THE ADVISORS' INNER CIRCLE FUND
[HGK LOGO OMITTED]
FIXED INCOME FUND
ANNUAL REPORT TO SHAREHOLDERS
AS OF OCTOBER 31, 1998
THIS INFORMATION MUST BE PRECEDED OR ACCOMPANIED
BY A CURRENT PROSPECTUS FOR THE FUND DESCRIBED.
<PAGE>
MANAGER'S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
INVESTMENT OBJECTIVES
The HGK Fixed Income Fund seeks total return through current income and capital
appreciation consistent with the preservation of capital. The Fund's goal is to
outperform the Lehman Brothers Government/Corporate Bond Index while taking less
risk. HGK controls risk by maintaining a relatively duration-neutral posture
versus the Index, while adding value through the overweighting of particular
sectors or areas of the yield curve. The Fund invests primarily in U.S.
Government securities,investment-grade corporate bonds, and asset-backed
securities.
PERFORMANCE SUMMARY
The HGK Fixed Income Fund produced a total return for the 12 months ending
October 31, 1998 of 6.00% (net of fees) versus a total return of 10.28% for the
Lehman Brothers Government/Corporate Bond Index. The Fund currently has
approximately $15 million dollars in assets.
PERFORMANCE RATIONALE
As the tumultuous ride in the global capital markets continued in the third
quarter, investors flocked to the safety and liquidity provided by U.S. Treasury
bonds, pushing yields to post 1970's record lows. This "flight to quality" trend
took place at the expense of global equities and all spread sectors
(non-Treasury) of the domestic bond market. As the yield on the 10 year Treasury
bond rallied 100 basis points in the quarter to 4.40%, domestic equity indices
were down from 10% (S&P 500) to 20% (Russell 2000) and Corporate bonds
underperformed Treasury bonds by 200 basis points (3.63% vs. 5.74%). As a result
of one of the worst quarters of Corporate bond underperformance on record, the
return on this Fund significantly lagged the Lehman Government Corporate Bond
Index in the 3rd quarter (2.60% vs. 4.95%).
STRATEGY FOR THE COMING PERIOD
The easing of monetary policy by the Federal Reserve in recent weeks has sparked
a recovery in investor confidence and a lessening of the "credit crunch" that
has plagued global capital markets. HGK anticipates that further easing of
monetary policy would allow this recovery to continue by boosting market
liquidity, reducing U.S. recession risk, and dampening the prospect of near-term
devaluations in Brazil and China.
HGK expects that the direction of U.S. Treasury bond yields and movements in
corporate bond credit spreads will continue to be inversely-related and linked
closely to the fragile recovery in investor confidence. The strength in investor
confidence will be correlated to the outcome of numerous global market
uncertainties, specifically recent U.S. economic weakness and the financial
instability in Asia, Latin America, and Russia. Should the recovery in
confidence continue, the recent trend of higher Treasury bond yields coupled
with improving corporate bond spreads and higher global stock markets will
remain in place. However, HGK worries that investors may be pricing in overly
optimistic outcomes to global financial turmoil, particularly with regard to
Brazil, and anticipates one more crisis in confidence before 1998 concludes.
The expectations of further Fed easing and the risk of another "flight to
quality" trend provides the rationale for the Fund's duration posture that is
longer than the index. HGK views corporate bonds as significantly undervalued,
with spreads having approached mid-recession peaks, but does not anticipate
further significant corporate spread improvement for the remainder of 1998. The
improvement in corporate bond liquidity and pricing that resulted from the Fed's
moves will be tempered by the large supply of new issues flooding the market and
concerns about corporate credit quality in a slower economic environment. As
such, HGK has used recent strength in corporates to reduce our overweighted
position and move into more liquid, defensive issues with the corporate market.
Despite this near-term caution, HGK would view widening in corporate bond
spreads from present levels as a buying opportunity, and believes that corporate
bonds will significantly outperform Treasury bonds in the first half of 1999.
