<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, 1997 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, 1997
HGK-F-001-04
<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? An investment
in the Portfolio entails 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. (the "Adviser") serves as the
investment adviser of the Portfolio. See "Expense Summary" and "The
Adviser."
Who is the Administrator? SEI Fund Resources (the "Administrator") serves as the
administrator and shareholder servicing agent of the Portfolio. See "The
Administrator."
Who is the Transfer Agent? DST Systems, Inc. (the "Transfer Agent") serves as
the transfer agent and dividend disbursing agent for the Fund. See "The Transfer
Agent."
Who is the Distributor? SEI Financial Services Company (the "Distributor") 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.
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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 (a "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."
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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, 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 total operating expenses to an annual rate of not more
than 1.00% of the Portfolio's average daily net assets. Absent such
waivers and reimbursements, Advisory Fees, Other Expenses and Total
Operating Expenses for the Portfolio would be .50%, 1.01% and 1.51%,
respectively.
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."
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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 6, 1996 on the Fund's financial statements as of
October 31, 1996. This table should be read in conjunction with the Fund's
audited financial statements and notes thereto. The Portfolio's financial
statements and additional performance information are contained in the Annual
Report to Shareholders, which is available without charge by calling 1-800-932-
7781.
For a Share of the Portfolio Outstanding Throughout the Period:
<TABLE>
<CAPTION>
HGK Fixed
Income
Fund
- --------------------------------------------------------------------------------
11/01/95 11/03/94(1)
to to
10/31/96 10/31/95
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period.............. $10.88 $10.00
- --------------------------------------------------------------------------------
Income From Investment Operations:
Net Investment Income........................ 0.61 0.67
Realized and Unrealized
Gains (or Losses) on Securities........... (0.17) 0.88
- --------------------------------------------------------------------------------
Total From Investment Operations.................. 0.44 1.55
- --------------------------------------------------------------------------------
Less Distributions:
Distributions From Net Investment Income.......... (0.61) (0.67)
Distributions From Capital Gains.................. (0.42) --
Total Distributions....................... (1.03) (0.67)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period.................... $10.29 $10.88
- --------------------------------------------------------------------------------
Total Return...................................... 4.29% 16.07%*
- --------------------------------------------------------------------------------
Ratios and Supplemental Data
Net Assets, End Of Period (000)................... $12,515 $10,420
Ratios Of Expenses To Average Net Assets.......... 1.00% 1.00%*
Ratio Of Expenses To Average Net Assets
(Excluding Fee Waivers and Reimbursements)..... 1.51% 2.37%*
Ratio Of Net Income To Average
Net Assets..................................... 5.92% 6.38%*
Ratio Of Net Income to Average Net Assets
(Excluding Waivers and Reimbursements)......... 5.41% 5.01%*
Portfolio Turnover Rate........................... 264.02% 300.48%
================================================================================
</TABLE>
* Annualized
(1) The HGK Fixed Income Fund commenced operations on November 3, 1994.
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THE FUND AND THE PORTFOLIO
The Advisors' Inner Circle Fund (the "Fund") offers shares of a number of
separately-managed 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"), a diversified
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 (an "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 remaining maturity of approximately 10 years. In determining
the maturity of mortgage-backed securities, the Portfolio will
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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.
The Portfolio's turnover rate for the fiscal year ended October 31, 1996 was
264.02%. 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 costs
to the Portfolio and may increase the amount of taxes payable by the Portfolio's
shareholders.
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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
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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. The
Adviser has provided equity, fixed income and balanced fund management of
individually structured portfolios since its inception. As of January 31,
1996, total assets under management were approximately $1.6 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. Motions are currently pending before the Court
relating to the value of the Adviser.
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
total operating expenses to an annual rate of not more than 1.00% of the
Portfolio's average daily net assets. The Adviser may, from its own resources,
compensate broker-dealers whose clients purchase shares of the Portfolio. For
the fiscal year ended October 31, 1996, the Adviser received an advisory fee of
.00% of the Portfolio's average daily net assets, and the Adviser reimbursed
expenses equal to .01% of the Portfolio's average daily net assets.
