<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
As Supplemented March 20, 1996
HGK-F-001-02
<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
HGK FIXED INCOME FUND
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
(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)
HGK FIXED INCOME FUND
- --------------------------------------------------------------------------------
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%
- --------------------------------------------------------------------------------
(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.
<TABLE>
<CAPTION>
EXAMPLE
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 $10 $32 $55 $122
the end of 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
(Excluding Fee Waivers and Reimbursements)........... 2.37%*
Ratio Of Net Income To Average
Net Assets........................................... 6.38%*
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 February 28, 1996,
total assets under management were approximately $1.4 billion. The principal
business address of the Adviser is 17 State Street, 15th Floor, New York, New
York 10004.
On July 14, 1995, a minority shareholder of the Adviser filed a petition
requesting judicial dissolution of the Adviser, alleging that the Adviser had
engaged in "oppressive actions" towards him by terminating his employment and
removing him as a director. The Court found in favor of the minority
shareholder, but held in abeyance the issue of whether dissolution of the
Adviser is the proper remedy. The Adviser has appealed this decision which is
scheduled to be heard in the June 1996 court term.
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.
9
<PAGE>
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.
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
10
<PAGE>
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.
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.
11
<PAGE>
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.
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.
12
<PAGE>
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.
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
13
<PAGE>
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 (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.
14
<PAGE>
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 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.
15
<PAGE>
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 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
16
<PAGE>
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.
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
17
<PAGE>
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 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.
18
<PAGE>
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 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.
19
<PAGE>
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. 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.
20
<PAGE>
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 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
21
<PAGE>
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 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
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
<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