<PAGE>
COMPARISON OF CHANGE IN THE VALUE OF A $10,000
INVESTMENT IN THE HGK FIXED INCOME FUND, VERSUS
THE LEHMAN GOVERNMENT/CORPORATE BOND INDEX
Total Return1
Annualized Annualized
One-Year 3-Year Inception
Return Return to Date
6.00% 6.24% 8.60%
[line graph omitted]
plot points are as follows:
HGK Fixed Income Fund Lehman Government/Corporate Index
11/30/94 10,000 10,000
10/31/95 11,500 11,637
10/31/96 11,993 12,264
10/31/97 13,009 13,344
10/31/98 13,789 14,715
1These figures represent past performance. Past performance
is no guarantee of future results. The investment return
and principal value of an investment will fluctuate, so an
investor's shares, when redeemed, may be worth more or less
than their original cost.
<PAGE>
STATEMENT OF NET ASSETS THE ADVISORS' INNER CIRCLE FUND
October 31, 1998
Face Market
Amount Value
HGK FIXED INCOME FUND (000) (000)
- --------------------------------------------------------
[Pie Chart Omitted]
Plot points are as follows:
% of Total Fund Investments
U.S. Treasury Obligations 26%
U.S. Gov't. Mortgage-Backed Securities 3%
U.S. Gov't. Agency Obligations 22%
Corporate Obligations 45%
Asset Backed Securities 2%
CORPORATE OBLIGATIONS (45.1%)
AIR TRANSPORTATION (3.6%)
Continental Airlines
6.320%, 11/01/08 $100 $ 101
Federal Express, Ser 1996-A1
7.850%, 01/30/15 144 160
Northwest Airlines
7.068%, 07/02/17 280 280
------
541
------
AUTOMOTIVE (3.2%)
General Motors
7.400%, 09/01/25 450 483
------
BANKS (1.8%)
Banco Rio Plata
8.750%, 12/15/03 250 223
Peoples
7.200%, 12/01/06 50 50
------
273
------
BROADCASTING, NEWSPAPERS & ADVERTISING (9.3%)
Continental Cablevision
8.875%, 09/15/05 125 146
TCI Communications
7.875%, 02/15/26 325 373
Time Warner
9.125%, 01/15/13 325 414
Viacom
7.750%, 06/01/05 425 457
------
1,390
------
FINANCIAL SERVICES (8.3%)
Banesto Finance
7.500%, 03/25/07 575 576
IMC Home Equity Series 1998-A5
6.360%, 08/20/22 225 228
Lehman Brothers
7.200%, 08/15/09 100 96
Face Market
Amount Value
(000) (000)
- --------------------------------------------------------
Merrill Lynch
6.375%, 10/15/08 $200 $ 199
Paine Webber
6.650%, 04/13/10 150 145
------
1,244
------
FOOD, BEVERAGE & TOBACCO (3.3%)
Philip Morris
7.750%, 01/15/27 175 187
RJR Nabisco
8.750%, 07/15/07 275 300
------
487
------
INSURANCE (1.2%)
Delphi Funding LLC
9.310%, 03/25/27 150 173
------
MANUFACTURING (0.6%)
Owens Corning
7.500%, 08/01/18 100 94
------
MEDICAL PRODUCTS & SERVICES (3.1%)
Cardinal Health
6.250%, 07/15/08 450 460
------
PETROLEUM & FUEL PRODUCTS (1.6%)
Freeport-McMoran
7.200%, 11/15/26 425 236
------
PETROLEUM REFINING (1.6%)
YPF Sociedad Anonima
8.000%, 02/15/04 250 233
------
PRINTING & PUBLISHING (5.4%)
Harcourt Gen
7.300%, 08/01/97 175 158
News America Holdings
7.750%, 12/01/45 625 643
------
801
------
RETAIL (2.1%)
Federated Department Stores
7.000%, 02/15/28 325 320
------
TOTAL CORPORATE OBLIGATIONS
(Cost $6,794) 6,735
------
ASSET-BACKED SECURITIY (1.5%)
Equicredit, Ser 1997-B
6.415%, 03/15/12 225 227
------
TOTAL ASSET-BACKED SECURITY
(Cost $225) 227
------
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF NET ASSETS THE ADVISORS' INNER CIRCLE FUND
October 31, 1998
Face Market
Amount Value
HGK FIXED INCOME FUND (concluded) (000) (000)
- ---------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (21.7%)
Fannie Mae
5.500%, 02/12/99 $ 810 $ 811
Fannie Mae MTN
5.670%, 01/25/01 500 501
6.400%, 11/04/02 350 355
6.000%, 01/14/05 575 596
6.875%, 09/10/12 200 223
FHLMC
5.950%, 03/29/95 100 98
FHLB MTN (A)
5.708%, 11/30/99 700 664
------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $3,196) 3,248
------
U.S. GOVERNMENT MORTGAGE-BACKED BONDS (2.5%)
GNMA
7.000%, 12/15/23 159 163
GNMA
6.500%, 10/20/28 200 202
------
TOTAL U.S. GOVERNMENT MORTGAGE-
BACKED BONDS
(Cost $351) 365
------
U.S. TREASURY OBLIGATIONS (26.4%)
U.S. Treasury Bond
6.000%, 02/15/26 1,100 1,201
U.S. Treasury Notes
5.000%, 01/31/99 750 751
6.875%, 08/31/99 175 178
5.875%, 11/15/99 325 330
6.250%, 05/31/00 100 103
6.625%, 06/30/01 700 740
6.625%, 04/30/02 600 643
------
2,745
------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $3,835) 3,946
------
REPURCHASE AGREEMENT (2.2%)
Morgan Stanley
4.750%, dated 10/30/98,
matures 11/02/98, repurchase
price $328,684 (collateralized by
U.S. Treasury Bill, 01/07/99,
market value $336,834) 329 329
------
TOTAL REPURCHASE AGREEMENT
(Cost $329) 329
------
TOTAL INVESTMENTS (99.4%)
(Cost $14,738) 14,850
------
Market
Value
(000)
- --------------------------------------------------------