9
<PAGE>
THE ADMINISTRATOR
SEI Fund Resources (the "Administrator"), 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., 1004 Baltimore 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"), Oaks, Pennsylvania 19456, a
wholly-owned subsidiary of SEI Investments Company, 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 at: The Advisors' Inner Circle Fund, 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 (a "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 at: The Advisors' Inner Circle Fund,
P.O. Box 419009, Kansas City, Missouri 64141-6009. Third-party checks,
10
<PAGE>
credit cards, credit card checks and cash will not be accepted. 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 the Transfer Agent at: The
Advisors' Inner Circle Fund, 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; 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 $25 per month. An Account Application form may be
obtained by calling 1-800-932-7781.
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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 the investment being
redeemed has been in the shareholder's account for a minimum of 15 days.
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.
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Additional Redemption Information
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.
Calculation of Net Asset Value
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 and unmanaged indices. The performance of
unmanaged indices 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
13
<PAGE>
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 (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 generally 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.
A 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, 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
15
<PAGE>
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. Expenses not
attributable to a specific portfolio are allocated across all of the portfolios
on the basis of relative net assets.
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 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 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 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
17
<PAGE>
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.
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 Portfolio'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 a remaining
term to maturity in excess of seven days.
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,
18
<PAGE>
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 the Government National Mortgage Association, the Federal
National Mortgage Association and the Federal Home Loan Mortgage Corporation.
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
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("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 guarantees the timely payment
of interest, and also guarantees the payment of
19
<PAGE>
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.
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.
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.
20
<PAGE>
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 securities), others are supported by the right of
the issuer to borrow from the Treasury (e.g., Federal Farm Credit Bank
securities), while still others are supported only by the credit of the
instrumentality (e.g., FNMA securities). 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.
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<PAGE>
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
assets 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.
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<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...........................................................10
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 FUND RESOURCES
Legal Counsel:
MORGAN, LEWIS & BOCKIUS LLP
Independent Public Accountants:
ARTHUR ANDERSEN LLP
February 28, 1997
<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, 1997. The
Prospectus for the Portfolio may be obtained by calling 1-800-932-7781.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
THE FUND................................................................ S - 2
DESCRIPTION OF PERMITTED INVESTMENTS.................................... S - 2
INVESTMENT LIMITATIONS.................................................. S - 3
THE ADVISER............................................................. S - 4
THE ADMINISTRATOR....................................................... S - 5
THE DISTRIBUTOR......................................................... S - 6
TRUSTEES AND OFFICERS OF THE FUND....................................... S - 6
COMPUTATION OF YIELD AND TOTAL RETURN.................................. S - 10
PURCHASE AND REDEMPTION OF SHARES...................................... S - 11
DETERMINATION OF NET ASSET VALUE....................................... S - 11
TAXES.................................................................. S - 11
PORTFOLIO TRANSACTIONS................................................. S - 13
DESCRIPTION OF SHARES.................................................. S - 15
SHAREHOLDER LIABILITY.................................................. S - 16
LIMITATION OF TRUSTEES' LIABILITY...................................... S - 16
5% SHAREHOLDERS........................................................ S - 16
EXPERTS................................................................ S - 17
FINANCIAL STATEMENTS................................................... S - 17
</TABLE>
February 28, 1997
HGK-F-002-03
<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,
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 Trustees. Under these
guidelines, the Adviser
S-2
<PAGE>
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. Rule 144A securities are not subject to the foregoing limit on
restricted securities.
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 Agreement provides that the Adviser shall not be protected against any
liability to the Fund or its
S-4
<PAGE>
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.
For the fiscal period ended October 31, 1995 and fiscal year ended October 31,
1996, the Adviser was paid $0 and $0, respectively, waived fees of $39,390 and
$58,143 respectively, and reimbursed expenses of $68,886 and $1,464,
respectively.
