lines and frequent lack of depth of management. The securities of
smaller companies are often traded in the over-the-counter market and even if
listed on a national securities exchange may not be traded in volumes typical
for that exchange. Consequently, the securities of smaller companies are less
likely to be liquid, may have limited market stability, and may be subject to
more abrupt or erratic market movements than securities of larger, more
established growth companies or the market averages in general. As a result, the
value of the shares of the Pin Oak Portfolio can be expected to fluctuate more
than the value of shares of an investment company investing solely in larger,
more established companies.
SECURITIES OF FOREIGN ISSUERS - Investments in the securities of foreign issuers
may subject a Portfolio to investment risks that differ in some respects from
those related to investments in securities of U.S. issuers. Such risks include
future adverse political and economic developments, possible imposition of
withholding taxes on income, possible seizure, nationalization or expropriation
of foreign deposits, possible establishment of exchange controls or taxation at
the source or greater fluctuation in value due to changes in exchange rates.
Foreign issuers of securities often engage in business practices different from
those of domestic issuers of similar securities, and there may be less
information publicly available about foreign issuers. In addition, foreign
issuers are, generally speaking, subject to less government supervision and
regulation and different accounting treatment than are those in the United
States.
9
<PAGE>
INVESTMENT LIMITATIONS
The investment objective of each Portfolio and the investment limitations set
forth here and in the Statement of Additional Information are fundamental
policies of that Portfolio. Fundamental policies cannot be changed with respect
to a Portfolio without the consent of the holders of a majority of that
Portfolio's outstanding shares.
No Portfolio may:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States, its agencies or instrumentalities and repurchase agreements
involving such securities) if as a result more than 5% of the total assets of
the Portfolio would be invested in the securities of such issuer. This
restriction applies to 75% of the Portfolio's total assets.
2. Purchase any securities which would cause 25% or more of the total assets of
a Portfolio to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase agreements
involving such securities. For purposes of this limitation, (i) utility
companies will be divided according to their services, for example, gas
distribution, gas transmission, electric and telephone will each be considered a
separate industry, and (ii) financial service companies will be classified
according to the end users of their services, for example, automobile finance,
bank finance and diversified finance will each be considered a separate
industry.
3. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding 10% of the value of its total assets.
The foregoing percentages will apply at the time of the purchase of a security.
THE ADVISER
Oak Associates, Ltd. is a professional investment management firm and registered
investment adviser founded in April 1985. James D. Oelschlager is the sole
proprietor of the Adviser. As of October 31, 1995, the Adviser had
discretionary management authority with respect to approximately $2.9 billion of
assets, of which approximately $2.6 billion was invested in equity securities.
The principal business address of the Adviser is 3875 Embassy Parkway, Suite
250, Akron, Ohio 44333.
The Adviser serves as the investment adviser for each Portfolio under an
investment advisory agreement (the "Advisory Agreement"). Under the Advisory
Agreement, the Adviser makes the investment decisions for the assets of the
Portfolios and continuously reviews, supervises and administers the investment
program of each Portfolio, subject
10
<PAGE>
to the supervision of, and policies established by, the Trustees of the Fund. In
addition to advising the Portfolios, the Adviser provides advisory services to
pension plans, religious and educational endowments, corporations, 401(k) plans,
profit sharing plans, individual investors and trusts and estates.
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of .74% of the average daily net assets of
the White Oak Portfolio and .74% of the average daily net assets of the Pin Oak
Portfolio, respectively. The Adviser has voluntarily agreed to waive all or a
portion of its fee for each Portfolio and to reimburse expenses of each
Portfolio in order to limit total operating expenses of that Portfolio to an
annual rate of not more than 1.00% of average daily net assets. The Adviser
reserves the right, in its sole discretion, to terminate its voluntary fee
waivers and reimbursements at any time. For the fiscal year ended October 31,
1995, the Adviser received Advisory fees of .00% and .07%, respectively, of the
White Oak and Pin Oak Portfolios' average daily net assets, and the Adviser
waived all fees and reimbursed expenses for the White Oak Portfolio equal to
.35% of that Portfolio's average daily net assets.
James D. Oelschlager, President of the Adviser since 1985, has managed the
portfolios of the White Oak Portfolio and the Pin Oak Portfolio since their
inception, with both Donna Barton and Doug MacKay serving as assistant portfolio
managers during this period. Ms. Barton has been a trader for the Adviser since
1985. Mr. MacKay has been a research analyst for the Adviser since 1990; prior
to 1990, Mr. MacKay was a credit analyst for the Pittsburgh National Bank.
THE ADMINISTRATOR
SEI Financial Management Corporation (the "Administrator"), a wholly-owned
subsidiary of SEI Corporation ("SEI"), provides the Fund with administrative
services, including regulatory reporting and all necessary office space,
equipment, personnel and facilities.
For these administrative services, the Administrator is entitled to a fee from
each Portfolio, which fee is calculated daily and paid monthly, at an annual
rate of .20% of the average daily net assets of that Portfolio. However, each
Portfolio pays the Administrator a minimum annual fee of $50,000. The
administration fee a Portfolio pays will decline to an annual rate of .20% of
the Portfolio's average daily net assets at net asset levels of $25 million and
above.
The Administrator also serves as the shareholder servicing agent for each
Portfolio under a shareholder servicing agreement with the Fund.
11
<PAGE>
THE TRANSFER AGENT
DST Systems, Inc., 210 W. 10th Street, Kansas City, Missouri 64105 (the
"Transfer Agent") serves as the transfer agent and dividend disbursing agent for
the Fund under a transfer agency agreement with the Fund.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly owned subsidiary of
SEI, serves as the Fund's distributor pursuant to a distribution agreement (the
"Distribution Agreement"). No compensation is paid to the Distributor for
distribution services for the shares of either Portfolio.
PORTFOLIO TRANSACTIONS
The Advisory Agreement authorizes the Adviser to select broker-dealers that will
execute the purchase or sale of investment securities for each Portfolio and
directs the Adviser to seek to obtain the best net results.
Each Portfolio may execute brokerage or other agency transactions through the
Distributor for which the Distributor may receive usual and customary
compensation. Because shares of the Portfolios are not marketed through
intermediary broker-dealers, it is not a Portfolio's practice to allocate
brokerage or effect principal transactions with broker-dealers on the basis of
sales of shares that may be made through such firms. However, the Adviser may
place orders for a Portfolio with qualified broker-dealers who refer clients to
that Portfolio.
PURCHASE AND REDEMPTION OF SHARES
Investors may purchase and redeem shares of either Portfolio directly through
the Transfer Agent, P.O. Box 419009, Kansas City, Missouri 64141-6009 by mail or
wire transfer. All shareholders may place wire transfer orders, and exchange
and redemption orders, by telephone; when market conditions are extremely busy,
it is possible that investors may experience difficulties placing orders by
telephone and may wish to place orders by mail. Purchases and redemptions of
shares of each Portfolio may be made on any Business Day. Shares of the
Portfolios are offered only to residents of states in which such shares are
eligible for purchase. Certain broker-dealers assist their clients in the
purchase or redemptions of shares from the Distributor and charge a fee for this
service in addition to a Portfolio's public offering price.
The minimum initial investment in the Portfolio is $2,000, and subsequent
purchases must be at least $500. The Distributor may waive these minimums at
its discretion. No minimum applies to subsequent purchases effected by dividend
reinvestment. As
12
<PAGE>
described below, subsequent purchases through the Portfolios' Systematic
Investment Plan must be at least $100.
PURCHASES BY MAIL
An account may be opened by mailing a check or other negotiable bank draft
(payable to the name of the appropriate Portfolio) for $2,000 or more, together
with a completed Account Application to the Transfer Agent, P.O. Box 419009,
Kansas City, Missouri 64141-6009. Subsequent investments may also be mailed
directly to the Transfer Agent.
PURCHASES BY WIRE TRANSFER
Shareholders having an account with a commercial bank that is a member of the
Federal Reserve System may purchase shares of either Portfolio by requesting
their bank to transmit funds by wire to: United Missouri Bank of Kansas, N.A.;
ABA #10-10-00695; for Account Number 98-7052-396-5; Further Credit: either White
Oak Growth Stock Fund or Pin Oak Aggressive Stock Fund. The shareholder's name
and account number must be specified in the wire.
Initial Purchases: Before making an initial investment by wire, an investor
must first telephone 1-800-808-4921 to be assigned an account number. The
investor's name, account number, taxpayer identification number or Social
Security number, and address must be specified in the wire. In addition, an
Account Application should be promptly forwarded to: DST Systems, Inc., P.O.
Box 419009, Kansas City, Missouri 64141-6009.
Subsequent Purchases: Additional investments may be made at any time through
the wire procedures described above, which must include a shareholder's name and
account number. The investor's bank may impose a fee for investments by wire.
GENERAL INFORMATION REGARDING PURCHASES
A purchase order will be effective as of the day received by the Transfer Agent
if the Transfer Agent receives the order and payment before 4:00 p.m., Eastern
time. Payment may be made by check or readily available funds. The purchase
price of shares of a Portfolio is the net asset value per share next determined
after a purchase order is effective. Purchases will be made in full and
fractional shares of a Portfolio calculated to three decimal places. The Fund
will not issue certificates representing shares of the Portfolio.
If a check received for the purchase of shares does not clear, the purchase will
be cancelled, and the investor could be liable for any losses or fees incurred.
The Fund reserves the right to reject a purchase order when the Fund determines
that it is not in the best interest of the Fund or its shareholders to accept
such order.
13
<PAGE>
SYSTEMATIC INVESTMENT PLAN - A shareholder may also arrange for periodic
additional investments in the Portfolios through automatic deductions by
Automated Clearing House ("ACH") transfers from a checking or savings account by
completing the appropriate section of the Account Application form. This
Systematic Investment Plan is subject to account minimum initial purchase
amounts and a minimum pre-authorized investment amount of $100 per month. An
Account Application form may be obtained by calling 1-800-932-7781.
EXCHANGES
Shareholders of either Portfolio may exchange their shares for shares of the
other Portfolio. Exchanges are made at net asset value. An exchange is
considered a sale of shares and will result in capital gain or loss for federal
income tax purposes. The shareholder must have received a current prospectus
for the new Portfolio before any exchange will be effected, and the exchange
privilege may be exercised only in those states where shares of the new
Portfolio may legally be sold. If the Transfer Agent receives exchange
instructions in writing or by telephone (an "Exchange Request") in good order by
4:00 p.m., Eastern time on any Business Day, the exchange will be effected that
day. The liability of the Fund or the Transfer Agent for fraudulent or
unauthorized telephone instructions may be limited as described below. The Fund
reserves the right to modify or terminate this exchange offer on 60 days'
notice.
REDEMPTIONS
Redemption orders received by the Transfer Agent prior to 4:00 p.m., Eastern
time on any Business Day will be effective that day. The redemption price of
shares is the net asset value per share of the Portfolio next determined after
the redemption order is effective. Payment on redemption will be made as
promptly as possible and, in any event, within seven days after the redemption
order is received, provided, however, that redemption proceeds for shares
purchased by check (including certified or cashier's checks) will be forwarded
only upon collection of payment for such shares; collection of payment may take
15 or more days. Shareholders may not close their accounts by telephone.
Shareholders may receive redemption payments in the form of a check or by
Federal Reserve wire transfer or ACH wire transfer. There is no charge for
having a check for redemption proceeds mailed. The custodian will deduct a wire
charge, currently $10.00, from the amount of a Federal Reserve wire redemption
payment made at the request of a shareholder. Shareholders cannot redeem shares
of a Portfolio by Federal Reserve wire on federal holidays restricting wire
transfers. The Fund does not charge for ACH wire transfers; however, such
transactions will not be posted to a shareholder's bank account until the second
Business Day following the transaction.
14
<PAGE>
SYSTEMATIC WITHDRAWAL PLAN - Each Portfolio offers a Systematic Withdrawal Plan
("SWP") for shareholders who wish to receive regular distributions from their
account. Upon commencement of the SWP, the account must have a current value of
$25,000 or more. Shareholders may elect to receive automatic payments via ACH
wire transfers of $100 or more on a monthly, quarterly, semi-annual or annual
basis. An application form for SWP may be obtained by calling
1-800-932-7781.
Shareholders should realize that if withdrawals exceed income dividends, their
invested principal in the account will be depleted. Thus, depending on the
frequency and amounts of the withdrawal payments and/or any fluctuations in the
net asset value per share, their original investment could be exhausted
entirely. To participate in the SWP, shareholders must have their dividends
automatically reinvested. Shareholders may change or cancel the SWP at any
time, upon written notice to the Transfer Agent.
Neither the Fund nor the Transfer Agent will be responsible for the authenticity
of the redemption instructions received by telephone if it reasonably believes
those instructions to be genuine. The Fund and the Transfer Agent will each
employ reasonable procedures to confirm that telephone instructions are genuine,
and may be liable for losses resulting from unauthorized or fraudulent telephone
transactions if it does not employ those procedures. Such procedures may include
taping of telephone conversations.
The right of redemption may be suspended or the date of payment of redemption
proceeds postponed during certain periods as set forth more fully in the
Statement of Additional Information.
The net asset value per share of each Portfolio is determined by dividing the
total market value of that Portfolio's investments and other assets, less any
liabilities, by the total outstanding shares of that Portfolio. Net asset value
per share is determined daily as of the close of business of the New York Stock
Exchange (normally, 4:00 p.m., Eastern time) on any Business Day.
PERFORMANCE
From time to time, a Portfolio may advertise its yield and total return. These
figures will be based on historical earnings and are not intended to indicate
future performance. No representation can be made regarding actual future
yields or returns. The yield of a Portfolio refers to the annualized income
generated by an investment in the Portfolio over a specified 30-day period. The
yield is calculated by assuming that the same amount of income generated by the
investment during that period is generated in each 30-day period over one year
and is shown as a percentage of the investment.
The total return of a Portfolio refers to the average compounded rate of return
on a hypothetical investment, for designated time periods (including but not
limited to the
15
<PAGE>
period from which the Portfolio commenced operations through the
specified date), assuming that the entire investment is redeemed at the end of
each period and assuming the reinvestment of all dividend and capital gain
distributions.
A Portfolio may periodically compare its performance to that of other mutual
funds tracked by mutual fund rating services (such as Lipper Analytical
Services, Inc.), or by financial and business publications and periodicals, of
broad groups of comparable mutual funds, unmanaged indices, which may assume
investment of dividends but generally do not reflect deductions for
administrative and management costs, or other investment alternatives. A
Portfolio may quote Morningstar, Inc., a service that ranks mutual funds on the
basis of risk-adjusted performance. A Portfolio may quote Ibbotson Associates
of Chicago, Illinois, which provides historical returns of the capital markets
in the U.S. The Portfolio may use long term performance of these capital
markets to demonstrate general long-term risk versus reward scenarios and could
include the value of a hypothetical investment in any of the capital markets.
The Portfolio may also quote financial and business publications and periodicals
as they relate to fund management, investment philosophy, and investment
techniques.
A Portfolio may quote various measures of volatility and benchmark correlation
in advertising and may compare these measures to those of other funds. Measures
of volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.
Additional performance information regarding each Portfolio is set forth in the
1995 Annual Report to Shareholders, available on request and without charge by
calling 1-800-932-7781.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action.
No attempt has been made to present a detailed explanation of the federal,
state, or local income tax treatment of a Portfolio or its shareholders.
Accordingly, shareholders are urged to consult their tax advisors regarding
specific questions as to federal, state and local income taxes.
16
<PAGE>
TAX STATUS OF THE PORTFOLIOS:
Each Portfolio is treated as a separate entity for federal income tax purposes
and is not combined with the Fund's other portfolios. Each Portfolio intends to
qualify or to continue to qualify for the special tax treatment afforded
regulated investment companies as defined under Subchapter M of the Internal
Revenue Code of 1986, as amended. So long as a Portfolio qualifies for this
special tax treatment, it will be relieved of federal income tax on that part of
its net investment income and net capital gain (the excess of net long-term
capital gain over net short-term capital loss) which it distributes to
shareholders.
TAX STATUS OF DISTRIBUTIONS:
Each Portfolio will distribute all of its net investment income (including, for
this purpose, net short-term capital gain) to shareholders. Dividends from net
investment income will be taxable to shareholders as ordinary income whether
received in cash or in additional shares. Distributions from net investment
income will qualify for the dividends-received deduction for corporate
shareholders only to the extent such distributions are derived from dividends
paid by domestic corporations. It can be expected that only certain dividends
of each Portfolio will qualify for that deduction. Any net capital gains will
be distributed annually and will be taxed to shareholders as long-term capital
gains, regardless of how long the shareholder has held shares. Each Portfolio
will make annual reports to shareholders of the federal income tax status of all
distributions, including the amount of dividends eligible for the dividends-
received deduction.
Certain securities purchased by a Portfolio (such as STRIPS) are sold with
original issue discount and thus do not make periodic cash interest payments.
For a further description of such securities, see "Description of Permitted
Investments and Risk Factors" below. Each Portfolio will be required to include
as part of its current income the accrued discount on such obligations even
though the Portfolio has not received any interest payments on such obligations
during that period. Because each Portfolio distributes all of its net
investment income to its shareholders, a Portfolio may have to sell portfolio
securities to distribute such accrued income, which may occur at a time when
the Adviser would not have chosen to sell such securities and which may result
in a taxable gain or loss.
Income received on direct U.S. obligations is exempt from income tax at the
state level when received directly and may be exempt, depending on the state,
when received by a shareholder from a Portfolio provided certain state-specific
conditions are satisfied. The Portfolios will inform shareholders annually of
the percentage of income and distributions derived from direct U.S. obligations.
Shareholders should consult their tax advisers to determine whether any portion
of the income dividends received from a Portfolio is considered tax exempt in
their particular state.
17
<PAGE>
Dividends declared by a Portfolio in October, November or December of any year
and payable to shareholders of record on a date in one of those months will be
deemed to have been paid by the Portfolio and received by the shareholders on
December 31 of that year, if paid by the Portfolio at any time during the
following January.
Each Portfolio intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for federal excise tax.
Sale, exchange or redemption of a Portfolio's shares is a taxable event to the
shareholder.
Income derived by a Portfolio from securities of foreign issuers may be subject
to foreign withholding taxes. A Portfolio will not be able to elect to treat
shareholders as having paid their proportionate share of such foreign taxes.
GENERAL INFORMATION
THE FUND
The Fund, an open-end investment management company that offers shares of
diversified portfolios, was organized under Massachusetts law as a business
trust under a Declaration of Trust dated July 18, 1991. The Declaration of
Trust permits the Fund to offer separate series ("portfolios") of shares. All
consideration received by the Fund for shares of any portfolio and all assets of
such portfolio belong to that portfolio and would be subject to liabilities
related thereto. The Fund reserves the right to create and issue shares of
additional portfolios.
The Fund pays its (i) operating expenses, including fees of its service
providers, expenses of preparing prospectuses, proxy solicitation material and
reports to shareholders, costs of custodial services and registering its shares
under federal and state securities laws, pricing and insurance expenses,
brokerage costs, interest charges, taxes and organization expenses and (ii) pro
rata share of the Fund's other expenses, including audit and legal expenses.
Each Portfolio's expense ratios are disclosed under "Financial Highlights."
TRUSTEES OF THE FUND
The management and affairs of the Fund are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Fund.
18
<PAGE>
VOTING RIGHTS
Each share held entitles the shareholder of record to one vote. Each Portfolio
will vote separately on matters relating solely to it. As a Massachusetts
business trust, the Fund is not required to hold annual meetings of shareholders
but shareholders' approval will be sought for certain changes in the operation
of the Fund and for the election of Trustees under certain circumstances. In
addition, a Trustee may be removed by the remaining Trustees or by shareholders
at a special meeting called upon written request of shareholders owning at least
10% of the outstanding shares of the Fund. In the event that such a meeting is
requested, the Fund will provide appropriate assistance and information to the
shareholders requesting the meeting.
REPORTING
The Fund issues unaudited financial information semi-annually and audited
financial statements annually for each Portfolio. The Fund also furnishes
periodic reports and, as necessary, proxy statements to shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to The Advisors' Inner Circle Fund,
P.O. Box 419009, Kansas City, Missouri 64141-6009 or by calling 1-800-932-7781.
Purchases, redemptions and exchanges of shares should be made through the
Transfer Agent by calling 1-800-808-4921.
DIVIDENDS AND DISTRIBUTIONS
Substantially all of the net investment income (exclusive of capital gain) of
each Portfolio is distributed in the form of quarterly dividends. Shareholders
of record on the next to last Business Day of each quarter will be entitled to
receive the quarterly dividend distribution, which is generally paid within 10
Business Days after the end of the quarter. If any capital gain is realized,
substantially all of it will be distributed at least annually.
Shareholders automatically receive all income dividends and capital gain
distributions in additional shares, unless the shareholder has elected to take
such payment in cash. Shareholders may change their election by providing
written notice to the Transfer Agent at least 15 days prior to the distribution.
Shareholders may receive payments for cash distributions in the form of a check
or by Federal Reserve wire transfer or ACH wire transfers.
Dividends and other distributions of a Portfolio are paid on a per share basis.
The value of each share will be reduced by the amount of the payment. If shares
are purchased shortly before the record date for a distribution of ordinary
income or capital
19
<PAGE>
gains, a shareholder will pay the full price for the shares and receive some
portion of the price back as a taxable dividend or distribution.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Morgan, Lewis & Bockius LLP serves as counsel to the Fund. Arthur Andersen LLP
serves as the independent public accountants of the Fund.
CUSTODIAN
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101 acts as the custodian (the "Custodian") of the Fund. The
Custodian holds cash, securities and other assets of the Fund as required by the
Investment Company Act of 1940, as amended (the "1940 Act").
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS
The following is a description of certain of the permitted investments for each
Portfolio:
AMERICAN DEPOSITARY RECEIPTS ("ADRS") - ADRs are securities, typically issued
by a U.S. financial institution (a "depositary"), that evidence ownership
interests in a security or a pool of securities issued by a foreign issuer and
deposited with the depositary. ADRs may be available through "sponsored" or
"unsponsored" facilities. A sponsored facility is established jointly by the
issuer of the security underlying the receipt and a depositary, whereas an
unsponsored facility may be established by a depositary without participation by
the issuer of the underlying security. Holders of unsponsored depositary
receipts generally bear all the costs of the unsponsored facility. The
depositary of an unsponsored facility frequently is under no obligation to
distribute shareholder communications received from the issuer of the deposited
security or to pass through, to the holders of the receipts, voting rights with
respect to the deposited securities.
BANKERS' ACCEPTANCE - Bankers' acceptances are bills of exchange or time drafts
drawn on and accepted by a commercial bank. Bankers' acceptances are used by
corporations to finance the shipment and storage of goods. Maturities are
generally six months or less.
CERTIFICATE OF DEPOSIT - Certificates of deposit are interest bearing
instruments with a specific maturity. They are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit with
penalties for early withdrawal will be considered illiquid.
20
<PAGE>
COMMERCIAL PAPER - Commercial paper is a term used to describe unsecured short-
term promissory notes issued by banks, municipalities, corporations and other
entities. Maturities on these issues vary from a few to 270 days.
CONVERTIBLE SECURITIES - Convertible securities are corporate securities that
are exchangeable for a set number of another security at a prestated price.
Convertible securities typically have characteristics similar to both fixed
income and equity securities. Because of the conversion feature, the market
value of a convertible security tends to move with the market value of the
underlying stock. The value of a convertible security is also affected by
prevailing interest rates, the credit quality of the issuer, and any call
provisions.
REPURCHASE AGREEMENTS - Repurchase agreements are agreements by which the
Portfolio obtains a security and simultaneously commits to return the security
to the seller at an agreed upon price on an agreed upon date within a number of
days from the date of purchase. The Custodian will hold the security as
collateral for the repurchase agreement. The Portfolio bears a risk of loss in
the event the other party defaults on its obligations and the Portfolio is
delayed or prevented from exercising its right to dispose of the collateral or
if the Portfolio realizes a loss on the sale of the collateral. The Portfolio
will enter into repurchase agreements only with financial institutions deemed to
present minimal risk of bankruptcy during the term of the agreement based on
established guidelines. Repurchase agreements are considered loans under the
1940 Act.
TIME DEPOSIT - Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits are considered to be illiquid
securities.
U.S. GOVERNMENT AGENCIES - Obligations issued or guaranteed by agencies of the
U.S. Government, including, among others, the Federal Farm Credit Bank, the
Federal Housing Administration and the Small Business Administration, and
obligations issued or guaranteed by instrumentalities of the U.S. Government,
including, among others, the Federal Home Loan Mortgage Corporation, the Federal
Land Banks and the U.S. Postal Service. Some of these securities are supported
by the full faith and credit of the U.S. Treasury (e.g., Government National
Mortgage Association), others are supported by the right of the issuer to borrow
from the Treasury (e.g., Federal Farm Credit Bank), while still others are
supported only by the credit of the instrumentality (e.g., Federal National
Mortgage Association). Guarantees of principal by agencies or instrumentalities
of the U.S. Government may be a guarantee of payment at the maturity of the
obligation so that in the event of a default prior to maturity there might not
be a market and thus no means of realizing on the obligation prior to maturity.
Guarantees as to the timely payment of principal and interest do not extend to
the value or yield of these securities nor to the value of the Portfolio's
shares.
21
<PAGE>
U.S. GOVERNMENT DIRECT OBLIGATIONS - U.S. Treasury obligations consist of bills,
notes and bonds issued by the U.S. Treasury and separately traded interest and
principal component parts of such obligations that are transferable through the
federal book-entry system known as Separately Traded Registered Interest and
Principal Securities ("STRIPS").
22
<PAGE>
TABLE OF CONTENTS
SUMMARY................................................................. 2
EXPENSE SUMMARY......................................................... 4
FINANCIAL HIGHLIGHTS.................................................... 5
THE FUND AND THE PORTFOLIOS............................................. 7
INVESTMENT OBJECTIVES AND POLICIES...................................... 7
RISK FACTORS............................................................ 8
INVESTMENT LIMITATIONS.................................................. 9
THE ADVISER............................................................. 10
THE ADMINISTRATOR....................................................... 11
THE TRANSFER AGENT...................................................... 11
THE DISTRIBUTOR......................................................... 12
PORTFOLIO TRANSACTIONS.................................................. 12
PURCHASE AND REDEMPTION OF SHARES....................................... 12
PERFORMANCE............................................................. 15
TAXES................................................................... 16
GENERAL INFORMATION..................................................... 18
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS................... 20
<PAGE>
FUND:
THE ADVISORS' INNER CIRCLE FUND
PORTFOLIOS:
WHITE OAK GROWTH STOCK FUND
PIN OAK AGGRESSIVE STOCK FUND
ADVISER:
OAK ASSOCIATES, LTD.
DISTRIBUTOR:
SEI FINANCIAL SERVICES COMPANY
ADMINISTRATOR:
SEI FINANCIAL MANAGEMENT CORPORATION
LEGAL COUNSEL:
MORGAN, LEWIS & BOCKIUS LLP
INDEPENDENT PUBLIC ACCOUNTANTS:
ARTHUR ANDERSEN LLP
FEBRUARY 28, 1996
<PAGE>
FUND:
THE ADVISORS' INNER CIRCLE FUND
PORTFOLIOS:
WHITE OAK GROWTH STOCK FUND
PIN OAK AGGRESSIVE STOCK FUND
INVESTMENT ADVISER:
OAK ASSOCIATES LTD.