OTHER ASSETS AND LIABILITIES, NET (0.6%) $ 95
-------
NET ASSETS:
Portfolio Shares (unlimited
authorization -- no par
value) based on 1,422,252
outstanding shares of
beneficial interest 14,627
Accumulated net realized gain
on investments 206
Net unrealized appreciation
on investments 112
-------
TOTAL NET ASSETS (100.0%) $14,945
=======
Net Asset Value, Offering and Redemption
Price Per Share $10.51
=======
(A) THE RATE REPORTED ON THE STATEMENT OF NET ASSETS IS THE EFFECTIVE YIELD AS
OF OCTOBER 31, 1998
FHLB -- FEDERAL HOME LOAN BANK
FHLMC -- FEDERAL HOME LOAN MORTGAGE CORPORATION
GNMA -- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
MTN -- MEDIUM TERM NOTE
SER -- SERIES
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS THE ADVISORS' INNER CIRCLE FUND
HGK
FIXED INCOME
FUND
-----------
11/01/97
TO 10/31/98
(000)
- ---------------------------------------------------------------------------------------------------------------------------
Investment Income:
<S> <C>
Interest ................................................................................. $ 932
- ---------------------------------------------------------------------------------------------------------------------------
Total Investment Income................................................................. 932
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Investment Advisory Fees ................................................................. 70
Investment Advisory Fee Waiver ........................................................... (70)
Reimbursements by Advisor................................................................. (29)
Administrative Fees ...................................................................... 75
Custodian Fees ........................................................................... 5
Professional Fees ........................................................................ 23
Transfer Agent Fees ...................................................................... 33
Printing Fees ............................................................................ 15
Trustee Fees ............................................................................. 6
Registration Fees ........................................................................ 4
Insurance and Other Fees .................................................................. 1
Organizational Fees ....................................................................... 8
- ---------------------------------------------------------------------------------------------------------------------------
Total Expenses, Net ...................................................................... 141
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income ................................................................ 791
- ---------------------------------------------------------------------------------------------------------------------------
Net Realized Gain from Securities Sold ................................................... 207
Net Change in Unrealized Depreciation of Investment Securities ........................... (190)
- ---------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain on Investments ........................................ 17
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting From Operations ..................................... $ 808
===========================================================================================================================
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS THE ADVISORS' INNER CIRCLE FUND
HGK
FIXED INCOME
FUND
-------------------------
11/01/97 11/01/96
TO 10/31/98 TO 10/31/97
(000) (000)
- ---------------------------------------------------------------------------------------------------------------------------
Investment Activities:
<S> <C> <C>
Net Investment Income .......................................................... $ 791 $ 770
Net Realized Gain from Securities Sold ......................................... 207 69
Net Change in Unrealized Appreciation (Depreciation) of Investment Securities .. (190) 227
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations.......................... 808 1,066
- ---------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income .......................................................... (791) (770)
Realized Capital Gains ......................................................... (53) --