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 Fund Resources (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 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 ended October 31, 1995 and the fiscal year ended October 31,
1996,
S-5
<PAGE>
the Administrator received fees of $74,589 and $75,034 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 Delaware business trust, has its principal business offices
at Oaks, Pennsylvania 19456. SEI Financial Management Corporation ("SFM"), a
wholly-owned subsidiary of SEI Investments Company ("SEI"), is the owner of all
beneficial interests in the Administrator. SEI and its affiliates, including the
Administrator, 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 and
its affiliates also serve as administrator to the following other mutual funds:
The Achievement Funds Trust, The Arbor Fund, ARK Funds, Bishop Street Funds,
CoreFunds, Inc., CrestFunds, Inc., CUFUND, FMB Funds, First American Funds,
Inc., First American Investment Funds, Inc., First American Strategy Funds,
Inc., HighMark Funds, Marquis Funds(R), Monitor Funds, Morgan Grenfell
Investment Trust, The PBHG Funds, Inc., The Pillar Funds, Profit Funds
Investment Trust, Rembrandt Funds(R), Santa Barbara Group of Mutual Funds, Inc.,
1784 Funds(R), SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional Investments Trust, 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 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
S-6
<PAGE>
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
The management and affairs of the Fund are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Fund pays the fees for
unaffiliated Trustees.
The Trustees and Executive Officers of the Fund, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with named companies during that
period. Unless otherwise noted, the business address of each Trustee and each
Executive Officer is SEI Investments Company, Oaks, Pennsylvania 19456. Certain
officers of the Fund also serve as officers of some or all of the following:
The Achievement Funds Trust, The Arbor Fund, ARK Funds, Bishop Street Funds,
CoreFunds, Inc., CrestFunds, Inc., CUFUND, FMB Funds, Inc., First American
Funds, Inc., First American Investment Funds, Inc., First American Strategy
Funds, Inc, High Mark Funds, Marquis Funds(R), Monitor Funds, Morgan Grenfell
Investment Trust, The PBHG Funds, Inc., The Pillar Funds, Profit Funds
Investment Trust, Rembrandt Funds(R), Santa Barbara Group of Mutual Funds, Inc.,
1784 Funds(R), SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional Investments Trust, 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, each of which is an
open-end management investment company managed by SEI Fund Resources or its
affiliates and, except for Profit Funds Investment Trust, Rembrandt Funds(R),
and Santa Barbara Group of Mutual Funds, Inc., are distributed by SEI Financial
Services Company.
ROBERT A. NESHER (DOB 08/17/46) -- Chairman of the Board of Trustees* -- Retired
since 1994. Executive Vice President of SEI, 1986-1994. Director and Executive
Vice President of the Administrator and the Distributor, 1981-1994. Trustee of
the Arbor Fund, Marquis Funds(R), Advisors' Inner Circle Fund, SEI Asset
Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional
Managed Trust, SEI International Trust, SEI Institutional Investments Trust, SEI
Liquid Asset Trust, SEI Tax Exempt Trust, Insurance Investment Products Trust,
1784 Funds(R), Pillar Funds, Rembrandt Funds, and Stepstone Funds.
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-
S-7
<PAGE>
1992, and MTrust Corp., 1985-1989. Trustee of the Arbor Fund, Marquis
Funds(R), and Advisors' Inner Circle Fund.
WILLIAM M. DORAN (DOB 05/26/40) - Trustee* - 2000 One Logan Square,
Philadelphia, PA 19103. Partner, Morgan, Lewis & Bockius (law firm), counsel to
the Trust, Administrator and Distributor, Director and Secretary of SEI.
Trustee of the Arbor Fund, SEI Liquid Asset Trust, SEI Tax Exempt Trust, SEI
Daily Income Trust, SEI Index Funds, SEI Institutional Managed Trust, SEI
International Trust, SEI Asset Allocation Trust, SEI Institutional Investments
Trust, Insurance Investment Products Trust, The Advisors' Inner Circle Fund, and
Marquis Funds(R).