This Statement of Additional Information is not a prospectus and relates only to
the White Oak Growth Stock Fund (the "White Oak Portfolio") and Pin Oak
Aggressive Stock Fund (the "Pin Oak Portfolio")(each a "Portfolio" and
collectively, the "Portfolios"). It is intended to provide additional
information regarding the activities and operations of The Advisors' Inner
Circle Fund (the "Fund") and the Portfolios and should be read in conjunction
with the Portfolios' Prospectus dated February 28, 1996. The Prospectus for the
Portfolios may be obtained by calling 1-800-932-7781.
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE FUND............................... S - 3
DESCRIPTION OF PERMITTED INVESTMENTS... S - 3
INVESTMENT LIMITATIONS................. S - 4
THE ADVISER............................ S - 6
THE ADMINISTRATOR...................... S - 7
THE DISTRIBUTOR........................ S - 8
TRUSTEES AND OFFICERS OF THE FUND...... S - 8
COMPUTATION OF YIELD AND TOTAL RETURN.. S - 11
PURCHASE AND REDEMPTION OF SHARES...... S - 12
DETERMINATION OF NET ASSET VALUE....... S - 13
TAXES.................................. S - 13
PORTFOLIO TRANSACTIONS................. S - 15
DESCRIPTION OF SHARES.................. S - 17
SHAREHOLDER LIABILITY.................. S - 17
LIMITATION OF TRUSTEES' LIABILITY...... S - 17
5% SHAREHOLDERS........................ S - 18
EXPERTS................................ S - 18
FINANCIAL STATEMENTS................... S - 18
APPENDIX............................... A - 1
</TABLE>
February 28, 1996
OAK-F-011-04
<PAGE>
THE FUND
This Statement of Additional Information relates only to the White Oak Growth
Stock Fund (the "White Oak Portfolio") and Pin Oak Aggressive Stock Fund (the
"Pin Oak Portfolio") (each a "Portfolio"). Each Portfolio is a separate series
of The Advisors' Inner Circle Fund (the "Fund"), an open-end investment
management company that offers shares of diversified portfolios, established
under Massachusetts law as a Massachusetts business trust under a Declaration of
Trust dated July 18, 1991. The Declaration of Trust permits the Fund to offer
separate series ("portfolios") of shares of beneficial interest ("shares").
Each portfolio is a separate mutual fund, and each share of each portfolio
represents an equal proportionate interest in that portfolio. See "Description
of Shares." No investment in shares of a portfolio should be made without first
reading that portfolio's prospectus. Capitalized terms not defined herein are
defined in the Prospectus offering shares of the Portfolios.
DESCRIPTION OF PERMITTED INVESTMENTS
REPURCHASE AGREEMENTS are agreements by which a person (e.g., a portfolio)
obtains a security and simultaneously commits to return the security to the
seller (a member bank of the Federal Reserve System or primary securities dealer
as recognized by the Federal Reserve Bank of New York) at an agreed upon price
(including principal and interest) on an agreed upon date within a number of
days (usually not more than seven) from the date of purchase. The resale price
reflects the purchase price plus an agreed upon market rate of interest which is
unrelated to the coupon rate or maturity of the underlying security. A
repurchase agreement involves the obligation of the seller to pay the agreed
upon price, which obligation is in effect secured by the value of the underlying
security.
Repurchase agreements are considered to be loans by a Portfolio for purposes of
its investment limitations. The repurchase agreements entered into by a
Portfolio will provide that the underlying security at all times shall have a
value at least equal to 102% of the resale price stated in the agreement (the
Adviser monitors compliance with this requirement). Under all repurchase
agreements entered into by a Portfolio, the custodian or its agent must take
possession of the underlying collateral. However, if the seller defaults, the
Portfolio could realize a loss on the sale of the underlying security to the
extent that the proceeds of the sale, including accrued interest, are less than
the resale price provided in the agreement including interest. In addition,
even though the Bankruptcy Code provides protection for most repurchase
agreements, if the seller should be involved in bankruptcy or insolvency
proceedings, a Portfolio may incur delay and costs in selling the underlying
security or may suffer a loss of principal and interest if the Portfolio is
treated as an unsecured creditor and is required to return the underlying
security to the seller's estate.
S-2
<PAGE>
INVESTMENT COMPANY SHARES
Each Portfolio may invest in shares of other investment companies, to the extent
permitted by applicable law and subject to certain restrictions. These
investment companies typically incur fees that are separate from those fees
incurred directly by the Portfolio. A Portfolio's purchase of such investment
company securities results in the layering of expenses, such that shareholders
would indirectly bear a proportionate share of the operating expenses of such
investment companies, including advisory fees, in addition to paying Portfolio
expenses. Under applicable regulations, a Portfolio is prohibited from
acquiring the securities of another investment company if, as a result of such
acquisition: (1) the Portfolio owns more than 3% of the total voting stock of
the other company; (2) securities issued by any one investment company represent
more than 5% of the Portfolio's total assets; or (3) securities (other than
treasury stock) issued by all investment companies represent more than 10% of
the total assets of the Portfolio. See also "Investment Limitations."
It is the position of the staff of the Securities and Exchange Commission
("SEC") that certain non-governmental issuers of CMOs constitute investment
companies pursuant to the Investment Company Act of 1940, as amended (the "1940
Act"), and either (a) investments in such instruments are subject to the
limitations set forth above or (b) the issuers of such instruments have received
orders from the SEC exempting such instruments from the definition of investment
company.
INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
The following investment limitations are fundamental policies of each Portfolio
that cannot be changed with respect to a Portfolio without the consent of the
holders of a majority of that Portfolio's outstanding shares. The phrase
"majority of the outstanding shares" means the vote of (i) 67% or more of a
Portfolio's shares present at a meeting, if more than 50% of the outstanding
shares of a Portfolio are present or represented by proxy, or (ii) more than 50%
of a Portfolio's outstanding shares, whichever is less.
No Portfolio may:
1. Acquire more than 10% of the voting securities of any one issuer.
2. Invest in companies for the purpose of exercising control.
3. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding 10% of the value of total assets. Any borrowing will
be done from a bank and, to the extent that such borrowing exceeds 5% of
the value of the Portfolio's assets, asset coverage of at least 300% is
required. In the event
S-3
<PAGE>
that such asset coverage shall at any time fall below 300%, the Portfolio
shall, within three days thereafter or such longer period as the SEC may
prescribe by rules and regulations, reduce the amount of its borrowings to
such an extent that the asset coverage of such borrowings shall be at least
300%. This borrowing provision is included solely for temporary liquidity
or emergency purposes. All borrowings in excess of 5% of a Portfolio's
total assets will be repaid before making investments and any interest paid
on such borrowings will reduce income.
4. Make loans, except that the Portfolio may purchase or hold debt instruments
in accordance with its investment objective and policies, and the Portfolio
may enter into repurchase agreements, as described in the Prospectus and in
this Statement of Additional Information.
5. Pledge, mortgage or hypothecate assets except to secure temporary
borrowings permitted by (3) above in aggregate amounts not to exceed 10% of
total assets taken at current value at the time of the incurrence of such
loan.
6. Purchase or sell real estate, real estate limited partnership interests,
futures contracts, commodities or commodities contracts, provided that this
shall not prevent the Portfolio from investing in readily marketable
securities of issuers which can invest in real estate or commodities,
institutions that issue mortgages, real estate investment trusts which deal
in real estate or interests therein pursuant to the Portfolio's investment
objective and policies.
7. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Portfolio may obtain short-term
credits as necessary for the clearance of security transactions.
8. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
9. Purchase securities of other investment companies except as permitted by
the 1940 Act and the rules and regulations thereunder.
10. Issue senior securities (as defined in the 1940 Act) except in connection
with permitted borrowings as described above or as permitted by rule,
regulation or order of the SEC.
11. Purchase or retain securities of an issuer if, to the knowledge of the
Fund, an officer, trustee, partner or director of the Fund or any
investment adviser of the Fund owns beneficially more than 1/2 of 1% of the
shares or securities of such issuer and all such officers, trustees,
partners and directors owning more than
S-4
<PAGE>
1/2 of 1% of such shares or securities together own more than 5% of such
shares or securities.
12. Invest in interests in oil, gas or other mineral exploration or development
programs and oil, gas or mineral leases.
NON-FUNDAMENTAL POLICIES
The following investment limitations of each Portfolio are non-fundamental and
may be changed by the Fund's Board of Trustees without shareholder approval:
1. A Portfolio may not write or purchase puts, calls, options or combinations
thereof.
2. A Portfolio may not invest in illiquid securities in an amount exceeding,
in the aggregate, 15% of that Portfolio's assets. An illiquid security is
a security which cannot be disposed of promptly (within seven days), and in
the usual course of business without a loss, and includes repurchase
agreements maturing in excess of seven days, time deposits with a
withdrawal penalty, non-negotiable instruments and instruments for which no
market exists.
3. A Portfolio may invest in warrants valued at lower of cost or market value
not exceeding 5% of the Portfolio's net assets. Included in that amount,
but not to exceed 2% of a Portfolio's net assets may be warrants not listed
on the New York Stock Exchange or American Stock Exchange.
4. A Portfolio may not invest more than 10% of its total assets in the
securities of issuers which together with any predecessors have a record of
less than three years continuous operation.
5. To the extent a Portfolio is registered in the state of California and
purchases securities of other investment companies, such purchase shall be
limited to shares of money market open-end investment companies and the
Adviser will waive its fee on that portion of the assets placed in such
money market open-end investment companies.
The foregoing percentages will apply at the time of the purchase of a security.
THE ADVISER
The Fund and Oak Associates Ltd. (the "Adviser") have entered into an advisory
agreement (the "Advisory Agreement"). The Advisory Agreement provides that the
Adviser shall not be protected against any liability to the Fund or its
shareholders by reason of willful misfeasance, bad faith or gross negligence on
its part in the
S-5
<PAGE>
performance of its duties or from reckless disregard of its obligations or
duties thereunder.
The Advisory Agreement provides that if, for any fiscal year, the ratio of
expenses of a Portfolio (including amounts payable to the Adviser but excluding
interest, taxes, brokerage, litigation, and other extraordinary expenses)
exceeds limitations established by any state in which the shares of such
Portfolio are registered, the Adviser will bear the amount of such excess. The
Adviser will not be required to bear expenses of any Portfolio to an extent
which would result in the Portfolio's inability to qualify as a regulated
investment company under provisions of the Internal Revenue Code of 1986, as
amended (the "Code"). For the fiscal years ended October 31, 1993, 1994 and
1995, the Adviser paid the following advisory fee:
<TABLE>
<CAPTION>
=======================================================================================
Fees Paid Fees Waived Fees Reimbursed
--------------------------------------------------------------------------
Portfolio 1993 1994 1995 1993 1994 1995 1993 1994 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
White Oak $ 0 $ 0 $ 0 $33,627 $42,884 $53,199 $45,480 $30,833 $25,326
- ---------------------------------------------------------------------------------------
Pin Oak $ 0 $ 0 $7,803 $51,626 $67,198 $77,724 $24,638 $ 3,304 $ 0
=======================================================================================
</TABLE>
The continuance of the Advisory Agreement as to any Portfolio after the first
two years must be specifically approved at least annually (i) by the vote of the
Trustees or by a vote of the shareholders of the Portfolio and (ii) by the vote
of a majority of the Trustees who are not parties to the Advisory Agreement or
"interested persons" of any party thereto, cast in person at a meeting called
for the purpose of voting on such approval. The Advisory Agreement will
terminate automatically in the event of its assignment, and is terminable at any
time without penalty by the Trustees of the Fund or, with respect to any
Portfolio, by a majority of the outstanding shares of that Portfolio, on not
less than 30 days' nor more than 60 days' written notice to the Adviser, or by
the Adviser on 90 days' written notice to the Fund.
THE ADMINISTRATOR
The Fund and SEI Financial Management Corporation (the" Administrator") have
entered into an administration agreement (the "Administration Agreement"). The
Administration Agreement provides that the Administrator shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which the Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of the Administrator in the performance of its duties or from
reckless disregard by it of its duties and obligations thereunder. The
Administration Agreement shall remain in effect for a period of five years after
the effective date of the agreement and shall continue in effect
S-6
<PAGE>
for successive periods of two years unless terminated by either party on not
less than 90 days' prior written notice to the other party. For the fiscal
periods ended October 31, 1995, 1994 and 1993, the Administrator received fees
of $50,001, $50,000, and $50,000 for the White Oak Portfolio and $50,001,
$50,000, and $50,000 for the Pin Oak Portfolio, respectively.
The Fund and the Administrator have also entered into a shareholder servicing
agreement pursuant to which the Administrator provides certain shareholder
services in addition to those set forth in the Administration Agreement.
The Administrator, a wholly owned subsidiary of SEI Corporation ("SEI"), was
organized as a Delaware corporation in 1969 and has its principal business
offices at 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658. Alfred P.
West, Jr., Henry H. Greer and Carmen V. Romeo constitute the Board of Directors
of the Administrator. Mr. West is the Chairman of the Board and Chief Executive
Officer of the Administrator and of SEI. Mr. Greer is the President and Chief
Operating Officer of the Administrator and of SEI. SEI and its subsidiaries are
leading providers of funds evaluation services, trust accounting systems, and
brokerage and information services to financial institutions, institutional
investors and money managers. The Administrator also serves as administrator to
the following other mutual funds: The Achievement Funds Trust, The Arbor Fund,
ARK Funds, Bishop Street Funds, The Compass Capital Group, Conestoga Family of
Funds, CoreFunds, Inc., CrestFunds, Inc., CUFUND, FFB Lexicon Funds, First
American Investment Funds, Inc., First American Funds, Inc., Insurance
Investment Products Trust, Inventor Funds, Inc., Marquis Funds(R), Morgan
Grenfell Investment Trust, The PBHG Funds, Inc., The Pillar Funds, Rembrandt
Funds(R), 1784 Funds, SEI Daily Income Trust, SEI Index Funds, SEI Institutional
Managed Trust, SEI International Trust, SEI Liquid Asset Trust, SEI Tax Exempt
Trust, Stepstone Funds, STI Classic Funds and STI Classic Variable Trust.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly owned subsidiary of
SEI, and the Fund are parties to a distribution agreement (the "Distribution
Agreement"). The Distributor will not receive compensation for distribution of
shares of any Portfolio.
The Distribution Agreement shall remain in effect for a period of two years
after the effective date of the agreement and is renewable annually. The
Distribution Agreement may be terminated by the Distributor, by a majority vote
of the Trustees who are not interested persons and have no financial interest in
the Distribution Agreement or by a majority vote of the outstanding securities
of the Fund upon not more than 60 days' written notice by either party or upon
assignment by the Distributor.
S-7
<PAGE>
TRUSTEES AND OFFICERS OF THE FUND
The management and affairs of the Fund are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees and executive officers
of the Fund and their principal occupations for the last five years are set
forth below. Each may have held other positions with the named companies during
that period. Unless otherwise noted, the business address of each Trustee and
executive officer is SEI Financial Management Corporation, 680 E. Swedesford
Road, Wayne, Pennsylvania 19087-1658. Certain officers of the Fund also serve
as Trustees and/or officers of The Achievement Funds Trust, The Arbor Fund, ARK
Funds, Bishop Street Funds, The Compass Capital Group, Conestoga Family of
Funds, CoreFunds, Inc., CrestFunds, Inc., CUFUND, FFB Lexicon Funds, First
American Investment Funds, Inc., First American Funds, Inc., Insurance
Investment Products Trust, Inventor Funds, Inc., Marquis Funds(R), Morgan
Grenfell Investment Trust, The PBHG Funds, Inc., The Pillar Funds, Rembrandt
Funds(R), 1784 Funds, SEI Daily Income Trust, SEI Index Funds, SEI Institutional
Managed Trust, SEI International Trust, SEI Liquid Asset Trust, SEI Tax Exempt
Trust, Stepstone Funds, STI Classic Funds and STI Classic Variable Trust.
ROBERT A. NESHER (DOB 08/17/46) - Trustee* - 8 South Street, Kennebunkport, ME
04046. Retired since 1994. Director, Executive Vice President of SEI
Corporation, 1986-1994. Director and Executive Vice President of the
Administrator and Distributor, September, 1981-1994.
JOHN T. COONEY (DOB 01/20/27) - Trustee** - 569 N. Post Oak Lane, Houston, TX
77024. Retired since 1992. Formerly Vice Chairman of Ameritrust Texas N.A.,
1989-1992, and MTrust Corp., 1985-1989.
WILLIAM M. DORAN (DOB 05/26/40) - Trustee* - 2000 One Logan Square,
Philadelphia, PA 19103. Partner of Morgan, Lewis & Bockius LLP, Counsel to SEI,
the Fund, the Administrator and Distributor, for the past five years. Director
and Secretary of SEI.
FRANK E. MORRIS (DOB 12/30/23) - Trustee** - 105 Walpole Street, Dover, MA
02030. Peter Drucker Professor of Management, Boston College since 1989.
President, Federal Reserve Bank of Boston, 1968-1988.
ROBERT A. PATTERSON (DOB 11/05/17) - Trustee** - 208 Old Main, University Park,
PA 16802. Pennsylvania State University, Senior Vice President, Treasurer
(Emeritus). Financial and Investment Consultant, Professor of Transportation
(1984-present). Vice President-Investments, Treasurer, Senior Vice President
(Emeritus) (1982-1984). Director, Pennsylvania Research Corp.; Member and
Treasurer, Board of Trustees of Grove City College.
S-8
<PAGE>
GENE PETERS (DOB 06/03/29) - Trustee** - 943 Oblong Road, Williamstown, MA
01267. Private investor from 1987 to present. Vice President and Chief
Financial Officer, Western Company of North America (petroleum service company)
(1980-1986). President of Gene Peters and Associates (import company) (1978-
1980). President and Chief Executive Officer of Jos. Schlitz Brewing Company
before 1978.
JAMES M. STOREY (DOB 04/12/31) - Trustee** - Ten Post Office Square South,
Boston, MA 02109. Retired since 1993. Formerly, Partner of Dechert Price &
Rhoads (law firm).
DAVID G. LEE (DOB 04/16/52) - President, Chief Executive Officer - Senior Vice
President of the Administrator and Distributor since 1993. Vice President of
the Administrator and Distributor (1991-1993). President, GW Sierra Trust Funds
before 1991.
SANDRA K. ORLOW (DOB 10/18/53) - Vice President, Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Administrator and the Distributor
since 1983.
KEVIN P. ROBINS (DOB 04/15/61) - Vice President, Assistant Secretary - Senior
Vice President and General Counsel of SEI, the Administrator and the Distributor
since 1994. Secretary of the Administrator and the Distributor since 1994.
Vice President and Assistant Secretary of SEI, the Administrator and the
Distributor (1992-1994). Associate, Morgan, Lewis & Bockius LLP (law firm)
prior to 1992.
JEFFREY A. COHEN, CPA (DOB 04/22/61) - Controller, Assistant Secretary -
Director, International and Domestic Funds Accounting, SEI Corporation since
1991. Audit Manager, Price Waterhouse prior to 1991.
ROBERT B. CARROLL (DOB 02/26/60) - Vice President, Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Administrator and Distributor
since 1994. SEC, Division of Investment Management, (1990-1994). Associate,
McGuire, Woods, Battle & Boothe (law firm) before 1990.
KATHRYN L. STANTON (DOB 11/19/58) - Vice President, Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Administrator and the Distributor
since 1994. Associate, Morgan, Lewis & Bockius LLP (law firm) (1989-1994).
S-9
<PAGE>
JOSEPH M. LYDON (DOB 09/27/59) - Vice President, Assistant Secretary - Director
of Business Administration of Fund Resources, SEI Corporation since 1995. Vice
President of Fund Group and Vice President of the Adviser, Dreman Value
Management and President of Dreman Financial Services, Inc. prior to 1995.
TODD CIPPERMAN (DOB 02/14/66) - Vice President, Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Administrator and the Distributor
since 1995. Associate, Dewey Ballantine (law firm) (1994-1995). Associate,
Winston & Strawn (law firm) (1991-1994).
RICHARD W. GRANT (DOB 10/25/45) - Secretary - 2000 One Logan Square,
Philadelphia, PA 19103, Partner of Morgan, Lewis & Bockius LLP (law firm),
Counsel to SEI, the Fund, the Administrator and the Distributor for the past
five years.
___________________
*Messrs. Nesher and Doran are Trustees who may be deemed to be "interested"
persons of the Fund as that term is defined in the 1940 Act.
**Messrs. Cooney, Morris, Patterson, Peters and Storey serve as members of the
Audit Committee of the Fund.
The Trustees and officers of the Fund own less than 1% of the outstanding shares
of the Fund. The Fund pays the fees for unaffiliated Trustees.
The following table exhibits Trustee compensation for the fiscal year ended
October 31, 1995.
<TABLE>
<CAPTION>
==========================================================================================================================
Total
Compensation
From Registrant
and Fund
Aggregate Compensation Pension or Complex* Paid to
From Registrant for the Retirement Benefits Estimated Trustees for the
Fiscal Year Ended Accrued as Part of Annual Benefits Fiscal Year Ended
Name of Person, Position October 31, 1995 Fund Expenses Upon Retirement October 31, 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John T. Cooney $9,429.84 N/A N/A $9,429.84 for
services on 1
board
- --------------------------------------------------------------------------------------------------------------------------
Frank E. Morris $9,429.84 N/A N/A $9,429.84 for
services on 1
board
- --------------------------------------------------------------------------------------------------------------------------
Robert Patterson $9,429.84 N/A N/A $9,429.84 for
services on 1
board
- --------------------------------------------------------------------------------------------------------------------------
Eugene B. Peters $9,429.84 N/A N/A $9,429.84 for
services on 1
board
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-10
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James M. Storey, Esq. $9,429.84 N/A N/A $9,429.84 for
services on 1
board
- --------------------------------------------------------------------------------------------------------------------------
William M. Doran, Esq. $0 N/A N/A $0 for services
on
1 board
- --------------------------------------------------------------------------------------------------------------------------
Robert A. Nesher $0 N/A N/A $0 for services
on
1 board
==========================================================================================================================
</TABLE>
COMPUTATION OF YIELD AND TOTAL RETURN
From time to time the Fund may advertise yield and total return of the
Portfolios. These figures will be based on historical earnings and are not
intended to indicate future performance. No representation can be made
concerning actual future yields or returns. The yield of a Portfolio refers to
the annualized income generated by an investment in that Portfolio over a
specified 30-day period. The yield is calculated by assuming that the income
generated by the investment during that 30-day period is generated in each
period over one year and is shown as a percentage of the investment. In
particular, yield will be calculated according to the following formula:
Yield = 2[((a-b) divided by cd+1)/6/-1] where a = dividends and interest earned
during the period; b = expenses accrued for the period (net of reimbursement);
c = the current daily number of shares outstanding during the period that were
entitled to receive dividends; and d = the maximum offering price per share on
the last day of the period.
For the 30-day period ended October 31, 1995, the Portfolios' yields were .23%
for the White Oak Portfolio and (.63%) for the Pin Oak Portfolio.
The total return of a Portfolio refers to the average annual compounded rate of
return to a hypothetical investment for designated time periods (including but
not limited to, the period from which that Portfolio commenced operations
through the specified date), assuming that the entire investment is redeemed at
the end of each period. In particular, total return will be calculated
according to the following formula: P (1 + T)/n/ = ERV, where P = a
hypothetical initial payment of $1,000; T = average annual total return; n =
number of years; and ERV = ending redeemable value, as of the end of the
designated time period, of a hypothetical $1,000 payment made at the beginning
of the designated time period.
For the fiscal year ended October 31, 1995 and for the period from August 3,
1992 (commencement of operations) through October 31, 1995, the total return for
the Portfolios was 52.07% and 20.46% for the White Oak Portfolio, and 49.31% and
18.45% for the Pin Oak Portfolio, respectively.
S-11
<PAGE>
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through the Transfer Agent on any day the
New York Stock Exchange is open for business. Shares of each Portfolio are
offered on a continuous basis.
It is currently the Fund's policy to pay all redemptions in cash. The Fund
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by a Portfolio in
lieu of cash. Shareholders may incur brokerage charges on the sale of any such
securities so received in payment of redemptions.
The Fund reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or valuation of a Portfolio's securities is not reasonably practicable,
or for such other periods as the SEC has by order permitted. The Fund also
reserves the right to suspend sales of shares of any Portfolio for any period
during which the New York Stock Exchange, the Adviser, the Administrator, the
Transfer Agent and/or the custodian are not open for business.
DETERMINATION OF NET ASSET VALUE
The securities of the Portfolios are valued by the Administrator. The
Administrator will use an independent pricing service to obtain valuations of
securities. The pricing service relies primarily on prices of actual market
transactions as well as trade quotations. However, the service may also use a
matrix system to determine valuations of certain securities, which system
considers such factors as security prices, yields, maturities, call features,
ratings and developments relating to specific securities. The procedures of the
pricing service and its valuations are reviewed by the officers of the Fund
under the general supervision of the Trustees.
TAXES
The following is only a summary of certain tax considerations generally
affecting the Portfolios and their shareholders, and is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their
tax advisors with specific reference to their own tax situations, including
their state and local tax liabilities.
S-12
<PAGE>
FEDERAL INCOME TAX
The following discussion of federal income tax consequences is based on the Code
and the regulations issued thereunder as in effect on the date of this Statement
of Additional Information. New legislation, as well as administrative changes
or court decisions, may significantly change the conclusions expressed herein,
and may have a retroactive effect with respect to the transactions contemplated
herein.
Each Portfolio intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By following such a policy, each
Portfolio expects to eliminate or reduce to a nominal amount the federal taxes
to which it may be subject.
In order to qualify for treatment as a RIC under the Code, each Portfolio must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) ("Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
a Portfolio's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock or securities, or certain other income; (ii) each
Portfolio must derive less than 30% of its gross income each taxable year from
the sale or other disposition of stocks or securities held for less than three
months; (iii) at the close of each quarter of each Portfolio's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, U.S. Government securities, securities of other RICs and other
securities, with such other securities limited, in respect to any one issuer, to
an amount that does not exceed 5% of the value of the Portfolio's assets and
that does not represent more than 10% of the outstanding voting securities of
such issuer; and (iv) at the close of each quarter of each Portfolio's taxable
year, not more than 25% of the value of its assets may be invested in securities
(other than U.S. Government securities or the securities of other RICs) of any
one issuer or of two or more issuers which the Portfolio controls or which are
engaged in the same, similar or related trades or business.
Notwithstanding the Distribution Requirement described above, which requires
only that a Portfolio distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss),
each Portfolio will be subject to a nondeductible 4% federal excise tax to the
extent it fails to distribute by the end of any calendar year 98% of its
ordinary income for that year and 98% of its capital gain net income (the excess
of short- and long-term capital gains over short- and long-term
S-13
<PAGE>
capital losses) for the one-year period ending on October 31 of that year, plus
certain other amounts.
Any gain or loss recognized on a sale or redemption of shares of a Portfolio by
a non-exempt shareholder who is not a dealer in securities generally will be
treated as a long-term capital gain or loss if the shares have been held for
more than twelve months and otherwise generally will be treated as a short-term
capital gain or loss. If shares of a Portfolio on which a net capital gain
distribution has been received are subsequently sold or redeemed and such shares
have been held for six months or less, any loss recognized will be treated as a
long-term capital loss to the extent of the long-term capital gain distribution.