- ---------------------------------------------------------------------------------------------------------------------------
Total Distributions........................................................... (844) (770)
- ---------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Proceeds from Shares Issued .................................................... 2,598 2,041
Reinvestment of Cash Distributions ............................................. 770 764
Cost of Shares Redeemed ........................................................ (1,758) (2,245)
- ---------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets Derived from Capital Share Transactions ............... 1,610 560
- ---------------------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets ............................................... 1,574 856
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets:
Beginning of Period ............................................................ 13,371 12,515
- ---------------------------------------------------------------------------------------------------------------------------
End of Period .................................................................. $14,945 $13,371
- ---------------------------------------------------------------------------------------------------------------------------
Shares Issued and Redeemed:
Issued ......................................................................... 246 197
Issued in Lieu of Cash Distributions ........................................... 73 74
Redeemed ....................................................................... (167) (218)
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase in Share Transactions.............................................. 152 53
===========================================================================================================================
Amounts designated as "--" are either $0 or have been rounded to 0.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS THE ADVISORS' INNER CIRCLE FUND
For a Share Outstanding Throughout Each Period
For The Periods Ended October 31,
Ratio
Net Realized and Net Net of Net
Asset Unrealized Distributions Distributions Asset Assets Ratio Investment
Value Net Gains or from Net From Value End of Expenses Income
Beginning Investment (Losses) on Investment Capital End Total of Period to Average to Average
of Period Income Securities Income Gains of Period Return (000) Net Assets Net Assets
--------- ---------- ------------ ------------- ------------- --------- ------ ---------- ----------- ----------
- ----------------
HGK FIXED INCOME
- ----------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 $10.53 0.60 0.02 (0.60) (0.04) $10.51 6.00% $14,945 1.00% 5.62%
1997 $10.29 0.60 0.24 (0.60) -- $10.53 8.47% $13,371 1.00% 5.85%
1996 $10.88 0.61 (0.17) (0.61) (0.42) $10.29 4.29% $12,515 1.00% 5.92%
1995(1) $10.00 0.67 0.88 (0.67) -- $10.88 16.07%* $10,420 1.00%* 6.38%*
Ratio
Ratio of Net
of Expenses Investment
to Average Income to
Net Assets Average Net
(Excluding Assets (Excluding Portfolio
Waivers and Waivers and Turnover
Reimbursements) Reimbursements) Rate
--------------- ----------------- ----------
- ----------------
HGK FIXED INCOME
- ----------------
<S> <C> <C> <C>
1998 1.70% 4.92% 173.93%
1997 1.64% 5.21% 256.52%
1996 1.51% 5.41% 264.02%
1995(1) 2.37%* 5.01%* 300.48%
<FN>
Amounts designated as "--" are either $0 or have been rounded to $0.
* Annualized
(1) The HGK Fixed Income Fund commenced operations on November 3, 1994.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS THE ADVISORS' INNER CIRCLE FUND
October 31, 1998
1. ORGANIZATION:
THE ADVISORS' INNER CIRCLE FUND (the "Trust") is organized as a Massachusetts
business trust under an Amended and Restated Agreement and a Declaration of
Trust dated February 18, 1997. The Trust is registered under the Investment
Company Act of 1940, as amended, as a diversified open-end management investment
company with eight portfolios. The financial statements herein are those of the
HGK Fixed Income Fund (the "Fund"). The financial statements of the remaining
portfolios are presented separately. The assets of each portfolio are
segregated, and a shareholder's interest is limited to the portfolio in which
shares are held. The Fund's prospectus provides a description of the Fund's
investment objectives, policies and strategies.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of the significant accounting policies followed by
the Fund.