FRANK E. MORRIS (DOB 12/30/23) -- Trustee** -- 105 Walpole Street, Dover, MA
02030. Retired since 1990. Peter Drucker Professor of Management, Boston
College, 1989-1990. President, Federal Reserve Bank of Boston, 1968-1988.
Trustee of The Arbor Fund, Marquis Funds(R), Advisors' Inner Circle Fund, SEI
Liquid Asset Trust, SEI Tax Exempt Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional Managed Trust, SEI International Trust, Insurance
Investment Products Trust, SEI Asset Allocation Trust and SEI Institutional
Investments Trust.
ROBERT A. PATTERSON (DOB 11/05/27) -- 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. Trustee of the Arbor Fund,
Marquis Funds(R), and Advisors' Inner Circle Fund.
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. Trustee of the Arbor Fund, Marquis Funds(R) and Advisors' Inner Circle
Fund.
JAMES M. STOREY (DOB 04/12/31) -- Trustee** -- Partner, Dechert Price & Rhoads,
from September 1987 - December 1993; Trustee of the Arbor Fund, Marquis
Funds(R), Advisors' Inner Circle Fund, SEI Liquid Asset Trust, SEI Tax Exempt
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional Managed Trust,
SEI International Trust, Insurance Investment Products Trust, SEI Asset
Allocation Trust, and SEI Institutional Investments Trust.
S-8
<PAGE>
DAVID G. LEE (DOB 04/16/52) -- President and 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 and Assistant Secretary -- Vice
President and Assistant Secretary of the Administrator and Distributor since
1988.
KEVIN P. ROBINS (DOB 04/15/61) -- Vice President and Assistant Secretary --
Senior Vice President, General Counsel and Assistant Secretary of SEI, Senior
Vice President, General Counsel and Secretary of the Administrator and
Distributor since 1994. Vice President and Assistant Secretary of SEI, the
Administrator and Distributor, 1992-1994. Associate, Morgan, Lewis & Bockius LLP
(law firm), 1988-1992.
RICHARD W. GRANT (DOB 10/25/45) -- Secretary -- 2000 One Logan Square,
Philadelphia, PA 19103, Partner, Morgan, Lewis & Bockius LLP (law firm), counsel
to the Trust, Administrator and Distributor.
KATHRYN L. STANTON (DOB 11/19/58) -- Vice President and Assistant Secretary,
Deputy General Counsel of SEI, Vice President and Assistant Secretary of the
Administrator and Distributor since 1994. Associate, Morgan, Lewis & Bockius
LLP (law firm), 1989-1994.
JOSEPH P. LYDON (DOB 09/27/59)-- Vice President and Assistant Secretary --
Director, Business Administration of Fund Resources, April 1995. Vice
President, Fund Group, Dremen Value Management, LP, President Dremen Financial
Services, Inc. prior to 1995.
S-9
<PAGE>
STEPHEN G. MEYER (DOB 07/12/65) -- Controller, Chief Financial Officer-Vice
President and Controller of SEI Fund Resources since 1995. Director, Internal
Audit and Risk Management, SEI Corporation, 1992-1995. Senior Associate,
Coopers and Lybrand, 1990-1992.
TODD B. CIPPERMAN (DOB 01/14/66) -- Vice President and 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).
BARBARA A. NUGENT (DOB 06/18/56) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of SEI, the Administrator and Distributor
since 1996. Associate, Drinker Biddle & Reath (law firm) (1994-1996).
Assistant Vice President/Administration, Delaware Service Company, Inc. (1992-
1993); Assistant Vice President - Operations of Delaware Service Company, Inc.
(1988-1992).
MARC H. CAHN (DOB 06/19/57) -- Vice President and Assistant Secretary -- Vice
President and Assistant Secretary of SEI, the Administrator and Distributor
since 1996. Associate General Counsel, Barclays Bank PLC (1995-1996). ERISA
counsel, First Fidelity Bancorporation (1994-1995), Associate, Morgan, Lewis &
Bockius LLP (1989-1994).