In certain cases, a Portfolio will be required to withhold, and remit to the
United States Treasury, 31% of any distributions paid to a shareholder who (1)
has failed to provide a correct taxpayer identification number, (2) is subject
to backup withholding by the Internal Revenue Service, or (3) has not certified
to that Portfolio that such shareholder is not subject to backup withholding.
If any Portfolio fails to qualify as a RIC for any taxable year, it will be
taxable at regular corporate rates. In such an event, all distributions
(including capital gains distributions) will be taxable as ordinary dividends to
the extent of the Portfolio's current and accumulated earnings and profits and
such distributions will generally be eligible for the corporate dividends-
received deduction.
STATE TAXES
No Portfolio is liable for any income or franchise tax in Massachusetts if it
qualifies as a RIC for federal income tax purposes. Distributions by any
Portfolio to shareholders and the ownership of shares may be subject to state
and local taxes.
PORTFOLIO TRANSACTIONS
The Adviser is authorized to select brokers and dealers to effect securities
transactions for each Portfolio. Each Portfolio will seek to obtain the most
favorable net results by taking into account various factors, including price,
commission, if any, size of the transactions and difficulty of executions, the
firm's general execution and operational facilities and the firm's risk in
positioning the securities involved. While the Adviser generally seeks
reasonably competitive spreads or commissions, a Portfolio will not necessarily
be paying the lowest spread or commission available. The Adviser seeks to
select brokers or dealers that offer a Portfolio best price and execution or
other services which are of benefit to the Portfolio.
The Adviser may, consistent with the interests of the Portfolio, select brokers
on the basis of the research services they provide to the Adviser. Such
services may include
S-14
<PAGE>
analyses of the business or prospects of a company, industry or economic sector,
or statistical and pricing services. Information so received by the Adviser will
be in addition to and not in lieu of the services required to be performed by
the Adviser under the Advisory Agreement. If, in the judgment of the Adviser, a
Portfolio or other accounts managed by the Adviser will be benefitted by
supplemental research services, the Adviser is authorized to pay brokerage
commissions to a broker furnishing such services which are in excess of
commissions which another broker may have charged for effecting the same
transaction. These research services include advice, either directly or through
publications or writings, as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities; furnishing of analyses and
reports concerning issuers, securities or industries; providing information on
economic factors and trends; assisting in determining portfolio strategy;
providing computer software used in security analyses; and providing portfolio
performance evaluation and technical market analyses. The expenses of the
Adviser will not necessarily be reduced as a result of the receipt of such
supplemental information, such services may not be used exclusively with respect
to the Portfolio or account generating the brokerage, and there can be no
guarantee that the Adviser will find all of such services of value in advising
that Portfolio. For the fiscal years ended October 31, 1995 and 1994 the White
Oak Portfolio directed transactions amounting to $2,883,889 and $3,908,031.20 to
broker-dealers for research services, and paid commissions of $3,966 and $3,440
on those transactions. For the same periods, the Pin Oak Portfolio directed
transactions amounting to $5,849,271 and $10,222,636.85 to broker-dealers for
research services, and paid commissions of $6,075 and $4,194 on those
transactions.
It is expected that a Portfolio may execute brokerage or other agency
transactions through the Distributor, which is a registered broker-dealer, for a
commission in conformity with the 1940 Act, the Securities Exchange Act of 1934,
as amended, and rules promulgated by the SEC. Under these provisions, the
Distributor is permitted to receive and retain compensation for effecting
portfolio transactions for a Portfolio on an exchange if a written contract is
in effect between the Distributor and the Portfolio expressly permitting the
Distributor to receive and retain such compensation. These rules further
require that commissions paid to the Distributor by a Portfolio for exchange
transactions not exceed "usual and customary" brokerage commissions. The rules
define "usual and customary" commissions to include amounts which are
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." The Trustees,
including those who are not "interested persons" of the Fund, have adopted
procedures for evaluating the reasonableness of commissions paid to the
Distributor and will review these procedures periodically. For the fiscal years
ended October 31, 1995, 1994 and 1993, the White Oak Portfolio and the Pin Oak
Portfolio paid no brokerage commissions to the Distributor. Aggregate brokerage
commissions paid for the fiscal years ended October 31, 1995, 1994 and 1993
S-15
<PAGE>
were $3,966, $3,614, and $3,818, respectively, for the White Oak Portfolio and
$6,075, $4,824, and $10,450, respectively, for the Pin Oak Portfolio.
Because neither Portfolio markets its shares through intermediary brokers or
dealers, it is not either Portfolio's practice to allocate brokerage or
principal business on the basis of sales of its shares which may be made through
such firms. However, the Adviser may place portfolio orders with qualified
broker-dealers who recommend a Portfolio's shares to clients, and may, when a
number of brokers and dealers can provide best net results on a particular
transaction, consider such recommendations by a broker or dealer in selecting
among broker-dealers.
For the fiscal years ended October 31, 1994 and 1995, the portfolio turnover
rate for each of the Portfolios was as follows:
<TABLE>
<CAPTION>
================================================================================
TURNOVER RATE
---------------------------------------
PORTFOLIO 1994 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
White Oak Portfolio 37.42% 22.43%
- --------------------------------------------------------------------------------
Pin Oak Portfolio 48.88% 49.28%
================================================================================
</TABLE>
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
portfolios and shares of each portfolio. Each share of a portfolio represents
an equal proportionate interest in that portfolio with each other share. Shares
are entitled upon liquidation to a pro rata share in the net assets of the
portfolio. Shareholders have no preemptive rights. All consideration received
by the Fund for shares of any portfolio and all assets in which such
consideration is invested would belong to that portfolio and would be subject to
the liabilities related thereto. Share certificates representing shares will
not be issued.
SHAREHOLDER LIABILITY
The Fund is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Fund were held to be a partnership, the
possibility of the shareholders incurring financial loss for that reason appears
remote because the Fund's Declaration of Trust contains an express disclaimer of
shareholder liability for obligations of the Fund and requires that notice of
such disclaimer be given in each
S-16
<PAGE>
agreement, obligation or instrument entered into or executed by or on behalf of
the Fund or the Trustees, and because the Declaration of Trust provides for
indemnification out of the Fund property for any shareholder held personally
liable for the obligations of the Fund.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his or
her own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisers, shall not be
liable for any neglect or wrongdoing of any such person. The Declaration of
Trust also provides that the Fund will indemnify its Trustees and officers
against liabilities and expenses incurred in connection with actual or
threatened litigation in which they may be involved because of their offices
with the Fund unless it is determined in the manner provided in the Declaration
of Trust that they have not acted in good faith in the reasonable belief that
their actions were in the best interests of the Fund. However, nothing in the
Declaration of Trust shall protect or indemnify a Trustee against any liability
for his or her willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties.
5% SHAREHOLDERS
As of February 5, 1996, the following persons were the only persons who were
record owners (or to the knowledge of the Fund, beneficial owners) of 5% or more
of the shares of the Portfolios.
WHITE OAK GROWTH STOCK FUND.
<TABLE>
<CAPTION>
Shareholder Number of Shares %
<S> <C> <C>
Revest & Company 44,851.836 6.56%
c/o First Merit Trust
121 S. Main Street, Suite 200
Akron, OH 44308
</TABLE>
PIN OAK AGGRESSIVE STOCK FUND.
<TABLE>
Shareholder Number of Shares %
<S> <C> <C>
Revest & Company 65,012.525 6.52%
c/o First Merit Trust
121 S. Main Street, Suite 200
Akron, OH 44308
</TABLE>
S-17
<PAGE>
The Fund believes that most of the shares referred to above were held by the
above persons in accounts for their fiduciary, agency or custodial customers.
EXPERTS
The financial statements in this Statement of Additional Information have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
FINANCIAL STATEMENTS
S-18
<PAGE>
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
The following descriptions of corporate bond ratings have been published by
Standard & Poor's Corporation ("S&P") and Moody's Investors Service, Inc.
("Moody's"), respectively.
Debt rated AAA has the highest rating S&P assigns to a debt obligation. Such a
rating indicates an extremely strong capacity to pay principal and interest.
Debt rated AA also qualities as high-quality debt. Capacity to pay principal
and interest is very strong, and differs from AAA issues only in small degree.
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.
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.
Debt rated BB, B, CCC, CC and C is regarded as having predominately speculative
characteristics with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the least degree of
speculation and C 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.
The rating CI is reserved for income bonds on which no interest is being paid.
Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
Bonds which are rated Aaa by Moody's 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 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. Bonds rated Aa by
Moody's are judged by Moody's to be of high quality by all standards. Together
with bonds rated Aaa, 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
A-1
<PAGE>
greater amplitude or there may be other elements present which make the long-
term risk appear somewhat larger than in Aaa securities.
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.
Bonds 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.
Bonds which are rated 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.
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.
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.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
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.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
The following descriptions of commercial paper ratings have been published by
S&P and Moody's, respectively.
Commercial paper rated A-1 by S&P is regarded by S&P as having the greatest
capacity for timely payment. Ratings are further refined by the use of a plus
sign to indicate the relative degree of safety. Issues rated A-1+ are those
with
A-2
<PAGE>
"extremely strong safety characteristics." Those rated A-1 reflect a
"strong" degree of safety regarding timely payment.
Commercial paper issues rated Prime-1 or Prime-2 by Moody's are judged by
Moody's to be of "superior" quality and "strong" quality respectively on the
basis of relative repayment capacity.
A-3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Trustees of Pin Oak Aggressive Stock Fund and White Oak
Growth Stock Fund of The Advisors' Inner Circle Fund:
We have audited the accompanying statements of net assets of Pin Oak Aggressive
Stock Fund and White Oak Growth Stock Fund (two of the funds constituting The
Advisors' Inner Circle Fund) as of October 31, 1995, and the related statements
of operations, changes in net assets and financial highlights for the periods
presented. These financial statements and financial highlights are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Pin
Oak Aggressive Stock Fund and White Oak Growth Stock Fund of The Advisors'
Inner Circle Fund as of October 31, 1995, the results of their operations,
changes in their net assets, and financial highlights for the periods
presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, PA
December 5, 1995
<PAGE>
STATEMENT OF NET ASSETS THE ADVISORS' INNER CIRCLE FUND
October 31, 1995
<TABLE>
<CAPTION>
Market
PIN OAK AGGRESSIVE Value
STOCK FUND Shares (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK 93.7%
CELLULAR 2.7%
Mobile Telecommunication Technology* 15,000 $ 426
-------
COMPUTER COMMUNICATIONS EQUIPMENT 27.2%
3COM* 34,000 1,598
Bay Networks* 15,400 1,020
Cisco Systems* 21,200 1,643
-------
4,261
-------
COMPUTER SERVICES 0.3%
ARI Network Services* 25,000 47
-------
COMPUTER-AIDED DESIGN SOFTWARE 11.6%
Parametric Technology* 16,000 1,070
Synopsys* 20,000 750
-------
1,820
-------
COMPUTERS-HARDWARE 8.7%
Avid Technology* 17,000 744
Sun Microsystems* 8,000 624
-------
1,368
-------
FINANCIAL SERVICES 4.1%
Medaphia* 20,000 635
-------
HOSPITAL SUPPLY & MANAGEMENT 4.6%
Express Scripts, Cl A* 19,000 722
-------
PHARMACEUTICALS 2.2%
Forest Labs* 8,300 343
-------
PREPACKAGED SOFTWARE 7.9%
Adobe Systems 14,000 798
Xcellenet* 25,500 440
-------
1,238
-------
SEMI-CONDUCTORS/ELECTRONICS 15.1%
Atmel* 28,000 875
Linear Technology 17,600 770
Maxim Integrated Product* 9,500 710
-------
2,355
-------
<CAPTION>
Shares/
Face Market
Amount Value
(000) (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
TELECOMMUNICATIONS EQUIPMENT 9.3%
Aspect Telecommunications* 20,500 $ 704
DSC Communications* 16,000 592
Ortel* 15,000 154
-------
1,450
-------
TOTAL COMMON STOCK
(Cost $8,168,329)
14,665
-------
MONEY MARKET 5.0%
SEI Daily Income Trust Money Market Fund 5.680%, 406 406
SEI Daily Income Trust Prime Money Market
Fund 5.650%, 385 385
-------
TOTAL MONEY MARKET
(Cost $790,772) 791
-------
TOTAL INVESTMENTS 98.7%
(Cost $8,959,101) 15,456
-------
OTHER ASSETS AND LIABILITIES 1.3%
Receivables for Securities Sold 336
Payables for Securities Purchased (247)
Other Assets and Liabilities, Net 107
-------
TOTAL OTHER ASSETS AND LIABILITIES 196
-------
NET ASSETS:
Portfolio shares (unlimited authorization--no
par value)
based on 903,492 outstanding shares of beneficial
interest 9,967
Accumulated net realized loss on investments (812)
Net unrealized appreciation on investments 6,497
-------
TOTAL NET ASSETS: 100.0% $15,652
=======
Net Asset Value, Offering Price and Redemption Price Per
Share $ 17.32
=======
</TABLE>
* Non-Income producing security.
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF NET ASSETS THE ADVISORS' INNER CIRCLE FUND
October 31, 1995
<TABLE>
<CAPTION>
Market
WHITE OAK GROWTH Value
STOCK FUND Shares (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK 92.4%
BANKS 12.9%
Bankers Trust New York 4,200 $ 268
Citicorp 8,000 519
Nationsbank 5,600 368
Synovus Financial 8,000 201
------
1,356
CELLULAR 0.5%
Nextel Communications, Cl A* 4,000 56
------
COMPUTER COMMUNICATIONS
EQUIPMENT 20.0%
3COM* 10,000 470
Bay Networks* 8,600 570
Cisco Systems* 13,600 1,054
------
2,094
------
COMPUTER-AIDED DESIGN SOFTWARE 3.8%
Parametric Technology* 6,000 401
------
COMPUTERS-HARDWARE 9.7%
Compaq Computer* 8,500 474
Sun Microsystems* 7,000 546
------
1,020
------
CONGLOMERATES 3.2%
General Electric 5,300 335
------
FINANCIAL SERVICES 4.1%
First Data 6,502 430
------
HOSPITAL SUPPLY & MANAGEMENT 3.0%
Columbia HCA Healthcare 6,500 319
------
INSURANCE 3.6%
American International Group 4,425 373
------
PHARMACEUTICALS 6.8%
American Home Products 4,000 355
Merck 6,300 362
------
717
------
PREPACKAGED SOFTWARE 7.8%
Microsoft* 8,200 820
------
RETAIL 2.3%
Home Depot 6,500 242
------
<CAPTION>
Shares/
Face Market
Amount Value
(000) (000)
- -----------------------------------------------------------------------------
<S> <C> <C>
SEMI-CONDUCTORS/ELECTRONICS 14.7%
Intel 9,400 $ 658
Linear Technology 9,000 394
Motorola 7,400 485
-------
1,537
-------
TOTAL COMMON STOCK
(Cost $5,514,046) 9,700
-------
MONEY MARKET 6.7%
SEI Daily Income Trust Money Market Fund 5.680%, $436 436
SEI Daily Income Trust Prime Money Market
Fund 5.650%, 268 268
-------
TOTAL MONEY MARKET
(Cost $704,286) 704
-------
TOTAL INVESTMENTS 99.1%
(Cost $6,218,332) 10,404
-------
OTHER ASSETS AND LIABILITIES 0.9%
Other Assets and Liabilities, Net 91
-------
NET ASSETS:
Portfolio shares (unlimited authorization--no par
value) based on 580,547 outstanding shares of
beneficial interest 6,471
Undistributed net investment income 2
Accumulated net realized loss on investments (164)
Net unrealized appreciation on investments 4,186
-------
TOTAL NET ASSETS: 100.0% $10,495
=======
Net Asset Value, Offering Price and Redemption
Price Per Share $ 18.08
=======
</TABLE>
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF OPERATIONS THE ADVISORS' INNER CIRCLE FUND
For the Year Ended October 31, 1995
<TABLE>
<CAPTION>
PIN OAK WHITE OAK
AGGRESSIVE STOCK GROWTH STOCK
FUND FUND
---------------- ------------
11/01/94 11/01/94
TO 10/31/95 TO 10/31/95
(000) (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
Investment Income:
Dividend Income................................. $ 11 $ 71
Interest Income................................. 22 19
- --------------------------------------------------------------------------------
Total Investment Income........................ 33 90
- --------------------------------------------------------------------------------
Expenses:
Administrator Fees.............................. 50 50
Investment Advisory Fees........................ 86 53
Investment Advisory Fee Waiver.................. (78) (53)
Contribution by Adviser......................... -- (26)
Custodian Fees.................................. 2 2
Transfer Agent Fees............................. 26 20
Professional Fees............................... 14 13
Trustee Fees.................................... 2 2
Registration Fees............................... 4 3
Printing Fees................................... 3 1
Insurance and Other Fees........................ 1 1
Amortization of Deferred Organizational Costs... 3 3
- --------------------------------------------------------------------------------
Total Expenses................................. 113 69
- --------------------------------------------------------------------------------
Net Investment Income (Loss)................... (80) 21
- --------------------------------------------------------------------------------
Net Realized Gain (Loss) from Securities Sold... (352) 298
Net Unrealized Appreciation of Investment
Securities..................................... 5,190 2,893
- --------------------------------------------------------------------------------
Net Realized and Unrealized Gain on
Investments................................... 4,838 3,191
- --------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Operations..................................... $4,758 $3,212
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS THE ADVISORS' INNER CIRCLE FUND
For the Year Ended October 31, 1995
<TABLE>
<CAPTION>
PIN OAK WHITE OAK
AGGRESSIVE STOCK GROWTH STOCK
FUND FUND
----------------------- -----------------------
11/01/94 11/01/93 11/01/94 11/01/93
TO 10/31/95 TO 10/31/94 TO 10/31/95 TO 10/31/94
(000) (000) (000) (000)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Activities:
Net Investment Income
(Loss)...................... $ (80) $ (56) $ 21 $ 11
Net Realized Gain (Loss) on
Securities Sold............. (352) (154) 298 (177)
Net Unrealized Appreciation
(Depreciation) of Investment
Securities.................. 5,190 (605) 2,893 794
- --------------------------------------------------------------------------------
Net Increase (Decrease) in
Net Assets Resulting from
Operations................. 4,758 (815) 3,212 628
- --------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income........ -- -- (17) (11)
- --------------------------------------------------------------------------------
Total Distributions......... -- -- (17) (11)
- --------------------------------------------------------------------------------
Capital Share Transactions:
Shares Issued................ 2,432 2,310 1,820 1,863
Shares Issued in Lieu of Cash
Distributions............... -- -- 17 10
Shares Redeemed.............. (1,162) (950) (479) (2,087)
- --------------------------------------------------------------------------------
Increase (Decrease) in Net
Assets Derived from Capital
Share Transactions.......... 1,270 1,360 1,358 (214)
- --------------------------------------------------------------------------------
Total Increase in Net
Assets..................... 6,028 545 4,553 403
- --------------------------------------------------------------------------------
Net Assets:
Beginning of Period.......... 9,624 9,079 5,942 5,539
- --------------------------------------------------------------------------------
End of Period................ $15,652 $9,624 $10,495 $5,942
- --------------------------------------------------------------------------------
Shares Issued and Redeemed:
Shares Issued................ 163 191 119 167
Issued in Lieu of Cash
Distributions............... -- -- 1 1
Redeemed..................... (89) (81) (38) (190)
- --------------------------------------------------------------------------------
Net Increase (Decrease) in
Share Transactions.......... 74 110 82 (22)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS THE ADVISORS' INNER CIRCLE FUND
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net Realized Net Net Ratio
Asset and Distributions Asset Assets Ratio of Net
Value Net Unrealized from Net Distributions Value End of Expenses Income
Beginning Investment Gains or Losses Investment from Capital End Total of Period to Average to Average
of Period Income on Securities Income Gains of Period Return (000) Net Assets Net Assets
--------- ---------- --------------- ------------- ------------- --------- ------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------
PIN OAK AGGRESSIVE STOCK FUND
- -----------------------------
1995 $11.60 (0.08) 5.80 -- -- $17.32 49.31% $15,652 0.98% (0.70)%
1994 $12.62 (0.06) (0.96) -- -- $11.60 (8.08)% 9,624 0.96% (0.62)%
1993 $10.28 (0.05) 2.39 -- -- $12.62 22.76% 9,079 0.98% (0.48)%
1992(1) $10.00 -- 0.28 -- -- $10.28 11.57% 4,127 1.00%* 0.03 %*
- ----------------------------
WHITE OAK GROWTH STOCK FUND
- ----------------------------
1995 $11.92 0.04 6.15 (0.03) -- $18.08 52.07% $10,495 0.97% 0.29%
1994 $10.64 0.02 1.28 (0.02) -- $11.92 12.24% 5,942 0.97% 0.19%
1993 $10.33 0.05 0.32 (0.06) -- $10.64 3.59% 5,539 0.97% 0.54%
1992(1) $10.00 0.02 0.33 (0.02) -- $10.33 14.30% 3,195 1.00%* 0.74%*
<CAPTION>
Ratio
Ratio of Net
of Expenses Income (Loss)
to Average to Average
Net Assets Net Assets
(Excluding (Excluding Portfolio
Waivers and Waivers and Turnover
Reimbursements) Reimbursements) Rate
--------------- --------------- ---------
<S> <C> <C> <C>
- ----------------------------
PIN OAK AGGRESSIVE STOCK FUND
- ----------------------------
1995 1.65% (1.37)% 49.28%
1994 1.74% (1.40)% 48.88%
1993 2.07% (1.57)% 68.32%
1992(1) 4.06%* (3.03)%* 4.00%
- ----------------------------
WHITE OAK GROWTH STOCK FUND
- ----------------------------
1995 2.06% (0.80)% 22.43%
1994 2.24% (1.08)% 37.42%
1993 2.71% (1.20)% 27.48%
1992(1) 4.78%* (3.04)%* --
</TABLE>
* Annualized
(1)The White Oak Growth Stock Fund and the Pin Oak Aggressive Stock Fund
commenced operations on August 3, 1992
The accompanying notes are an integral part of the financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
October 31, 1995
1. Organization:
THE ADVISORS' INNER CIRCLE FUND (the "Trust") is organized as a Massachusetts
business trust under a Declaration of Trust dated July 18, 1991. The Trust is
registered under the Investment Company Act of 1940, as amended, as a
diversified open-end management investment company with eleven portfolios. The
financial statements included herein present those of the White Oak Growth
Stock Fund and the Pin Oak Aggressive Stock Fund (the "Funds"). The financial
statements of the remaining portfolios are presented separately. The assets of
each portfolio are segregated, and a Shareholder's interest is limited to the
portfolio in which shares are held.
2. Significant Accounting Policies:
The following is a summary of the significant accounting policies followed by
the Funds.
Security Valuation -- Investments in equity securities which are traded on
a national exchange (or reported on the NASDAQ national market system) are
stated at the last quoted sales price if readily available for such equity
securities on each business day; other equity securities traded in the
over-the-counter market and listed equity securities for which no sale was
reported on that date are stated at the last quoted bid price. Debt
obligations exceeding sixty days to maturity for which market quotations
are readily available are valued at the most recently quoted bid price.
Debt obligations with sixty days or less remaining until maturity may be
valued at their amortized cost, which approximates market value.
Federal Income Taxes -- It is each Fund's intention to qualify as a
regulated investment company by complying with the appropriate provisions
of the Internal Revenue Code of 1986, as amended. Accordingly, no
provisions for Federal Income taxes are required.
Security Transactions and Related Income -- Security transactions are
accounted for on the date the security is purchased or sold (trade date).
Dividend income is recognized on the ex-dividend date, and interest income
is recognized on the accrual basis. Costs used in determining realized
gains and losses on the sales of investment securities are those of the
specific securities sold during the respective holding period.
THE ADVISORS' INNER CIRCLE FUND
Net Asset Value Per Share -- The net asset value per share of each Fund is
calculated on each business day, by dividing the total value of each Fund's
assets, less liabilities, by the number of shares outstanding.
Other -- Expenses that are directly related to one of the Funds are charged
to that Fund. Other operating expenses of the Trust are prorated to the
Funds on the basis of relative daily net assets.
Distributions from net investment income are declared and paid to
Shareholders on a quarterly basis. Any net realized capital gains on sales
of securities are distributed to Shareholders at least annually.
Distributions from net investment income and net realized capital gains are
determined in accordance with the U.S. Federal income tax regulations,
which may differ from those amounts determined under generally accepted
accounting principals. These book/tax differences are either temporary or
permanent in nature. To the extent these differences are permanent, they
are charged or credited to paid-in-capital in the period that the
differences arise. Accordingly, the following permanent difference,
primarily attributable to certain net operating losses which, for tax
purposes, are not available to offset future income, has been reclassified
to paid-in-capital.
<TABLE>
<CAPTION>
(000)
-----
<S> <C>
Pin Oak Aggressive Stock Fund.......................................... $170
</TABLE>
This reclassification has no effect on net assets or net asset value per
share.
3. Organization Costs and Transactions with Affiliates:
The Funds incurred organization costs of approximately $12,000 each. These
costs have been capitalized by the funds and are being amortized over sixty
months commencing with operations. In the event of the initial shares of the
fund redeemed by any holder thereof during the period that the fund is
amortizing its organizational costs the redemption proceeds payable to the
holder thereof by the fund will be reduced by the unamortized organizational
costs in the same ratio as the number of initial shares being redeemed bears to
the number of initial shares outstanding at the time of redemption. These costs
include legal fees of approximately $1,000 per fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
October 31, 1995
for organizational work performed by a law firm of which an officer of the fund
is a partner.
Certain officers and Trustees of the Trust are also officers of SEI Financial
Management Company (the "Administrator") and/or SEI Financial Services Company
(the "Distributor"). Such officers and trustees are paid no fees by the Trust
for serving as officers and trustees of the Trust.
4. Administration, Shareholder Servicing and Distribution Agreements:
The Trust and the Administrator are parties to an Administration Agreement
dated November 14, 1991, under which the Administrator provides management and
administrative services for an annual fee of .20% of the average daily net
assets of each of the Funds. There is a minimum annual fee of $50,000 per Fund
payable to the Administrator for services rendered to the Funds under the
Administration Agreement.
DST Systems, Inc., (the "Transfer Agent") serves as the transfer agent and
dividend distributing agent for the Funds under a transfer agency agreement
with the Trust.
The Trust and the Distributor are parties to a Distribution Agreement dated
November 14, 1991. The Distributor receives no fees for its distribution
services under this agreement.
5. Investment Advisory and Custodian Agreements:
The Trust and Oak Associates (the "Adviser") are parties to an Investment
Advisory Agreement dated July 20, 1992 under which the Adviser receives an
annual fee equal to .74% of the average daily net assets of each Fund. The
Adviser has voluntarily agreed for an indefinite period of time, to waive all
or a portion of its fees (and to reimburse the expenses of the Funds) in order
to limit operating expenses to not more than 1.00% of the average daily net
assets of each of the Funds. Fee waivers and expense reimbursements are
voluntary and may be terminated at any time.
CoreStates Bank, N.A. acts as custodian (the "Custodian") for the Funds. Fees
of the Custodian are being paid on the basis of the net assets of the Funds.
The Custodian plays no role in determining the investment policies of the Trust
or which securities are to be purchased or sold in the Funds.