SECURITY VALUATION -- Investment securities of the Fund which are listed on
a securities exchange for which market quotations are available are valued at
the last quoted sales price for such securities on each business day, or, if
there is no such reported sales price on the valuation date, at the most
recently quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recently quoted price. Debt obligations
with sixty days or less remaining until maturity may be valued at their
amortized cost. Under this valuation method, purchase discounts and premiums are
accreted and amortized ratably to maturity and are included in interest income.
Securities for which quotations are not readily available are valued at fair
value using methods determined in good faith by the Board of Trustees.
FEDERAL INCOME TAXES -- It is the Fund's intention to qualify as a
regulated investment company by complying with the appropriate provisions of the
Internal Revenue Code of 1986, as amended. Accordingly, no provision for Federal
income taxes is required.
SECURITY TRANSACTIONS AND RELATED INCOME -- Security transactions are
accounted for on the date the security is purchased or sold (trade date).
Interest income is recognized on the accrual basis. Costs used in determining
realized gains and losses on the sales of investment securities are those of the
specific securities sold during the respective holding period. Purchase
discounts and premiums on securities held by the Fund are accreted and amortized
to maturity using the scientific interest method, which approximates the
effective interest method.
NET ASSET VALUE PER SHARE -- The net asset value per share of the Fund is
calculated on each business day by dividing the total value of assets, less
liabilities, by the number of shares outstanding.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase
agreements are held by the custodian bank until the respective agreements
mature. Provisions of the repurchase agreements and provisions adopted by the
Adviser ensure that the market value of the collateral, including accrued
interest thereon, is sufficient in the event of default by the counterparty. If
the counterparty defaults and the value of the collateral declines or if the
counterparty enters into an insolvency proceeding, realization of the collateral
by the Fund may be delayed or limited.
EXPENSES -- Expenses that are directly related to the Fund are charged to
the Fund. Other operating expenses of the Trust are prorated to the Fund on the
basis of relative daily net assets.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
are declared daily and paid to Shareholders monthly. Any net realized capital
gains are distributed to Shareholders at least annually.
Distributions from net investment income and net realized capital gains are
determined in accordance with the U.S. Federal income tax regulations, which may
differ from those amounts determined under generally accepted
<PAGE>
NOTES TO FINANCIAL STATEMENTS THE ADVISORS' INNER CIRCLE FUND
October 31, 1998
accounting principles. These book/tax differences are either temporary or
permanent in nature. To the extent these differences are permanent, they are
charged or credited to paid-in-capital in the period that the differences arise.
These reclassifications have no effect on net assets or net asset value.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
3. ORGANIZATION COSTS AND TRANSACTIONS WITH AFFILIATES:
Organizational costs have been capitalized by the Trust and are being amortized
on a straight line basis over a period of sixty months commencing with
operations. In the event any of the initial shares of the Trust are redeemed by
any holder thereof during the period that the Trust is amortizing its
organizational costs, the redemption proceeds payable to the holder thereof by
the Portfolio will be reduced by the unamortized organizational costs in the
same ratio as the number of initial shares being redeemed bears to the number of
initial shares outstanding at the time of redemption.
Certain officers of the Trust are also officers of SEI Investments Mutual Funds
Services (the "Administrator") and/or SEI Investments Distribution Co. (the
"Distributor"). Such officers are paid no fees by the Trust for serving as
officers of the Trust.
4. ADMINISTRATION, SHAREHOLDER SERVICING AND DISTRIBUTION AGREEMENTS:
The Trust and the Administrator are parties to an Administration Agreement dated
November 14, 1991, as amended and restated on May 17, 1994, under which the
Administrator provides management and administrative services for an annual fee
equal to the higher of $75,000 or .20% of the Fund's average daily net assets.