- -----------------------------
*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, 1996.
S-10
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Total Compensation
From Registrant and
Aggregate Fund Complex* Paid
Compensation From Pension or Retirement Estimated Annual to Trustees for the
Name of Person, Registrant for the Fiscal Benefits Accrued as Benefits Upon Fiscal Year
Position Year Ended Part of Fund Retirement Ended October 31,
October 31, 1996 Expenses 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John T. Cooney $ 9,859 N/A N/A $9,859 for
services on 1 board
- ------------------------------------------------------------------------------------------------------------------------------------
Frank E. Morris $10,006 N/A N/A $10,006 for
services on 1 board
- ------------------------------------------------------------------------------------------------------------------------------------
Robert Patterson $10,006 N/A N/A $10,006
for services on 1
board
- ------------------------------------------------------------------------------------------------------------------------------------
Eugene B. Peters $10,006 N/A N/A $10,006
for services on 1
board
- ------------------------------------------------------------------------------------------------------------------------------------
James M. Storey, Esq. $10,006 N/A N/A $10,006
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 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.
S-11
<PAGE>
For the 30-day period ended October 31, 1996, the Portfolio's yield was
6.09%.
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.
For the fiscal year ended October 31, 1996 and for the period from November 3,
1994 (commencement of operations) through October 31, 1996, the total return was
4.29% and 9.99%, respectively.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through the Distributor on a day on which
the New York Stock Exchange is open for business. Shares of the Portfolio are
offered on a continuous basis. Currently, the Fund is closed for business when
the following holidays are observed: New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
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.
S-12
<PAGE>
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.
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
S-13
<PAGE>
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.
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.
S-14
<PAGE>
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
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
S-15
<PAGE>
the Portfolio. For the fiscal period ended October 31, 1996, 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 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.
<TABLE>
<CAPTION>
====================================================================================================================================
Total $ Amount Total $ Amount of Total Brokerage
of Brokered Brokered Commissions Paid
Transactions Brokerage Transactions With to SFS in
Brokerage for Last Commissions Paid Affiliate for Last Connection With
Commissions Paid Year to Affiliates Year Repurchase
Agreement
Transactions for
Last Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$695 $2,064,750 $0 $0 $190
====================================================================================================================================
</TABLE>
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
S-16
<PAGE>
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, 1996, the
Portfolio held $488,094 of debt securities issued by Lehman Brothers; $633,490
of tri-party repurchase agreements with Lehman Brothers; and $177,188 of debt
securities issued by Paine Webber.
For the fiscal years ended October 31, 1995 and 1996, the portfolio turnover
rate for the Portfolio was 300.48% and 264.02%, respectively.
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.
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
S-17
<PAGE>
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 1, 1997, 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.
HGK Fixed Income Fund
Shareholder Number of Shares %
Sam Agatittee 149,306.480 11.55%
Laborers Local #322
General Fund
P.O. Box 361
Massena, NY 13662
West Chester Heavy Construction 124,043.305 9.59%
Local 60 General Fund
c/o Joseph Dominick
140 Broadway
Hawthorne, NY 10532
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Mechanical Contractors Association 73,309.885 5.67%
of Eastern Pennsylvania, Inc.
Industry Fund
1601 Market Street
Philadelphia, PA 19103
Laborers' Local Counsel 64,895.743 5.02%
Training & Education Fund
c/o Victor Mandia
305 C. Little Britain Road
Newburgh, NY 12550
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 of the Trust have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated by reference hereto in reliance upon the authority
of said firm as experts in giving said report.
FINANCIAL STATEMENTS
The financial statements for the fiscal year ended October 31, 1996, including
notes thereto and the report of Arthur Andersen LLP thereon, are herein
incorporated by reference. A copy of the 1996 Annual Report to Shareholders must
accompany the delivery of this Statement of Additional Information.
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