THE ADVISORS' INNER CIRCLE FUND
6. Investment Transactions:
The cost of security purchases and the proceeds from security sales, other than
short-term investments, for the year ended October 31, 1995 are as follows:
<TABLE>
<CAPTION>
PIN OAK WHITE OAK
AGGRESSIVE STOCK GROWTH STOCK
FUND FUND
(000) (000)
---------------- ------------
<S> <C> <C>
Purchases
Government....................................... $ 0 $ 0
Other............................................ 6,267 2,296
Sales
Government....................................... $ 0 $ 0
Other............................................ 5,536 1,549
</TABLE>
At October 31, 1995, the total cost of securities and the net realized gains or
losses on securities sold for Federal income tax purposes was not materially
different from amounts reported for financial reporting purposes. The aggregate
gross unrealized appreciation and depreciation for securities held by the Funds
at October 31, 1995, is as follows:
<TABLE>
<CAPTION>
PIN OAK WHITE OAK
AGGRESSIVE STOCK GROWTH STOCK
FUND FUND
(000) (000)
---------------- ------------
<S> <C> <C>
Aggregate gross unrealized appreciation........... $6,747 $4,255
Aggregate gross unrealized depreciation........... (250) (69)
------ ------
Net unrealized appreciation....................... $6,497 $4,186
====== ======
</TABLE>
7. Capital Loss Carryforwards
The White Oak Growth Stock Fund used $297,764 of its capital loss carryforward
from the prior year.
The capital loss carryforwards at October 31, 1995, for Federal Income Tax
purposes are as follows:
<TABLE>
<S> <C>
Pin Oak Aggressive Stock Fund......................... $ 17,985 expiring in 2000
288,322 expiring in 2001
153,978 expiring in 2002
351,788 expiring in 2003
White Oak Growth Stock Fund........................... $163,669 expiring in 2001
</TABLE>
The capital loss carryforwards will be used to offset future net realized
gains, if any, and such gains so offset will not be distributed.
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
Investment Adviser:
TURNER INVESTMENT PARTNERS, INC.
The Advisors' Inner Circle Fund (the "Fund") provides a convenient and
economical means of investing in professionally managed portfolios of
securities. This Prospectus offers shares of the following mutual funds (each,
a "Portfolio"), each of which is a separate series of the Fund.
TURNER GROWTH EQUITY FUND
TURNER FIXED INCOME FUND
TURNER SMALL CAP FUND
This Prospectus sets forth concisely the information about the Fund and the
Portfolios that a prospective investor should know before investing. Investors
are advised to read this Prospectus and retain it for future reference. A
Statement of Additional Information dated February 28, 1996 has been filed with
the Securities and Exchange Commission and is available without charge by
calling 1-800-932-7781. The Statement of Additional Information is incorporated
into this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
February 28, 1996
-1-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY................................................ 3
EXPENSE SUMMARY........................................ 5
FINANCIAL HIGHLIGHTS................................... 7
THE FUND AND THE PORTFOLIOS............................ 9
INVESTMENT OBJECTIVES.................................. 9
INVESTMENT POLICIES.................................... 9
RISK FACTORS........................................... 12
INVESTMENT LIMITATIONS................................. 13
THE ADVISER............................................ 14
THE ADMINISTRATOR...................................... 15
THE TRANSFER AGENT..................................... 15
THE DISTRIBUTOR........................................ 16
PORTFOLIO TRANSACTIONS................................. 16
PURCHASE AND REDEMPTION OF SHARES...................... 16
PERFORMANCE............................................ 19
TAXES.................................................. 20
GENERAL INFORMATION.................................... 21
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS.. 23
</TABLE>
-2-
<PAGE>
SUMMARY
The following provides basic information about the Turner Growth Equity Fund
(the "Growth Portfolio"), Turner Fixed Income Fund (the "Fixed Income
Portfolio") and Turner Small Cap Fund (the "Small Cap Portfolio") (each, a
"Portfolio"). The Portfolios are three of the mutual funds comprising The
Advisors' Inner Circle Fund (the "Fund"). This summary is qualified in its
entirety by reference to the more detailed information provided elsewhere in
this Prospectus and in the Statement of Additional Information.
WHAT ARE THE INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS? The Growth
Portfolio seeks capital appreciation by investing in a diversified portfolio of
common stocks that, in the Adviser's opinion, have strong earnings potential
with reasonable valuations. The Small Cap Portfolio seeks capital appreciation
by investing in a diversified portfolio of common stocks, of issuers with market
capitalizations typically not more than $1 billion, that the Adviser believes
are reasonably valued and offer strong earnings potential. The Fixed Income
Portfolio seeks total return through both current income and capital
appreciation by investing in fixed income securities.
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE PORTFOLIOS? The
investment policies of each Portfolio entail certain risks and considerations of
which investors should be aware. Each Portfolio invests in securities that
fluctuate in value, and investors should expect each Portfolio's net asset value
per share to fluctuate in value. Values of fixed income securities and,
correspondingly, of mutual funds invested in such securities, such as the Fixed
Income Portfolio, tend to vary inversely with interest rates and may be affected
by other market and economic factors as well. The Fixed Income Portfolio may
invest in securities that have speculative characteristics. The Growth and
Small Cap Portfolios may invest in equity securities that are affected by market
and economic factors that may cause these securities to fluctuate in value. In
addition, the Small Cap Portfolio may invest in equity securities of smaller
companies, which involves greater risk than is customarily associated with
investments in larger, more established companies.
For more information about each Portfolio, see "Investment Objectives,"
"Investment Policies," "Risk Factors," and "Description of Permitted Investments
and Risk Factors."
WHO IS THE ADVISER? Turner Investment Partners, Inc. serves as the investment
adviser to each Portfolio. See "Expense Summary" and "The Adviser."
WHO IS THE ADMINISTRATOR? SEI Financial Management Corporation serves as the
administrator and shareholder servicing agent for the Portfolios. See "Expense
Summary" and "The Administrator."
WHO IS THE TRANSFER AGENT? DST Systems, Inc. serves as the transfer agent and
dividend disbursing agent of the Fund. See "The Transfer Agent."
-3-
<PAGE>
WHO IS THE DISTRIBUTOR? SEI Financial Services Company serves as the
distributor of the Portfolios' shares. See "The Distributor."
IS THERE A SALES LOAD? No, shares of each Portfolio are offered on a no-load
basis.
IS THERE A MINIMUM INVESTMENT? Each Portfolio has a minimum initial investment
of $100,000, which the Distributor may waive at its discretion.
HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Transfer Agent on a day when the New York Stock Exchange is open for
business ("Business Day"). A purchase order will be effective as of the
Business Day received by the Transfer Agent if the Transfer Agent receives the
order and payment, by check or with readily available funds, prior to 4:00 p.m.,
Eastern time. Redemption orders received by the Transfer Agent prior to 4:00
p.m., Eastern time on any Business Day will be effective that day. The purchase
and redemption price for shares is the net asset value per share determined as
of the end of the day the order is effective. See "Purchase and Redemption of
Shares."
HOW ARE DISTRIBUTIONS PAID? Each Portfolio distributes substantially all of its
net investment income (exclusive of capital gains) in the form of periodic
dividends. Any capital gain is distributed at least annually. Distributions
are paid in additional shares unless the shareholder elects to take the payment
in cash. See "Dividends and Distributions."
-4-
<PAGE>
EXPENSE SUMMARY
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES TURNER GROWTH EQUITY FUND
TURNER SMALL CAP FUND
TURNER FIXED INCOME FUND
- --------------------------------------------------------------------------------
<S> <C>
Sales Load Imposed on Purchases.......................................... None
Sales Load Imposed on Reinvested Dividends............................... None
Deferred Sales Load...................................................... None
Redemption Fees (1)...................................................... None
Exchange Fees............................................................ None
- --------------------------------------------------------------------------------
</TABLE>
(1) A wire redemption charge, currently $10.00, is deducted from the amount of
a Federal Reserve wire redemption payment made at the request of a
shareholder.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
TURNER TURNER TURNER
GROWTH SMALL FIXED
EQUITY FUND CAP FUND INCOME FUND
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisory Fees (after fee waivers and .75% .33% .00%
reimbursements) (2)
12b-1 Fees None None None
Other Expenses (after reimbursements .28% .92% .75%
(2)(3)(4)
- -------------------------------------------------------------------------------------
Total Operating Expenses (after fee 1.03% 1.25% .75%
waivers and reimbursements) (2)(3)
- -------------------------------------------------------------------------------------
</TABLE>
(2) The Adviser has, on a voluntary basis, waived a portion of its fee and/or
agreed to reimburse certain expenses of the Portfolios. The advisory fees
and expenses shown reflect these voluntary waivers and/or reimbursements.
The Adviser reserves the right to terminate its waivers and/or
reimbursements at any time in its sole discretion. Absent such waivers
and/or reimbursements, advisory fees for the Small Cap Portfolio and Fixed
Income Portfolio would be 1.00% and .50%, respectively; "Other Expenses"
would be .92% and 1.15%, respectively; and total operating expenses would
be 1.92%, and 1.65%, respectively.
(3) "Other Expenses" for the current fiscal year do not reflect the Adviser's
use of arrangements whereby certain broker-dealers have agreed to pay
certain expenses of the Growth Portfolio in return for the direction of a
percentage of the Portfolio's brokerage transactions. As a result of these
arrangements, the amount of "Other Expenses" and "Total Operating Expenses"
deducted from the Portfolio's assets was .19% and .94%, respectively.
(4) "Other Expenses" is based on estimated amounts for the current fiscal year
for the Fixed Income Portfolio. Administration fees (and, consequently,
"Other Expenses") as a percentage of a Portfolio's average daily net assets
may decline as its net assets and the aggregate net assets of all the
Portfolios increase.
-5-
<PAGE>
EXAMPLE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
in a Portfolio assuming (1) 5% annual return and (2) redemption
at the end of each time period.
Growth Portfolio $11 $33 $57 $126
Fixed Income Portfolio $ 8 $24 -- --
Small Cap Portfolio $13 $40 $69 $151
- -----------------------------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE IS BASED UPON TOTAL OPERATING EXPENSES OF EACH PORTFOLIO AFTER
WAIVERS AND REIMBURSEMENTS AS SHOWN IN THE EXPENSE TABLE. THE EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES, AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose of the expense
table and example is to assist the investor in understanding the various costs
and expenses that may be directly or indirectly borne by shareholders of a
Portfolio. Additional information may be found under "The Adviser" and "The
Administrator."
-6-
<PAGE>
FINANCIAL HIGHLIGHTS THE ADVISORS' INNER CIRCLE FUND
The following information on the Turner Growth Equity Fund has been audited by
Arthur Andersen LLP, the Fund's independent public accountants, as indicated in
their report dated December 5, 1995 on the Fund's financial statements as of
October 31, 1995 included in the Fund's Statement of Additional Information
under "Financial Information." This table should be read in conjunction with
the Fund's audited financial statements and notes thereto. No shares of the
Turner Fixed Income Fund were offered prior to October 31, 1995.
For a Share of the Turner Growth Equity Fund Outstanding Throughout the Period:
<TABLE>
<CAPTION>
TURNER
GROWTH EQUITY
FUND
- ------------------------------------------------------------------------------------------
11/01/94 11/01/93 11/01/92 03/11/92(1)
TO TO TO TO
10/31/95 10/31/94 10/31/93 10/31/92
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....... $ 12.46 $ 13.12 $ 10.40 $ 10.00
- ------------------------------------------------------------------------------------------
Income From Investment Operations:
Net Investment Income................. 0.10 0.10 0.09 0.03
Realized and Unrealized Gains
or Losses on Securities.............. 2.52 (0.66) 2.72 0.40
- ------------------------------------------------------------------------------------------
Total From Investment Operations........... 2.62 (0.56) 2.81 0.43
- ------------------------------------------------------------------------------------------
Less Distributions:
Distributions From Net Investment Income.. (0.11) (0.10) (0.09) (0.03)
Distributions From Capital Gains.......... -- -- -- --
Total Distributions..................... (0.11) (0.10) (0.09) (0.03)
- ------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD............. $ 14.97 $ 12.46 $ 13.12 $ 10.40
- ------------------------------------------------------------------------------------------
TOTAL RETURN............................... 21.15% (4.28)% 27.08% 6.95%*
- ------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End Of Period (000)............ $ 115,819 $ 112,959 $ 53,327 $ 7,781
Ratios Of Expenses To Average Net Assets... 0.94%+ 0.95% 1.00% 1.44%*
Ratio Of Expenses To Average Net Assets
(Excluding Waivers)....................... 0.94%+ 1.08% 1.52% 2.55%*
Ratio Of Net Income To Average
Net Assets................................ 0.78%+ 0.86% 0.80% 0.73%*
Ratio Of Net Income (Loss) to Average
Net Assets (Excluding Waivers)............ 0.78%+ 0.73% 0.28% (0.38)%*
Portfolio Turnover Rate.................... 177.86% 164.81% 88.35% 205.00%
==========================================================================================
</TABLE>
* Annualized
(1) The Turner Growth Equity Fund commenced operations on March 11, 1992.
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<PAGE>
+ Absent Turner Growth Equity Fund's participation in a directed brokerage
program, the Ratios of Expenses to Average Net Assets (with and without
waivers) and Expenses to Net Income (with and without waivers) were 1.03% and
0.69%, respectively.
-8-
<PAGE>
FINANCIAL HIGHLIGHTS THE ADVISORS' INNER CIRCLE FUND
The following information on the Turner Small Cap Fund has been audited by
Arthur Andersen LLP, the Fund's independent public accountants, as indicated in
their report dated December 5, 1995 on the Fund's financial statements as of
October 31, 1995 included in the Fund's Statement of Additional Information
under "Financial Information." This table should be read in conjunction with
the Fund's audited and unaudited financial statements and notes thereto. No
shares of the Turner Fixed Income Fund were offered prior to October 31, 1995.
For a Share of the Turner Small Cap Fund Outstanding Throughout the Period:
<TABLE>
<CAPTION>
TURNER
SMALL CAP
FUND
- ---------------------------------------------------------------------
11/01/95 02/07/94(1)
TO TO
10/31/95 10/31/94
- ---------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $ 10.90 $ 10.00
- ---------------------------------------------------------------------
Income From Investment Operations:
Net Investment Income (Loss)............ (0.06) (0.02)
Realized and Unrealized Gains
on Securities........................... 5.24 0.92
- ---------------------------------------------------------------------
Total From Investment Operations............. 5.18 0.90
- ---------------------------------------------------------------------
Less Distributions:
Distributions From Net Investment Income.. -- --
Distributions From Capital Gains.......... -- --
Total Distributions................... -- --
- ---------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD............... $ 16.08 $ 10.90
- ---------------------------------------------------------------------
TOTAL RETURN................................. 47.52% 12.35%*
- ---------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End Of Period (000).............. $ 13,072 $ 4,806
Ratios Of Expenses To Average Net Assets..... 1.25% 1.09%*
Ratio Of Expenses To Average Net Assets
(Excluding Waivers)....................... 2.39% 4.32%*
Ratio Of Net Income To Average
Net Assets................................ (0.68%) (0.27)%*
Ratio Of Net Income (Loss) to Average
Net Assets (Excluding Fee Waivers)........ (1.82%) (3.50)%*
Portfolio Turnover Rate...................... 183.49% 173.92%
=====================================================================
</TABLE>
* Annualized
(1) The Turner Small Cap Fund commenced operations on February 7, 1994.
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<PAGE>
THE FUND AND THE PORTFOLIOS
The Advisors' Inner Circle Fund (the "Fund") offers shares in a number of mutual
funds, each of which is a separate series ("portfolio") of the Fund. Each share
of each mutual fund represents an undivided, proportionate interest in that
mutual fund. This Prospectus offers shares of the Fund's Turner Growth Equity
Fund (the "Growth Portfolio"), Turner Fixed Income Fund (the "Fixed Income
Portfolio"), and Turner Small Cap Fund (the "Small Cap Portfolio"). Information
regarding the other mutual funds in the Fund is contained in separate
prospectuses that may be obtained by calling 1-800-932-7781.
INVESTMENT OBJECTIVES
GROWTH AND SMALL CAP PORTFOLIOS
The Growth and Small Cap Portfolios seek to provide capital appreciation.
FIXED INCOME PORTFOLIO
The Fixed Income Portfolio seeks total return through current income and capital
appreciation.
There can be no assurance that any Portfolio will be able to achieve its
investment objective.
INVESTMENT POLICIES
GROWTH PORTFOLIO
The Growth Portfolio will invest, as fully as practicable, in a diversified
portfolio of common stocks, and may also invest up to 10% of its total assets in
American Depositary Receipts ("ADRs"). The Growth Portfolio will purchase
securities that Turner Investment Partners, Inc. (the "Adviser") believes to
have strong earnings potential and to be reasonably valued at the time of
purchase. The Growth Portfolio also seeks to purchase securities that are well
diversified across industry sectors and to maintain sector concentrations that
approximate the sector weightings comprising the Standard and Poor's ("S&P") 500
Composite Stock Price Index. The Adviser believes that the approach of
maintaining a well-diversified, sector-neutral and fully invested portfolio
reduces the Portfolio's exposure to the risks associated with security
concentration, sector rotation and market timing.
The Portfolio will purchase only those securities that are traded on registered
exchanges or the over-the-counter market in the United States.
-10-
<PAGE>
FIXED INCOME PORTFOLIO
The Fixed Income Portfolio will invest, as fully as practicable, in the
following fixed income securities, but only if, at the time of purchase, the
security either has the requisite rating from a nationally recognized
statistical rating organization ("NRSRO") or is of comparable quality as
determined by the Adviser: (i) obligations issued or guaranteed as to principal
and interest by the U.S. Government, its agencies or instrumentalities ("U.S.
Government securities"); (ii) corporate bonds and debentures, of U.S. and
foreign issuers, rated in one of the four highest rating categories; (iii)
privately issued mortgage-backed securities rated in the highest rating
category; (iv) asset-backed securities rated in the two highest rating
categories; (v) receipts evidencing separately traded interest and principal
component parts of U.S. Government securities ("Receipts"); (vi) commercial
paper in one of the two highest rating categories; (vii) obligations
(certificates of deposit, time deposits, bankers' acceptances) of U.S.
commercial banks and savings and loan institutions that have net assets of at
least $500 million as of the end of their most recent fiscal year ("bank
obligations"); (viii) obligations issued or guaranteed by the government of
Canada; (ix) obligations of supranational entities rated in one of the four
highest rating categories; (x) loan participations; (xi) repurchase agreements
involving any of the foregoing securities; and (xii) to the extent permitted by
applicable law, shares of investment companies. Investment grade bonds include
securities rated BBB by S&P or Baa by Moody's Investors Service, Inc.
("Moody's"), which may be regarded as having highly speculative characteristics.
The Portfolio will not invest more than 10% of its assets in fixed income
securities denominated in foreign currencies and will invest less than 10% of
its total assets in foreign securities that are not publicly traded in the
United States.
The Fixed Income Portfolio may invest in variable and floating rate obligations
and may, although it has no present intention of doing so, invest in convertible
debt securities.
The Fixed Income Portfolio seeks to purchase investment grade fixed income
securities that, in the Adviser's opinion, are undervalued in the market. To
determine a security's fair market value, the Adviser will focus on the yield
and credit quality of particular securities based upon third-party evaluations
of quality as well as the Adviser's own research and analysis of the issuer. In
deciding which securities to purchase for the Portfolio, the Adviser will
analyze industry sector and security fundamentals and the impact of the security
on the Portfolio's overall portfolio structure. In managing the Portfolio, the
Adviser will attempt to diversify the Portfolio's holdings across the yield
curve by holding short, intermediate and long-term securities.
Normally, the Fixed Income Portfolio will maintain a dollar-weighted average
portfolio duration of approximately five and one-half years; this average
weighted duration is within the average duration range of the Portfolio's
benchmark index, the Lehman Bros. Government/Corporate Index. The Adviser may
increase or decrease this average
-11-
<PAGE>
weighted duration when market conditions warrant, although it will not attempt
to time changes in market interest rates.
SMALL CAP PORTFOLIO
The Small Cap Portfolio will invest as fully as practicable in a diversified
portfolio of common stocks of issuers with market capitalizations typically not
more than $1 billion, and may also invest up to 10% of its total assets in ADRs.
The Small Cap Portfolio will purchase securities that the Adviser believes to
have strong earnings potential and to be reasonably valued at the time of
purchase. The Small Cap Portfolio also seeks to purchase securities that are
well diversified across industry sectors and to maintain sector concentrations
that approximate the sector weightings comprising the Russell 2500 Index. The
Adviser believes that the approach of maintaining a well-diversified, sector-
neutral and fully invested portfolio reduces the risks associated with security
concentration, sector rotation and market timing.
The Small Cap Portfolio will also invest in warrants and rights to purchase
common stocks.
The Small Cap Portfolio will purchase only those securities that are traded on
registered exchanges or the over-the-counter market in the United States.
ALL PORTFOLIOS
Each Portfolio may purchase securities on a when-issued basis.
Each Portfolio may invest up to 10% of its net assets in illiquid securities,
including time deposits and variable and floating rate instruments that are
determined to be illiquid.
Each Portfolio may, in order to maintain liquidity, or if the Adviser determines
that securities meeting the criteria set by the Portfolio's investment policies
and objective are not reasonably available for purchase, or for temporary
defensive purposes, invest up to 15% of its total assets in money market
instruments (including U.S. Government securities, bank obligations, commercial
paper rated in the highest rating category by an NRSRO, repurchase agreements
involving the foregoing securities, and to the extent permitted by applicable
law, shares of investment companies investing solely in money market
instruments) and in cash.
For a further description of these types of obligations or transactions, see
"Description of Permitted Investments and Risk Factors" and "Description of
Permitted Investments" in the Statement of Additional Information.
No Portfolio can accurately predict its portfolio turnover rate. Under normal
circumstances the annual portfolio turnover rate is expected to be less than 40%
for the
-12-
<PAGE>
Fixed Income Portfolio. The annual portfolio turnover rate for the Growth
Portfolio for the fiscal period ended October 31, 1995, was 177.86%. The annual
portfolio turnover rates for the Small Cap Portfolio for the fiscal period ended
October 31, 1995 was 183.49%. An annual portfolio turnover rate in excess of
100% for the Growth Portfolio or Small Cap Portfolio may result from the
Adviser's investment strategy of focusing on earnings potential and disposing of
securities when the Adviser believes that their earnings potential has
diminished, or may result from the Adviser's maintenance of appropriate issuer
diversification. Portfolio turnover rates in excess of 100% may result in higher
transaction costs, including brokerage commissions, and higher levels of taxable
capital gain. See "Taxes."
RISK FACTORS
EQUITY SECURITIES - Investments in equity securities in general are subject to
market risks that may cause their prices to fluctuate over time. The value of
securities convertible into equity securities, such as warrants or convertible
debt, is also affected by prevailing interest rates, the credit quality of the
issuer and any call provision. Fluctuations in the value of equity securities in
which a Portfolio invests will cause the net asset value of that Portfolio to
fluctuate. An investment in such Portfolios may be more suitable for long-term
investors who can bear the risk of short-term principal fluctuations.
The Small Cap Portfolio will invest primarily in securities of smaller
companies. While the Adviser intends to invest the Portfolio's assets in
companies that the Adviser's research indicates should, over the long term,
provide significant growth potential, any investment in smaller capitalization
companies involves greater risk than that customarily associated with
investments in larger, more established companies. This increased risk may be
due to the greater business risks of smaller size, limited markets and financial
resources, narrow product lines and lack of depth of management. The securities
of smaller companies are often traded in the over-the-counter market and if
listed on a national securities exchange may not be traded in volumes typical
for that exchange. Thus, the securities of smaller companies are likely to be
less liquid, and subject to more abrupt or erratic market movements, than
securities of larger, more established growth companies. As a result, the value
of the shares of the Small Cap Portfolio can be expected to fluctuate more than
the value of shares of an investment company investing solely in larger, more
established companies.
FIXED INCOME SECURITIES - The market value of the fixed income investments in
which the Fixed Income Portfolio invests will change in response to interest
rate changes and other factors. During periods of falling interest rates, the
values of outstanding fixed income securities generally rise. Conversely, during
periods of rising interest rates, the values of such securities generally
decline. Moreover, while securities with longer maturities tend to produce
higher yields, the prices of longer maturity securities are also subject to
greater market fluctuations as a result of changes in interest rates. Changes by
recognized agencies in the rating of any fixed income security and in the
ability of an
-13-
<PAGE>
issuer to make payments of interest and principal also affect the value of these
investments. Changes in the value of these securities will not necessarily
affect cash income derived from these securities but will affect the Portfolio's
net asset value. The Fixed Income Portfolio may invest in securities rated in
the fourth highest category by an NRSRO; such securities, while still investment
grade, are considered to have speculative characteristics.
SECURITIES OF FOREIGN ISSUERS - Investments in the securities of foreign issuers
may subject a Portfolio to investment risks that differ in some respects from
those related to investments in securities of U.S. issuers. Such risks include
future adverse political and economic developments, possible imposition of
withholding taxes on income, possible seizure, nationalization or expropriation
of foreign deposits, possible establishment of exchange controls or taxation at
the source or greater fluctuation in value due to changes in exchange rates.
Foreign issuers of securities often engage in business practices different from
those of domestic issuers of similar securities, and there may be less
information publicly available about foreign issuers. In addition, foreign
issuers are, generally speaking, subject to less government supervision and
regulation and different accounting treatment than are those in the United
States. ADRs, typically issued by a U.S. financial institution, evidence
ownership of underlying securities of a foreign issuer.
MORTGAGE-BACKED SECURITIES - The mortgage-backed securities ("MBSs") in which
the Fixed Income Portfolio may invest are subject to prepayment of the
underlying mortgages. During periods of declining interest rates, prepayment of
mortgages underlying MBSs can be expected to accelerate. When an MBS held by the
Portfolio is prepaid, the Portfolio must reinvest the proceeds in securities the
yield of which reflects prevailing interest rates, which may be lower than the
yield on the prepaid MBS.
INVESTMENT LIMITATIONS
The investment objective of each Portfolio and the investment limitations set
forth here and in the Statement of Additional Information are fundamental
policies of that Portfolio. Fundamental policies cannot be changed with respect
to a Portfolio without the consent of the holders of a majority of that
Portfolio's outstanding shares.
No Portfolio may:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States, its agencies or instrumentalities and repurchase agreements
involving such securities) if as a result more than 5% of the total assets of
the Portfolio would be invested in the securities of such issuer. This
restriction applies to 75% of each Portfolio's total assets.
2. Purchase any securities which would cause 25% or more of the total assets of
the Portfolio to be invested in the securities of one or more issuers conducting
their principal
-14-
<PAGE>
business activities in the same industry, provided that this limitation does not
apply to investments in obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities and repurchase agreements involving such
securities. For purposes of this limitation, (i) utility companies will be
classified according to their services, for example, gas distribution, gas
transmission, electric and telephone will each be considered a separate
industry, and (ii) financial service companies will be classified according to
the end users of their services, for example, automobile finance, bank finance
and diversified finance will each be considered a separate industry.
3. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding 10% of the value of its total assets.
The foregoing percentages will apply at the time of the purchase of a security.
THE ADVISER
Turner Investment Partners, Inc. is a professional investment management firm
founded in January 1990. Robert E. Turner, Jr. is the Chairman and controlling
shareholder of the Adviser. The Adviser has provided investment advisory
services to investment companies since 1992. As of December 31, 1995 the Adviser
had discretionary management authority with respect to approximately $2.5
billion of assets. The principal business address of the Adviser is 1235
Westlakes Drive, Suite 350, Berwyn, Pennsylvania 19312.