DST Systems Inc. (the "Transfer Agent") serves as the transfer agent and
dividend disbursing agent for the Fund under atransfer agency agreement with
the Trust.
The Trust and Distributor are parties to a Distribution Agreement dated November
14, 1991 as amended and restated on August 8, 1994. The Distributor receives no
fees for its distribution services under this agreement.
5. INVESTMENT ADVISORY AND CUSTODIAN AGREEMENTS:
The Fund and HGK Asset Management, Inc. (the "Adviser") are parties to an
Investment Advisory Agreement dated August 15, 1994 under which the Adviser
receives an annual fee equal to .50% of the Fund's average daily net assets. The
Adviser has voluntarily agreed to waive all or a portion of its fees and to
reimburse expenses in order to limit operating expenses to not more than 1.00%
of the average daily net assets of the Fund. Fee waivers and expense
reimbursements are voluntary and may be terminated at any time.
First Union National Bank acts as custodian (the "Custodian") for the Fund. The
Custodian plays no role in determining the investment policies of the Fund or
which securities are to be purchased or sold by the Fund.
<PAGE>
NOTES TO FINANCIAL STATEMENTS THE ADVISORS' INNER CIRCLE FUND
October 31, 1998
6. INVESTMENT TRANSACTIONS:
The cost of security purchases and the proceeds from security sales, other than
short-term investments, for the year ended October 31, 1998 are as follows:
HGK FIXED INCOME
FUND (000)
----------------
Purchases
Government ................. $ 5,076
Other ...................... 16,759
Sales
Government ................. $ 5,875
Other ...................... 16,000
At October 31, 1998, the total cost of securities and the net realized gains or
losses on securities sold for Federal income tax purposes were not materially
different from amounts reported for financial reporting purposes. The aggregate
gross unrealized appreciation and depreciation for securities held by the Fund
at October 31, 1998, are as follows:
HGK FIXED INCOME
FUND (000)
----------------
Aggregate gross unrealized
appreciation .............. $ 375
Aggregate gross unrealized
depreciation .............. (263)
-----
Net unrealized appreciation $ 112
=====
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
HGK Fixed Income Fund of
Advisors' Inner Circle Fund:
We have audited the accompanying statement of net assets of the HGK Fixed Income
Fund (the "Fund"), one of the funds constituting Advisors' Inner Circle Fund, as
of October 31, 1998, and the related statements of operations, changes in net
assets, and financial highlights for the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of October 31, 1998, by correspondence with the custodian
and the application of alternative auditing procedures with respect to unsettled
securities transactions. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
HGK Fixed Income Fund of Advisors' Inner Circle Fund as of October 31, 1998, and
the results of its operations, changes in its net assets, and financial
highlights for the periods presented, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
December 18, 1998
<PAGE>
NOTICE TO SHAREHOLDERS
OF
THE ADVISORS' INNER CIRCLE FUND
(UNAUDITED)
For the shareholders that do not have a October 31, 1998 taxable year end, this
notice is for informational purposes only. For shareholders with a October 31,
1998 taxable year end, please consult your tax adviser as to the pertinence of
this notice.
For the fiscal year ended October 31, 1998, the portfolio is designating long
term capital gains, qualifying dividends and exempt interest income with regard
to distributions paid during the year as follows:
(A) (B)
LONG TERM ORDINARY (C)
CAPITAL GAIN INCOME TOTAL
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS
PORTFOLIO (TAX BASIS) (TAX BASIS) (TAX BASIS)
--------- ------------ ------------ -------------
HGK Fixed Income Fund ... 0% 100% 100%
(D) (E) (F)
QUALIFYING TAX EXEMPT FOREIGN
PORTFOLIO DIVIDENDS (1) INTEREST TAX CREDIT
--------- ------------ ---------- -----------
HGK Fixed Income Fund ... 0% 0% 0%
- --------
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
* Items (A) and (B) are based on a percentage of the portfolio's total
distributions.
** Items (D) and (E) are based on a percentage of ordinary income distributions
of the portfolio.
<PAGE>
HGK-F-004-05000