The Adviser serves as the investment adviser for each Portfolio under an
investment advisory agreement (the "Advisory Agreement"). Under the Advisory
Agreement, the Adviser makes the investment decisions for the assets of each
Portfolio and continuously reviews, supervises and administers each Portfolio's
investment program, subject to the supervision of, and policies established by,
the Trustees of the Fund.
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of .75% of the average daily net assets of
the Growth Portfolio, .50% of the average daily net assets of the Fixed Income
Portfolio and 1.00% of the average daily net assets of the Small Cap Portfolio.
The advisory fees for the Growth Portfolio and Small Cap Portfolio are higher
than those paid by most other investment companies but are, in the Adviser's
judgment, comparable to the investment advisory fees paid by other investment
companies with comparable investment objectives and policies. The Adviser has
voluntarily agreed to waive all or a portion of its fee and to reimburse
expenses of the Fixed Income and Small Cap Portfolios in order to limit their
total operating expenses (as a percentage of average daily net assets on an
annualized basis) to not more than .75% and 1.25%, respectively. The Adviser
reserves the right, in its sole discretion, to terminate these voluntary fee
waivers and reimbursements at any time. For the fiscal year ended October 31,
1995, the Adviser received advisory fees of .75% and .00%, respectively, of the
Growth and Small Cap Portfolios' average daily net assets, and the Adviser
-15-
<PAGE>
reimbursed expenses of the Small Cap Portfolio equal to 14.48% of that
Portfolio's average daily net assets. The Fixed Income Portfolio was not in
operation during this period.
Robert E. Turner, Jr., CFA, Chairman and Chief Investment Officer of the
Adviser, has managed the portfolio of the Turner Growth Equity Fund since its
inception. Mr. Turner joined Turner Investment Partners in 1990. He has 13 years
of investment experience.
William H. Chenoweth, CFA, Senior Equity Portfolio Manager of the Adviser, has
managed the Turner Small Cap Fund since its inception. Mr. Chenoweth joined
Turner Investment Partners in 1993. Prior to 1993, he was Second Vice President
with Jefferson-Pilot Corporation. He has 10 years of investment experience.
Mark Turner, President and Director of Fixed Income Management of the Adviser,
has managed the Turner Fixed Income Fund since its inception. Mr. Turner joined
Turner Investment Partners in 1990. He has 12 years of investment experience.
THE ADMINISTRATOR
SEI Financial Management Corporation (the "Administrator"), a wholly-owned
subsidiary of SEI Corporation ("SEI"), provides the Fund with administrative
services, including regulatory reporting and all necessary office space,
equipment, personnel, and facilities.
For these administrative services, the Administrator is entitled to a fee from
each Portfolio, which is calculated daily and paid monthly, at an annual rate of
that Portfolio's proportionate share of .20% of the aggregate average daily net
assets of all of the Portfolios up to $75 million and .15% of such assets in
excess of $75 million. Each Portfolio, however, pays the Administrator a minimum
annual fee of $75,000. The administration fees a Portfolio pays may decline as a
percentage of the Portfolio's average daily net assets as the Portfolio's net
assets and the aggregate net assets of all Portfolios increase. For the fiscal
year ended October 31, 1995, the Administrator received a fee from the Growth
Portfolio and the Small Cap Portfolio equal to .18% and .91%, respectively, of
each Portfolio's average daily net assets. The Fixed Income Portfolio was not in
operation during this period.
The Administrator also serves as shareholder servicing agent for the Fund under
a shareholder servicing agreement with the Fund.
THE TRANSFER AGENT
DST Systems, Inc., 210 West 10th Street, Kansas City, Missouri 64105 (the
"Transfer Agent") serves as the transfer agent and dividend disbursing agent for
the Fund under a transfer agency agreement with the Fund.
-16-
<PAGE>
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly owned subsidiary of
SEI, acts as the Fund's distributor pursuant to a distribution agreement (the
"Distribution Agreement"). No compensation is paid to the Distributor for
distribution services for the shares of any Portfolio.
PORTFOLIO TRANSACTIONS
Each Portfolio may execute brokerage or other agency transactions through the
Distributor for which the Distributor may receive usual and customary
compensation. Certain broker-dealers assist their clients in the purchase of
shares from the Distributor and charge a fee for this service in addition to a
Portfolio's public offering price. The Adviser may direct commission business
for the Growth Portfolio to designated broker-dealers (including the
Distributor) in connection with such broker-dealers' payment of certain Growth
Portfolio expenses.
Since shares of the Portfolios are not marketed through intermediary broker-
dealers, no Portfolio has a practice of allocating brokerage or effecting
principal transactions with broker-dealers on the basis of sales of shares which
may be made through such firms. However, the Adviser may place orders for any
Portfolio with qualified broker-dealers who refer clients to that Portfolio.
PURCHASE AND REDEMPTION OF SHARES
Investors may purchase and redeem shares of any Portfolio directly through the
Transfer Agent, P.O. Box 419009, Kansas City, Missouri 64141-6009 by mail or
wire transfer. All shareholders may place orders by telephone; when market
conditions are extremely busy, it is possible that investors may experience
difficulties placing orders by telephone and may wish to place orders by mail.
Purchases and redemptions of shares of the Portfolio may be made on any Business
Day. Shares of any Portfolio are offered only to residents of states in which
such shares are eligible for purchase.
The minimum initial investment in any Portfolio is $100,000, and subsequent
purchases must be at least $10,000. The Distributor may waive these minimums at
its discretion. No minimum applies to subsequent purchases effected by dividend
reinvestment.
PURCHASES BY MAIL
An account may be opened by mailing a check or other negotiable bank draft
(payable to the name of the appropriate Portfolio) for $100,000 or more,
together with a completed Account Application to the Transfer Agent, P.O. Box
419009, Kansas City, Missouri 64141-6009. Subsequent investments may also be
mailed directly to the Transfer Agent.
-17-
<PAGE>
PURCHASES BY WIRE TRANSFER
Shareholders having an account with a commercial bank that is a member of the
Federal Reserve System may purchase shares of the Portfolio by requesting their
bank to transmit funds by wire to: United Missouri Bank of Kansas, N.A.; ABA
#10-10-00695; for Account Number 98-7052-396-5; Further Credit: Name of the
appropriate Portfolio. The shareholder's name and account number must be
specified in the wire.
Initial Purchases: Before making an initial investment by wire, an investor must
first telephone 1-800-808-4921 to be assigned an account number. The investor's
name, account number, taxpayer identification number or Social Security number,
and address must be specified in the wire. In addition, an Account Application
should be promptly forwarded to: DST Systems, Inc., P.O. Box 419009, Kansas
City, Missouri 64141-6009.
Subsequent Purchases: Additional investments may be made at any time through the
wire procedures described above, which must include a shareholder's name and
account number. The investor's bank may impose a fee for investments by wire.
GENERAL INFORMATION REGARDING PURCHASES
A purchase order will be effective as of the day received by the Transfer Agent
if the Transfer Agent receives the order and payment before 4:00 p.m., Eastern
time. Payment may be made by check or readily available funds. The purchase
price of shares of a Portfolio is that Portfolio's net asset value per share
next determined after a purchase order is effective. Purchases will be made in
full and fractional shares of a Portfolio calculated to three decimal places.
The Fund will not issue certificates representing shares of any Portfolio.
If a check received for the purchase of shares does not clear, the purchase will
be cancelled, and the investor could be liable for any losses or fees incurred.
The Fund reserves the right to reject a purchase order when the Fund determines
that it is not in the best interest of the Portfolio or its shareholders to
accept such order.
EXCHANGES
Shareholders of any Portfolio may exchange their shares for shares of either of
the other Portfolios. Exchanges are made at net asset value. An exchange is
considered a sale of shares and will result in capital gain or loss for federal
income tax purposes. The shareholder must have received a current prospectus for
the new Portfolio before any exchange will be effected, and the exchange
privilege may be exercised only in those states where shares of the new
Portfolio may legally be sold. If the Transfer Agent receives exchange
instructions in writing or by telephone (an "Exchange Request") in good order by
4:00 p.m., Eastern time, on any Business Day, the exchange will be effected that
day. The liability of the Fund or the Transfer Agent for fraudulent or
-18-
<PAGE>
unauthorized telephone instructions may be limited as described below. The Fund
reserves the right to modify or terminate this exchange offer on 60 days'
notice.
REDEMPTIONS
Redemption orders received by the Transfer Agent prior to 4:00 p.m., Eastern
time on any Business Day will be effective that day. The redemption price of
shares of any Portfolio is the net asset value per share of that Portfolio next
determined after the redemption order is effective. Payment on redemption will
be made as promptly as possible and, in any event, within seven days after the
redemption order is received, provided, however, that redemption proceeds for
shares purchased by check (including certified or cashier's checks) will be
forwarded only upon collection of payment for such shares; collection of payment
may take 15 days or more. Shareholders may not close their accounts by
telephone.
Shareholders may receive redemption payments in the form of a check or by
Federal Reserve wire transfer or Automated Clearing House ("ACH") wire transfer.
There is no charge for having a check for redemption proceeds mailed. The
custodian will deduct a wire charge, currently $10.00, from the amount of a
Federal Reserve wire redemption payment made at the request of a shareholder.
Shareholders cannot redeem shares of a Portfolio by Federal Reserve wire on
federal holidays restricting wire transfers. The Fund does not charge for ACH
wire transfers; however, such transactions will not be posted to a shareholder's
bank account until the second Business Day following the transaction.
Neither the Fund nor the Transfer Agent will be responsible for the authenticity
of the redemption instructions received by telephone if it reasonably believes
those instructions to be genuine. The Fund and the Transfer Agent will each
employ reasonable procedures to confirm that telephone instructions are genuine,
and may be liable for losses resulting from unauthorized or fraudulent telephone
transactions if it does not employ those procedures. Such procedures may include
the taping of telephone conversations.
The right of redemption may be suspended or the date of payment of redemption
proceeds postponed during certain periods as set forth more fully in the
Statement of Additional Information.
The net asset value per share of each Portfolio is determined by dividing the
total market value of that Portfolio's investments and other assets, less any
liabilities, by the total outstanding shares of that Portfolio. Net asset value
per share is determined daily as of the close of business of the New York Stock
Exchange (normally, 4:00 p.m., Eastern time) on any Business Day.
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<PAGE>
PERFORMANCE
From time to time, a Portfolio may advertise its yield and total return. These
figures will be based on historical earnings and are not intended to indicate
future performance. No representation can be made regarding actual future yields
or returns. The yield of a Portfolio refers to the annualized income generated
by an investment in the Portfolio over a specified 30-day period. The yield is
calculated by assuming that the same amount of income generated by the
investment during that period is generated in each 30-day period over one year
and is shown as a percentage of the investment.
The total return of a Portfolio refers to the average compounded rate of return
on a hypothetical investment, for designated time periods (including but not
limited to the period from which the Portfolio commenced operations through the
specified date), assuming that the entire investment is redeemed at the end of
each period and assuming the reinvestment of all dividend and capital gain
distributions.
A Portfolio may periodically compare its performance to that of other mutual
funds tracked by mutual fund rating services (such as Lipper Analytical
Services, Inc.), financial and business publications and periodicals, broad
groups of comparable mutual funds, unmanaged indices, which may assume
investment of dividends but generally do not reflect deductions for
administrative and management costs, or other investment alternatives. A
Portfolio may quote Morningstar, Inc., a service that ranks mutual funds on the
basis of risk-adjusted performance. A Portfolio may quote Ibbotson Associates of
Chicago, Illinois, which provides historical returns of the capital markets in
the U.S. The Portfolio may use long term performance of these capital markets to
demonstrate general long-term risk versus reward scenarios and could include the
value of a hypothetical investment in any of the capital markets. The Portfolio
may also quote financial and business publications and periodicals as they
relate to fund management, investment philosophy, and investment techniques.
A Portfolio may quote various measures of volatility and benchmark correlation
in advertising and may compare these measures to those of other funds. Measures
of volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.
Additional performance information regarding the Growth and Small Cap Portfolios
is set forth in the 1995 Annual Report to Shareholders, available on request and
without charge by calling 1-800-932-7781.
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<PAGE>
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action.
No attempt has been made to present a detailed explanation of the federal,
state, or local income tax treatment of a Portfolio or its shareholders.
Accordingly, shareholders are urged to consult their tax advisers regarding
specific questions as to federal, state and local income taxes.
TAX STATUS OF THE PORTFOLIOS:
Each Portfolio is treated as a separate entity for federal income tax purposes
and is not combined with the Fund's other portfolios. Each Portfolio intends to
qualify or to continue to qualify for the special tax treatment afforded
regulated investment companies as defined under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). So long as a Portfolio qualifies
for this special tax treatment, it will be relieved of federal income tax on
that part of its net investment income and net capital gain (the excess of net
long-term capital gain over net short-term capital loss) which it distributes to
shareholders.
TAX STATUS OF DISTRIBUTIONS:
Each Portfolio will distribute all of its net investment income (including, for
this purpose, net short-term capital gain) to shareholders. Dividends from net
investment income will be taxable to shareholders as ordinary income whether
received in cash or in additional shares. Distributions from net investment
income will qualify for the dividends-received deduction for corporate
shareholders only to the extent such distributions are derived from dividends
paid by domestic corporations. It can be expected that only certain dividends of
the Growth and Small Cap Portfolios, and none of the Fixed Income Portfolio,
will qualify for that deduction. Any net capital gains will be distributed
annually and will be taxed to shareholders as long-term capital gains,
regardless of how long the shareholder has held shares. Each Portfolio will make
annual reports to shareholders of the federal income tax status of all
distributions, including the amount of dividends eligible for the dividends-
received deduction.
Certain securities purchased by a Portfolio (such as STRIPS, TRs, TIGRs and
CATS, defined in "Description of Permitted Investments and Risk Factors") are
sold with original issue discount and thus do not make periodic cash interest
payments. For a further description of such securities, see "Description of
Permitted Investments and Risk Factors." Each Portfolio will be required to
include as part of its current income the accrued discount on such obligations
even though the Portfolio has not received any interest payments on such
obligations during that period. Because each Portfolio distributes all of its
net investment income to its shareholders, a Portfolio may have to sell
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<PAGE>
portfolio securities to distribute such accrued income, which may occur at a
time when the Adviser would not have chosen to sell such securities and which
may result in a taxable gain or loss.
Income received on direct U.S. obligations is exempt from income tax at the
state level when received directly and may be exempt, depending on the state,
when received by a shareholder from a Portfolio provided certain state-specific
conditions are satisfied. The Portfolios will inform shareholders annually of
the percentage of income and distributions derived from direct U.S. obligations.
Shareholders should consult their tax advisers to determine whether any portion
of the income dividends received from a Portfolio is considered tax exempt in
their particular state.
Dividends declared by a Portfolio in October, November or December of any year
and payable to shareholders of record on a date in one of those months will be
deemed to have been paid by the Portfolio and received by the shareholders on
December 31 in the year declared, if paid by the Portfolio at any time during
the following January.
Each Portfolio intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for federal excise tax.
Sale, exchange or redemption of a Portfolio's shares is a taxable event to the
shareholder.
Income derived by a Portfolio from securities of foreign issuers may be subject
to foreign withholding taxes. The Portfolios will not be able to elect to treat
shareholders as having paid their proportionate share of such foreign taxes.
GENERAL INFORMATION
THE FUND
The Fund, an open-end investment management company that offers shares of
diversified portfolios, was organized under Massachusetts law as a business
trust under a Declaration of Trust dated July 18, 1991. The Declaration of Trust
permits the Fund to offer separate series ("portfolios") of shares. All
consideration received by the Fund for shares of any portfolio and all assets of
such portfolio belong to that portfolio and would be subject to liabilities
related thereto. The Fund reserves the right to create and issue shares of
additional portfolios.
The Portfolio pays its (i) operating expenses, including fees of its service
providers, expenses of preparing prospectuses, proxy solicitation material and
reports to shareholders, costs of custodial services and registering shares
under federal and state securities laws, pricing and insurance expenses,
brokerage costs, interest charges, taxes and organization expenses and (ii) pro
rata share of the Fund's other expenses,
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<PAGE>
including audit and legal expenses. Each Portfolio's expense ratios are
disclosed under "Financial Highlights."
TRUSTEES OF THE FUND
The management and affairs of the Fund are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Fund.
VOTING RIGHTS
Each share held entitles the shareholder of record to one vote. Each Portfolio
will vote separately on matters relating solely to it. As a Massachusetts
business trust, the Fund is not required to hold annual meetings of shareholders
but shareholders' approval will be sought for certain changes in the operation
of the Fund and for the election of Trustees under certain circumstances. In
addition, a Trustee may be removed by the remaining Trustees or by shareholders
at a special meeting called upon written request of shareholders owning at least
10% of the outstanding shares of the Fund. In the event that such a meeting is
requested, the Fund will provide appropriate assistance and information to the
shareholders requesting the meeting.
As of February 5, 1996, the Navy-Marine Corp. Relief Society (Arlington,
Virginia) owned a controlling interest in the Turner Small Cap Fund as defined
by the Investment Company Act of 1940.
REPORTING
The Fund issues unaudited financial information semiannually and audited
financial statements annually for each Portfolio. The Fund also furnishes
periodic reports and, as necessary, proxy statements to shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to The Advisors' Inner Circle Fund,
P.O. Box 19009, Kansas City, Missouri 64141-6009 or by calling 1-800-932-7781.
Purchases, exchanges and redemptions of shares should be made through the
Transfer Agent by calling 1-800-808-4921.
DIVIDENDS AND DISTRIBUTIONS
Substantially all of the net investment income (excluding capital gain) of the
Growth Portfolio is distributed in the form of quarterly dividends, that of the
Fixed Income Portfolio is distributed in the form of monthly dividends, and that
of the Small Cap Portfolio is
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<PAGE>
distributed in the form of dividends at least annually. Shareholders of record
of the Growth Portfolio and the Fixed Income Portfolio on the last Business Day
of each quarter or month, respectively, will be entitled to receive the
quarterly or monthly dividend distribution. If any capital gain is realized,
substantially all of it will be distributed at least annually.
Shareholders automatically receive all income dividends and capital gain
distributions in additional shares, unless the shareholder has elected to take
such payment in cash. Shareholders may change their election by providing
written notice to the Transfer Agent at least 15 days prior to the distribution.
Shareholders may receive payments for cash distributions in the form of a check
or by Federal Reserve wire transfer or ACH wire transfers.
Dividends and other distributions of a Portfolio are paid on a per share basis.
The value of each share will be reduced by the amount of the payment. If shares
are purchased shortly before the record date for a distribution of ordinary
income or capital gains, a shareholder will pay the full price for the shares
and receive some portion of the price back as a taxable distribution or
dividend.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Morgan, Lewis & Bockius LLP serves as counsel to the Fund. Arthur Andersen LLP
serves as the independent public accountants of the Fund.
CUSTODIAN
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101 acts as the custodian (the "Custodian") of each Portfolio.
The Custodian holds cash, securities and other assets of the Fund as required by
the Investment Company Act of 1940, as amended (the "1940 Act").
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS
The following is a description of permitted investments for one or more of the
Portfolios:
AMERICAN DEPOSITARY RECEIPTS ("ADRs")--ADRs are securities, typically issued by
a U.S. financial institution (a "depositary"), that evidence ownership interests
in a security or a pool of securities issued by a foreign issuer and deposited
with the depositary. ADRs may be available through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by the issuer of the
security underlying the receipt and a depositary, whereas an unsponsored
facility may be established by a depositary without participation by the issuer
of the underlying security. Holders of unsponsored depositary receipts generally
bear all the costs of the unsponsored facility. The depositary of an unsponsored
facility frequently is under no obligation to distribute shareholder
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<PAGE>
communications received from the issuer of the deposited security or to pass
through, to the holders of the receipts, voting rights with respect to the
deposited securities.
ASSET-BACKED SECURITIES (Non-mortgage)--Asset-backed securities are securities
secured by non-mortgage assets such as company receivables, truck and auto
loans, leases and credit card receivables. Such securities are generally issued
as pass-through certificates, which represent undivided fractional ownership
interests in the underlying pools of assets. Such securities also may be debt
instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity, such as a trust,
organized solely for the purpose of owning such assets and issuing such debt.
Asset-backed securities are not issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; however, the payment of principal and interest on
such obligations may be guaranteed up to certain amounts and for a certain
period by a letter of credit issued by a financial institution (such as a bank
or insurance company) unaffiliated with the issuers of such securities. The
purchase of asset-backed securities raises risk considerations peculiar to the
financing of the instruments underlying such securities. For example, there is a
risk that another party could acquire an interest in the obligations superior to
that of the holders of the asset-backed securities. There also is the
possibility that recoveries on repossessed collateral may not, in some cases, be
available to support payments on those securities. Asset-backed securities
entail prepayment risk, which may vary depending on the type of asset, but is
generally less than the prepayment risk associated with mortgage-backed
securities. In addition, credit card receivables are unsecured obligations of
the cardholder.
The market for asset-backed securities is at a relatively early stage of
development. Accordingly, there may be a limited secondary market for such
securities. The Fixed Income Portfolio may invest in these and in other asset-
backed securities that may be created in the future if the Adviser determines
they are suitable.
BANKERS' ACCEPTANCE--Bankers' acceptances are bills of exchange or time drafts
drawn on and accepted by a commercial bank. Bankers' acceptances are used by
corporations to finance the shipment and storage of goods. Maturities are
generally six months or less.
CERTIFICATE OF DEPOSIT--Certificates of deposit are interest bearing instruments
with a specific maturity. They are issued by banks and savings and loan
institutions in exchange for the deposit of funds and normally can be traded in
the secondary market prior to maturity. Certificates of deposit with penalties
for early withdrawal will be considered illiquid.
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<PAGE>
COMMERCIAL PAPER--Commercial paper is a term used to describe unsecured short-
term promissory notes issued by banks, municipalities, corporations and other
entities. Maturities on these issues vary from a few to 270 days.
CONVERTIBLE SECURITIES--Convertible securities are corporate securities that are
exchangeable for a set number of another security at a prestated price.
Convertible securities typically have characteristics similar to both fixed
income and equity securities. Because of the conversion feature, the market
value of a convertible security tends to move with the market value of the
underlying stock. The value of a convertible security is also affected by
prevailing interest rates, the credit quality of the issuer, and any call
provisions.
ILLIQUID SECURITIES--Illiquid securities are securities that cannot be disposed
of within seven business days at approximately the price at which they are being
carried on the Fund's books. An illiquid security includes a demand instrument
with a demand notice period exceeding seven days, where there is no secondary
market for such security, and repurchase agreements with durations over 7 days
in length.
MORTGAGE-BACKED SECURITIES--Mortgage-backed securities are instruments that
entitle the holder to a share of all interest and principal payments from
mortgages underlying the security. The mortgages backing these securities
include conventional thirty-year fixed rate mortgages, graduated payment
mortgages, and adjustable rate mortgages. During periods of declining interest
rates, prepayment of mortgages underlying mortgage-backed securities can be
expected to accelerate. Prepayment of mortgages which underlie securities
purchased at a premium often results in capital losses, while prepayment of
mortgages purchased at a discount often results in capital gains. Because of
these unpredictable prepayment characteristics, it is often not possible to
predict accurately the average life or realized yield of a particular issue.
Government Pass-Through Securities: These are securities that are issued or
- ----------------------------------
guaranteed by a U.S. Government agency representing an interest in a pool of
mortgage loans. The primary issuers or guarantors of these mortgage-backed
securities are Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA") and Federal Home Loan Mortgage
Corporation ("FHLMC"). FNMA and FHLMC obligations are not backed by the full
faith and credit of the U.S. Government as GNMA certificates are, but FNMA and
FHLMC securities are supported by the instrumentalities' right to borrow from
the U.S. Treasury. GNMA, FNMA and FHLMC each guarantees timely distributions of
interest to certificate holders. GNMA and FNMA also each guarantees timely
distributions of scheduled principal. FHLMC has in the past guaranteed only the
ultimate collection of principal of the underlying mortgage loan; however, FHLMC
now issues mortgage-backed securities (FHLMC Gold PCs) which also guarantee
timely payment of monthly principal reductions. Government and private
guarantees do not extend to the securities' value, which is likely to vary
inversely with fluctuations in interest rates.
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<PAGE>
Private Pass-Through Securities: These are mortgage-backed securities issued by
- -------------------------------
a non-governmental entity, such as a trust. These securities include
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs") that are rated in one of the top two rating categories.
While they are generally structured with one or more types of credit
enhancement, private pass-through securities typically lack a guarantee by an
entity having the credit status of a governmental agency or instrumentality.
Collateralized Mortgage Obligations ("CMOs"): CMOs are debt obligations or
- --------------------------------------------
multiclass pass-through certificates issued by agencies or instrumentalities of
the U.S. Government or by private originators or investors in mortgage loans. In
a CMO, series of bonds or certificates are usually issued in multiple classes.
Principal and interest paid on the underlying mortgage assets may be allocated
among the several classes of a series of a CMO in a variety of ways. Each class
of a CMO, often referred to as a "tranche," is issued with a specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Principal payments on the underlying mortgage assets may cause CMOs to be
retired substantially earlier then their stated maturities or final distribution
dates, resulting in a loss of all or part of any premium paid.
REMICs: A REMIC is a CMO that qualifies for special tax treatment under the
- ------
Code and invests in certain mortgages principally secured by interests in real
property. Investors may purchase beneficial interests in REMICs, which are known
as "regular" interests, or "residual" interests. Guaranteed REMIC pass-through
certificates ("REMIC Certificates") issued by FNMA or FHLMC represent beneficial
ownership interests in a REMIC trust consisting principally of mortgage loans or
FNMA, FHLMC or GNMA-guaranteed mortgage pass-through certificates. For FHLMC
REMIC Certificates, FHLMC guarantees the timely payment of interest, and also
guarantees the payment of principal as payments are required to be made on the
underlying mortgage participation certificates issued and guaranteed as to
timely distribution of principal and interest by FNMA.
Parallel Pay Securities; PAC Bonds: Parallel pay CMOs and REMICS are structured
- ----------------------------------
to provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which must be retired by
its stated maturity date or final distribution date, but may be retired earlier.
Planned Amortization Class CMOs ("PAC Bonds") generally require payments of a
specified amount of principal on each payment date. PAC Bonds are always
parallel pay CMOs with the required principal payment on such securities having
the highest priority after interest has been paid to all classes.
Stripped Mortgage-Backed Securities ("SMBs"): SMBs are usually structured with
- --------------------------------------------
two classes that receive specified proportions of the monthly interest and
principal payments from a pool of mortgage securities. One class may receive all
of the interest payment and
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<PAGE>
is thus termed an interest-only class ("IO"), while the other class may receive
all of the principal payments and is thus termed the principal-only class
("PO"). The value of IOs tends to increase as rates rise and decrease as rates
fall; the opposite is true of POs. SMBs are extremely sensitive to changes in
interest rates because of the impact thereon of prepayment of principal on the
underlying mortgage securities. The market for SMBs is not as fully developed as
other markets; SMBs therefore may be illiquid.
Risk Factors: Due to the possibility of prepayments of the underlying mortgage
- ------------
instruments, mortgage-backed securities generally do not have a known maturity.
In the absence of a known maturity, market participants generally refer to an
estimated average life. An average life estimate is a function of an assumption
regarding anticipated prepayment patterns, based upon current interest rates,
current condition in the relevant housing markets and other factors. The
assumption is necessarily subjective, and thus different market participants can
produce different average life estimates with regard to the same security. There
can be no assurance that estimated average life will be a security's actual
average life.
RECEIPTS--Interests in separately traded interest and principal component parts
of U.S. Government obligations that are issued by banks or brokerage firms and
are created by depositing U.S. Government obligations into a special account at
a custodian bank. The custodian holds the interest and principal payments for
the benefit of the registered owners of the certificates or receipts. The
custodian arranges for the issuance of the certificates or receipts evidencing
ownership and maintains the register. Receipts include "Treasury Receipts"
("TRs"), "Treasury Investment Growth Receipts" ("TIGRs"), and "Certificates of
Accrual on Treasury Securities" ("CATS"). TIGRs and CATS are interests in
private proprietary accounts while TRs and STRIPS (see "U.S. Treasury
Obligations") are interests in accounts sponsored by the U.S. Treasury. Receipts
are sold as zero coupon securities; for more information, see "Zero Coupon
Securities."
REITs-REITs are trusts that invest primarily in commercial real estate or real
estate-related loans. The value of interests in REITS may be affected by the
value of the property owned or the quality of the mortgages held by the trust.
REPURCHASE AGREEMENTS--Repurchase agreements are agreements by which the
Portfolio obtains a security and simultaneously commits to return the security
to the seller at an agreed upon price on an agreed upon date within a number of
days from the date of purchase. The custodian will hold the security as
collateral for the repurchase agreement. The Portfolio bears a risk of loss in
the event the other party defaults on its obligations and the Portfolio is
delayed or prevented from exercising its right to dispose of the collateral or
if the Portfolio realizes a loss on the sale of the collateral. The Portfolio
will enter into repurchase agreements only with financial institutions deemed to
present minimal risk of bankruptcy during the term of the agreement based on
established guidelines. Repurchase agreements are considered loans under the
1940 Act.
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<PAGE>
TIME DEPOSIT--Time deposits are non-negotiable receipt issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits are considered to be illiquid
securities.
U.S. GOVERNMENT AGENCIES-Obligations issued or guaranteed by agencies of the
U.S. Government, including, among others, the Federal Farm Credit Bank, the
Federal Housing Administration and the Small Business Administration, and
obligations issued or guaranteed by instrumentalities of the U.S. Government,
including, among others, the FHLMC, the Federal Land Banks and the U.S. Postal
Service. Some of these securities are supported by the full faith and credit of
the U.S. Treasury (e.g., Government National Mortgage Association), others are
supported by the right of the issuer to borrow from the Treasury (e.g., Federal
Farm Credit Bank), while still others are supported only by the credit of the
instrumentality (e.g., FNMA). Guarantees of principal by agencies or
instrumentalities of the U.S. Government may be a guarantee of payment at the
maturity of the obligation so that in the event of a default prior to maturity
there might not be a market and thus no means of realizing on the obligation
prior to maturity. Guarantees as to the timely payment of principal and interest
do not extend to the value or yield of these securities nor to the value of the
Portfolio shares.
U.S. TREASURY OBLIGATIONS--U.S. Treasury Obligations consist of bills, notes and
bonds issued by the U.S. Treasury and separately traded interest and principal
component parts of such obligations that are transferable through the federal
book-entry system known as Separately Traded Registered Interest and Principal
Securities ("STRIPS")
VARIABLE AND FLOATING RATE INSTRUMENTS--Certain obligations may carry variable
or floating rates of interest, and may involve a conditional or unconditional
demand feature. Such instruments bear interest at rates which are not fixed, but
which vary with changes in specified market rates or indices. The interest rates
on these securities may be reset daily, weekly, quarterly or some other reset
period, and may have a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations may not actually reflect
existing market interest rates. A demand instrument with a demand notice
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WARRANTS--Warrants are instruments giving holders the right, but not the
obligation, to buy shares of a company at a given price during a specified
period.
WHEN-ISSUED SECURITIES AND DELAYED DELIVERY SECURITIES--When-issued or delayed
delivery basis transactions involve the purchase of an instrument with payment
and delivery taking place in the future. Delivery of and payment for these
securities may occur a month or more after the date of the purchase commitment.
The Portfolio will maintain with the custodian a separate account with liquid
high grade debt securities
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<PAGE>
or cash in an amount at least equal to these commitments. The interest rate
realized on these securities is fixed as of the purchase date and no interest
accrues to the Portfolio before settlement. These securities are subject to
market fluctuation due to changes in market interest rates and it is possible
that the market value at the time of settlement could be higher or lower than
the purchase price if the general level of interest rates has changed. Although
a Portfolio generally purchases securities on a when-issued or forward
commitment basis with the intention of actually acquiring securities for its
investment portfolio, a Portfolio may dispose of a when-issued security or
forward commitment prior to settlement if it deems appropriate.
ZERO COUPON SECURITIES--Zero coupon obligations are debt securities that do not
bear any interest, but instead are issued at a deep discount from par. The value
of a zero coupon obligation increases over time to reflect the interest
accreted. Such obligations will not result in the payment of interest until
maturity, and will have greater price volatility than similar securities that
are issued at par and pay interest periodically.
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Fund:
THE ADVISORS' INNER CIRCLE FUND
Portfolios:
TURNER GROWTH EQUITY FUND
TURNER FIXED INCOME FUND
TURNER SMALL CAP FUND
Adviser:
TURNER INVESTMENT PARTNERS, INC.
Distributor:
SEI FINANCIAL SERVICES COMPANY
Administrator:
SEI FINANCIAL MANAGEMENT CORPORATION
Legal Counsel:
MORGAN, LEWIS & BOCKIUS LLP
Independent Public Accountants:
ARTHUR ANDERSEN LLP
February 28, 1996
<PAGE>
FUND:
THE ADVISORS' INNER CIRCLE FUND
PORTFOLIOS:
TURNER GROWTH EQUITY FUND
TURNER FIXED INCOME FUND
TURNER SMALL CAP FUND
INVESTMENT ADVISER:
TURNER INVESTMENT PARTNERS, INC.
This Statement of Additional Information is not a prospectus and relates only to
the Turner Growth Equity Fund (the "Growth Portfolio"), the Turner Fixed Income
Fund (the "Fixed Income Portfolio") and the Turner Small Cap Fund (the "Small
Cap Portfolio") (each, a "Portfolio"). It is intended to provide additional
information regarding the activities and operations of The Advisors' Inner
Circle Fund (the "Fund") and the Portfolios and should be read in conjunction
with the Portfolios' Prospectus dated February 28, 1996. The Prospectus may be
obtained by calling 1-800-932-7781.
TABLE OF CONTENTS
THE FUND............................................................ S-2
DESCRIPTION OF PERMITTED INVESTMENTS................................ S-2
INVESTMENT LIMITATIONS.............................................. S-5
THE ADVISER......................................................... S-7
THE ADMINISTRATOR................................................... S-8
THE DISTRIBUTOR..................................................... S-9
TRUSTEES AND OFFICERS OF THE FUND................................... S-9
COMPUTATION OF YIELD AND TOTAL RETURN............................... S-12
PURCHASE AND REDEMPTION OF SHARES................................... S-13
DETERMINATION OF NET ASSET VALUE.................................... S-13
TAXES............................................................... S-13
PORTFOLIO TRANSACTIONS.............................................. S-15
DESCRIPTION OF SHARES............................................... S-17
SHAREHOLDER LIABILITY............................................... S-18
LIMITATION OF TRUSTEES' LIABILITY................................... S-18
5% SHAREHOLDERS..................................................... S-18
EXPERTS............................................................. S-20
FINANCIAL........................................................... S-20
APPENDIX............................................................ A-1
February 28, 1996
TUR-F-009-06
<PAGE>
THE FUND
This Statement of Additional Information relates only to the Turner Growth
Equity Fund (the "Growth Portfolio"), Turner Fixed Income Fund (the "Fixed
Income Portfolio") and Turner Small Cap Fund (the "Small Cap Portfolio") (each,
a "Portfolio"). Each Portfolio is a separate series of the Advisors' Inner
Circle Fund (the "Fund"), an open-end investment management company that offers
shares of diversified portfolios, established under Massachusetts law as a
Massachusetts business trust under a Declaration of Trust dated July 18, 1991.
The Declaration of Trust permits the Fund to offer separate series
("portfolios") of shares of beneficial interest ("shares"). Each portfolio is a
separate mutual fund, and each share of each portfolio represents an equal
proportionate interest in that portfolio. See "Description of Shares." No
investment in shares of a portfolio should be made without first reading that
portfolio's prospectus. Capitalized terms not defined herein are defined in the
Prospectus offering shares of the Portfolios.
DESCRIPTION OF PERMITTED INVESTMENTS
FOREIGN SECURITIES
The Growth and Small Cap Portfolios may invest in U.S. dollar denominated
securities of foreign issuers. The Fixed Income Portfolio may invest in
securities issued or guaranteed by foreign governments, their political
subdivisions, agencies or instrumentalities, and may purchase obligations of
supranational entities. These instruments may subject these Portfolios to
investment risks that differ in some respects from those related to investments
in obligations of U.S. issuers. Such risks include future adverse political and
economic developments, possible imposition of withholding taxes on interest or
other income, possible seizure, nationalization, or expropriation of foreign
deposits, possible establishment of exchange controls or taxation at the source,
greater fluctuations in value due to changes in exchange rates, or the adoption
of other foreign governmental restrictions that might adversely affect the
payment of principal and interest on such obligations. Such investments may
also entail higher custodial fees and sales commissions than domestic
investments. Foreign issuers of securities or obligations often engage in
business practices different from those of domestic issuers of similar
securities, and there may be less information publicly available about foreign
issuers. Foreign issuers are, generally speaking, subject to less government
supervision and regulation and different accounting treatment than are those in
the United States.
S-2
<PAGE>
INVESTMENT COMPANY SHARES
Each Portfolio may invest in shares of other investment companies, to the extent
permitted by applicable law and subject to certain restrictions. These
investment companies typically incur fees that are separate from those fees
incurred directly by the Portfolio. A Portfolio's purchase of such investment
company securities results in the layering of expenses, such that shareholders
would indirectly bear a proportionate share of the operating expenses of such
investment companies, including advisory fees, in addition to paying Portfolio
expenses. Under applicable regulations, a Portfolio is prohibited from acquiring
the securities of another investment company if, as a result of such
acquisition: (1) the Portfolio owns more than 3% of the total voting stock of
the other company; (2) securities issued by any one investment company represent
more than 5% of the Portfolio's total assets; or (3) securities (other than
treasury stock) issued by all investment companies represent more than 10% of
the total assets of the Portfolio. See also "Investment Limitations."
REPURCHASE AGREEMENTS
Repurchase agreements are agreements by which a Portfolio obtains a security and
simultaneously commits to return the security to the seller (a member bank of
the Federal Reserve System or primary securities dealer as recognized by the
Federal Reserve Bank of New York) at an agreed upon price (including principal
and interest) on an agreed upon date within a number of days (usually not more
than seven) from the date of purchase. The resale price reflects the purchase
price plus an agreed upon market rate of interest which is unrelated to the
coupon rate or maturity of the underlying security. A repurchase agreement
involves the obligation of the seller to pay the agreed upon price, which
obligation is in effect secured by the value of the underlying security.
Repurchase agreements are considered to be loans by a Portfolio for purposes of
its investment limitations. The repurchase agreements entered into by a
Portfolio will provide that the underlying security at all times shall have a
value at least equal to 102% of the resale price stated in the agreement (the
Adviser monitors compliance with this requirement). Under all repurchase
agreements entered into by a Portfolio, the Fund's custodian or its agent must
take possession of the underlying collateral. However, if the seller defaults,
the Portfolio could realize a loss on the sale of the underlying security to the
extent that the proceeds of sale, including accrued interest, are less than the
resale price provided in the agreement including interest. In addition, even
though the Bankruptcy Code provides protection for most repurchase agreements,
if the seller should be involved in bankruptcy or insolvency proceedings, a
Portfolio may incur delay and costs in selling the underlying security or may
suffer a loss of principal and interest if the Portfolio is treated as an
unsecured creditor and is required to return the underlying security to the
seller's estate.
S-3
<PAGE>
U.S. GOVERNMENT SECURITIES
Each Portfolio may invest in securities issued or guaranteed by U.S. Government
agencies or instrumentalities such as the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC"). Obligations of GNMA are backed
by the full faith and credit of the United States Government. Obligations of
FNMA and FHLMC are not backed by the full faith and credit of the United States
Government but are considered to be of high quality since they are considered to
be instrumentalities of the United States. The market value and interest yield
of these securities can vary due to market interest rate fluctuations and early
prepayments of underlying mortgages. These securities represent ownership in a
pool of federally insured mortgage loans with a maximum maturity of 30 years.
However, due to scheduled and unscheduled principal payments, GNMA certificates
have a shorter average maturity and, therefore, less principal volatility than a
comparable 30-year bond. Since prepayment rates vary widely, it is not possible
to accurately predict the average maturity of a particular GNMA pool. The
scheduled monthly interest and principal payments relating to mortgages in the
pool will be "passed through" to investors. GNMA securities differ from
conventional bonds in that principal is paid back to the certificate holders
over the life of the loan rather than at maturity. As a result, there will be
monthly scheduled payments of principal and interest. In addition, there may be
unscheduled principal payments representing prepayments on the underlying
mortgages. Although GNMA certificates may offer yields higher than those
available from other types of U.S. Government securities, GNMA certificates may
be less effective than other types of securities as a means of "locking in"
attractive long-term rates because of the prepayment feature. For instance, when
interest rates decline, the value of a GNMA certificate likely will not rise as
much as comparable debt securities due to the prepayment feature. In addition,
these prepayments can cause the price of a GNMA certificate originally purchased
at a premium to decline in price to its par value, which may result in a loss.
Each Portfolio may invest in Separately Traded Interest and Principal Securities
("STRIPS"), which are component parts of U.S. Treasury Securities traded through
the Federal Book-Entry System. The Adviser will purchase only those STRIPS that
it determines are liquid or, if illiquid, do not violate the Portfolio's
investment policy concerning investments in illiquid securities. While there is
no limitation on the percentage of a Portfolio's assets that may be comprised of
STRIPS, the Adviser will monitor the level of such holdings to avoid the risk of
impairing shareholders' redemption rights.
S-4
<PAGE>
WHEN-ISSUED SECURITIES
When-issued securities involve the purchase of debt obligations on a when-issued
basis, in which case delivery and payment normally take place within 45 days
after the date of commitment to purchase. A Portfolio will make commitments to
purchase obligations on a when-issued basis only with the intention of actually
acquiring the securities, but may sell them before the settlement date. The
when-issued securities are subject to market fluctuation, and no interest
accrues on the security to the purchaser during this period. The payment
obligation and the interest rate that will be received on the securities are
each fixed at the time the purchaser enters into the commitment. Purchasing
obligations on a when-issued basis has the effect of leveraging and can involve
a risk that the yields available in the market when the delivery takes place may
actually be higher than those obtained in the transaction itself. In that case
there could be an unrealized loss at the time of delivery.
Segregated accounts will be established with the custodian, and a Portfolio will
maintain liquid assets (cash, U.S. Government obligations or liquid high quality
obligations) in an amount at least equal in value to its commitments to purchase
when-issued securities. If the value of these assets declines, the Portfolio
will place additional liquid assets in the account on a daily basis so that the
value of the assets in the account is equal to the amount of such commitments.
INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
The following investment limitations are fundamental policies of each Portfolio
which cannot be changed with respect to a Portfolio without the consent of the
holders of a majority of that Portfolio's outstanding shares. The term
"majority of the outstanding shares" means the vote of (i) 67% or more of a
Portfolio's shares present at a meeting, if more than 50% of the outstanding
shares of a Portfolio are present or represented by proxy, or (ii) more than 50%
of a Portfolio's outstanding shares, whichever is less.
No Portfolio may:
1. Acquire more than 10% of the voting securities of any one issuer.
2. Invest in companies for the purpose of exercising control.
3. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding 10% of the value of total assets. Any borrowing will
be done from a bank and, to the extent that such borrowing exceeds 5% of
the value of the Portfolio's assets, asset coverage of at least 300% is
required. In the event that such asset coverage shall at any time fall
below 300%, the Portfolio shall, within three days thereafter or such
longer period as the SEC
S-5
<PAGE>
may prescribe by rules and regulations, reduce the amount of its borrowings
to such an extent that the asset coverage of such borrowings shall be at
least 300%. This borrowing provision is included solely for temporary
liquidity or emergency purposes. All borrowings will be repaid before
making investments and any interest paid on such borrowings will reduce
income.
4. Make loans, except that the Portfolio may purchase or hold debt instruments
in accordance with its investment objective and policies, and the Portfolio
may enter into repurchase agreements, as described in the Prospectus and in
this Statement of Additional Information.
5. Pledge, mortgage or hypothecate assets except to secure temporary
borrowings permitted by (3) above in aggregate amounts not to exceed 10% of
total assets taken at current value at the time of the incurrence of such
loan.
6. Purchase or sell real estate, real estate limited partnership interests,
futures contracts, commodities or commodities contracts, provided that this
shall not prevent the Portfolio from investing in readily marketable
securities of issuers which can invest in real estate or commodities,
institutions that issue mortgages, real estate investment trusts which deal
in real estate or interests therein pursuant to the Portfolio's investment
objective and policies.
7. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Portfolio may obtain short-term
credits as necessary for the clearance of security transactions.
8. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
9. Purchase securities of other investment companies except as permitted by
the 1940 Act and the rules and regulations thereunder.
10. Issue senior securities (as defined in the 1940 Act) except in connection
with permitted borrowings as described above or as permitted by rule,
regulation or order of the SEC.
11. Purchase or retain securities of an issuer if, to the knowledge of the
Fund, an officer, trustee, partner or director of the Fund or any
investment adviser of the Fund owns beneficially more than 1/2 of 1% of the
shares or securities of such issuer and all such officers, trustees,
partners and directors owning more than 1/2 of 1% of such shares or
securities together own more than 5% of such shares or securities.
12. Invest in interests in oil, gas or other mineral exploration or development
programs and oil, gas or mineral leases.
S-6
<PAGE>
NON-FUNDAMENTAL POLICIES
The following investment limitations are non-fundamental and may be changed by
the Fund's Board of Trustees without shareholder approval:
1. No Portfolio may write or purchase puts, calls, options or combinations
thereof.
2. The Growth and Fixed Income Portfolios may not invest in warrants.
3. No Portfolio may invest in illiquid securities in an amount exceeding, in
the aggregate, 10% of its assets. An illiquid security is a security which
cannot be disposed of promptly (within seven days), and in the usual course
of business for the value at which the Portfolio values the security on its
books, and includes repurchase agreements maturing in excess of seven days,
time deposits with a withdrawal penalty, non-negotiable instruments and
instruments for which no market exists.
4. To the extent the Growth Portfolio is registered in the state of California
and purchases securities of other investment companies, such purchases
shall be limited to shares of money market open-end investment companies;
for all Portfolios, the Adviser will waive its fee on that portion of the
Portfolio's assets placed in open-end investment companies.
5. No Portfolio may invest more than 10% of its total assets in the securities
of issuers which together with any predecessors have a record of less than
three years continuous operation.
6. The Growth and Small Cap Portfolios may not invest (i) more than 5% of its
net assets in warrants or (ii) more than 2% of its net assets in warrants
which are not traded on the New York Stock Exchange or the American Stock
Exchange.
The foregoing percentages will apply at the time of the purchase of a security.
THE ADVISER
The Fund and Turner Investment Partners, Inc. (the "Adviser") have entered into
an advisory agreement ("Advisory Agreement"). The Advisory Agreement provides
that the Adviser shall not be protected against any liability to the Fund or its
shareholders by reason of willful misfeasance, bad faith or gross negligence on
its part in the performance of its duties or from reckless disregard of its
obligations or duties thereunder.
The Advisory Agreement provides that if, for any fiscal year, the ratio of
expenses of any Portfolio (including amounts payable to the Adviser but
excluding interest, taxes, brokerage, litigation, and other extraordinary
expenses) exceeds limitations established
S-7
<PAGE>
by any state in which the shares of the Portfolio are registered, the Adviser
will bear the amount of such excess. The Adviser will not be required to bear
expenses of any Portfolio to an extent which would result in the Portfolio's
inability to qualify as a regulated investment company under provisions of the
Internal Revenue Code of 1986, as amended (the "Code"). For the fiscal years
ended October 31, 1995, 1994 and 1993, the Adviser was paid $897,405, $613,070
and $113,440 and waived fees of $0, $114,486 and $123,486, respectively for the
Growth Portfolio. For the fiscal years ended October 31, 1995 and 1994, the
Adviser waived all fees due it under the Advisory Agreement in respect to the
Small Cap Portfolio Agreement and reimbursed expenses of $11,944 and $66,551,
respectively. The Fixed Income Portfolio was not in operation during these
periods.
To the extent a Portfolio purchases securities of open-end investment companies,
the Adviser will waive its advisory fee on that portion of the Portfolio's
assets invested in such securities.
The continuance of the Advisory Agreement as to any Portfolio after the first
two years must be specifically approved at least annually (i) by the vote of the
Trustees or by a vote of the shareholders of that Portfolio, and (ii) by the
vote of a majority of the Trustees who are not parties to the Advisory Agreement
or "interested persons" of any party thereto, cast in person at a meeting called
for the purpose of voting on such approval. The Advisory Agreement will
terminate automatically in the event of its assignment, and is terminable at any
time without penalty by the Trustees of the Fund or, with respect to any
Portfolio, by a majority of the outstanding shares of that Portfolio, on not
less than 30 days' nor more than 60 days' written notice to the Adviser, or by
the Adviser on 90 days' written notice to the Fund.
THE ADMINISTRATOR
The Fund and SEI Financial Management Corporation (the "Administrator") have
entered into an administration agreement (the "Administration Agreement"). The
Administration Agreement provides that the Administrator shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which the Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of the Administrator in the performance of its duties or from
reckless disregard by it of its duties and obligations thereunder. The
Administration Agreement shall remain in effect for a period of two years after
the effective date of the agreement and shall continue in effect for successive
periods of two years unless terminated by either party on not less than 90 days'
prior written notice to the other party. For the fiscal years ended October 31,
1995, 1994 and 1993, the Administrator received fees of $214,591, $164,423 and
$59,158, respectively, for the Growth Portfolio. For the fiscal years ended
October 31, 1995 and 1994, the Administrator received fees of $75,000 and
$54,658 for the Small Cap Portfolio. The Fixed Income Fund was not in operation
during these periods.
S-8
<PAGE>
The Fund and the Administrator have also entered into a shareholder servicing
agreement pursuant to which the Administrator provides certain shareholder
services in addition to those set forth in the Administration Agreement.
The Administrator, a wholly owned subsidiary of SEI Corporation ("SEI"), was
organized as a Delaware corporation in 1969 and has its principal business
offices at 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658. Alfred P.
West, Jr., Henry H. Greer and Carmen V. Romeo constitute the Board of Directors
of the Administrator. Mr. West is the Chairman of the Board and Chief Executive
Officer of the Administrator and of SEI. Mr. Greer is the President and Chief
Operating Officer of the Administrator and of SEI. SEI and its subsidiaries are
leading providers of funds evaluation services, trust accounting systems, and
brokerage and information services to financial institutions, institutional
investors and money managers. The Administrator also serves as administrator to
the following other mutual funds: The Achievement Funds Trust, The Advisors'
Inner Circle Fund, The Arbor Fund, ARK Funds, Bishop Street Funds, The Compass
Capital Group, Conestoga Family of Funds, CoreFunds, Inc., CrestFunds, Inc.,
CUFUND, FFB Lexicon Funds, First American Investment Funds, Inc., First American
Funds, Inc., Insurance Investment Products Trust, Inventor Funds, Inc., Marquis
Funds(R), Morgan Grenfell Investment Trust, The PBHG Funds, Inc., The Pillar
Funds, Rembrandt Funds(R), 1784 Funds, SEI Daily Income Trust, SEI Index Funds,
SEI Institutional Managed Trust, SEI International Trust, SEI Liquid Asset
Trust, SEI Tax Exempt Trust, Stepstone Funds, STI Classic Funds and STI Classic
Variable Trust.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly owned subsidiary of
SEI, and the Fund are parties to a distribution agreement dated November 14,
1991 (the "Distribution Agreement"). The Distributor will not receive
compensation for the distribution of shares of any Portfolio.
The Distribution Agreement shall remain in effect for a period of two years
after the effective date of the agreement and is renewable annually. The
Distribution Agreement may be terminated by the Distributor, by a majority vote
of the Trustees who are not interested persons and have no financial interest in
the Distribution Agreement or by a majority vote of the outstanding securities
of the Fund upon not more than 60 days' written notice by either party or upon
assignment by the Distributor.
TRUSTEES AND OFFICERS OF THE FUND
The management and affairs of the Fund are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees and executive officers
of the Fund and their principal occupations for the last five years are set
forth below. Each may have held other positions with the named companies during
that period. Unless otherwise noted, the business address of each Trustee and
executive officer is
S-9
<PAGE>
SEI Financial Management Corporation, 680 E. Swedesford Road, Wayne,
Pennsylvania 19087-1658. Certain officers of the Fund also serve as Trustees
and/or officers of The Achievement Funds Trust, The Advisors' Inner Circle Fund,
The Arbor Fund, ARK Funds, Bishop Street Funds, The Compass Capital Group,
Conestoga Family of Funds, CoreFunds, Inc., CrestFunds, Inc., CUFUND, FFB
Lexicon Funds, First American Investment Funds, Inc., First American Funds,
Inc., Insurance Investment Products Trust, Inventor Funds, Inc., Marquis
Funds(R), Morgan Grenfell Investment Trust, The PBHG Funds, Inc., The Pillar
Funds, Rembrandt Funds(R), 1784 Funds, SEI Daily Income Trust, SEI Index Funds,
SEI Institutional Managed Trust, SEI International Trust, SEI Liquid Asset
Trust, SEI Tax Exempt Trust, Stepstone Funds, STI Classic Funds and STI Classic
Variable Trust.
ROBERT A. NESHER (DOB 08/17/46) - Trustee* - 8 South Street, Kennebunkport, ME
04046. Retired since 1994. Director, Executive Vice President of SEI
Corporation, 1986-1994. Director and Executive Vice President of the
Administrator and Distributor, September, 1981-1994.
JOHN T. COONEY (DOB 01/20/27) - Trustee** - 569 N. Post Oak Lane, Houston, TX
77024. Retired since 1992. Formerly Vice Chairman of Ameritrust Texas N.A.,
1989-1992, and MTrust Corp., 1985-1989.
WILLIAM M. DORAN (DOB 05/26/40) - Trustee* - 2000 One Logan Square,
Philadelphia, PA 19103. Partner of Morgan, Lewis & Bockius LLP, Counsel to SEI,
the Fund, the Administrator and Distributor, for the past five years. Director
and Secretary of SEI.
FRANK E. MORRIS (DOB 12/30/23) - Trustee** - 105 Walpole Street, Dover, MA
02030. Peter Drucker Professor of Management, Boston College since 1989.
President, Federal Reserve Bank of Boston, 1968-1988.
ROBERT A. PATTERSON (DOB 11/05/17) - Trustee** - 208 Old Main, University Park,
PA 16802. Pennsylvania State University, Senior Vice President, Treasurer
(Emeritus). Financial and Investment Consultant, Professor of Transportation
(1984-present). Vice President-Investments, Treasurer, Senior Vice President
(Emeritus) (1982-1984). Director, Pennsylvania Research Corp.; Member and
Treasurer, Board of Trustees of Grove City College.
GENE PETERS (DOB 06/03/29) - Trustee** - 943 Oblong Road, Williamstown, MA
01267. Private investor from 1987 to present. Vice President and Chief
Financial Officer, Western Company of North America (petroleum service company)
(1980-1986). President of Gene Peters and Associates (import company) (1978-
1980). President and Chief Executive Officer of Jos. Schlitz Brewing Company
before 1978.
S-10
<PAGE>
JAMES M. STOREY (DOB 04/12/31) - Trustee** - Ten Post Office Square South,
Boston, MA 02109. Retired since 1993. Formerly, Partner of Dechert Price &
Rhoads (law firm).
DAVID G. LEE (DOB 04/16/52) - President, Chief Executive Officer - Senior Vice
President of the Administrator and Distributor since 1993. Vice President of
the Administrator and Distributor (1991-1993). President, GW Sierra Trust Funds
before 1991.
SANDRA K. ORLOW (DOB 10/18/53) - Vice President, Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Administrator and the Distributor
since 1983.
KEVIN P. ROBINS (DOB 04/15/61) - Vice President, Assistant Secretary - Senior
Vice President and General Counsel of SEI, the Administrator and the Distributor
since 1994. Secretary of the Administrator and the Distributor since 1994.
Vice President and Assistant Secretary of SEI, the Administrator and the
Distributor (1992-1994). Associate, Morgan, Lewis & Bockius LLP (law firm)
prior to 1992.
JEFFREY A. COHEN, CPA (DOB 04/22/61) - Controller, Assistant Secretary -
Director, International and Domestic Funds Accounting, SEI Corporation since
1991. Audit Manager, Price Waterhouse prior to 1991.
ROBERT B. CARROLL (DOB 02/26/60) - Vice President, Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Administrator and Distributor
since 1994. United States SEC, Division of Investment Management, (1990-1994).
Associate, McGuire, Woods, Battle & Boothe (law firm) before 1990.
KATHRYN L. STANTON (DOB 11/19/58) - Vice President, Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Administrator and the Distributor
since 1994. Associate, Morgan, Lewis & Bockius LLP (law firm) (1989-1994).
JOSEPH M. LYDON (DOB 09/27/59) - Vice President, Assistant Secretary - Director
of Business Administration of Fund Resources, SEI Corporation since 1995. Vice
President of Fund Group and Vice President of the Adviser, Dreman Value
Management and President of Dreman Financial Services, Inc. prior to 1995.
TODD CIPPERMAN (DOB 02/14/66) - Vice President, Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Administrator and the Distributor
since 1995. Associate, Dewey Ballantine (law firm) (1994-1995). Associate,
Winston & Strawn (law firm) (1991-1994).
RICHARD W. GRANT (DOB 10/25/45) - Secretary - 2000 One Logan Square,
Philadelphia, PA 19103, Partner of Morgan, Lewis & Bockius LLP (law firm),
Counsel to SEI, the Fund, the Administrator and the Distributor for the past
five years.
S-11
<PAGE>
___________________
*Messrs. Nesher and Doran are Trustees who may be deemed to be "interested"
persons of the Fund as that term is defined in the 1940 Act.
**Messrs. Cooney, Morris, Patterson, Peters and Storey serve as members of the
Audit Committee of the Fund.
The Trustees and officers of the Fund own less than 1% of the outstanding shares
of the Fund. The Fund pays the fees for unaffiliated Trustees.
The following table exhibits Trustee compensation for the fiscal year ended
October 31, 1995.
<TABLE>
<CAPTION>
Total
Compensation
From Registrant
and Fund
Aggregate Compensation Pension or Complex* Paid to
From Registrant for the Retirement Benefits Estimated Trustees for the
Fiscal Year Ended Accrued as Part of Annual Benefits Fiscal Year Ended
Name of Person, Position October 31, 1995 Fund Expenses Upon Retirement October 31, 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John T. Cooney $9,429.84 N/A N/A $9,429.84 for
services on 1
board
- ------------------------------------------------------------------------------------------------------------------
Frank E. Morris $9,429.84 N/A N/A $9,429.84 for
services on 1
board
- ------------------------------------------------------------------------------------------------------------------
Robert Patterson $9,429.84 N/A N/A $9,429.84 for
services on 1
board
- ------------------------------------------------------------------------------------------------------------------
Eugene B. Peters $9,429.84 N/A N/A $9,429.84 for
services on 1
board
- ------------------------------------------------------------------------------------------------------------------
James M. Storey, Esq. $9,429.84 N/A N/A $9,429.84 for
services on 1
board
- ------------------------------------------------------------------------------------------------------------------
William M. Doran, Esq. $ 0 N/A N/A $0 for services
on 1 board
- ------------------------------------------------------------------------------------------------------------------
Robert A. Nesher $ 0 N/A N/A $0 for services
on 1 board
==================================================================================================================
</TABLE>
COMPUTATION OF YIELD AND TOTAL RETURN
From time to time the Fund may advertise yield and total return of the
Portfolios. These figures will be based on historical earnings and are not
intended to indicate future performance. No representation can be made
concerning actual future yields or returns. The yield of a Portfolio refers to
the annualized income generated by an
S-12
<PAGE>
investment in the Portfolio over a specified 30-day period. The yield is
calculated by assuming that the income generated by the investment during that
30-day period is generated in each period over one year and is shown as a
percentage of the investment. In particular, yield will be calculated according
to the following formula:
Yield = 2[((a-b)/cd + 1)/6/ - 1] where a = dividends and interest earned during
the period; b = expenses accrued for the period (net of reimbursement); c = the
current daily number of shares outstanding during the period that were entitled
to receive dividends; and d = the maximum offering price per share on the last
day of the period.
For the 30-day period ended October 31, 1995, the Growth Portfolio's yield was
.50%, and the Small Cap Portfolio's yield was (.88%). The Fixed Income
Portfolio was not in operation during this period.
The total return of a Portfolio refers to the average compounded rate of return
to a hypothetical investment for designated time periods (including but not
limited to, the period from which the Portfolio commenced operations through the
specified date), assuming that the entire investment is redeemed at the end of
each period. In particular, total return will be calculated according to the
following formula: P (1 + T)/n/ = ERV, where P = a hypothetical initial payment
of $1,000; T = average annual total return; n = number of years; and ERV =
ending redeemable value, as of the end of the designated time period, of a
hypothetical $1,000 payment made at the beginning of the designated time period.
For the fiscal year ended October 31, 1995, and for the period from March 11,
1992 (commencement of operations) through October 31, 1995, the total return for
the Growth Portfolio was 21.15% and 12.57%, respectively. For the fiscal year
ended October 31, 1995 and the period from February 7, 1994 (commencement of
operations) through October 31, 1995, the total return for the Small Cap
Portfolio was 47.52% and 31.45%, respectively. The Fixed Income Portfolio was
not in operation during these periods.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through the Transfer Agent on days when
the New York Stock Exchange is open for business. Shares of each Portfolio are
offered on a continuous basis.
It is currently the Fund's policy to pay all redemptions in cash. The Fund
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by a Portfolio in
lieu of cash. Shareholders may incur brokerage charges on the sale of any such
securities so received in payment of redemptions.
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<PAGE>
The Fund reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or valuation of a Portfolio's securities is not reasonably practicable,
or for such other periods as the SEC has by order permitted. The Fund also
reserves the right to suspend sales of shares of any Portfolio for any period
during which the New York Stock Exchange, the Adviser, the Administrator, the
Transfer Agent and/or the custodian are not open for business.
DETERMINATION OF NET ASSET VALUE
The securities of each Portfolio are valued by the Administrator. The
Administrator will use an independent pricing service to obtain valuations of
securities. The pricing service relies primarily on prices of actual market
transactions as well as trade quotations. The procedures of the pricing service
and its valuations are reviewed by the officers of the Fund under the general
supervision of the Trustees.
TAXES
The following is only a summary of certain tax considerations generally
affecting the Portfolios and their shareholders, and is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their
tax advisers with specific reference to their own tax situations, including
their state and local tax liabilities.
FEDERAL INCOME TAX
The following discussion of federal income tax consequences is based on the Code
and the regulations issued thereunder as in effect on the date of this Statement
of Additional Information. New legislation, as well as administrative changes
or court decisions, may significantly change the conclusions expressed herein,
and may have a retroactive effect with respect to the transactions contemplated
herein.
Each Portfolio intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By following such a policy, each
Portfolio expects to eliminate or reduce to a nominal amount the federal taxes
to which it may be subject.
In order to qualify for treatment as a RIC under the Code, each Portfolio must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) ("Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
the Portfolio's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans, and gains from the sale or
other disposition of stock or securities, or
S-14
<PAGE>
certain other income; (ii) the Portfolio must derive less than 30% of its gross
income each taxable year from the sale or other disposition of stocks or
securities held for less than three months; (iii) at the close of each quarter
of the Portfolio's taxable year, at least 50% of the value of its total assets
must be represented by cash and cash items, U.S. Government securities,
securities of other RICs and other securities, with such other securities
limited, in respect to any one issuer, to an amount that does not exceed 5% of
the value of the Portfolio's assets and that does not represent more than 10% of
the outstanding voting securities of such issuer; and (iv) at the close of each
quarter of the Portfolio's taxable year, not more than 25% of the value of its
assets may be invested in securities (other than U.S. Government securities or
the securities of other RICs) of any one issuer or of two or more issuers which
the Portfolio controls or which are engaged in the same, similar or related
trades or business.
Notwithstanding the Distribution Requirement described above, which requires
only that the Portfolio distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss),
each Portfolio will be subject to a nondeductible 4% federal excise tax to the
extent it fails to distribute by the end of any calendar year 98% of its
ordinary income for that year and 98% of its capital gain net income (the excess
of short- and long-term capital gains over short- and long-term capital losses)
for the one-year period ending on October 31 of that year, plus certain other
amounts.
Any gain or loss recognized on a sale or redemption of shares of a Portfolio by
a non-exempt shareholder who is not a dealer in securities generally will be
treated as a long-term capital gain or loss if the shares have been held for
more than twelve months and otherwise generally will be treated as a short-term
capital gain or loss. If shares of a Portfolio on which a net capital gain
distribution has been received are subsequently sold or redeemed and such shares
have been held for six months or less, any loss recognized will be treated as a
long-term capital loss to the extent of the long-term capital gain distribution.
In certain cases, a Portfolio will be required to withhold, and remit to the
United States Treasury, 31% of any distributions paid to a shareholder who (1)
has failed to provide a correct taxpayer identification number, (2) is subject
to backup withholding by the Internal Revenue Service, or (3) has not certified
to that Portfolio that such shareholder is not subject to backup withholding.
If any Portfolio fails to qualify as a RIC for any taxable year, it will be
taxable at regular corporate rates. In such an event, all distributions
(including capital gains distributions) will be taxable as ordinary dividends to
the extent of the Portfolio's current and accumulated earnings and profits, and
such distributions will generally be eligible for the corporate dividends-
received deduction.
S-15
<PAGE>
STATE TAXES
No Portfolio is liable for any income or franchise tax in Massachusetts if it
qualifies as a RIC for federal income tax purposes. Distributions by any
Portfolio to shareholders and the ownership of shares may be subject to state
and local taxes.
PORTFOLIO TRANSACTIONS
The Adviser is authorized to select brokers and dealers to effect securities
transactions for the Portfolios. The Adviser will seek to obtain the most
favorable net results by taking into account various factors, including price,
commission, if any, size of the transactions and difficulty of executions, the
firm's general execution and operational facilities and the firm's risk in
positioning the securities involved. While the Adviser generally seeks
reasonably competitive spreads or commissions, a Portfolio will not necessarily
be paying the lowest spread or commission available. The Adviser seeks to
select brokers or dealers that offer a Portfolio best price and execution or
other services which are of benefit to the Portfolio.
The Adviser may, consistent with the interests of the Portfolio, select brokers
on the basis of the research services they provide to the Adviser. Such services
may include analyses of the business or prospects of a company, industry or
economic sector, or statistical and pricing services. Information so received by
the Adviser will be in addition to and not in lieu of the services required to
be performed by the Adviser under the Advisory Agreement. If, in the judgment of
the Adviser, a Portfolio or other accounts managed by the Adviser will be
benefitted by supplemental research services, the Adviser is authorized to pay
brokerage commissions to a broker furnishing such services which are in excess
of commissions which another broker may have charged for effecting the same
transaction. These research services include advice, either directly or through
publications or writings, as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities; furnishing of analyses and
reports concerning issuers, securities or industries; providing information on
economic factors and trends; assisting in determining portfolio strategy;
providing computer software used in security analyses; and providing portfolio
performance evaluation and technical market analyses. The expenses of the
Adviser will not necessarily be reduced as a result of the receipt of such
supplemental information, such services may not be used exclusively, or at all,
with respect to the Portfolio or account generating the brokerage, and there can
be no guarantee that the Adviser will find all of such services of value in
advising that Portfolio. For the fiscal years ended October 31, 1994 and 1993,
the Growth Portfolio directed transactions amounting to $82,676,830.12 and
$12,934,713, respectively, to broker-dealers for research services, and paid
commissions of $57,298.22 and $20,086 on those transactions. For the fiscal year
ended October 31, 1994, the Small Cap Portfolio directed transactions amounting
to $0 to broker-dealers for research services, and paid commissions of $0 on
those transactions. For the fiscal year ended October 31, 1995 the Growth and
Small Cap Portfolios directed no
S-16
<PAGE>
transactions to broker-dealers for research services. The Fixed Income Portfolio
was not in operation during this period.
It is expected that the Portfolios may execute brokerage or other agency
transactions through the Distributor, which is a registered broker-dealer, for a
commission in conformity with the 1940 Act, the Securities Exchange Act of 1934
and rules promulgated by the SEC. Under these provisions, the Distributor is
permitted to receive and retain compensation for effecting portfolio
transactions for a Portfolio on an exchange if a written contract is in effect
between the Fund and the Distributor expressly permitting the Distributor to
receive and retain such compensation. These rules further require that
commissions paid to the Distributor by a Portfolio for exchange transactions not
exceed "usual and customary" brokerage commissions. The rules define "usual and
customary" commissions to include amounts which are "reasonable and fair
compared to the commission, fee or other remuneration received or to be received
by other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time." The Trustees, including those who are not "interested persons"
of the Fund, have adopted procedures for evaluating the reasonableness of
commissions paid to the Distributor and will review these procedures
periodically.
For the fiscal years ended October 31, 1995, 1994 and 1993, the Growth Portfolio
paid the Distributor brokerage commissions in the aggregate amount of $1,314,
$153,384 and $42,570, respectively. For the fiscal year ended October 31, 1995,
the Growth Portfolio paid to the Portfolio represented 0% of the aggregate
brokerage commissions which were paid on transactions that represented 10% of
the aggregate dollar amount of transactions that incurred commissions paid by
the Portfolio. Aggregate brokerage commissions paid by the Growth Portfolio for
the fiscal years ended October 31, 1995, 1994 and 1993 were $581,138, $497,901
and $123,642, respectively.
For the fiscal year ended October 31, 1995, the Small Cap Portfolio paid the
Distributor brokerage commissions in the aggregate amount of $157, which
represented 0% of the aggregate brokerage commissions for such period and which
were paid on transactions that represented 27% of the aggregate dollar amount of
transactions that incurred commissions paid by that Portfolio during such
period. For the fiscal year ended October 31, 1994, the Small Cap Portfolio
paid the Distributor brokerage commissions in the aggregate amount of $450.
Aggregate brokerage commissions paid by the Small Cap Portfolio for the fiscal
period ended October 31, 1995 and 1994 were $41,882 and $22,495, respectively.
The Fixed Income Portfolio was not in operation during such periods.
Because no Portfolio markets its shares through intermediary brokers or dealers,
it is not the Portfolios' practice to allocate brokerage or principal business
on the basis of sales of its shares which may be made through such firms.
However, the Adviser may place portfolio orders with qualified broker-dealers
who recommend a Portfolio's shares to clients, and may, when a number of brokers
and dealers can provide best net results
S-17
<PAGE>
on a particular transaction, consider such recommendations by a broker or dealer
in selecting among broker-dealers.
The Fund is required to identify any securities of its "regular brokers or
dealers" (as such term is defined in the 1940 Act, which the Fund has acquired
during its most recent fiscal year. As of October 31, 1995, the Turner Growth
Portfolio held $847,875 of equity securities issued by Donaldson, Lufkin &
Jenrette.
For the fiscal years ended October 1, 1994 and 1995, the portfolio turnover rate
for each of the Portfolios was as follows:
<TABLE>
<CAPTION>
========================================================
TURNOVER RATE
----------------
PORTFOLIO 1994 1995
- --------------------------------------------------------
<S> <C> <C>
Growth Portfolio 164.81 177.86%
Fixed Income Portfolio * *
Small Cap Portfolio 173.92% 183.49%
========================================================
</TABLE>
*Not in operation during the period.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
portfolios and shares of each portfolio. Each share of a portfolio represents an
equal proportionate interest in that portfolio with each other share. Shares are
entitled upon liquidation to a pro rata share in the net assets of the
portfolio. Shareholders have no preemptive rights. All consideration received by
the Fund for shares of any portfolio and all assets in which such consideration
is invested would belong to that portfolio and would be subject to the
liabilities related thereto. Share certificates representing shares will not be
issued.
SHAREHOLDER LIABILITY
The Fund is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Fund were held to be a partnership, the
possibility of the shareholders' incurring financial loss for that reason
appears remote because the Fund's Declaration of Trust contains an express
disclaimer of shareholder liability for obligations of the Fund and requires
that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by or on behalf of the Fund or the Trustees,
and because the Declaration of Trust provides for indemnification out of the
Fund property for any shareholder held personally liable for the obligations of
the Fund.
S-18
<PAGE>
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his or
her own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisers, shall not be
liable for any neglect or wrongdoing of any such person. The Declaration of
Trust also provides that the Fund will indemnify its Trustees and officers
against liabilities and expenses incurred in connection with actual or
threatened litigation in which they may be involved because of their offices
with the Fund unless it is determined in the manner provided in the Declaration
of Trust that they have not acted in good faith in the reasonable belief that
their actions were in the best interests of the Fund. However, nothing in the
Declaration of Trust shall protect or indemnify a Trustee against any liability
for his or her willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties.
5% SHAREHOLDERS
As of February 6, 1996, the following were the only persons who were record
owners (or to the Fund's knowledge, beneficial owners) of 5% or more of a
Portfolio's shares:
<TABLE>
<CAPTION>
Turner Growth Equity Fund
SHAREHOLDER NUMBER OF SHARES %
<S> <C> <C>
CoreStates Bank NATTEE 409,566.593 5.96%
Montgomery, McCracken,
Walker & Rhoad
P.O. Box 7829
Philadelphia, PA 19101
Plumbers Local Union #690 411,215.897 5.84%
Pension Fund
2791 Southhampton Road
Philadelphia, PA 19154
Batrus & Co. 1,058,589.610 15.03%
c/o Bankers Trust Co.
P.O. Box 9005
Church Street Station
New York, NY 10006
Retirement Plan for Employees 523,528.884 7.43%
Bridgeport Hospital
c/o People's Bank Trust Dept.
850 Main Street, 13th Floor
Bridgeport, CT 06604
</TABLE>
S-19
<PAGE>
<TABLE>
<S> <C> <C>
Saul & Co. 375,349.709 5.33%
FBO Sheet Metal Annuity
c/o First Fidelity Bank
P.O. Box 1289
Newark, NJ 07102
McNeil Acquisition Partners LP 428,717.3220 6.09%
P.O. Box 803598
Dallas, TX 75380
Turner Small Cap Fund 339,665.220 31.05%
Navy-Marine Corps Relief Society
801 N. Randolph St., STE 1228
Arlington, VA 22203
John C. Weber, Jr. 78,304.894 7.16%
P.O. Drawer 2108C
Ocala, FL 32678
Christina Weber Trust 77,809.434 7.11%
Live Oak Farm
9275 SW 9th Street
Ocala, FL 32674
Charles Schwab & Co. 91,616.545 8.37%
Attn.: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
The Rosses Investment LP 62,220.705 5.69%
</TABLE>
The Fund believes that most of the shares referred to above were held by the
persons indicated in accounts for their fiduciary, agency or custodial
customers.
EXPERTS
The financial statements in this Statement of Additional Information have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
FINANCIAL STATEMENTS
S-20
<PAGE>
APPENDIX
The following descriptions are summaries of published ratings.
DESCRIPTION OF CORPORATE BOND RATINGS
Bonds rated AAA have the highest rating Standard & Poor's Corporation ("S&P")
assigns to a debt obligation. Such a rating indicates an extremely strong
capacity to pay principal and interest. Bonds rated AA by S&P also qualify as
high-quality debt obligations. Capacity to pay principal and interest is very
strong, and differs from AAA issues only in small degree. Debt rated A by S&P
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.
Bonds rated BBB by S&P 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.
Bonds rated Aaa by Moody's Investors Service, Inc. ("Moody's") 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 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. Bonds rated Aa by Moody's are judged by Moody's to be of high quality
by all standards. Together with bonds rated Aaa, 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 risk appear somewhat larger than
in Aaa securities.
Bonds rated A by Moody's 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. Debt rated
Baa by Moody's 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.
A-1
<PAGE>
A-2
<PAGE>
Fitch uses plus and minus signs with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the AAA category. Bonds rated AAA by Fitch are 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. Bonds rated AA by
Fitch are 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+. Bonds
rated A by Fitch are 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. Bonds
rated BBB by Fitch are 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.
Bonds rated AAA by Duff are judged by Duff to be of the highest credit quality,
with negligible risk factors being only slightly more than for risk-free U.S.
Treasury debt. Bonds rated AA by Duff are judged by Duff to be of high credit
quality with strong protection factors and risk that is modest but that may vary
slightly from time to time because of economic conditions. Bonds rated A by
Duff are judged by Duff to have average but adequate protection factors.
However, risk factors are more variable and greater in periods of economic
stress. Bonds rated BBB by Duff are judged by Duff as having below average
protection factors but still considered sufficient for prudent investment, with
considerable variability in risk during economic cycles.
Obligations rated AAA by IBCA have the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial, such
that adverse changes in business, economic or financial conditions are unlikely
to increase investment risk significantly. Obligations for which there is a
very low expectation of investment risk are rated AA by IBCA. Capacity for
timely repayment of principal and interest is substantial. Adverse changes in
business, economic or financial conditions may increase investment risk albeit
not very significantly. Obligations for which there is a low expectation on
investment risk are rated A by IBCA. Capacity for timely repayment of principal
and interest is strong, although adverse changes in business, economic or
financial conditions may lead to increased investment risk. Obligations for
which there is currently a low expectation of investment risk are rated BBB by
IBCA. Capacity for timely repayment of principal and interest is adequate,
although adverse changes in business, economic or financial conditions are more
likely to lead to increased investment risk than for obligations in higher
categories.
<PAGE>
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Commercial paper rated A by S&P is regarded by S&P as having the greatest
capacity for timely payment. Issues rated A are further refined by use of the
numbers 1, 1 +, and 2 to indicate the relative degree of safety. Issues rated
A-1+ are those with an "overwhelming degree" of credit protection. Those rated
A-1 reflect a "very strong" degree of safety regarding timely payment. Those
rated A-2 reflect a satisfactory degree of safety regarding timely payment but
not as high as A-1.
Commercial paper issues rated Prime-1 or Prime-2 by Moody's are judged by
Moody's to be of "superior" quality and "strong" quality respectively on the
basis of relative repayment capacity.
F-1+ (Exceptionally Strong) is the highest commercial paper rating Fitch
assigns; paper rated F-1+ is regarded as having the strongest degree of
assurance for timely payment. Paper rated F-1 (Very Strong) reflects an
assurance of timely payment only slightly less in degree than paper rated F-1+.
The rating F-2 (Good) reflects a satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as for issues rated F-1+ or
F-1.
The rating Duff-1 is the highest commercial paper rating assigned by Duff.
Paper rated Duff-1 is regarded as having very high certainty of timely payment
with excellent liquidity factors which are supported by good fundamental
protection factors. Risk factors are minor. Duff has incorporated gradations
of 1+ and 1- to assist investors in recognizing quality differences within this
highest tier. Paper rated Duff-1+ has the highest certainty of timely payment,
with outstanding short-term liquidity and safety just below risk-free U.S.
Treasury short-term obligations. Paper rated Duff-1- has high certainty of
timely payment with strong liquidity factors which are supported by good
fundamental protection factors. Risk factors are very small. Paper rated Duff-
2 is regarded as having good certainty of timely payment, good access to capital
markets (although ongoing funding may enlarge total financing requirements) and
sound liquidity factors and company fundamentals. Risk factors are small.
The designation A1 by IBCA indicates that the obligation is supported by a
strong capacity for timely repayment. Those obligations rated A1+ are supported
by the highest capacity for timely repayment. Obligations rated A2 are
supported by a satisfactory capacity for timely repayment, although such
capacity may be susceptible to adverse changes in business, economic or
financial conditions.
A-4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Trustees of Turner Growth Equity Fund and Turner Small
Cap Fund of The Advisors' Inner Circle Fund:
We have audited the accompanying statements of net assets of Turner Growth
Equity Fund and Turner Small Cap Fund (two of the funds constituting The
Advisors' Inner Circle Fund) as of October 31, 1995, and the related statements
of operations, changes in net assets and financial highlights for the periods
presented. These financial statements and financial highlights are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Turner Growth Equity Fund and Turner Small Cap Fund of The Advisors' Inner
Circle Fund as of October 31, 1995, the results of their operations, changes in
their net assets, and financial highlights for the periods presented, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, PA
December 5, 1995
<PAGE>
STATEMENT OF NET ASSETS THE ADVISORS' INNER CIRCLE FUND
October 31, 1995
<TABLE>
<CAPTION>
Market
Value
TURNER GROWTH EQUITY FUND Shares (000)
- ----------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 98.7%
AIR TRANSPORTATION -- 0.9%
Delta Air Lines 15,300 $ 1,004
--------
AIRCRAFT -- 1.2%
Boeing 22,080 1,449
--------
APPAREL/TEXTILES --1.1%
Tommy Hilfiger* 35,000 1,334
--------
AUTO & TRUCK RELATED -- 1.7%
Chrysler 18,400 950
General Motors 24,200 1,059
--------
2,009
--------
BANKS -- 4.1%
Ahmanson H F 27,988 700
Chemical Bank 25,210 1,434
First Bank System 21,500 1,070
Nationsbank 24,220 1,592
--------
4,796
--------
BASIC CHEMICALS -- 1.7%
Morton International 36,820 1,123
Sigma Aldrich 18,070 858
--------
1,981
--------
COMMUNICATIONS -- 9.8%
Airtouch Communications* 43,570 1,242
Ascend Communications* 37,440 2,434
Cascade Communications* 18,260 1,301
Glenayre Technologies* 8,980 577
Tele-Communications, Cl A* 85,380 1,451
Ultratech Stepper* 31,010 1,240
Bellsouth 8,870 679
Comcast Special, Cl A 73,545 1,315
HBO 15,920 1,126
--------
11,365
--------
COMPUTERS & SERVICES -- 16.4%
America Online* 15,000 1,200
Bay Networks* 37,500 2,485
Cirrus Logic* 18,750 790
Cisco Systems* 20,000 1,550
Compaq Computer* 28,850 1,608
Informix* 30,270 $ 882
Intuit* 13,840 996
Medic Computer Systems* 13,080 697
Microsoft* 16,220 1,622
Netscape Communications* 14,870 1,309
Oracle* 36,800 1,605
UUNET Technologies* 14,940 908
First Data 20,900 1,382
Hewlett Packard 13,870 1,285
National Data 25,400 673
--------
18,992
--------
CONCRETE & MINERAL PRODUCTS -- 1.0%
Owens Corning Fiberglass* 27,620 1,170
--------
ELECTRONIC AND OTHER ELECTRICAL EQUIPMENT --
8.9%
3COM* 18,490 869
Applied Materials* 43,640 2,188
Atmel* 18,880 590
Komag* 16,700 952
LSI Logic* 25,000 1,178
Silicon Valley Group* 26,140 846
Worldcom* 39,460 1,287
Intel 23,000 1,607
Micron Technology 10,390 734
--------
10,251
--------
ENERGY & POWER -- 0.9%
California Energy* 54,570 989
--------
FINANCIAL SERVICES -- 3.5%
Donaldson, Lufkin, & Jenrette* 28,500 848
Block H & R 29,440 1,215
First USA 19,370 891
Household International 19,510 1,097
--------
4,051
--------
FOOD, BEVERAGE & TOBACCO -- 8.8%
Chiquita Brands International 56,390 916
Coca Cola 17,230 1,238
Dole Food 40,000 1,505
Pepsico 35,120 1,853
Philip Morris 23,680 2,001
Sara Lee 50,000 1,469
Seagram 32,720 1,178
--------
10,160
--------
</TABLE>
<PAGE>
STATEMENT OF NET ASSETS THE ADVISORS' INNER CIRCLE FUND
October 31, 1995
<TABLE>
<CAPTION>
Market
TURNER GROWTH EQUITY Value
FUND (Continued) Shares (000)
- ----------------------------------------------------------------------------
<S> <C> <C>
FOOTWEAR -- 1.3%
Just For Feet* 27,050 $ 639
Nine West Group* 20,000 890
--------
1,529
--------
GRAIN MILL PRODUCTS -- 1.0%
Ralston Purina 19,460 1,155
--------
HEALTHCARE -- 6.3%
Amgen* 18,130 870
Boston Scientific* 22,290 939
Columbia HCA Healthcare 28,340 1,392
Johnson & Johnson 14,020 1,143
Medtronic 30,000 1,732
Merck 21,300 1,225
--------
7,301
--------
INSURANCE -- 4.1%
Phycor* 16,665 612
Aetna Life & Casualty 20,450 1,439
The PMI Group 17,120 822
United Healthcare 36,200 1,923
--------
4,796
--------
LUMBER & WOOD PRODUCTS -- 1.0%
Georgia-Pacific 13,410 1,106
--------
MACHINERY -- 0.6%
Smith International* 40,000 640
--------
METAL & METAL INDUSTRIES -- 3.4%
Engelhard 68,680 1,709
Phelps Dodge 18,090 1,146
Reynolds Metals 20,480 1,032
--------
3,887
--------
OIL & GAS -- 7.9%
Apache 65,510 1,671
Exxon 19,570 1,495
Helmerich & Payne 25,000 647
Mobil 20,000 2,015
Texaco 30,000 2,043
USX-Marathon Group 73,430 1,303
--------
9,174
--------
PAPER & PAPER PRODUCTS -- 1.1%
Kimberly Clark 17,446 $ 1,267
--------
RAILROADS -- 1.8%
CSX 14,470 1,211
Union Pacific 14,020 917
--------
2,128
--------
RECREATIONAL PRODUCTS & SERVICES -- 2.2%
Mirage Resorts* 34,420 1,127
Walt Disney 24,950 1,438
--------
2,565
--------
RETAIL -- 5.5%
Corporate Express* 48,935 1,278
Micro Warehouse* 24,440 1,088
Officemax* 50,000 1,238
Petsmart* 30,000 1,005
Sunglass Hut International* 40,600 1,106
Zale* 40,530 598
--------
6,313
--------
UTILITIES, ELECTRIC, & GAS -- 2.5%
AES* 46,950 927
Southern 56,070 1,339
Ultramar 26,640 649
--------
2,915
--------
TOTAL COMMON STOCK
(Cost $93,879,341) 114,327
--------
REPURCHASE AGREEMENTS -- 0.1%
Lehman Brothers 5.560%, dated 10/31/95, matures 11/01/95,
repurchase price $152,982 (collateralized by U.S. Treasury
Note, par value $151,419, 7.500%, matures 01/31/97: market
value $157,618) 153
--------
TOTAL REPURCHASE AGREEMENTS (Cost $152,982) 153
--------
TOTAL INVESTMENTS -- 98.8%
(Cost $94,032,323) 114,480
--------
OTHER ASSETS AND LIABILITIES -- 1.2%
Other Assets and Liabilities, Net 1,339
--------
</TABLE>
<PAGE>
STATEMENT OF NET ASSETS THE ADVISORS' INNER CIRCLE FUND
October 31, 1995
<TABLE>
<CAPTION>
TURNER GROWTH EQUITY FUND (Concluded)
- ------------------------------------------------------------------------------
<S> <C>
NET ASSETS:
Portfolio shares (unlimited authorization-- no par value)
based on 7,735,310 outstanding shares of beneficial interest $ 89,664
Net investment loss (40)
Accumulated net realized gain on investments 5,747
Net unrealized appreciation on investments 20,448
--------
TOTAL NET ASSETS: -- 100.0% $115,819
========
Net Asset Value, Offering Price and Redemption Price Per Share $14.97
========
</TABLE>
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
Market
Value
TURNER SMALL CAP FUND Shares (000)
- ---------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 97.7%
AIR TRANSPORTATION -- 2.0%
American West Airlines* 6,000 $ 82
Midwest Express Holdings* 7,034 176
-------
258
-------
APPAREL/TEXTILES -- 1.4%
Tommy Hilfiger* 3,210 122
Westpoint Stevens* 2,630 56
-------
178
-------
BANKS -- 1.2%
TCF Financial 2,700 159
-------
BASIC CHEMICALS -- 2.6%
Applied Extrusion Technologies* 9,600 148
NL Industries* 6,490 84
International Specialty Products 12,790 110
-------
342
-------
BROADCASTING, NEWSPAPERS & ADVERTISING -- 0.6%
Clear Channel Communications* 920 75
-------
COMMUNICATIONS -- 9.1%
Apac Teleservices* 3,450 $ 87
Ascend Communications* 2,680 174
Brightpoint* 3,950 75
Cascade Communications* 1,880 134
Coherent Communications Systems* 6,100 125
Picturetel* 2,300 152
Premisys Communications* 2,000 179
Transaction Network Services* 4,000 92
U.S. Order* 3,240 49
Ultratech Stepper* 3,050 122
-------
1,189
-------
COMPUTERS & SERVICES -- 23.4%
America Online* 1,770 142
Arcsys* 2,320 97
Aspen Technology* 4,390 121
Avid Technology* 4,300 188
Checkfree* 10,700 226
Computervision* 2,600 31
Dendrite International* 7,700 134
Discreet Logic* 2,490 142
HNC Software* 3,800 97
Macro Media* 4,340 161
Maxis* 1,600 71
Medic Computer Sytems* 2,160 115
Netcom On Line Communication Services* 2,200 128
Netscape Communications* 2,120 187
Pure Software* 4,850 178
Shiva* 1,950 117
Spyglass* 2,300 114
Tivoli Systems* 3,550 114
Transaction Systems Architects* 3,105 81
UUNET Technologies* 3,957 242
Verity* 2,970 109
Fair Isaac 3,560 96
National Data 6,127 162
-------
3,053
-------
CONCRETE & MINERAL PRODUCTS -- 1.0%
USG* 4,400 128
-------
</TABLE>
<PAGE>
STATEMENT OF NET ASSETS THE ADVISORS' INNER CIRCLE FUND
October 31, 1995
<TABLE>
<CAPTION>
Market
TURNER SMALL CAP FUND Value
(Continued) Shares (000)
- ----------------------------------------------------------------------------
<S> <C> <C>
CONSUMER PRODUCTS -- 2.2%
Department 56* 1,380 $ 63
Guest Supply* 4,200 79
Oakley* 4,190 144
-------
286
-------
ELECTRONIC AND OTHER ELECTRICAL
EQUIPMENT -- 5.8%
Burr-Brown* 3,510 114
Komag* 1,390 79
Oak Technology* 2,750 151
Ontrak Systems* 2,870 56
Sierra Semiconductor* 4,690 84
Silicon Valley Group* 4,770 155
Belden 4,910 118
-------
757
-------
FINANCIAL SERVICES -- 6.2%
Credit Acceptance* 3,420 80
Imperial Credit Industries* 5,400 78
Jayhawk Acceptance* 12,050 144
Litchfield Financial* 3,450 52
Markel* 920 69
Stormedia* 2,050 94
WFS Financial* 5,950 99
Mutual Risk Management 2,600 96
The Money Store 2,463 99
-------
811
-------
FOOD, BEVERAGE & TOBACCO -- 2.5%
Redhook Ale Brewery* 3,315 98
Robert Mondavi* 5,880 166
Interstate Bakeries 3,110 66
-------
330
-------
FOOTWEAR -- 1.4%
Just For Feet* 3,345 79
Nine West Group* 2,490 111
-------
190
-------
HEALTHCARE -- 3.0%
Amerisource Health* 2,550 69
Idexx Laboratories* 2,700 110
Ornda Health* 5,400 95
Physician Sales & Services* 7,675 125
-------
399
-------
HOUSEHOLD PRODUCTS -- 0.5%
RPM 3,520 $ 68
-------
INSURANCE -- 6.8%
Compdent* 5,550 173
Phycor* 3,600 132
Total Renal Care Holdings* 4,634 94
United Dental Care* 4,100 125
CMAC Investment 2,710 129
The PMI Group 2,600 125
Vesta Insurance Group 2,675 108
-------
886
-------
MACHINERY -- 2.7%
C.P. Clare* 4,650 120
Plasma & Materials Technologies* 5,700 66
PRI Automation* 2,280 84
Smith International* 5,100 82
-------
352
-------
MEASURING DEVICES -- 2.2%
Cognex* 1,050 63
Fore Systems* 2,300 122
Veeco Instruments* 4,260 102
-------
287
-------
MEDICAL PRODUCTS & SERVICES -- 2.7%
Medisense* 4,250 91
Medpartners* 2,000 56
Nellcor* 1,740 100
Orthodontic Centers of America* 3,250 104
-------
351
-------
OIL & GAS -- 4.1%
BJ Services* 3,850 90
Citation* 9,040 169
Energy Ventures* 6,000 114
Falcon Drilling* 9,600 100
Nabors Industries* 7,720 67
-------
540
-------
PACKAGING -- 1.0%
Sealed Air* 5,020 132
-------
PAPER & PAPER PRODUCTS -- 0.4%
Boise Cascade 1,640 59
-------
</TABLE>
<PAGE>
STATEMENT OF NET ASSETS THE ADVISORS' INNER CIRCLE FUND
October 31, 1995
<TABLE>
<CAPTION>
Market
Value
TURNER SMALL CAP FUND (Concluded) Shares (000)
- ---------------------------------------------------------------------------
<S> <C> <C>
PROFESSIONAL SERVICES -- 5.6%
ABR Information Services* 4,500 $ 133
Concord EFS* 3,165 109
PMT Services* 4,240 114
Quintiles Transnational* 2,500 161
RTW* 4,740 115
Loewen Group 2,430 97
-------
729
-------
RAILROADS -- 1.5%
Wisconsin Central* 2,040 123
Illinois Central 1,990 76
-------
199
-------
RECREATIONAL PRODUCTS & SERVICES -- 0.5%
Station Casinos* 4,700 61
-------
RETAIL -- 7.3%
Baby Superstore* 1,320 62
Corporate Express* 5,120 134
Eastbay* 5,450 116
Kenneth Cole Production* 1,510 62
Officemax* 5,385 133
Petsmart* 5,065 169
Sunglass Hut International* 4,400 120
U.S. Office Products* 5,410 93
Zale* 4,400 65
-------
954
-------
TOTAL COMMON STOCK
(Cost $9,769,556) 12,773
-------
REPURCHASE AGREEMENTS -- 6.9%
Lehman Brothers 5.560%, dated 10/31/95, matures 11/01/95,
repurchase price $894,718 (collateralized by U.S. Treasury
Note, par value $885,575, 7.500%, matures 01/31/97: market
value $921,828) 895
-------
TOTAL REPURCHASE AGREEMENTS (Cost $894,718) 895
-------
</TABLE>
<TABLE>
<CAPTION>
Market
Value
(000)
- ---------------------------------------------------------------------------
<S> <C>
TOTAL INVESTMENTS -- 104.6%
(Cost $10,664,274 $13,668
-------
OTHER ASSETS AND LIABILITIES -- (4.6%)
Payable for Securities Purchased (688)
Other Assets and Liabilities, Net 92
-------
TOTAL OTHER ASSETS AND LIABILITIES (596)
=======
NET ASSETS:
Portfolio shares (unlimited authorization--no par value) based on
812,803 outstanding shares of beneficial interest 9,154
Net investment loss (8)
Accumulated net realized gain on investments 922
Net unrealized appreciation on investments 3,004
-------
TOTAL NET ASSETS: -- 100.0% $13,072
=======
Net Asset Value, Offering Price and Redemption Price Per Share $ 16.08
=======
</TABLE>
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF OPERATIONS THE ADVISORS' INNER CIRCLE FUND
For the year ended October 31, 1995
<TABLE>
<CAPTION>
TURNER TURNER
GROWTH EQUITY SMALL CAP
FUND FUND
------------- -----------
11/01/94 11/01/94
TO 10/31/95 TO 10/31/95
(000) (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
Investment Income:
Dividend Income..................................... $ 1,905 $ 30
Interest Income..................................... 155 17
- --------------------------------------------------------------------------------
Total Investment Income............................ 2,060 47
- --------------------------------------------------------------------------------
Expenses:
Administrator Fees.................................. 215 75
Investment Advisory Fees............................ 897 82
Investment Advisory Fee Waiver...................... -- (82)
Contributions by Adviser............................ -- (12)
Custodian Fees...................................... 14 6
Transfer Agent Fees................................. 24 12
Professional Fees................................... 49 15
Trustee Fees........................................ 6 2
Registration Fees................................... (5) 1
Pricing Fees........................................ 5 --
Printing Expense.................................... 16 1
Amortization of Deferred Organizational Costs....... 3 2
Insurance and Other Fees............................ 10 1
Directed Brokerage.................................. (109) --
- --------------------------------------------------------------------------------
Total Expenses..................................... 1,125 103
- --------------------------------------------------------------------------------
Net Investment Income (Loss)...................... 935 (56)
- --------------------------------------------------------------------------------
Net Realized Gain from Securities Sold.............. 11,270 1,005
Net Unrealized Appreciation of Investment
Securities......................................... 11,773 2,573
- --------------------------------------------------------------------------------
Net Realized and Unrealized Gain on Investments.... 23,043 3,578
- --------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Operations......................................... $23,978 $3,522
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS THE ADVISORS' INNER CIRCLE FUND
For the period ended October 31, 1995
<TABLE>
<CAPTION>
TURNER TURNER
GROWTH EQUITY SMALL CAP
FUND FUND
----------------------- -----------------------
11/01/94 11/01/93 11/01/94 02/07/94(2)
TO 10/31/95 TO 10/31/94 TO 10/31/95 TO 10/31/94
(000) (000) (000) (000)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Activities:
Net Investment Income (Loss). $ 935 $ 743 $ (56) $ (8)
Net Realized Gain (Loss) on
Securities Sold............. 11,270 (5,082) 1,005 (27)
Net Unrealized Appreciation
of Investment Securities.... 11,773 2,203 2,573 431
- --------------------------------------------------------------------------------
Net Increase (Decrease) in
Net Assets Resulting from
Operations................. 23,978 (2,136) 3,522 396
- --------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income........ (1,022) (704) -- --
- --------------------------------------------------------------------------------
Total Distributions......... (1,022) (704) -- --
- --------------------------------------------------------------------------------
Capital Share Transactions:
Shares Issued................ 33,135 68,222 5,250 4,410
Shares Issued in Lieu of Cash
Distributions............... 909 625 -- --
Shares Redeemed.............. (54,140) (6,375) (506) --
- --------------------------------------------------------------------------------
Increase (Decrease) in Net
Assets Derived from Capital
Share Transactions.......... (20,096) 62,472 4,744 4,410
- --------------------------------------------------------------------------------
Total Increase in Net
Assets..................... 2,860 59,632 8,266 4,806
- --------------------------------------------------------------------------------
Net Assets:
Beginning of Period.......... 112,959 53,327 4,806 --
- --------------------------------------------------------------------------------
End of Period................ $115,819 $112,959 $13,072 $4,806
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Issued and Redeemed:
Shares Issued................ 2,600 5,465 407 441
Issued in Lieu of Cash
Distributions............... 70 51 -- --
Redeemed..................... (3,998) (517) (35) --
- --------------------------------------------------------------------------------
Net Increase (Decrease) in
Share Transactions.......... (1,328) 4,999 372 441
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(2) The Turner Small Cap Fund commenced operations on February 7, 1994.
The accompanying notes are an integral part of the financial statements.
<PAGE>
For the period ended October 31, 1995.
FINANCIAL HIGHLIGHTS THE ADVISORS' INNER CIRCLE FUND
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net Realized and Net Ratio
Asset Unrealized Distributions Assets Ratio of Net
Value Net Gains or from Net Distributions Net Asset End of Expenses Income
Beginning Investment Losses on Investment from Capital Value End Total of Period to Average to Average
of Period Income Securities Income Gains of Period Return (000) Net Assets Net Assets
--------- ---------- ------------ ------------- ------------- --------- ------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------
TURNER GROWTH EQUITY FUND
- -------------------------
1995 $12.46 0.10 2.52 (0.11) -- $14.97 21.15% 115,819 0.94%+ 0.78%+
1994 $13.12 0.10 (0.66) (0.10) -- $12.46 (4.28%) 112,959 0.95% 0.86%
1993 $10.40 0.09 2.72 (0.09) -- $13.12 27.08% 53,327 1.00% 0.80%
1992(1) $10.00 0.03 0.40 (0.03) -- $10.40 6.95%* 7,781 1.44%* 0.73%*
- -------------------------
TURNER SMALL CAP FUND
- -------------------------
1995 $10.90 (0.06) 5.24 -- -- $16.08 47.52% 13,072 1.25% (0.68%)
1994(2) $10.00 (0.02) 0.92 -- -- $10.90 12.35%* 4,806 1.09%* (0.27%)*
<CAPTION>
Ratio
of Net
Ratio of Income
Expenses (Loss) to
to Average Average
Net Assets Net Assets Portfolio
(Excluding (Excluding Turnover
Waivers) Waivers) Rate
---------- ---------- ---------
<S> <C> <C> <C>
- -------------------------
TURNER GROWTH EQUITY FUND
- -------------------------
1995 0.94%+ 0.78%+ 177.86%
1994 1.08% 0.73% 164.81%
1993 1.52% 0.28% 88.35%
1992(1) 2.55%* (0.38%)* 205.00%
- -------------------------
TURNER SMALL CAP FUND
- -------------------------
1995 2.39% (1.82%) 183.49%
1994(2) 4.32%* (3.50%)* 173.92%
</TABLE>
* Annualized
(1) The Turner Growth Equity Fund commenced operations on March 11, 1992.
(2) The Turner Small Cap Fund commenced operations on February 7, 1994.
+ Absent Turner Growth Equity Fund participation in a Directed Brokerage
program, the Ratios of Expenses to Average Net Assets (with and without
waivers) and Expenses to Net Income (with and without waivers) were 1.03%
and .69%, respectively.
The accompanying notes are an integral part of the financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS THE ADVISORS' INNER CIRCLE FUND
October 31, 1995
1. Organization:
THE ADVISORS' INNER CIRCLE FUND (the "'Trust") is organized as a Massachusetts
business trust under a Declaration of Trust dated July 18, 1991. The Trust is
registered under the Investment Company Act of 1940, as amended, as a
diversified open-end management investment company with eleven portfolios. The
financial statements included herein present those of the Turner Growth Equity
Fund and the Turner Small Cap Fund (the "Funds"). The financial statements of
the remaining portfolios are presented separately. The assets of each portfolio
are segregated, and a Shareholder's interest is limited to the portfolio in
which shares are held.
2. Significant Accounting Policies:
The following is a summary of the significant accounting policies followed by
the Funds.
Security Valuation -- Investments in equity securities which are traded on
a national exchange (or reported on the NASDAQ national market system) are
stated at the last quoted sales price if readily available for such equity
securities on each business day; other equity securities traded in the
over-the-counter market and listed equity securities for which no sale was
reported on that date are stated at the last quoted bid price. Debt
obligations exceeding sixty days to maturity for which market quotations
are readily available are valued at the most recently quoted bid price.
Debt obligations with sixty days or less remaining until maturity may be
valued at their amortized cost, which approximates market value.
Federal Income Taxes -- It is each Fund's intention to qualify as a
regulated investment company by complying with the appropriate provisions
of the Internal Revenue Code of 1986, as amended. Accordingly, no provision
for Federal income taxes is required.
Security Transactions and Related Income --Security transactions are
accounted for on the date the security is purchased or sold (trade date).
Dividend income is recognized on the ex-dividend date, and interest income
is recognized on the accrual basis. Costs used in determining realized
gains and losses on the sales of investment securities are those of the
specific securities sold during the respective holding period.
Net Asset Value Per Share -- The net asset value per share of each Fund is
calculated on each business day, by dividing the total value of the Fund's
assets, less liabilities, by the number of shares outstanding.
Repurchase Agreements -- Securities pledged as collateral for repurchase
agreements are held by the custodian bank until the respective agreements
mature. Provisions of the repurchase agreements ensure that the market
value of the collateral, including accrued interest thereon, is sufficient
in the event of default of the counterparty. If the counterparty defaults
and the value of the collateral declines or if the counterparty enters an
insolvency proceeding, realization of the collateral by the Funds may be
delayed or limited.
Other -- Expenses that are directly related to one of the Funds are charged
to that Fund. Other operating expenses of the Trust are prorated to the
Funds on the basis of relative daily net assets.
Distributions from net investment income are declared and paid to
Shareholders on a quarterly basis. Any net realized capital gains on sales
of securities are distributed to Shareholders at least annually.
Distributions from net investment income and net realized capital gains are
determined in accordance with the U.S. Federal income tax regulations,
which may differ from those amounts determined under generally accepted
accounting principals. These book/tax differences are either temporary or
permanent in nature. To the extent these differences are permanent, they
are charged or credited to paid-in-capital in the period that the
differences arise. Accordingly, the following permanent difference,
primarily attributable to certain net operating losses which, for tax
purposes, are not available to offset future income, has been reclassified
to paid-in-capital.
<TABLE>
<CAPTION>
(000)
-----
<S> <C>
Turner Small Cap Fund.................................................. $56
</TABLE>
This reclassification has no effect on net assets or net asset value per
share.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued) THE ADVISORS' INNER CIRCLE FUND
October 31, 1995
3. Organization Costs and Transactions with Affiliates:
The Turner Growth Equity Fund and Turner Small Cap Fund incurred organization
costs of approximately $17,000 and $19,000 respectively. These costs have been
capitalized by the funds and are being amortized over sixty months commencing
with operations. In the event of the initial shares of the fund redeemed by any
holder thereof during the period that the fund is amortizing its organizational
costs the redemption proceeds payable to the holder thereof by the fund will be
reduced by the unamortized organizational costs in the same ratio as the number
of initial shares being redeemed bears to the number of initial shares
outstanding at the time of redemption. These costs include legal fees of
approximately $7,000 and $1,000, respectively, for organizational work
performed by a law firm of which an officer of the fund is a partner.
Certain officers and trustees of the Trust are also officers of SEI Financial
Management Company (the "Administrator") and/or SEI Financial Services Company
(the "Distributor"). Such officers and trustees are paid no fees by the Trust
for serving as officers and trustees of the Trust.
4. Administration, Shareholder Servicing and Distribution Agreements:
The Trust and the Administrator are parties to an Administration Agreement
dated November 14, 1991, under which the Administrator provides management and
administrative services for an annual rate of that Portfolio's proportionate
share of .20% of the aggregate average daily net assets of the Portfolios up to
$75 million and .15% of such assets in excess of $75 million. There is a
minimum annual fee of $75,000 per Fund.
DST Systems, Inc., (the "Transfer Agent") serves as the transfer agent and
dividend distributing agent for the Funds under a transfer agency agreement
with the Trust.
The Trust and the Distributor are parties to a Distribution Agreement dated
November 14, 1991. The Distributor receives no fees for its distribution
services under this agreement. However the Distribution Agreement between the
Distributor and the Trust provides that the Distributor may receive
compensation on portfolio transactions effected for the Trust in accordance
with the rules of the Securities and Exchange Commission ("SEC"). Accordingly,
it is expected that portfolio transactions may result in brokerage commissions
being paid to the Distributor. The SEC rules require that such commissions not
exceed usual and customary brokerage commissions. The Distributor returned a
portion of these commissions to the Fund in order to reduce the expenses of the
Growth Equity Fund.
5. Investment Advisory and Custodian Agreements:
The Trust and Turner Investment Partners, Inc. (the "Adviser") are parties to
an Investment Advisory Agreement dated February 21, 1992 under which the
Adviser receives an annual fee equal to .75% of the average daily net assets of
the Growth Portfolio and 1.00% of the average daily net assets of the Small Cap
Fund. The Adviser has voluntarily agreed for an indefinite period of time, to
waive all or a portion of its fees (and to reimburse the Fund's expenses) in
order to limit operating expenses to not more than 1.25% of the average daily
net assets of the Small Cap Portfolio. Fee waivers and expense reimbursements
are voluntary and may be terminated at any time.
CoreStates Bank, N.A. acts as custodian (the "Custodian") for the Fund. Fees of
the Custodian are being paid on the basis of the net assets of the Fund. The
Custodian plays no role in determining the investment policies of the Trust or
which securities are to be purchased or sold in the Fund.
6. Investment Transactions:
The cost of security purchases and the proceeds from security sales, other than
short-term investments, for the year ended October 31, 1995, are as follows:
<TABLE>
<CAPTION>
TURNER TURNER
GROWTH EQUITY SMALL CAP
FUND FUND
(000) (000)
------------- ---------
<S> <C> <C>
Purchases
Government............................................. $ 0 $ 0
Other.................................................. 208,628 19,308
Sales
Government............................................. $ 0 $ 0
Other.................................................. 230,975 14,885
</TABLE>
At October 31, 1995, the total cost of securities and the net realized gains or
losses on securities sold for Federal income tax purposes was not materially
different from amounts reported for financial reporting purposes. The aggregate
gross unrealized appreciation and depreciation for
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded) THE ADVISORS' INNER CIRCLE FUND
October 31, 1995
securities held by the Fund at October 31, 1995, is as follows:
<TABLE>
<CAPTION>
TURNER TURNER
GROWTH EQUITY SMALL CAP
FUND FUND
(000) (000)
------------- ---------
<S> <C> <C>
Aggregate gross unrealized appreciation................. $22,022 $3,254
Aggregate gross unrealized depreciation................. (1,574) (250)
------- ------
Net unrealized appreciation............................. $20,448 $3,004
======= ======
</TABLE>
7. Capital Loss Carryforward
The Turner Growth Equity and Turner Small Cap Funds utilized their entire
capital loss carryforward balances $5,523,115 and $26,470, respectively, to
reduce realized gains incurred which otherwise would have been distributed.
